Nerenz: Welcome to Later

By Dr. Tim Nerenz

Special Guest Perspective for the MacIver Institute

Note, this column originally appeared at Dr. Tim Nerenz’ Moment of Clarity website.


Welcome To Later

Dumb is when you can’t ever know, and ignorant is when you don’t know yet. Now that the critical underfunding of our public pension systems has finally come to light, we are about to discover if our nation’s socialists are dumb or just ignorant.

A recent Pew Foundation study has confirmed what many of us have been saying for quite some time now. Wisconsin has one of the best systems in the country, but its claim of 100% funding relies on the assumption of 7% returns on its investments month after month from now until the rapture.

The obvious problem with that assumption is that the best investment return available from any guaranteed government security these days is only about 3%.

You can thank Fed Chairman Ben Bernanke and his predecessor Allan Greenspan and the leaders of both establishment parties for that. They have set interest rates to near zero and inflated the currency in order to finance the budget deficits of government.

Back when interest rates were market-driven, you could get 6-7% guaranteed returns on your savings and pensions could indeed be guaranteed. But in recent years, government policy has overruled the market, rewarding debt and punishing savings in the process. We have spent the past two decades living beyond our means; encouraged to live on credit, to buy now and pay later.

Welcome to later.

You can blame it on wars, welfare, Democrats, Republicans, banksters, Congress, Bush, the other Bush, Obama, or the first Black President and you would be right. You can also blame your parents and teachers for failing to explain the perils of debt, both public and personal. And you can blame yourself; we all should have gotten involved sooner to stop this train wreck we have been warned about since 1964.

But we are where we are. In the short term, there are three ways to close the funding gap and avoid cutting pensions: a) force current employees to contribute more (fat chance), b) force the taxpayer to pay more (fatter chance), or c) invest in stocks and allow corporations to increase profits and generate higher returns.

You may think “allow” is an odd word choice, but obviously I don’t. Ultimately, a corporate stock’s price and dividend are based upon its profitability, and profit is the amount of money left over after all expenses are paid. When expenses are increased, profit is decreased, and vice versa.

Taxes are an expense, energy cost is an expense, fees and permits are expenses, health care benefits are an expense, every mandate is an expense, compliance with regulations is an expense, reporting to the government is an expense, fighting frivolous lawsuits is an expense, union work rules add expense.

All those things add cost and reduce profits in a business, and they have something important in common – they are imposed by government. And not because the libertarian lobby demanded action in these areas, either.

Our American socialists have fought long and hard to increase taxes on corporations and business owners, raise the minimum wage, ration energy and spike its cost, slather on mandates and permits without end, heap regulation on top of regulation, increase the amount of required reporting, and rig the rules for tort and union organizing against businesses big and small.

Given the state of their own pension funds, they may want to rethink these positions.

If government securities will return only 3%, then corporate investments must return 10, 12 or even 15% to bring the average returns up to the 7% needed to pay out their pension liabilities. The YTD return on the S&P 500 is only 7.6%, so corporate profits must roughly double in order to rescue the public pension systems.

Let this sink in for just a moment, govbots…your public pension is now dependent on corporate profits doubling and then increasing at 3-5 times the rate of inflation. If you want to take that cruise or keep your Badger tickets or buy that new hybrid, you have to root for Team Greed.

You are now the evil capitalist you have been shaking your fist at since the days before it had liver spots on it. You are the third Koch Brother. And now that it is your own income at risk, will you still advocate for policies that reduce corporate profit? Or will you allow corporations and their shareholders – which would now include you – to keep more of what they earn?

It is indeed a quandary, and I really do feel for those who are now dependent on something they have spent their lives opposing. No one should be forced to accept tainted money – i.e. the shares of filthy corporate profits stolen from working families at the expense of the environment.

So I propose a conscientious objector provision that allows any public pensioner to opt for a pension payout funded solely by the 3% interest paid on guaranteed government securities. Naturally, that ideologically pure pension will be only 3/7 of the one you were expecting. Suddenly, corporate profiteering doesn’t look so bad, eh comrade?

The plain truth of the matter is that unbridled capitalism is the only economic system capable of creating wealth at the rate that is necessary to lift the developing world out of poverty while at the same time funding the lengthy retirements of workers in the developed world, including our public pensioners.

That is why we libertarians defend free enterprise without reservation. Liberating the American economy from its tax, regulatory, and governance burdens will benefit billionaires, it’s true; but it will benefit pensioners more.


“Moment Of Clarity” is a weekly commentary by Libertarian writer and speaker Tim Nerenz, Ph.D. Visit Tim’s website www.timnerenz.com to find your moment.