November 25, 2012

Our National Problem in Micro

If you are interested in the future-story of our country, check out this item about the slow-motion suicide of San Bernardino. I think the particulars embedded in San Bernardino's woeful tale of self-interested groups; an apathetic, detached public; and a local media that seems entirely absent from the mounting crisis stand as warning signs re scarily similar situations at local, state and national levels. 

As observed by the authors: "[The] city's decades-long journey from prosperous, middle-class community to bankrupt, crime-ridden, foreclosure-blighted basket case is straightforward — and alarmingly similar to the path traveled by many municipalities around America's largest state. San Bernardino succumbed to a vicious circle of self-interests among city workers, local politicians and state pension overseers...No single deal or decision involving benefits and wages over the years killed the city. But cumulatively, they built a pension-fueled financial time-bomb that finally exploded."

Our country is currently saddled with a mind-numbing level of 'unfunded liabilities' - that is, promises that have been made to various groups (in the form of pensions, subsidies, benefits, etc.) that exceed plausible revenues and numerous (and growing) mandates, usually from Federal to State and local governments, that require certain expenditures but make no provision for how they will be paid. Estimates of these liabilities range from $100 trillion to three times that depending on what one includes, the long-term time horizon used, and assumptions made about future economic (and therefor tax revenue) conditions. 

The truth that should guide such decisions is this: don't make promises you can't keep. Sadly, we seem to ignore this with regularity.

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