The Great Transfer State

One of the blogs I track is Econompic. Today he had a post that shows the sheer fiscal insanity that has taken hold in the USA in recent years. This is the key graph in his article:

There is a component of personal outlays called Transfer Payments. What is a Transfer Payment and why should you care? Here is the simple definition:

In economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income in the market system. These payments are considered to be nonexhaustive because they do not directly absorb resources or create output. Examples of certain transfer payments include welfare (financial aid)social security, and government subsidies for certain businesses (firms). (Source wikipedia.com)

Basically Transfer Payment is code word for government sponsored welfare.

Why should you care? The data indicates that from 2001 to 2007, the rate of government sponsored welfare tracked the growth of wages. That’s not a bad problem but I would expect better considering over this period of time the USA had a boom in employment. The root of that problem is: DECREASING taxes. This may shock you the reader since I am a fiscal conservative, but in my humble opinion, the broad tax reductions over the past 10 years were very unwise.

Second reason to care about this data, as if you need another? In the economic train wreck of 2008, wages fell through the floor due to unemployment, no surprise. But, transfer payments (aka government welfare) shot through the roof filling a huge gap between wages and personal outlay. Hence why the USA is racking up so much debt over the same period.

The problem is that both policies, tax reductions and massive handouts, are fiscally insane taken to their extremes as is the case over the past 10 years. Put them together and the nation is at a level of insanity that is going to destroy this country. This is the simple truth of our situation:

  • There will always be taxes, it is what funds the government that provides our liberties and secures our safety. Be thankful for it.
  • There is an inherent need for personal responsibility. By providing for yourself, you get the natural satisfaction from working with your hands that a welfare payment can NEVER provide.
Folks, the current dialog in the media and the country is a death spiral. To restore fiscal sanity is to say that some taxes are necessary at a level we need to operate as a free people. AND we need people to contribute productively and get off welfare. Both major political parties are to blame; there is currently no right side of this debate IMHO. If we don’t the sign at the border will read:

Welcome to the Great Transfer State of the United States of America, population YOU!

Mr President, seriously?

I understand politics well enough to see from a mile away the motives for moves like this one, and it makes me want to wretch every time. My beef with the president on his “move” is that it perpetuates a mindset:

  1. That people can be isolated from their choices…even when they don’t understand the choices
  2. Personal responsibility doesn’t exist, the government will protect me and fix it for me
  3. Financial common sense is a virtue that is to be punished instead of rewarded

http://news.yahoo.com/obamas-student-loan-debt-relief-plan-too-good-234242818.html

I don’t want to over-simplify the problem with Student Loans but why can’t people just speak the truth on these subjects instead of pacifying, pandering, and coddling?

I have room to speak authoritatively about this subject because in 2010 I finished my MBA and paid for it myself out of my own pocket. It’s no hidden secret that College is expensive and just this morning I saw the average cost increased by 8.3% last year alone! The problem will have to be attacked on both ends of the curve: the cost of education side AND the student education side!

Here is some basic Student Finance 101:

  1. Target a career post education and understand it’s basic structure of pay and benefits
  2. Estimate the costs of education to qualify you for the career you’d like
  3. Pick a college that fits your estimated costs
What I see far too often now days is this:
  1. I have no idea what I want to do as a career or what it takes to make a living
  2. Since I have no idea, that degree in Basket Weaving looks fun, let’s do that!
  3. I want to tell my friends I went to “CoolSchool U” now and later in life, I don’t care what it costs
And then you wonder why kids drop out of school as the reality of college cost sets in with no career in mind? Or they get out and then can’t find a job? We’re not giving our kids the skills to make intelligent choices based on FORESIGHT, UNDERSTANDING, and WISDOM! Mr President, please speak the truth about this problem and just maybe you can be taken seriously as the leader of the free world. Until then, you make us look like a Banana Republic that tries to change the rules of reality in an attempt to stay in power.