Judd W. Patton, Ph.D. (Biography) Bellevue University Online
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 Are We Being Bamboozled by Government?
by
Dr. Judd W. Patton

"But neither the wisest constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt. He therefore is the truest friend to liberty of his country who tries most to promote its virtue, and who, so far as his power and influence extend, will not suffer a man to be chosen into any office of power and trust who is not a wise and virtuous man."
                                                - Samuel Adams, Father of the American Revolution

In this post-election, lame-duck season, I’ve been reflecting on how the next Congress might improve things. An obvious starting point would be a gutsy, bite-the-bullet commitment to more honest government.

Since revelations at Enron a year ago, we have had a series of corporate malfeasance allegations there and at other big-name companies—Global Crossing, WorldCom and others. Apparently some top executives, with help from willing CPA accomplices, fraudulently enhanced profits and manipulated stock prices.

Politicians have correctly led the way in investigating alleged improprieties and seeking justice. But the selfsame politicians who wax eloquent and rail against “corporate crooks,” have been less aggressive in remedying their own transgressions. In my view, they are themselves guilty, whether willingly or unwittingly, of their own accounting fraud and bamboozling the taxpayers!

Our federal government, which collects trillions of dollars in income taxes, F.I.C.A., Medicare, etc., has no real financial accountability -- no profit and loss statements, no way to measure whether expenditures are helping or hindering the economy. Here are some of my favorite examples of how American taxpayers are being bamboozled:

1. The Social Security "Trust Fund"
Social Security is not a legitimate retirement insurance program but is really a pay-as-you-go, pyramid scheme. There is no a special trust fund or “lock box,” waiting to be claimed by retirees. Any funds that are left after monthly benefits are paid out are counted as revenue and spent as part of the federal budget. If a private-sector CEO raided a company’s pension fund and used the money for other purposes, he or she would face prison time!

2. Baseline Budgeting
Federal agencies submit annual budgets, generally with an increase over the previous year. For example, they request a 5% increase, but in the end they only get a 3% increase. It is then announced that the new FY budget was cut by 2%. Can there be a more outrageous example of accounting fraud than calling a 3% budget increase a 2% cut?

3. Off-Budget Enterprises
We have all heard of the illicit underground economy—drugs, prostitution, etc. Federal, state and local government have purposefully developed their own “underground,” off-budget enterprises. For example, the U.S. Postal Service routinely runs up operating deficits that are not counted in the Federal budget, yet we taxpayers must pay the shortfall. For more, see the book, Underground Government, by James Bennett and Thomas DiLorenzo.

4. Inflation: The Hidden Tax
Federal budget deficits are financed by selling U.S. Treasury securities to the Federal Reserve System, the monetary arm of the government. The Fed essentially writes a check “out of thin air” to purchase these securities, ultimately leading to price inflation. This “taxes” American citizens by depreciating the dollar and falsifying interest rates. Few Congressmen bring up the fact that this accepted practice is unconstitutional (See Article I, Section 8, Paragraph 5).

5. Fraud, Waste and Abuse
In an amazing book, The Government Racket 2000, author Martin L. Gross demonstrates that the U.S. Government wastes about $375 billion a year! He cites a two-year study by the General Accounting Office (GAO) showing “significant financial systems weaknesses, problems with fundamental record keeping, incomplete documentation and weak internal controls” in most federal agencies. Some tip-of-the-iceberg examples: In 1998, the Department of Housing and Urban Development (HUD) overpaid rent subsidies by $900 million, the Social Security Administration overpaid recipients $1.3 billion, and $3 billion in IRS expenses could not be verified.

6. Deceptive Information and Statistics
Our government reports a tremendous array of confusing information, data and statistics, mostly through the Bureau of Labor Statistics and Commerce Department. The assumptions on which many of these data are based are frequently questionable. Some examples:

Figuring Cost of Living - The Consumer Price Index for All Consumers (CPI), which is used to determine cost-of-living adjustments in Social Security benefits, rose 1.5% in 2001-2002. A more accurate measure called the “median CPI Index” rose 3.3% for the same period, an indication that the real purchasing power of the dollar is declining much faster than is officially admitted. (See details at http://www.clev.frb.org/research/mcpipr.htm.)

Counting the Poor – In measuring poverty, the federal government does not count cash or in-kind welfare benefits that the poor receive. This permits a deliberate exaggeration of the extent of poverty in our country. If those benefits are factored in, the poverty rate is about 3% compared to the officially reported 15%.

Gross Domestic Product (GDP) – Official GDP data excludes intermediate production or the goods-in-service sector of the economy–natural resources, manufacturing and wholesale stages. A new measure called Gross Output (GO), which reveals that the biggest component of the economy is business investment (not consumer spending). If only our leaders would understand that business investment leads to recovery from a recession.

7. Political Campaigns
Would the negative political campaign ads that typified the recent election pass the truth-in-advertising laws that we apply to other commercial advertisements? What percentage would be considered factual and accurate? More bamboozle?

Agenda: No More Bamboozling
In a perfect world, our nation’s leaders would be strongly committed to delivering honest government of, by and for their well-informed constituents -- true public servants carrying out their Constitutional duties. Here is a radical, three-item No More Bamboozling Agenda for members of the 108th Congress to help secure a more forthright government and a more perfect union:

1.  Establish credibility by eliminating baseline budgeting, off-budget enterprises, deceptive
     statistics, and redistributive pyramid schemes.
 
2.  Mandate honest money and banking—abolish the Fed.
3.  Establish a commission to implement an up-to-date accounting system to eliminate fraud,
     waste and abuse of taxpayer funds.

Finally, some inward soul searching may be in order. Samuel Adams cautioned that America could fail if its citizens were to become “universally corrupt.” We have a great country founded on the fundamental freedom and responsibility of its citizens. As we look critically, even cynically, at our government and its questionable practices and institutions, perhaps we should take stock of our own personal integrity as well. If we don’t demand it of ourselves, we ought not expect it from others.

It is ultimately we the American people who must choose “wise and virtuous” public officials who will conduct the nation’s business honestly. Did we do so on November 5, 2002? Time will tell.

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