You Can't Pay Stupid Away

A topic of perpetual fascination for me is the frequent self-destruction of people who suddenly and unexpectedly acquire monetary wealth. This can happen a number of ways, but the fastest version is that of lottery winners.

I don't take pleasure in seeing and reading about their fall. Rather, it's the repeated warning that these folks send out to those of us who are listening that I appreciate. If you see Icarus fly high and then plummet as the sun melts his wax wings, over and over again, you'll probably remember not to do the same and never suffer the consequences of that mistake. I know for a fact that were I ever to find myself to be the owner of a winning lottery ticket that I absolutely would not end up like these folks do; my story would be a mirror opposite of theirs.

This particular article, Jackpot Winners Just As Likely To Go Bust contains a suggestion of a related problem, that of redistributive government programs:

The study has policy implications for governments deciding how to help heavily indebted people who are struggling during economic downturns, Hoekstra says. It appears the simplest solution -- giving them cash -- doesn't enhance longer-term financial stability, and only postpones, rather than avoids, bankruptcy. The lottery findings are consistent with a 2007 research paper that showed consumers initially used their 2001 federal rebate checks to reduce debt, but eventually debt returned to its pre-rebate level.

"Our research suggests that perhaps there is something more systematic about the types of people who get themselves into financial trouble -- and the appropriate policy prescription for helping them out is going to be considerably more complex than giving them additional resources," says Hoekstra. [emphasis mine]

This is precisely what governments everywhere generally do: just hand over the money. This is to hand out fish, not teach the recipients how to catch their own, so to speak. We subsidize dependency rather than teach self-reliance. The latter essentially has a fixed cost in that a person trained to be self-reliant eventually requires no additional expenditures to get up to speed, while the upkeep of the dependent is open-ended and grows in cost over time. Eventually more people end up riding in the cart than there are people pulling it, the productive are swallowed up by the non-producers, and then everyone falls.