Wednesday, November 28, 2012

Makers v Takers - Corporate & Private Welfare Bankrupting the US



Something that cannot go on forever won't.  Promises that cannot be kept won't be kept.  Debts that cannot be repaid won't be repaid.  And you eventually run out of other people's money.

Corporations are making the conscious decision NOT to invest in new facilities and infrastructure in this country.  Why?

Because they get a better return if they invest in lobbyists who can steer them to an exposed federal teat.  That state state of affairs was highlighted this week in an article by Professor Glenn Harlan Reynolds that ran in the USA Today.  There Professor Reynolds argued:

Washington is rich not because it makes valuable things, but because it is powerful. With virtually everything subject to regulation, it pays to spend money influencing the regulators. As P.J. O'Rourke famously observed: "When buying and selling are controlled by legislation, the first things to be bought and sold are legislators." But it's not just bags-of-cash style corruption. Most of the D.C. boom is from lobbyists and PR people, and others who are retained to influence what the government does. It's a cold calculation: You're likely to get a much better return from an investment of $1 million on lobbying than on a similar investment in, say, a new factory or better worker training.
Sadly, I've heard clients and colleagues articulate that precise rational in recent years.  The "Green Energy" boondogles that wasted $29 Billion in stimulus funds on "green" business that could not find private funding are prime examples.  Of some 30+ green companies that received money from the federal government over 25 have filed for bankruptcy.  But in many instances, Solyndra being the most well known example, the original investors / campaign contributors got their money and the tax payers were left holding the bag.
 

Today I read the individual version of that story.  The article, from ZeroHedge, speaks for itself:

Exactly two years ago, some of the more politically biased progressive media outlets (who are quite adept at creating and taking down their own strawmen arguments, if not quite as adept at using an abacus, let alone a calculator) took offense at our article "In Entitlement America, The Head Of A Household Of Four Making Minimum Wage Has More Disposable Income Than A Family Making $60,000 A Year." In it we merely explained what has become the painful reality in America: for increasingly more it is now more lucrative - in the form of actual disposable income - to sit, do nothing, and collect various welfare entitlements, than to work. This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, "the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045."


We realize that this is a painful topic in a country in which the issue of welfare benefits, and cutting (or not) the spending side of the fiscal cliff, have become the two most sensitive social topics. Alas, none of that changes the matrix of incentives for most Americans who find themselves in a comparable situation: either being on the left side of minimum US wage, and relying on benefits, or move to the right side at far greater personal investment of work, and energy, and... have the same disposable income at the end of the day.


My wife and I made similar calculations as a young couple when I was making $22K per year as a clerk on the Wyoming Supreme Court.  We managed a low income housing complex and everyone in the complex was making WAY MORE than us.  We, of course, buckled down and made ends meet, but it was hard to fault the low-income tenants who made the conscious choice to remain on the government dole.  

If single mother of one child in Pennsylvania has to make $69K to net more than the government dole pays why on earth would she work?  And where would most single mothers find a job that paid $70K anyway?  If we insist, as we have in recent years, on extending that model into the corporate world, we a truly and royally screwed. 

The two articles lined above demonstrate how our policy choices as a nation encourage dependency.  This is a feature not a bug in the big government formula foisted on us by the politicians.  There's a reason the founders restricted the scope and power of the federal government.  We should pay attention before it's too late.


Welcome to the Collaborative Revolution!

James L. Salmon, Esq.
Collaborative Construction
300 Pike Street
Cincinnati, Ohio 45202

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1 comment:

Anonymous said...

thanks for sharing.