Two Dilemmas: Outsourcing and Social Security

The other day I was on the phone with my friend Shannon and we got into a pretty heated discussion about a few issues regarding the current state of the economy and the harm it is bringing to the middle class.  At this point in time, there is no doubt whatsoever that, if this is a recovery, it is jobless.  Just last Thursday, the weekly initial claims for unemployment went up over 450,000 again.  Most economists agree that jobs are being created when that number is about 300,000.  We are not anywhere near that number yet.

Unemployment currently stands at 9.6% nationwide with a number of states well over 10%.  In fact, Nevada now has the dubious distinction of leading the nation at 14.4%.  Go Michigan!  You are no longer the worst.  Of course, Nevada is where I and some partners have purchased investment property.  Needless to say, the property is upside down and my partners and I are not in a position to give it back to the bank.  This partly explains why Harry Reid is in the fight of his political life.

So, we have a “jobless” recovery.  No arguments there.  However, the real debate with Shannon started when she made the comment that businesses that ship jobs overseas should be penalized by the Federal Government.  She seemed to indicate something akin to a tariff was in order.  I immediately explained to her it is not that easy a thing to do and I used the motion picture industry as my argument.  (Fortunately or unfortunately, it is what I know the most about).

Over the past ten years, I have produced more than ten films.  Of that amount, only three have been shot in the United States.  And, none of those have been shot in Los Angeles.  The economic three as I call them were shot in Spokane, Washington, Miami, Florida and Shreveport, Louisiana (“Mad Money”).  Other than that,  I have had the pleasure of working in Romania, Brazil, Thailand and India. 

Release Poster - 2008

On none of these occasions was my first choice to shoot outside of the United States.  I would love to shoot here all other things being equal.  However, the cost of shooting here and the small margins in the independent film industry make it virtually impossible.  You cannot make a movie for more than you expect the revenues to be.  If you do, your investors will lose money and you will be seeking gainful employment elsewhere.  At my age, approaching 50, other employment will not be easy to find.

It is the same in many businesses.  I have a relative who recently lost his job of more than 25 years in the die casting industry.  (Don’t ask me what it is, I don’t have a clue).  When I asked him what happened.  It was real simple.  You cannot make the product in America for less than it can be made for overseas.

So, to put it simply, and for a strong patriot like me this is difficult,  we cannot compete either in the film industry or in many others.  Manufacturing costs in the United States are just too high.  Maybe it is because of organized labor.  Maybe there are other reasons.  But, that is the point of other columns completely.

Is the answer as Shannon suggested that we should penalize companies who go overseas?  That will not solve the problem.  It will just cause the penalized companies to go bankrupt.  Remember, you cannot make a product for more than you can sell it.  And, these companies still do employ people in this country, just not in manufacturing sectors.  So, do we lose all of the jobs still here or accept that manufacturing is leaving and not coming back.  As I told Shannon, the answer is not simple whether you are on the left or the right.

We then started debating Social Security.  Shannon stated that many of the Tea Party Patriots advocated abolishing it.  She simply could not fathom the idea.  She felt the Tea Party was way out of line.  I again told her.  The answer just isn’t that easy.  Yes, we have all paid into Social Security.  Yes, we are all expecting it to be there for us when we retire.  Yes, our parents need it or we may have to support them in their golden years without it.  But, what is the answer?  How do you save the biggest Ponzi Scheme in the history of mankind?

Social Security is now approximately 75 years old.  According to the September 24, 2010 edition of The Tidings:

The Social Security Administration says that about one-third of recipients depend on it for more than 90 percent of their income, while another third rely on the program for more than half of their money.  The agency estimates that about 13 million would fall below the poverty line without Social Security.”

However, for the first time in its history in 2009, Social Security revenues were outstripped by payouts.  And, projections into the future just have it getting worse.  It is broken.  And, by 2041, it will be broke unless some drastic measures are put into place such as cutting benefits or raising the Social Security tax even further. 

The current employee pays a maximum of about $6,500 per year into it.  The self-employed pay a maximum of $13,000 per year.  Is it even feasible to raise these numbers more?  You can eliminate the cap, but then you would be giving high income earners a 6.5 to 13% raise in their income taxes.  That is not pennies my friend.  Further, if you do that, you may kill jobs by the hundreds of thousands, because employers pay the other 6.5% that the self-employed pay themselves.

So, there is no easy solution here.  Eliminating it is not that answer.  And, privatizing it is not the answer.  How can I say this simply?  Does anyone on the right or the left have an answer?  My own party believes that the correct way is to privatize it.  However, just imagine you were a senior living on your privatized retirement plan when the Dow went down to 6,500 a few years back.  What would you have done?  Maybe commit suicide?

Unfortunately, I do not have the answers for these two issues.  I would like to open a discussion and see what other people have in mind.  Thoughts?

© 2010 by Frank DeMartini.  Permission to copy will be freely granted upon request.

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8 Responses to "Two Dilemmas: Outsourcing and Social Security"

  1. I have often said the major problem is that “We don’t make anything here any more”. I have used the scenario of “Best Buy” and other chain stores on numerous occasions. But here goes again. These figures were pretty accurate a short time ago but even if they have fluctuated you will still my drift.
    This is how not making anything of your own hurts your country…
    A large store like Best Buy gets their Plasma TVs from China. They buy say a 50″ from China for like $1100.00 American. They put out a floor model and sell that television in the box for $1495.00. In the eyes of the typical “I want to buy that Hummer with the 22″ wheels” American we just made $395.00 off those dummies. When in reality they made the set for less than $200 American (probably way less) and sold it to us for $1100 and made $900. This money was in America but now is on its way to China. The $395 we are boasting about was already here and was at best redistributed from the consumer to the retailer. The USA gained nothing and lost $900 to China. But the greed of making that $395 for just sliding a box in the back of an SUV is just too tempting and the way we dug our selves into a hole.
    This is true for most everything…we make a little of what was already here and send much large portion of the sale to the Country that made it. Soon there is no money left in America…it’s simple math and a lot of sweat.

  2. Frankly, Frank, I’m somewhat stunned that you’re seeing more than one side to this issue. Whatever happened to the old “take it or leave it” Frank. I agree, this one ain’t easily resolved.

    Although this issue generally is visited in only the financial aspect, it goes much deeper than that. Sometime after retirees take S.S. they’ll enter some form of end of life (and its costs) situation.

    I think it would behoove us to look at how other civilizations, societies, have dealt with this not-so-new issue. We’ve both spent time in India, and, although I certainly didn’t take a survey, I noticed that many families made room for their aging parents in their homes, introducing them as the spiritual guide of the family… something like that.

    I’ve spent time in rural Italy too, and found something of a parallel family practice, that being, they build bedrooms, or living quarters for more than one generation into the family home. So, almost at any point in time there’s more than one generation living in the same domicile. Granted, they tend to live in the same village, same home, for more than the U.S. average of 4 years, even more than a generation.

    Both cultures tend (until more recently) to avoid the marital musical chairs that we Americans are so accustomed to – and I have first hand knowledge: 3 marriages (12+ yrs, 9+ yrs, and now the “keeper” is at 29 years and counting), 6 children + one adoption. We see immigrant families bringing these old world practices to our culture when both parents work and still have 2 or 3 kids. They bring their parents into their homes as grandparents, not just a babysitter or daycare babysitter. The grandparents in turn pass on to the grandchildren whatever that family values, be it a good business sense, moral values, whatever, they tend to take care of their own.

    So maybe we should take another look at what’s come to be known as our family values. I don’t wish the burden of being my caretaker (in my declining years), on any of my children, but would obviously prefer to be in a family setting, near family.

    I invite other readers to share the pros and cons of any other culture they may be familiar with, even from the post communist bloc.

    Thanks, Frank, for opening the discussion.

  3. As long as we the consumers keep demanding lower and lower prices on our goods than manufacturing will be going elsewhere. Unions and high rents prevent manufacturers here in the US from competing against those in India, China and anywhere else there is cheap labor. Like everything else on this planet your either adapt or become extinct

  4. I agree Christopher, the role of the grandparents or extended family members in other cultures is far different than in ours. As to family values, we’ve become such a splintered society our family members are everywhere but close to one another. Come to think of it, one of primary issues in this country, if not the core issue, is the lack of family values.
    As far as Social Security is concerned I really don’t care how they resolve the problem as long as those of us who have paid into the system for most of our lives are reimbursed those funds in their entirety. I’ll guarantee I could manage those dollars better than they are being managed right now. If the legislatures hadn’t robbed Peter to pay Paul all those years this problem would not exist. They get to retire with their full-salaried pensions for life and have little or no regard for what happens to the rest of us.

  5. You are right on Deborah. I also agree with Mr Holmes. Families taking care of their selves would solve a lot of this problem. That brings us back to government, they can’t be trusted and we, WE voters can’t be trusted to hold them accountable for their Irresponsibility, this insane debt is just one example of it. Like you said Bruce now that we are in this mess and the trust fund, (which would have work) has been tried twice and it has failed both times what do we do????? The only practical answer is to raise the retirement age and from a historical perspective it would be true to the original intent of the law. Life expectancy was 59 when it was passed, and you couldn’t draw any money till you were 62. So by that ratio it should be raised to 77 or there about. If we don’t want to go that far, and I don’t!!! I heard some interesting ideas from the Heritage last night about encouraging workers at the age of retirement to keep on working by reducing or doing away with all the taxes on earned wages till they do go on SS. As of now, I know many people that go on SS and then wait till age 70 to return to work because of the penalties they are subject too. People do adjust there life around government regulations. Not a good thing!!!!
    Second, I really don’t see the problem with the partial privatization deal. It could be optional. Set up a mandatory savings plan in a approved account, (which could be a problem) then you would be required to buy some insurance to guarantee that you couldn’t loose your retirement. We have insurance for everything else. This would transfer some of the responsibility to the people.
    My third idea is make Congress go on SS. That would be there only retirement just like the rest of us. For them to opt out is unconstitutional!!!! I think we should DEMAND this of them!!!!
    I don’t know if any this will help but something has to be done!!! I feel the frustration of the tea party members and the idea of just doing away with SS. I guess I’m just cheap and don’t want right off all the money I’ve paid in, at least not yet!!!!

  6. Rand Paul is being credited with stating that there should be a 2,000 deductible on Medicare. This seems like something that makes sense. However, the immediate response from the left is that the Holy Grail of Medicare is being attacked by the Right. At some point, both parties are going to have to do something to solve the insolvency of the two entitlement programs that are Social Security and Medicare. I don’t care which party does, but it is going to be unpopular and attacked by the other side. Someone must come up with a solution.


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