Feeling Poorer? You Are. Here’s Why…

New Zealand, along with most Western societies, has been seduced by a sly siren.

This siren goes by many names, but it always works the same way — persuade the state that it can fix poverty, encourage the state to balloon its budget for said goal and to slowly overtake society as a whole.

It’s a sickness. An addiction. And it never ends well.

New Zealand is in deeper than most.

This year alone, the state will dish out nearly a billion taxpayer dollars for welfare…depending on how you define it. If you include handouts in health, education, and retirement, you could run that number up to over $5 billion.

It’s an expensive addiction.

And you, the faithful taxpayer, are the enabler making it happen. But don’t feel too bad. I reckon this would happen regardless of how you feel about it. Just look at the United States…

Through decades of both Republican and Democrat presidents, America’s War on Poverty has failed miserably. The US$1.1 trillion spent on different poverty-targeted schemes has created an ongoing disincentive to work and self-support.

And about half the time, it’s the critics in power!

They didn’t shut it down. Why? Because it’s a sickness that has seeped into every cell of the country…and its tendrils have a firm hold on both state and voter.

It’s gross and it’s wrong. Here’s why:

To begin with, welfare had virtuous foundations… ‘Help the poor with taxes as the middleman’. It promised to be what other charity organisations couldn’t be — scalable.

And it was a response to the general human yearning to help those in need and seek the betterment of those less fortunate than ourselves.

Even the most radical free-marketer would agree with that noble ideal.

But as it always goes, the solution became the problem…or rather, the three solutions became the problem.

You see, there are generally three spheres of relationships: family, friends, and the state.

For much of history, families have held the responsibility of providing for the less fortunate within their unit. If you were in a rough patch, you could depend on your family to get you through.

It still exists…sure…but not to the degree as it did throughout history. If your family didn’t help — nobody would.

Then there’s the friend category. Maybe it’s someone you grew up with, or work with, or go to church with. If they’re in need, you’re quick to lend a helping hand.

In many societies, particularly religious ones, people’s needs were met through the generosity of this sphere. And, again, this ebbing level of charity still exists today.

Lastly, and most recently introduced, is the state sphere. Since the beginning of time until the mid-1800s, people relied on the first two spheres: family and friends.

With the onset of the Industrial Revolution, people started having the inkling that maybe the high-and-mighty government could lend them a penny or two.

The movement really caught on over the next hundred years as Western societies secularised (Diminishing the effect of the friend sphere) and as the casualties of World War I and II fractured most family units (Diminishing the effect of the family sphere).

Suddenly, people had nowhere to look for help besides the random generosity of strangers and religious charities like the Salvation Army.

When it wasn’t enough, they looked to the state.

And for the state, it wasn’t such a bad deal. Many of these poor were voters, after all. And the money could come from the general tax revenue pool…It doesn’t cost the politicians anything.

So the welfare state began to thrive.

It slipped its greasy fingers deeper and deeper into the minds of the authorities, into the hearts of the poorer class, and into the wallets of the wealthy.

What it didn’t do was actually solve anything. It didn’t pull people out of poverty. It simply sedated it. It made it more bearable and less intense, but it didn’t reorient the poor to a path of prosperity.

Because — if you think about it from a politician’s view — why should it? A poor welfare-junkie who votes is more valuable than a working member of the middle class with educated opinions.

So what we have today is a fast-flowing river of welfare dollars to a bunch of people who aren’t any better equipped to combat poverty than they were before. To me, it’s unethical.

It led me to seek out how people could ‘pull themselves up by their bootstraps’ without putting any trust in the state’s intervention. I wondered if it was possible to make particular decisions in life to head away from poverty…and to break what could be a generations-long chain of hardship.

Sure enough, a research organisation called The Brookings Institution in Washington DC investigated this very question.

They found that poor kids could, with strong statistical probability, end up in the middle class if they did three things:

  1. Finish high school
  2. Get a full-time job
  3. Wait until 21 to get married and have kids

They found that only 2% of adults who followed these three simple rules remained in poverty.

75% joined the middle class.

That’s it — just those three things.

Nothing to do with getting on some government scheme…or receiving that state grant. Do these three things and you’re set on a trajectory towards success.

While I’m against the state sphere on principle, I do wonder what good would come from the state realigning its various well-funded programmes to these three goals. Rewarding achievers in some way…

What do you think?

Reach me at [email protected]

Best,

Taylor Kee
Editor, Money Morning New Zealand


Taylor Kee is the lead Editor at Money Morning NZ. With a background in the financial publishing industry, Taylor knows how simple, yet difficult investing can be. He has worked with a range of assets classes, and with some of the world’s most thought-provoking financial writers, including Bill Bonner, Dan Denning, Doug Casey, and more. But he’s found his niche in macroeconomics and the excitement of technology investments. And Taylor is looking forward to the opportunity to share his thoughts on where New Zealand’s economy is going next and the opportunities it presents. Taylor shares these ideas with Money Morning NZ readers each day.


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