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Main Website >>Investment Management / Alternative Investment >>Blog >> Ok, But The Math Doesn't Work
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Roger Nusbaum, Chief Investment Officer, YOUR SOURCE FINANCIAL (RIA)

Ok, But The Math Doesn't Work
Tuesday, March 08 2011 | 11:44 AM
Roger Nusbaum
Chief Investment Officer, YOUR SOURCE FINANCIAL (RIA)

A year or two ago I reconnected with a friend from highschool on Facebook. He has turned out to be extremely liberal in his political thinking and regularly posts links and status updates consistent with his beliefs. He has been very pro-union in some of his posts and has been keenly interested in the goings on in Wisconsin these days despite living in another state. He feels very strongly about his beliefs to the point I would say of being entrenched.

This week's John Mauldin post devoted some space to the various entitlement issues and the notion of congress figuring out how to cut $61 billion in expenses versus a $1.6 trillion problem. As I read this and thought about my friend's posts I had a moment of clarity or perhaps better stated as a moment of simplicity which is that for so many of the country's problems the math doesn't work.

All of the reasons that someone might be pro-union might be 100% correct but the math doesn't work. Cutting $61 billion is expenses might be a win of some sort but in the full context of the problem does not itself represent any progress toward a solution. The retirement savings quandary that now exists (referring to the ridiculously low average savings that people have) can be thought of in one way as not understanding the math needed to make it work.

To the union issue, that there is not enough money for workers to get everything they have previously bargained for, that return assumptions are way too high and that the unions have dirty hands (as well as management) in the failures that have occurred would, I believe, be a conversation that my friend could not hear. If union leaders negotiated some sort of dollar figure 15 years ago (making up an example) that has proven out to be wildly unsustainable what should happen? I am not intending to make a political argument here. I can't say that a union doesn't deserve something they successfully negotiated for but if the math doesn't work then that means the math doesn't work.

In simplistic terms the math appears to be breaking down with all sorts of different things which makes debating these things along political or ideological lines futile. An analogy that is related to our fire department; for several years the community has been having a heated debate about whether or not to become a fire district (an entity with taxing authority) or remain donation based. One bone of contention is how much of a tax would be imposed. Related to the potential tax is what sort of service the community wants. On bit of advice that has been pretty consistent along these lines has been not to ask what service is wanted but how much people want to pay. We can have everything but the more service (really I mean paid personnel and new equipment) the more we will all pay. It is quite simple in that regard.

Well, we can have all the medicare, social security and union benefits we want. It's just that the more we want the more we will have to pay. I'm not arguing for more taxes from a belief standpoint, simply pointing out that there is a deficiency that exists. We either pay more or we get less. To the extent this holds water for you it argues all the more for staying on your own mat (self sufficiency). For me this means saving a lot, living below my means and having a job that I want to keep well past typical retirement age. For you, self sufficient could mean something completely different but either way we cannot rely on other people to get the math right, we need make sure that if nothing else our own math works.

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