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America can create more by giving fewer handouts
By Shawn Mesaros |
June 24, 2013, Monday
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WHEN a nation gives away too much, citizens no longer feel the needs to "produce" on their own, leading to excess debt as the state tries to make up for the lack of productivity through more social programs, artificially boosting productivity and leading to a vicious cycle of debt and continued sluggish growth, ending in default.
Old people not only vote, but also have incredibly powerful lobbying groups behind them. Entitlements in 1960 were 28 percent of government outlays, today it is 67 percent. And the baby boomers have only now begun to retire. Indeed, entitlements spending will TRIPLE over the next 15 years in America, from US$2 trillion annually today to in excess of US$7 trillion annually by 2025.
We first highlight the real math behind the surging entitlement class that America has become.
So why does a large portion of the population choose not to work when there are many jobs available? The answer is simple.
If you can receive two to three times as much money from unemployment, disability, and/or welfare benefits (subsidized housing, food stamps, free cell phones, etc) as you can from a temporary or part-time job, and live a life of leisure, why work?
This is the ugly reality we illustrated just six months ago and the situation - amid what is apparently called a "recovery" -- remains a depressingly real sign of the times.
The political allure of free is so strong that an alarming number of people choose to become wards of the entitlement/welfare state rather than captain their own destiny.
A nation of takers
Indeed, while many are "proud," 49 percent of American households now receive one or more government transfer benefits amounting to 18 percent of all personal income and a burden of US$7,400 for every American - seemingly threatening the supposed self-reliance that has long characterized the American national psyche.
Economist Nicholas Eberstadt of the American Enterprise Institute presents data showing that entitlement payments to Americans, since 1960, have risen annually by 9.5 percent.
He argues that over the past 50 years the ever-increasing array of transfer payments to Americans have risen 727 percent.
Our economic analysis shows that retirees who worked for 40 years and then live 20 years past retirement will receive more than twice what they, and their employers, contributed over their lifetime of working. Only retirees who survive a decade or less after their retirement do not take more out of Social Security than they contributed.
Retirees
Most people will agree that the retirees should receive his/her Social Security benefits at retirement. But with people living longer, who will pay for all the additional benefits now promised?
When government programs are seemingly free, recipients tend to use them more. Medicare is a perfect example, where pharmaceutical and diagnostic tests multiply with the change in new benefits.
By giving too much fish away, people have no desire to learn how to catch fish, and instead despise or demonize those who would force a method of learning which created real productivity.
More importantly we defer to the judgment of one of the great Founding Fathers of America, Benjamin Franklin, who said the following on poverty and his cure for the disease:
"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."
"Educate your children to self-control, to the habit of holding passion and prejudice and evil tendencies subject to an upright and reasoning will, and you have done much to abolish misery from their future and crimes from society."
Simply put: a government that "gives less" will tax less, meddle less, and force productivity and self sustainable activity from its citizens.
Shawn Mesaros is managing director of Pacific Asset Management.
Old people not only vote, but also have incredibly powerful lobbying groups behind them. Entitlements in 1960 were 28 percent of government outlays, today it is 67 percent. And the baby boomers have only now begun to retire. Indeed, entitlements spending will TRIPLE over the next 15 years in America, from US$2 trillion annually today to in excess of US$7 trillion annually by 2025.
We first highlight the real math behind the surging entitlement class that America has become.
So why does a large portion of the population choose not to work when there are many jobs available? The answer is simple.
If you can receive two to three times as much money from unemployment, disability, and/or welfare benefits (subsidized housing, food stamps, free cell phones, etc) as you can from a temporary or part-time job, and live a life of leisure, why work?
This is the ugly reality we illustrated just six months ago and the situation - amid what is apparently called a "recovery" -- remains a depressingly real sign of the times.
The political allure of free is so strong that an alarming number of people choose to become wards of the entitlement/welfare state rather than captain their own destiny.
A nation of takers
Indeed, while many are "proud," 49 percent of American households now receive one or more government transfer benefits amounting to 18 percent of all personal income and a burden of US$7,400 for every American - seemingly threatening the supposed self-reliance that has long characterized the American national psyche.
Economist Nicholas Eberstadt of the American Enterprise Institute presents data showing that entitlement payments to Americans, since 1960, have risen annually by 9.5 percent.
He argues that over the past 50 years the ever-increasing array of transfer payments to Americans have risen 727 percent.
Our economic analysis shows that retirees who worked for 40 years and then live 20 years past retirement will receive more than twice what they, and their employers, contributed over their lifetime of working. Only retirees who survive a decade or less after their retirement do not take more out of Social Security than they contributed.
Retirees
Most people will agree that the retirees should receive his/her Social Security benefits at retirement. But with people living longer, who will pay for all the additional benefits now promised?
When government programs are seemingly free, recipients tend to use them more. Medicare is a perfect example, where pharmaceutical and diagnostic tests multiply with the change in new benefits.
By giving too much fish away, people have no desire to learn how to catch fish, and instead despise or demonize those who would force a method of learning which created real productivity.
More importantly we defer to the judgment of one of the great Founding Fathers of America, Benjamin Franklin, who said the following on poverty and his cure for the disease:
"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."
"Educate your children to self-control, to the habit of holding passion and prejudice and evil tendencies subject to an upright and reasoning will, and you have done much to abolish misery from their future and crimes from society."
Simply put: a government that "gives less" will tax less, meddle less, and force productivity and self sustainable activity from its citizens.
Shawn Mesaros is managing director of Pacific Asset Management.
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