Dienstag, Oktober 27, 2009

Consider This...

One very, very good reason to be opposed to sweeping health care reforms, energy taxes (regardless of what they're euphemistically called) and other sundry ways the government is aiming at making sure you pay your own fair share of government largess is the fact that it comes at a very real cost.

Savings, after all, is what is left over after wages and other income, subtracting taxes, usage fees and consumption (in the widest sense: paying a mortgage, after all, means that your savings rate drops as you service the mortgage). Given the simple fact that wages have stagnated over the last several years, this means that additional costs (especially energy) will be met by a mixture of changed consumption patterns and a reduction in the amount of money you actually save.

Now, looking at the middle class, why do people save?

For two basic reasons: one, to accumulate money in order to avoid financing an acquisition; two, to have reserves when you need them.

The biggest reason to build up savings - besides avoiding financing costs - is to ensure that when you no longer work, you can continue your life style without too much shock to your finances (and life style!). When do you (usually) no longer work?


The financial advice that at least my generation has received was to diversify investments and to acquire real estate holdings to protect yourself against inflation. Good advice, basically.

The problem? Even diversified investments have taken a huge hit. Real estate holdings are indeed a great hedge against inflation, but given the fall in real estate prices (and little likelihood of them recovering in any meaningful way) and the moribund market, returns on investment there are disappointing at best and downright depressing in general.

Hence: at a time when so much capital has been wiped off the accounts (of course, a great deal is only paper losses, since folks haven't actually sold), it's a good idea to increase costs even further?

Talk about counterproductive: health care reform and energy taxes will cost you real money, regardless of what the proponents claim. They're largely being extremely dishonest when they claim that offsets will take care of this (talk to anyone who has been hit with heavy financing costs when you pay for an operation and the insurance company reimburses several months later...), as these offsets are largely imaginary and based on heroic assumptions (for instance, that your employer will give you, net, what they paid in insurance costs) that cannot be legislated without showing their hand in wanting to micromanage the economy.

Consider this, then: both health care reform and planned energy taxes will leave you with less money at the end of the month. You'll have a warm and fuzzy feeling that no one is left behind, that everyone has health care coverage (whether they want it or not) and that you're doing your part to save the planet.

But that's all you'll have. You won't have money to help pay for your retirement. You won't have money to consume the way you want to (especially because of energy costs increasing dramatically) and you will be increasingly dependent on what Social Security can pay you.

Given the demographics behind Social Security and given the costs coming down the road thanks to the Obama Administration and the Democratic Congress, enjoy your standard of living now.

Because it's not going to stay there.

Not for young folks who are hoping for at least as good as their parents; not for working-class stiffs; not for white-collar workers; not for even the moderately well-off. The real rich (defined as folks who don't need to work because their non-wage income, invested in US government benchmark bonds, is large enough for a rather nice standard of living) won't be affected, but then again, it's pretty much the definition of being rich, isn't it?

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