The End of the “Good Life” (Part 1), by Al Martin

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by Al Martin

The End of the “Good Life” (Part 1)

(8-30-11) After the Second World War, society had to change, so governments made secret side agreements to the 1944 Bretton Woods conference, from 1946 to 1950, in order to change the economic model of the industrialized world. Before the war, it was a savings-generated economy, and that contributed to economic growth and consumption. After the war, this radical new concept of the so-called “good life” was promoted by government and media. This meant that you worked to a certain age and then retired, so you would receive a Social Security check from government as well as a pension check from your employer. Of course, this was a radical new concept because previous generations worked till they dropped. However it took hold, since all the governments of the industrialized nation-states promoted this concept.

And why was this concept necessary? Because you had to get people out of the work force somehow. The pre-war model of allowing people to work until they died, or until they were physically and/ or mentally unable to work, would not work in a new regime, wherein the intent was to change the economic model from what had always existed, namely a savings-generated economic growth model to a debt-financed consumption-generated economic growth model.

This was a major paradigm shift which had to engrain people after the war with the idea of retiring at a certain age in order to get people out of the work force. This all comes back to the same problem, namely that governments decided that it would be politically impossible to try to limit population growth in industrialized nation-states. It was anathema, especially in the United States, to go against the pre-war lie that the enormity of the United States -- its land mass and its resources -- were endless -- and that no amount of industrial pollution could ever be created to damage the environment – and that our gas and oil resources were endless – and that our mineral resources were endless -- and that the American people had a God-given right to breed like rabbits.

However it was never mentioned in the 1940-50s by corporate and government America through its so-called “public service” campaigns -- essentially government’s propaganda tool -- in conjunction with a new type of corporate advertising was used to send one message, that life was now going to be “better” in the post-war world because now you don’t have to work until you die anymore -- when in fact public opinion polls all through the 1950s clearly showed that most people wanted to work.

The pre-war concept of life had a certain clarity. People understood that life was a long, tedious, arduous and cumbersome affair which was meant, not to be enjoyed, but to be endured. There were all sorts of expressions about death. Death is the final release. Death is the final reward. Meaning that death is the reward we receive for putting up with the pain-in-the-ass business of living, something that mankind has always understood.

This idea was the essential concept of English Puritanism, of the congregation of the Protestant Church. The Puritans were the first European immigrants to the United States, who brought with them their Protestant beliefs.

Fast forward to the present… The post-war model of the “Good Life” was never a sustainable economic model. Debt financed consumption has never been able to stimulate economic growth, even though it’s been tried throughout history, has never been a viable economic model.

Debt-financed consumption is another variation of the Ponzi scheme economy, particularly when you look at the post-war pension systems that were developed, which would become unsustainable at some point in the future.

For example, Social Security was a Roosevelt New Deal program from 1935, when everybody over the age of 65 in the United States received a check for $50 per month. Of course they had never paid into Social Security because it didn’t exist until 1935. Social Security was originally called Supplemental Security income. It was meant to be a supplement to a pension you may have or interest you received from your lifetime of savings because that’s what you were expected to do – to accumulate savings throughout your lifetime.

People forget that there was a time when interest payments on deposits were regulated. Interest rates paid on bank deposits were regulated until 1970, and the advertisements that banks used promised that if you saved $50 a month on your 5% passbook for 14 years, then by the time you retired, you could take out $50 a month forever -- from the interest accrued on that money.

What precipitated the post-war change in economic model and the necessity that drove it was the refusal to limit population growth in industrialized nation-states, and particularly in the United States. This was done under the guise, which was propaganda that you still hear to this day, that overpopulation is a Third World problem and that the problem is all those Catholic Peasants in Africa and South America that have 10 kids and that it’s not the middle class income workers in industrialized nation-states that have 5 kids. That was always a lie because the per capita consumption of non renewable resources by the average American citizen is 10 times that of the average Third World citizen.

The old paradigm of working till you drop, by necessity, will become the new paradigm again because life is getting very harsh on this planet now -- even for the middle class in industrialized nation-states. And governments can no longer protect them from economic reality.

The precipitating event was the unwinding and bursting of the speculative bubble of 2005-2006. The economic consequences of the unwinding of this bubble have so weakened the G-20 nation-states financially that they can not protect the working class from the post-war lie anymore. Social Security and Medicare can not be maintained in its current form in the United States or its equivalent form under other names and guises in the other G-20 nation-states.

In 1946 the Social Security formula was changed to be a progressive formula that was tied to wages and no longer calculated on the basis of how much you paid into it over your lifetime. And now look at the situation it has created, wherein an average worker retiring in the United States at age 65 will receive all they paid into Social Security in their lifetime in a 27 month time-span. Yet the median life span and the reason why retirement age was originally set at 65 was because in 1935 the median lifespan was 63 years.

The other part of the problem which makes this scheme unsustainable is that the median lifespan in the United States is now age 80. The median lifespan for males in the United States is 78 and the median lifespan for females is 82. So if you’ve set a maximum Social Security benefit at age 65 and you have received all you ever paid into it in 27 months plus the 3% interest on a compounded basis in arrears at the end of 36 months and yet the median lifespan is such that you’re going to live 12 years longer.

In terms of Social Security payments in 1935, it took 14 workers to support one worker. Now that fraction is 3:1, as it takes 3 workers to support one worker as unemployment rates continue to escalate. You cannot raise Social Security FICA deductions endlessly to support those already retired, based on current benefit schemes.

Social Security is still sold to the Unwashed as what it was pre-war, based on a genuine actuarial model like an annuity. Social Security was in fact supposed to be an annuity -- when it actually isn’t. Social Security was billed as an annuity. You pay into it and at a certain age that annuity matures and will pay you out a monthly cash benefit for the rest of your life. But Social Security is not an annuity-based contract.

In the post-war regime, Social Security was changed from being an annuity to being a social contract payment, based not on money you paid into it plus the 3% the government pays on it. Since 1950, it has been based on a percentage of your gross earnings throughout your lifetime -- not the amount of money you paid in.

So what went wrong? Post-war governments, especially the Eisenhower Regime, should have begun to increase FICA, as the percentage of the wages being earned. But that wasn’t done because it was not politically popular. This then created a future time-bomb which every administration knew it could pass along to its political successor.

FICA payments are a “contribution” to a payment scheme, the Social Security trust fund, not a tax, which was originally set at 3% in 1943. In 1973, the FICA percentage was increased to a 12.5% rate. The foot dragging is why the Social Security trust fund’s current net worth is a minus $5.3 trillion. And that’s why it’s all such a mess now…

(To Be Continued…)

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

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