The Competitive Disadvantage of Principle

If you have not read it, this is a fascinating article in the New York Times. The crux of the article is the title — even critics of the safety net increasingly depend on it.The article profiles a number of people who take advantage of the federal social safety net and are increasingly resentful of it. The solutions on fixing it vary. The angry, for some, may or may not be misplaced. The article reads as a Rorschach test on your ideology — liberals will read it and find the people hypocritical. Conservatives will read it and find it all maddening.The key paragraphs of the whole article comes toward the beginning:


The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.And as more middle-class families … land in the safety net …, anger at the government has increased alongside. Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it. They say they want less help for themselves; less help in caring for relatives; less assistance when they reach old age. [Emphasis added]

In other words, the United States is increasingly taxing the middle class to subsidize the middle class. All the talk about the poor and what the safety net is designed to do for the poor overlooks that the government has taken it upon itself to keep the middle class from falling into the poorer classes of society.It reminds me of this Robert Heinlein quote:


“Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as ‘bad luck.’”

We seem to be on the cusp of that in this country and the middle class realizes what is happening. The creators in the country who come up with the ideas, take the risks to capital and reputation, and possibly get ahead are more and more being labeled the bad guys. But there is more to it than that. The middle class is coming to terms with the idea that upholding its principles will put it at a competitive disadvantage and they are seething about it.

It is a long held principle in this country that the individual is supreme above the collective and the government. Tied to that is the principle espoused by Abraham Lincoln back in Kalamazoo, MI back in 1856, that in this country, unlike so many others, “every man can make himself.” It is less and less true.More and more, the Middle Class has become dependent on the federal social safety net. It was a slow and creeping dependence the Middle Class did not recognize until it was too late. Now suddenly their principles have come into conflict with their lifestyle.The Middle Class believes that with hard work it can move up the ranks of society. It is not content to and does not expect to stay in the Middle Class. At the same time, the Middle Class recognizes its current dependency. It also recognizes that if it does break through it will be despised by government. Even more troubling, it does not know how to break through. Due to lobbyists, regulators, and legislators, the process of inventiveness and creativity has been shut down. The tax code and regulatory structure are too complex for a small businessman to become a big businessman. Major corporations have, through carving up the patent laws to suit themselves, made it impossible for a small business to compete creatively without running afoul of a process or software patent that never should have existed. The entire nature of the tax code for small businesses is designed to prevent capital formation and growth. A sub S corporation faces a Hobson’s choice at year end, and forming a sub C carries so many compliance costs it staggers the mind. A large company or one with angels can afford this game; the average small business cannot.In short, individuals in the Middle Class recognize that if they cut the strings on the safety net underneath them and take their own risks to make their way in the world, they are putting their own family at a competitive disadvantage to their neighbors who refuse to cut the strings. The government has forced the Middle Class to put the livelihood of its families ahead of its principles. That is where the resentment comes from.We see this everyday. We see this in the New York Times article. Should someone dare to suggest that student loans are driving up the cost of higher education — an economic fact — someone will attack the person for having taken student loans. When someone laments paying out 99 weeks of unemployment, they too will be attacked if ever they took social security disability, unemployment benefits, or the like. And when the person rebuts that they had to do it so as not to fall behind in a world turned upside down by the government, their complaints will fall on deaf ears by the conformists who embraced their federal masters.A stable society depends on a stable Middle Class. A subsidized Middle Class is inherently unstable. When the really rich and the really poor are upset, rarely does the society apple cart itself get upset or overturned. But when the Middle Class is upset, you can bet the apple cart will be overturned. And in Washington, DC, neither the Democrats nor the Republicans are offering policies to put the Middle Class back in ownership of their own lives.The resentment will continue until it boils over or changes are made to put the social order back as it was intended — using the social safety net to help the poor, not subsidize the Middle Class.



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