Sunday, May 15, 2005

Globalization Rant I

I have some things to say about Globalization. My thoughts need organizing so I’ll try to break this into parts. The match for this particular fuse was struck this morning as I listened to the distressing tale of the United Airlines pension default. Now, I am a True Believer in the power of Capitalism, and I believe Globalization is a good thing, but I don’t believe it will be an easy road. The domino collapse of the American pension system, in particular, is one of the downsides. It is a story of past crimes, future hopes and an economic tsunami just about to break on our shores. The rant begins here:

Past Crimes

The Social Security system and the corporate pension system were in large part political enticements to prevent revolution and keep people working. We all know now with regard to Social Security what the accountants have been trying to tell us for years. The system is underfunded. It’s basically a big government bond issue. In fact, there is no way to reserve the money necessary without running a huge budget surplus. And politicians are congenitally incapable of keeping their hands off surplus money. The Present always seems like an emergency that requires us to call out all our resources. (In that regard I have been pleased with President Bush for keeping his hands off the Strategic Oil Reserve.)

The Keynesian idea of running a surplus in good years has never been tried. It is always sandbagged by the fact that we can never recognize a good year when we’re in it. The Social Security system, as a consequence, will be funded in the future only at the expense of general economic slowdown, so it will probably be gradually jettisoned. I must believe that there were high officials who understood this, who knew what we were doing at the time, but avoided the necessary choices for selfish reasons. They thought they could get away with it because they were, perhaps, incapable of envisioning the remarkable extent of our success. For that’s what this is, at base, a side-effect of the success of the American economy. Too many people living too well too long.

The unraveling of the pension system has been, however, more predictable and more reprehensible. There is real wickedness here. The underfunding has been ignored, condoned and wished away by government officials, corporate officers and union officials alike for decades, at least. Everybody wants to look good today and let tomorrow take care of itself. Empty promises help hold salaries down and cost the promisers nothing. Small companies have been stiffing their employees for years this way.

My mother-in-law worked for a small company that was acquired by another company just as she was about to retire. She had been working there for many years and had accumulated a pension, probably a nice amount for her limited needs. The new company required her to change her commute, and I’m sure gave her a tough time in general, hoping she would quit. When she didn’t, they laid her off a couple weeks before she was due to retire and never paid a penny. There was no severance package. She wasn’t the type to sue and never complained, but I’m sure they had another clever little plan to defraud her if she did take action. In all likelihood, the money had never been set aside either. I suppose it’s also possible that this company specialized in fraudulent acquisitions, fully intending to drain the pension funds, just as Allegheny Health Care did with the old institutional grants and endowment money.

(If you keep listening you may hear me say more than once that the worst crimes are financial crimes. The mismanagment and misappropriation of funds causes, when you look at all the outcomes, more suffering and even death than the most hard-working retail criminal can accomplish.)

Actually, those hard-noses executives who have been denying younger people access to pension plans in recent decades, have been doing them a favor. The kids know the score at least. They know that they will have to fund their own retirements. Younger workers have been using the 401K and real estate investments, knowing that they couldn’t count on Social Security (tut,tut say the old liberals) and relying on the long-term history of the market as a better bet.

I’m going to make a prediction here. The money that the younger folks are counting on will not be there either. When ripe fruit is hanging on the tree, you can’t build a fence high enough to keep out the thieves. Why is that? I feel the weight of all that 401K money and wonder. Anyone can tell you that squirrels are smarter than farmers. Most of the smart guys seem to be on the wrong side in this game. (Where is SuperMan when you need him? In this case his true name is Diversification.)

I’ve noticed one effect already. The value of the dollar has been consciously deflated [The dollar has been consciously devalued ...--Ed.]

by the President’s policies. This would basically drain a big chunk out of the pockets of anybody with assets in America (including Americans). It would make more jobs available, make the President look good for the short term, and reduce the national debt. I say "would" because Asian nations, in particular the PRC, have hitched their currency to ours and we don’t seem to be able to shake them loose no matter how much the exchange rate drops. These are, of course, the people we owe the money to.

Another impact that will start occurring soon will be the burst of the real estate bubble.

OK. What do I know about Economics? No more than I read in the funny papers. Maybe somebody can tell me why I’m wrong and make me feel better.

5/15/2005 11:12 PM

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