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Skin in the Game

Posted by Larry Doyle on September 15, 2010 2:16 PM |

I will never forget the mental and emotional sensation of purchasing my first real asset. That holding, a co-operative apartment in Brooklyn, New York was where I began my married life and started my family. I am not writing this to reminisce about life back in the mid-’80s, but rather because those memories came back to me as I read an article in this morning’s Wall Street Journal entitled, Obstacle to Deficit Cutting: A Nation on Entitlements:

Efforts to tame America’s ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.

I have zero problem with people receiving benefits. To the extent that people have earned the benefits, let’s make sure that we take care of our elderly and ill. I am happy to be the first in line to make these payments.

At the same time, the fraction of American households not paying federal income taxes has also grown—to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center, a nonpartisan research organization.

This factoid, though, leaves me with an entirely different feeling. 

To the extent that we are all in this together — or at least I thought we were supposed to be (maybe this is a bad assumption) — how can we have close to half our citizenry not paying federal taxes? I am not saying that we should totally overhaul our tax code to address this issue, but I am saying that if people have no ‘skin in the game’ then how can we expect them to care about how our finances are managed and how our nation will progress.

In a very similar regard, when I was a renter, did I care about the overall cleanliness of my apartment? I will admit I had a typical bachelor pad and did not much mind if the place was a mess. When I was an owner, I took very good care of that property.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • Lou

    This “factoid” as you call it is the entire premise behind Obama’s redistribution plans. Share some love and spread the wealth.

    Right?

  • BMB

    Same principle applies to home ownership and a down payment.

  • Joao Fiore

    The WSJ got the numbers right, but did peek under the covers to see the real causes? I doubt that they mention the huge unfunded liabilies, which can never be repaid. An example of the disconnect between the upper class that reads the WSJ, and the middle and lower classes which are in deep trouble.

    First, I’m a registered independent with no party affiliation, though I tend to agree with my fellow Americans, who, according to a recent poll, have a very low opinion of the job that the Obama administration and the Democrats are doing. It showed, however, that they have an even lower opinion of the Republicans.

    So, it doesn’t surprise me that the WSJ is looking at entitlements right now, something that Republicans have always wanted to do away with. It diverts attention away from the more pressing problems facing the U.S. I think I can condense those into one very long, run on, sentence. I think.

    Besides the crushing national debt and the dual wars, the consumer class, primarily comprised of the middle and lower socio-economic classes, have not had a real inflation-adjusted wage increase in 3 decades due to pressure on wages from globalization and illegal immigration, both of which have increased the flow of wealth to the top of the food chain, resulting in the consumer class, 70% of the economy, going ever deeper in debt trying to maintain its lifestyle, hurt by offshoring, helped by cheap products from overseas, mainly China, and devastated by going massively in debt by buying too much house, taking out equity loans on inflated valuations, borrowing too much on student loans, or charging excessively on credit cards, while the wealthy have benefited from extremely generous compensation packages, some would say overly generous, and investments, creating a disconnect between the nuevo riche, the nuevo very riche, the new robber barons, the neo-royalty, and the have nots, which produces the illusion among the haves that this is just another typical, business cycle downturn that’s easily solved by motivating the consumer to borrow and spend by making money readily available through banks, when, in fact, the have nots, even if they had money to spend, or could qualify for a loan, are resentful and tired of playing a game that enriches the top while indebting the bottom of society, with taxpayer money that they, and their children, and their children’s children, are obligated to repay.

    Phew! Hope my college English comp teacher doesn’t see this.

    So, to deal with entitlements, looking at wealth distribution as it bears on economic growth may be helpful. Without economic growth, entitlements will eat up a disproportional amount of the budget, and even present entitlements may have to go under the knife, if the patient is sick enough.

    The most serious problem with entitlements by far are unfunded liabilities, which now total $110 trillion, about $96 trillion of which is medicare and the prescription drug rider.

    The drug rider could have been reduced, if the bill had allowed the govenment to negociate the price of prescription drugs. However, it was an obvious giveaway to big pharma that the government has to pay full retail price. Big pharma, coincidentally, has the most lobbyists, approx. 1700, and spends the most money, $1 billion plus over the last decade, on lobbying. I doubt that you’d see that in the WSJ, though.

    U.S. GDP is $14 trillion, so, obviously, $110 Trillion, and growing, in unfunded liabilities is going to bankrupt the country if it’s not fixed.

    If you made people pay for their own healthcare, the U.S. wouldn’t be bankrupt, just impoverished.

    Best regards,
    Joao






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