The Logic of Shared Pain

While on the Ron Smith show today, one caller asked, “So, where would you cut spending?” Given my recent piece, The Virtue of a Big Bang, I was ready. My view is that in a crisis, pain should be shared as evenly and broadly as possible. Thus when someone claims that the schools or hospitals must be exempt, you come back with “No one is exempt. There are lower priority projects and functions everywhere inside government.”

An aside: I live in Howard County, Maryland, which has the best school district in the state. We homeschool anyway. Unlike most places in the US where homeschoolers tend to be evangelical Christians, here most homeschoolers are purely secular. We hear tales of those who have left the public schools decrying the sloppiness and waste in the system. Also, we experience that the system demands more of homeschoolers than it asks of those that go to the public schools.

Earlier in my life, I have been on school boards — as a homeschooler, of course not now, that would be impossible. No one would elect someone who homeschools to the school board. But from my earlier work, and what I know from a basic understanding of the economics of public school systems, when counting in the fair value of pension accruals, teachers are very well paid. We can freeze their pay, and freeze their benefits.

And, that is true for all government programs. Cut an even amount everywhere; freeze them in nominal dollars at least. Yes, that’s painful. Pain needs to be shared as we cut back after years of growth beyond our ability to sustain it without additional debt.

Governors and mayors, ignore the screams. People need to learn to make do with less. If you lead, they will follow. People love politicians that flout pandering, and stand for something, particularly during times of crisis.

The Same Idea on the Federal Level

Okay, much as I am not in favor of Obama’s plan for national health care, let me propose something like it. It is time to tame Medicare. The concept of a safety net means basic care, not extraordinary care. News bulletin: every one of us will die, regardless of how much medical care we receive. Too much money is spent in the last six months of life, for too little good. If people want to spend their own money for extraordinary care to extend life, that is their own business, but it should not be the way the government spends, if it spends at all on health care.

Away from health care, let’s consider “Defense.” To any who think me a slave of living near DC, pleazzze get it, even though if implemented, most of my friends would be hurt by what I am about to say, I will say it anyway.

There are bases overseas where soldiers face no real possibility of combat. There is no real reason for the bases, aside from the US acting like an empire over the rest of the world. We need to close bases in the US, and even more overseas. They don’t benefit US interests. We do not need to be the global policeman.

Also, many weapons programs fail. They don’t produce anything useful, and yet a huge bureaucracy gorges on the cash from the US Government.

We need to focus on defense. Defense, not dominating the rest of the world. We don’t need a large military. We don’t need to be in Iraq, and maybe not Afghanistan, and we don’t need legacy bases all over the world. Cut “defense” spending, it is useless to the US.

If we didn’t try to dominate the Mid-East, we would not face many terror threats. We get what we deserve. Would we like it if outsiders tried to influence our leaders, and our selection of leaders?

Everything Must Be Cut

Fairness is paramount. Americans have a strong sense of fairness. If everything is being cut, then the sense of shared pain will reduce support for riots and demonstrations where people plead for their special interests. Let the students that want lower tuition at the state University pay more. Much more, but in rough proportion to the cuts in the rest of society.

If we cut Medicare by reducing our willingness to pay in the last six months of life, even so, let us make other cuts, such as reducing or eliminating Medicare Part D. There is no good reason to have a Medicare drug benefit. Please end this signature program created by George W. Bush.

I will say it again, cut everything. Get your head around the idea that preserving the nation, state, or municipality is worth a lot more than preserving the stupid programs that venal ideologues are ranting must be kept. There is nothing that must be kept, aside from police, fire, justice, and public health. Even they should have wage cuts — the pain must be shared everywhere.

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About David Merkel 145 Articles

Affiliation: Finacorp Securities

David J. Merkel, CFA, FSA — From 2003-2007, I was a leading commentator at the excellent investment website ( Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and now I write for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I still contribute to RealMoney, but I have scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After one year of operation, I believe I have achieved that.

In 2008, I became the Chief Economist and Director of Research of Finacorp Securities. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm.

Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life.

I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

Visit: The Aleph Blog

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