Monday, May 09, 2016

We Need a Complete System Overhaul: 5 Charts That Blow Up the Status Quo

The promises made when there were 7 workers for every retiree cannot be kept when there are only 2 workers for every retiree.
In an auto-mechanic analogy, the Powers That be are assuring us those grinding noises under the hood and the black smoke chugging out of the tailpipe are no big deal and can be fixed with a minor tuneup. They're wrong; we need a total overhaul to avoid a total system breakdown.
The grinding noises and black smoke are telling us the engine of our economy is on its last legs. The Powers That Be (Federal Reserve, government at all levels, mainstream corporate media, etc.) have been masking the need for an overhaul with trickery for the past seven years, the financial equivalent of using heavy oil and spray-painting the battery to make it look new.
With the tranny and top end about to blow, the Status Quo keeps claiming everything's running great and the new set of spark plugs and minor valve adjustment (i.e. zero-interest rate policy and more banking regulations) have restored the economy to top performance.
It's all lies, fantasy and propaganda. Nothing has been fixed. Automation has just started devouring human labor/jobs, corporate profits have peaked, the trick of pushing the stock market higher by borrowing money to buy back shares is finally falling apart, the trends of wealth and income inequality are roaring ahead full steam, and our entire system of taxation, entitlements and debt is about to blow up.
As I explain in my new books A Radically Beneficial World and Why Our Status Quo Failed and Is Beyond Reform, the big structural trends will destroy the status quo: automation/loss of jobs leads to lower profits and wages which means lower tax revenues while costs of an outsized generation retiring will soar for the next 30 years.
The promises made when there were 7 workers for every retiree cannot be kept when there are only 2 workers for every retiree. As automation commoditizes labor, goods and services, the ratio of full-time workers to retirees will continue to slip: it's already under two-to-one, as there are 123 million full-time jobs and 65.48 million Social Security beneficiaries.
Please glance at the following charts. The point here isn't to play doom-and-gloom; it's to accept the reality that the current set of promises and power arrangements is going to blow up and we'll need a complete overhaul of our system.
Chart 1: Medicare costs will continue skyrocketing for decades:
Chart 2: all three major entitlement programs--Medicare, Medicaid and Social Security--are expanding rapidly while tax revenues are stagnating (and could plummet in a systemic recession). (For context, the entire defense budget is around $700 billion.)
Chart 3: the inevitable consequence is soaring entitlement deficits for decades:
Chart 4: we are at the base of a steep mountain of government spending:
Chart 5: funding this mountain will require a doubling of federal taxes:
Toss in the crushing burden of skyrocketing debts and the rise of inflation (already running 20% hotter than official statistics) and the meltdown of the status quo is only a matter of time. Anyone who thinks taxes can double and the consumer-based economy will be just fine is delusional.
We need a complete system overhaul, and the sooner we face up to this sobering reality, the sooner we can start working on real solutions.
My new book is #3 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book's website.

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