Thursday, January 16, 2014
Just Enough to Keep You Poor
When the disappointing jobs numbers for the month of December were released last week, the media immediately began scrambling to defend the deplorable state of the economy and the labor participation numbers. I learned of the jobs report as breaking news on MSNBC while I was at the gym. (No, I was not actually watching MSNBC, but it was airing on one of five screens filled with programming, and I happened to be on an elliptical directly in front of that particular screen.) The MSNBC captions screeched the breaking news that only 74,000 jobs were created in December, followed by another breaking news caption announcing that unemployment had fallen to 6.7% but only because so many Americans stopped looking for work.
Over the past few days, the media has been speculating about how much of this drop in workforce participation is due to the aging of the American worker and how much of it is due to the weak economy. In other words, if the jobs were available, how many Americans would actually get up today and go back to work?
On Tuesday I wrote about what I call a "lethal cocktail" of heavy regulations which are crippling businesses coupled with easy government incentives to not work. I believe that both are poisoning our economy and our country. Regulations, taxes and fines are choking small business owners and killing their incentive and ability to make a living. But at the same time, we have an expansion of our "safety net" in the form of long-term unemployment, welfare and social programs unlike anything we have ever experienced and this expansion of easy money is just as toxic to our system as the regulations which are destroying jobs.
One such incentive is the Social Security Disability system. Since 2007, 1.8 million Americans have begun drawing Social Security Disability checks. Although these checks are supposed to help people who are severely disabled and unable to work, the red tape of the Social Security system has led to an industry of attorneys who advertise for workers wanting to drop out of the workforce and draw disability checks. Since the government pays the attorneys for each case they win, this has become a hugely profitable area of legal practice with a very high success rate. But as James Sherk of the Heritage Foundation recently told the Saint Louis Dispatch, “There’s a lot of evidence that applications for disability insurance are substituting for unemployment in many cases..The huge problem with this is that once people go on disability insurance, they basically never come back.”
When I was a loan originator, I did some mortgage financing for a group of attorneys who specialized in getting Social Security Disability checks for their clients, and they were happy to explain to me in detail how it works. For those who don't know, this is basically the process:
A person who wants to get on Social Security disability applies to the Social Security Administration for disability. In over 90% of cases, they are denied. A young person who is seeking such a check must demonstrate that he is so disabled as to be completely unable to work. Therefore, in most cases, the young guy who lost his leg in a motorcycle is not going to qualify, because although he does have a genuine disability, the nature of his disability does not mean that he can no longer work at any job; it just means that he is going to need to make some life changes to continue to be productive. Permanent disability is just that--permanent.
After at least two rejections of the claim by Social Security, the claimant can go visit an attorney. Most successful applicants are between 50 and 60 years of age and have worked in day labor jobs. They have back issues, diabetes, or other documentable health issues that, combined with their age, make them sympathetic to a judge. The attorney collects the evidence of disability and files the case with Social Security. The process takes two years, but the success rate is very high--the majority of those represented by the attorneys I knew were accepted in the Social Security system. They start getting a permanent disability check--based on the assertion that they can never work again. The attorney's fee is paid by the government. The last time I spoke to my client-attorneys this fee was $4000.00 per case.
Because of the nature of the process, the Social Security disability system opened the door for attorneys to become millionaires. As the managing partner of the law firm explained to me, the two-year window that it takes to get the cases approved combined with the heavy paperwork required shut out a lot of attorneys and created a field of legal expertise with guaranteed paydays and relatively little competition. But for those attorneys who had the financial means to work through the system and get started, Social Security disability law led them to the land of milk and honey. Attorneys who got established became multi-millionaires. These law firms had both incentive and funds to advertise, which led to a steady stream of new applicants seeking a disability check from the government.
And their clients? In exchange for a few hundred dollars a month, their clients traded away their ability to ever work again. Few working Americans realize just how little free money it takes to keep people poor. El Paso, Texas, is a very liberal city and I have met a lot of people drawing some form of welfare. The funny thing about government assistance is that it eventually becomes an end in itself. Fear of losing that "free" money becomes all-consuming; I have seen people who weigh every decision based on whether it will impact their government money. What is supposed to be temporary assistance or "a hand up" in times of trouble becomes a crutch and then a life-style, and then eventually the family business as new generations are born into households where the parent or grandparents do not work but receive "free" money from the government. Eventually, this "free" check costs the receiver his independence, his creativity, and the profits of any gifts or talents he might possess that he would have otherwise used to improve his own life and that of others.
As Congress debates the budget and the Senate debates extending unemployment benefits, we in America need to take a hard look at the government programs and entitlements that we are bankrupting our country to secure. We cannot fix the budget or the economy or the labor participation statistics unless we are willing to radically transform the way we handle welfare and social programs. These programs are costing us more than mere money--they are draining our nation of its incentive, its creativity, and its opportunity. We are creating a society that is content with receiving just enough to keep it poor. And we are teaching the next generation that work is for suckers.
When the mafia extorts money from you to allow you to live, they call it "protection money." When the government does it, they call it "consumer protection." Either way, you are paying for protection from someone who has the power to take everything you have.