Government
Government’s influence has some uniqueness in 5 social structures. First, it is the most “Omni-present” of the 5 and has influence over each area in ways the others do not. Your elementary school has very little influence on the company you know work for but the government influences both. Its influence is also there from before you and I were born and will be around long after we are gone. This broad level influence should not and is not taken lightly in most respects which is why we have the societal freedoms of an individualistic, capitalistic democracy.
This significant influence leads directly to the primary function of government being to incentivize and legislate for the purpose of maintaining the values of our constitutional republic and the ethical framework I have outlined in Part 01. In its simple form, the government is to be both carrot and stick for the betterment of its citizens and country.
This presents a unique situation and burden on government that is more universal and corporate in its scope, influence and responsibility. As I have stated previously, it is not the job and responsibility of the government to solve this crisis alone nor do they bear a majority weight. A true democracy never leaves everything at the foot of its elected officials. That being said, since so much of the monetary policy, regulations, tax laws, spending and programs reside with the state and federal government, an elevated attention and seriousness needs to be had.
Many states along with the federal government have started making in roads with certain aspects of this issue.
Washington state for example initiated a mandatory “long term care” tax for all W2 employees in order to fund a state long term care benefit to help offset the cost of senior care for its current and future seniors. Medical expenses, care expenses and end of life care tend to be some of the most costly, financially and emotionally, for any retiree, their family and the government. A dozen other states have begun to pursue a similar course to institute a similar tax in order to adequately fund social care.
My home state of California passed a law requiring mandated retirement plans for employers that have 5 or more employees or enroll each of their people in a state run retirement plan and auto-deduct 5% from employees paychecks. There are aspects of this that seem to be based on the fact that individuals are not doing this on their own so a potential help is to go straight to their employer to do it for them. The mandated program has options a flexibility and is ultimately designed to help people have some savings set aside.
In addition, at the time of writing this in 2022, there is legislation that is seeking federally mandated retirement options for all businesses as part of stepping in to mandate certain employee benefits. Approximately 2/3 of employees have access to a retirement plan at work with a majority of that being found in larger companies with more financial and Human Resources. While these are good steps to provide more access and savings that was not previously there or available, these come in the form of sticks, not carrots, taxes, penalties and mandates. That may prove to be necessary in the short term and helpful initially but I do not believe a large enough stick could be made nor do I believe an individualistic, capitalistic democracy runs well via sticks.
The legislative aspect of government has its best place in protecting freedoms rather than mandating ‘freedoms.’ Tradition freedoms include those of speech, religion, opportunity, life, liberty and property. While this has become muddled in our current world, the truth of the matter still stands that our government's focus would best serve to continue to uphold those freedoms as well as legislate against actual and true threats.
Within the social fabric of the US, it is often a challenge for the government to sort out how much rests on an unethical situation per my definition and individuals not taking personal responsibility. This is complicated “both/and” when the government looks at the statistics and situation of its people. I believe our human inclination is to find a single variable answer to a complex scenario in order to move forward. It is also challenging and unpopular to call people to responsibility.
Some of the simple solutions that I have seen over the past decade or so tend towards removing carrots and using sticks or removing both altogether.
“Tax the rich and corporations” - we already do that and they tend to pay a disproportionate amount of the total tax liability each year. Plus these are some of the most tax efficient and tax savvy operators and so there will always be ways around this. This is an example of removing the carrot of freedom, innovation, progress on the grand scale and essentially penalizing achievement of the very thing our nation is based on. It also fails to see the economic and social benefit that companies have in the fabric of our country. Tax dollars are one way of contributing but so are jobs and wages. Walmart has over 2 million employees and Amazon has over 1.5 million. In one real way, those are almost 4 million jobs that have been created in a manner of a few decades.
“Equal distribution” - this is often sought after as a means of leveling out income and other resources. Part of the theory seems to make sense in that there is a considerable amount of money and resources out there and more than enough to go around. What this fails to take into account is the mechanism to create all those resources. Once incentives for creating resources goes away, so do all the resources to distribute. Countries that control the manufacturing of resources and the distribution of them tend to be short on both.
“Universal Basic Income” - is another solution that sounds good, seems possible but I believe is hard to achieve. The idea of it has merit in that we provide everyone a basic standard of income meant to provide for a basic above poverty level of living. How a project like this ever gets funded is beyond my ability. For example, let’s say “UBI” is set at $30,000 and 1 million people qualify. You need to create a funding mechanism that generates $30 billion a year. In our context, that is only achieved via taxation. And that is just for 1 million qualifiers. What about 10-20 million people? Now you are in the hundreds of billions required. Second, there is a false correlation in the idea that higher income eliminates the needs. It only does so if the human behavior of the one with the funds utilizes it for that purpose. That has proven to be an uncontrollable variable that more income does not correct.
In short, to disincentivize the capitalistic system through policies and taxation will have a negative economic impact on us all. Wealthy individuals and capital rich companies cannot be seen as a type of government piggy bank for the execution of social policy. No, they need to be a partner in the social well-being of the nation and the individual employees within. Things cannot be allowed to run wild and yet the policy and taxation should align to the ethical treatment of people and be part of the incentive structure that allows for national, company and individual flourishing.
There is a three-fold shift that needs to happen and that we as citizens should encourage our elected officials to adopt. At the time of writing this I have been living in one of the most odd political times as we have moved from Obama, Trump to Biden in the past decade and it has no doubt moved us further away from the three-fold shift I propose.
The first sacrifice may be the most challenging because it is a call towards the center and not to either of the polarized sides or their fringe extremes. Broad societal answers are never there. At their core, all significant and lasting broad social changes and movements are liberal (not Democrat or Left) in that they call for individual freedom, freedom of speech, freedom of religion and opportunity. They are also Centrist in that they always call both sides towards them and not to swing the pendulum to the other extreme.
One of my fears with many of the ‘pop-up’ movements of the last decade will miss the mark on this aspect. While fighting for a particular freedom they are working to pull the pendulum or believe that their side of the pendulum holds the absolute reason and ideology. We see this on both sides and the rise of polarization has been as accelerated as most everything else in the US.
This ideological humility is probably the largest sacrifice that can be made. No one has identified this as well as Jonathan Haidt in his work on the subject. These types of ‘identity politics’ games being played at the highest levels of our society make it very hard to know what is a carrot and what is a stick any more. Identity politics really confuses that matter and ends up feeding its people sticks and weaponizes carrots.
The second sacrifice builds on the idea of carrots and sticks and returning to an agreed upon philosophy that identifies what these are. Most of us do not operate daily on the ideological fringes of the left and right and are somewhere in the middle, and while there is a spectrum of the middle. The marriage of individualism, capitalism and democracy still gives us our best shot and governs us more than we may realize.
For the government to return to this central framework is key but it will take humility as well as the partnership with us as its citizens. At the moment, Amazon probably has more potential as a company to influence this crisis than the government. That is not to say it should or will but it is only to say that there are people with abilities and ideas, like those in this book and those that enable us to get stuff on our doorstep in a day, go to space, put a million songs in our pockets and so on.
Government opening up the ideas and solutions to the broader innovators would be ideologically humbling as well as move us forward on solutions that are good for the majority. Government by no means should be the sole solution finder, though they are critical for solution implementation given their power to incentivize and legislate.
Funding becomes the biggest sacrifice place for the government and that comes in the form of taxation. Most people don’t realize that taxes have been around for just a little over 100 years. People often fail to realize another thing, any government spending on behalf of its citizens is paid for by us. People want the government to ‘bail them out,’ provide programs, stimulus and so on but fail to realize that it is only added taxes that we have to pay or our children and their children have to pay.
This makes the situation complex for a number of reasons. There must be some tax reform and the government's willingness to spend less on itself as a starting point. I have long wondered why politicians that have a net worth of over $100m require any compensation. As a test I would love to see how many continue in their role if their compensation and ability to be active in the investment marketplace be suspended while in office. It is quite financially lucrative for politicians and their families to hold office. This seems counterproductive to the foundational goal of maintaining individualism, capitalism and democracy for all.
Incentive normally comes in the form of tax relief for certain behaviors that are deemed to be advantageous. Saving for retirement has long been one way of either saving taxes now or getting tax free growth. Businesses contributing to retirement accounts and providing benefits is also a tax advantage. Most of us want as much of that as we possibly can. However, we have a bit of a pickle because theoretically, the more incentive on this end, the less tax is collected. We have added roughly $3 trillion to the debt in the last 24 months. It makes it hard to turn off some of the tax money income when you are spending at those rates. If you have bills to pay it’s hard to go to your employer and say you want a pay cut.
For those in the sub-50/sub-150, incentives for saving, retirement and accumulation should increase and continue to be a large carrot out there. I have long believed that IRA savings limits should increase for those in this group due to the issue that it can be a ‘nickel a dime’ approach to growing your savings.
I am aware that some of this may further create a wealth gap between the middle class and those in a lower socioeconomic class. I am not always sure what to do with that reality and I certainly know a stick will not fix it.
Government should continue to incentivize corporations for all their efforts on behalf of their employees. Many things are already deductions on corporate tax rates and many companies are trying to go above and beyond. Government’s continued role in assessing standards of employment and benefits feels like the right kind of carrot/stick scenario. Maintaining standards of pay, safety, benefits and so on while incentivizing those that do above and beyond fits. Tiered benefits depending on the size of the business also seems appropriate to not collapse the ever important small businesses of the US.
Lastly, legislating financial education within public education is critical. This is where government and education converge and support the entire system. Florida has instituted this and I hope more is to come. There is a growing sense that things aren’t right when it comes to the overall financial situation of the citizens of the US and the government must take this seriously in order for change to be made. Government can legislate what is good and right to be taught and ‘money math’ has often been neglected. This may be the one of the most important steps for shifting the next generation as well as educating their parents who are the current sub-50/sub-150.