January 07, 2004

Getting Out of Bankruptcy on the Backs of Temporary Workers

The US has just found a solution to its looming entitlement crisis. The problem is simple, the promises made to the aged are scheduled to bankrupt this nation. The solutions are generally unpleasant. Raise the retirement age, cut benefits, and raise taxes are the dreary conventional solutions.

The free market right has proposed a fourth alternative of privatizing (partially or wholly) Social Security and Medicare through the use of private accounts. This shifts the programs to an actuarially sustainable model and takes the politics out of much of the problem. The major problem with this (other than Democrat intransigence over the idea with monkeying with their baby) is the transition costs. Transferring from the unsustainable current models to something sustainable is likely to cost a trillion and, until now, nobody has come up with a practical funding source that wouldn't wreck the legislation.

President Bush just came up with one. More precisely, he came up with at least 8 million.

The speech should be coming up today but here is a background briefing explaining some of the details. The key to the retirement situation will be in the various bilateral totalization agreements that have been and will be negotiated. It's quite likely that a good amount of financial slack will be generated due to tax payments that would not otherwise have been made and that many temporary workers will be entering into the system and paying taxes than would have otherwise made it across the border via coyote or snakehead.

Over at the anti-immigration National Review, Mark Krikorian has a useful, but not the way he intended it article on the subject. Krikorian misses when he claims that there is no economic need for temporary workers but he is dead on that it will shift labor trends away from automation and innovation and toward just throwing bodies at a problem. Only now that they are tax paying bodies, many of which will never get a green card, citizenship, or cast a US ballot, they provide the perfect population of politically powerless revenue sources to fund those huge transition costs involved in privatizing our pension mess.

In essence, the US is selling a service, the opportunity to work and earn money in a stable political environment under a just rule of law system. We are the world's low cost producer of this service by a significant margin as measured by worldwide labor migration flows. In a sense, we're a natural monopoly in this service. And like any natural monopoly we have the ability to raise prices to just under the cheapest potential substitute good provider of this service. This monopoly profit can, and should be used to get us out of our looming financial crisis over entitlement spending.

Posted by TMLutas at January 7, 2004 12:01 PM