May 24, 2011
A Class of Economic Zombies, Another Triumph of Socialism
Apparently our government has succeeded in making almost half of the population dependent upon it or others. Phil Izzo in the WSJ discussed a paper from the National Bureau of Economic Research:
The survey asked a simple question, "If you were to face a $2,000 unexpected expense in the next month, how would you get the funds you need?" In the U.S., 24.9% of respondents reported being certainly able, 25.1% probably able, 22.2% probably unable and 27.9% certainly unable. The $2,000 figure "reflects the order of magnitude of the cost of an unanticipated major car repair, a large copayment on a medical expense, legal expenses, or a home repair," the authors write. On a more concrete basis, the authors cite $2,000 as the cost of an auto transmission replacement and research that reported low-income families claim to need about $1500 in savings for emergencies.These data are shocking and shameful. Governmental policies have reduced nearly half the population to economic zombies. Many of these people have been conditioned to have no sense of personal responsibility, believing that someone will take care of them. The idea of having a "nest egg," planning for the future or having some funds for a "rainy day" appears to have been erased from their DNA.
I know the paragraph above is rather harsh and that not all people who have no or little savings fit into this category, at least on a permanent basis. Some are victims of circumstances resulting from the bad economy or misfortune. Yet too many have adopted a lifestyle unfamiliar with work, work habits or self-improvement. For many, it is all they know or have ever known. Their aspirations have been destroyed by a perverse welfare system.
Given the incentives placed before them, such behavior is rational. If you attend government schools and come out with no education, it may not pay to work. Your skills may not even command minimum wage, another barrier erected by the government. The minimum wage law makes it illegal for employers to hire folks at a lower rate, even though that would allow them to get on the escalator toward developing workplace skills. In other cases, the welfare system makes it uneconomic to work -- you may have to take a "pay cut" to get a job. Both circumstances ensure that individuals stay in the dependency class. When a government check exceeds what you can make working 40 hours a week, is it rational to go to the trouble of working? Not if you grew up in a culture where that way of life was acceptable.
In the larger picture, these people represent a tragedy -- hollow human beings with no goals or objectives other than today's gratifications. Without the perverse incentives, how many would develop into successful and admired individuals? How many doctors, teachers or discoveries in science have been foregone? What is the opportunity cost of ruining this talent pool for the country and the world? On a personal level, what should be the penalty for ruining the life of a fellow human being?
Ben Franklin understood what would happen under such a system:
I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I traveled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.Our current intellectuals are so much smarter than old Ben. They have a "better way." No idea, no matter how asinine, should not be tried on an unsuspecting public. To the elite, the rest of the country is composed of guinea pigs to be used in their noble experiments. They know how to improve all of our lives, whether we want it or not.
The so-called War on Poverty has cost trillions of dollars. Edgar Browning estimated the costs in 2005 as in excess of $1 Trillion. He commented:
Americans transfer more than a trillion dollars each year to low-income families through a bewildering variety of programs, all in the name of fighting poverty and inequality. That's about seven times the cost of the Iraq war.In another article, Browning attempted to put the 2005 spending level into perspective:
To put a trillion dollars in perspective, it's more than twice our total spending on national defense.Browning went on to add:
It's larger than the total revenue collected by the federal individual income tax.
It's about ten times as much as we spent on redistributive policies in the 1950s (in inflation-adjusted dollars).
It's equal to the total before-tax cash income of middle-income households. That's right, we transfer to the low-income population an amount equal to the entire income of middle-income households, that is, households in the middle fifth (40th to 60th percentile) of the American income distribution.
If a trillion dollars were simply given to those counted as poor by the federal government (37 million in 2005), it would amount to $27,000 per person. That's $81,000 for a family of three, higher than the median income of all American families, and far greater than the poverty threshold of $15,577.Of course, the costs of the poverty programs have only escalated since 2005. So have the damages.
What do we have to show for all this? As is typical of most government programs, the outcome of the program was exactly 180 degrees from the objective. Poverty increased for the reasons that Ben Franklin cited. We have squandered enormous amounts of the country's resources while increasing the poverty rate and creating a class of economic zombies.
The true cost of these programs is much greater than that which can be measured in money alone. The cost in wasted or misdirected lives is greater than the money cost.
For Socialists, however, this is considered compassion. It is unimportant what the results were. The intentions were good.
One wonders whether the underlying intentions were to help the poor or to move the country closer to Socialism. What could be better than that in many intellectuals eyes? Sure there was some damage, but to make an omelet some eggs must be broken.
Monty Pelerin at www.economicnoise.com