Social Security - the Greatest Scam Ever Sold

Today we have a guest blogger, a friend of mine who wishes to remain anonymous. Here are his thoughts on Social Security:

The myth of the Social Security Trust Fund is one of the most pernicious bald-faced lies in political and financial history.

The "Payroll Tax" has been spent in real time as normal revenue for generations, creating a debt--not an asset that can be drawn upon--that will not be paid or will be partially paid by taxing future generations.  I have known this for 25 years, but very few people believed me when I tried to explain it.  They trusted the lies about a Trust Fund that the government and the mainstream press were telling them, and they couldn't believe that I could be right when Al Gore said it was all true in a national campaign on national television.

Any attempt by financially responsible individuals, whether Republican or Democrat, to try to rectify the situation over the decades has been demagogued by the Democrats, who fraudulently scare old people by claiming that the reformers are trying to steal their money paid in over the years.  In reality, their money had long since been stolen by a free-spending Congress.  What the Dems didn't want was a cut in their own tax revenues, which are used to purchase re-election.  

Yes, there have been Republican leaders complicit in this scheme over time, and Republican legislators have helped spend the money.  But the attempts to reform have generally come from conservative Republicans and the absolutely dishonest scare-tactic propaganda has always come from the left.  

It is inconceivable to me that only journalists from the Wall Street Journal editorial page, Forbes, and The National Review were able to stumble upon this truth over the last 30 years.  All the investigative journalists at the NY Times, The Washington Post, The Boston Globe, etc. have chosen to ignore or soft pedal this very important and verifiable fact.  Draw your own conclusions as to whether they are stupid and incompetent or committed to liberal orthodoxy.

It is not hyperbole to say that the myth of the Social Security Trust Fund makes Bernie Madoff look like a lousy three-card monte dealer on a  street corner in Des Moines, Iowa.

Make sure you save your own money for retirement.  Link to a good article about this below, which is what got me on my high horse this morning.

http://blogs.forbes.com/merrillmatthews/2011/07/13/what-happened-to-the-2-6-trillion-social-security-trust-fund/

The Latest Prediction Market Odds

Those of you who have followed the Naked Dollar know we like prediction markets, which can be found at Intrade. These are continuously trading contracts where speculators make markets on the odds of certain binary future outcomes, e.g. the U.S. gets hit by a Cat 5 hurricane this year or not. If the contract trades at, say, 42, it means the "market" thinks there is a 42% probability of the event occuring.

Prediction markets are interesting because they give a "best available" probability on all sorts of events. They are particularly interesting for politics; since they involve actual money, they tend to be more accurate than polls.

Here are some current probablities and whether I am (hypotheitically) long or short:

Obama re-elected                                  57%   (short)

Romney nominated                                34%   (long)
Bachmann nominated                            16%    (neutral)
Huntsman nominated                              9%    (big time short)
Perry nominated                                    17%    (long)
Pawlenty nominated                                8%    (short)
Cain nominated                                       2%    (long)

Euro dropped by any nation by 2013       25%   (long)

Note that the event doesn't have to actually happen to make money since the market is continuous. For instance, if the probability of Cain's nomination rises from 2% to 4%, one doubles their money (assuming the trade is unwound at that time).

Why Republicans Don't Need to Nominate a Moderate to Win

Independents. That vaunted group that the politicos obsess over. Those discerning people who carefully weigh the issues and the candidates before descending from the mountain top to let know the "answer."

As readers of The Naked Dollar know, we think that's a total pant load. Most independents are such because they don't follow matters very closely and they never, ever want to be in a position where they have to defend their view on anything. If you are a Republican or Democrat, someone at a dinner party might say, "How can you defend tax cuts for the rich?" or "Do you really think the U.S. should cede authority to supra-national organizations?"

Rut-roh. Suddenly you have to defend positions you don't really have your arms around. Can't we talk about the Casey Anthony trial? Better to be bland, so know one exposes the fact you haven't read a paper in...how long has it been?

I wrote about this more expansively in this piece:

Elections and the Gravity of the Cocktail Party Middle

It is received wisdom that to win back the White House, Republicans must nominate someone who will appeal to "the middle," i.e. independents. Never mind that Reagan won by large margins twice. Never mind that Ford, Dole, Bush the Elder, and McCain - all moderates - all lost.

Bush the Elder won the first time running as a conservative, the heir to Reagan's mantle. When it turned out he was center-left, he lost.

Bush the Younger won twice running as a conservative (albeit a more marginal one than Reagan).

40% of Americans consistently identify themselves as conservatives versus 20% for liberals. It should be no surprise that conservatives win.

But back to the role of independents. About forty percent of the electorate does not affiliate with a party. Surely, this is the battleground, no?

No. An excellent new piece by Alan Abramowitz (here) explodes this myth. It turns out the vast majority of independents are closet partisans. In fact, according to the National American Election Study, in 2008 fully 87% voted for the party towards which they were clear leaners based on their views on various issues. This means that only 13% of independents were truly up for grabs.

Also, independents don't vote as often as party-affiliated voters. In 2008, despite being 40% of the electorate, they represented only 33% of the people who actually showed up on election day. This is consistent with The Naked Dollar's view that independents are the least engaged slice of the electorate. Some group to fight over!

(Note: as always, there are exceptions to rules. There are intelligent, engaged independents out there. If you are one of them, don't take it out on this blog. But you are not legion.)

Abramowitz also points out that presidential elections don't always go the way of independents, either. In fact, if you examine the last three elections that were decided by less than 5 points, none of the winners were supported by a majority of independents. Gerald Ford, George Bush (2000), and John Kerry all carried independents and all lost the popular vote.

So, what's the key to winning a presidential election if it's not winning over independents? Simple, you have to energize your base. In 2008, Barack Obama was highly successful at this while Republicans were dispirited and exhausted. In 2004, Bush was successful in turning out the base, especially in key states like Ohio. Over and over, it's the party with the more motivated base that wins. The important thing to remember is that only about half of eligible voters actually vote in presidential elections. You want to make sure it's your half.

So what does this mean for Republicans? It means they don't have to nominate a moderate (i.e. Romney). In fact, they shouldn't, if they want to win. While it's possible that white hot anger over the rampant radicalism and general ineptitude of the Obama administration will be enough to turn out Republicans on election day, it's not a given. The GOP should nominate someone who excites the base. That means that Michelle Bachmann should be taken seriously and Rick Perry should think about throwing his hat in. And it also means Herman Cain can't be written off as a novelty candidate. No one has excited the base as much as Cain thus far.

While the evidence on this is incontrovertible, it does not mean the GOP will embrace it. The Naked Dollar puts this down to timidity; simply, Republicans are frequently afraid to nominate someone they think will get mocked and belittled by the liberal elites in editorial rooms (read: Bachmann).

They should get over it, because the Republican nominee will get crushed by the media irrespective of his or her moderate credentials. Just ask John McCain, the media's best friend, right up until the day he got nominated. The same will be true for Mitt.