Flat-Out Broke and Living on Borrowed Time
“The flaneur is not a prisoner of a plan.” — Nassim Taleb, from Antifragile
Well, after an unexpectedly prolonged stay in Brazil, your editor is once again ensconced in the familiar settings of our part-time home city, Buenos Aries.
Today we write to you from Café Birkin, a chic little beanery in the hip Palermo barrio.
The crowd here is young-ish. Trendy. Good looking. Their style is impeccable. Their taste…questionable.
Your editor has taken a table at the rear of the café, hoping nobody will realize he’s in the wrong place…
Mind you, this wasn’t always the scene in which to be seen…unless you were a pimp or a drug pusher. Then, it was your central business district. Your “hood.”
As recently as the turn of the century—during Argentina‘s last currency crisis—the neighborhood was a popular hangout for all kinds of lunatics and ne’er-do-wells. Today, it’s filled with boutique clothing stores and hipster parents pushing designer baby strollers.
It’s different, certainly. But an improvement? We don’t presume to know.
Like all places, Argentina has its good points and its bad.
On the one hand, the political system here is so entirely corrupt it barely functions at all. Politicians enjoy the kind of popularity usually afforded to smokers at a gymnasium. And voter apathy is so pervasive the government had to ban drinking on election days just to get people to show up at the polls.
On the other hand, there are some not-so-good things, too. More on those below…
But first, we take notice of another malfunctioning “system.” This time, back in the U.S. of A.
Last year, and for only the third time in four decades, the Social Security Administration announced there was to be no cost of living adjustment (COLA) to beneficiaries’ checks for 2016.
Payments will remain flat, in other words…despite the fact that the cost of food, shelter and medical care were all up, up and UP!
These increases, the administration contends, are offset by a temporary decline in energy prices.
“And if the price of gas should eventually rocket higher?” we hear you wonder aloud.
“Well,” the Admin rejoins. “That’s a problem for another day…”
The only other two times retirees were told “no raise” during the past 40 years was…in 2010 and 2011.
Basically, the government sees no need to increase payments as, according to its own calculations, inflation is more or less non-existent.
But how non-existent is non-existent, really? Are we talking Santa Claus non-existent? Or homosexuality in the military non-existent?
Herewith, we subject the numbers to a little “do ask, do tell.”
According to the Senior Citizens League, recipients have lost nearly a quarter of their purchasing power over the last 15 years. Most of that slide is due to the rising cost of housing and ballooning medical expenses.
“Since 2000,” says an article in the New American, “housing costs for seniors have increased by 44 percent, heating oil by 159 percent, eggs by 117 percent, and gasoline by 76 percent. Since then, however, Social Security’s COLAs have averaged just 2.2 percent per year.”
So, what’s with the paltry payouts?
More than a few commentators have warned that, not only is the Social Security system merely in financial distress…it’s flat-out broke and living on borrowed time.
Boston University economics professor, Laurence Kotlikoff, combed through the numbers…and found over 25 trillion of them missing:
The $25.8 trillion fiscal gap . . . takes into account all future benefit outlays [promises] and all future taxes [extractions]. . . .
What does Social Security’s $25.8 trillion fiscal gap, which is far larger than our economy’s $18 trillion annual GDP, mean, exactly? It means that . . . [to be solvent] it requires a 32 percent immediate and permanent hike in Social Security’s 12.4 percent FICA tax.
Why is a “fiscal gap” in the Social Security system worrying?
On average, older Americans derive about one third (34%) of their total income from Social Security. Another third (33%) comes from earnings, roughly a fifth (22%) from pensions and the remainder from personal assets (money in IRAs, 401(k) plans, taxable accounts, etc.)
For many folks trying to make ends meet, therefore, no COLA is rather a big deal. And this during an era when the Federal Reserve has pinned rates to the floor, effectively robbing savers of the natural rate of interest they would otherwise have earned on their deposits.
No COLA… No interest… No, hope?
As unthinkable as it sounds, could it be that, in the United States of America, in the year 2016, the system is beginning to fail its citizens?
Down here on the Pampas, systems are expected to collapse. It’s what they do. Whether the system in question involves politics, power or plumbing (but we repeat ourselves), failure seems inevitable.
Recently, a power blackout in the nation’s capital swept through an entire barrio—Recoleta. The area is wealthy and prestigious, so naturally the story made the papers. (The poor don’t suffer quite the same problem…having, as they do, no power to lose in the first place.)
“I was chatting with an engineer the other night,” a friend told us, relaying some information regarding the event.
“The fellow has lived here his whole life and actually knows about this sort of thing. As you know, it happens all the time.
“Anyway, he reckons it’s all got to do with maps. The municipal government has such poor subterranean maps of the city, nobody knows what’s going where…
“Water pipes, for example, are supposed to be at such and such a depth…only, they’re to be found everywhere but. Same for telecommunication cables, power lines, gas pipes and the like. He said it’s a total mess underground. Nobody knows what’s going on…
“So, when there’s roadwork to be done, for example, or someone wants to dig the foundation for a new building, they do the ‘right thing’ and head on down to the city council…
“There, they file the requisite paperwork and request permission to begin construction. And if they’re lucky—i.e. they know the right people in the right places—they eventually get the go ahead. That is, the council gives them permission to dig and tells them when and where they may do so.
“And so, with permit in hand, workers consult the maps…they study exactly where and where not to dig. Finally, they steady their equipment, lower it into the ground and…
“They hit a water main or a gas pipe or cut electricity to the whole city.”
Behold! The system in action!
More on the fragility of systems…and why you might choose to “opt out” of them, next time.
Featured Image ©iStock.com/MagMos
The South is the Best Place for a Frozen COLA
Uncle Sam may have put the COLA on ice (for the third time this decade, so far) but that doesn’t mean you have to watch the good life slip away from you. There are still places in the U.S. where your dollar is worth a dollar and you won’t have to remortgage your house for a bag of curly kale.
According to the 2015 Cost of Living Index, published by the Missouri Economic Research and Information Center, the areas with the lowest cost of living are the Southern and Midwest States—while the most expensive areas to live are Hawaii, the District of Columbia, Alaska, the West Coast and the North East.—Ed
Top 10 States for Low Cost of Living: