November 15th, 2008


President Elect Barack Obama

Dear Mr. Obama:

I know you are working hard to ensure a smooth transition and am confident that you will address the many issues facing our country, particularly our financial crisis, when you are President. On the financial side I thought you might like to hear one opinion - maybe it will give your team some ideas that would go towards finding a solution and preserving our freedoms.

This crisis is causing many of us to be worried how we are going to pay the bills - even how we are going to manage to just stay alive. We react by cutting off all spending that we can. Plus a person who is fighting for survival is not going to be too concerned about the rest of civilization and the law. Which makes it even harder for everybody.

The classic solution is to provide welfare assistance, or a "stimulus plan" that consists of handing out money. There is a dynamic to taking assistance that causes people to shrink into themselves and avoid exploration of the possibilities in this world. In addition, since they are contributing nothing to the world, more fortunate people who wind up paying for it resent the "freeloaders", and government winds up spending a lot of money checking up on the recipients. There is a vast reduction in freedom for the individuals involved, and a huge risk of winding up on the wrong side of the law.

I think there is a better way.

First, I think we need to make it real easy for businesses to hire workers and avoid having them on public assistance. The first 1500 per month (for example, this number should be recalculated from time to time) of a person's income should be untouchable - no income tax, no unemployment tax, no mandates (including health insurance) on the employer other than a minimum pay rule and reporting, and no court ordered payments/garnishments that take any of this money. This will ensure that a job will always pay enough to keep a person housed and fed, and there will be plenty of them from private employers. All the current obligations could continue to apply after the initial exemption amount.

Second, I think there is no real reason why assistance needs to be unearned. I am sure the state always has some work any person can do. Make them work half a day every working day to get assistance. The other half they can use to look for something better. The amount paid should be less than the minimum above, and just barely enough to keep them alive and able to look for something better. Because they are not "freeloading" and they do not get paid unless they actually work, there is no need for any time limit, monitoring or penalties. Because they have to actually work and interact with society and dont get much for it, they will be very motivated and still have the social skills to move back into private employment. The fact that they are actually earning their money will maintain their pride in themselves. This is essentially the FDR plan. This is unlike the current system, which uses the threat of penalties to encourage(force?) people to find work, and pays them anyway for upto five years if they dont. In the proposed system, the state would show them a number of guaranteed and some non-guaranteed work options, and they do not get paid if they do not work at at least one of the options. If they choose to not avail themselves of any, and choose to live and die under a bridge, then thats their choice! Kids attached to people who make this choice not to work at all should simply be removed and supported separately.

Today we are already spending money on welfare recipients. If there is real value to the work done by the people receiving assistance, then this item will simply vanish from the budget. I also believe under the current law, you can accomplish the second step by making some arrangements within HHS and issuing an appropriate executive order.

A third step would be to lift the cap on the unemployment provision. Let people decide how much to set aside for potential unemployment above the current limit, and defer taxes and other assessments on this money until it is used to cover a period of unemployment. This would work like a 401K except that the money could be taken without penalty (income taxes would still be owed) during periods of unemployment. The states could set up the rules, limits and funds into which these monies would be paid and later reclaimed. This would require state cooperation on taxes and assessments to be truly attractive to people. A great advantage of such a scheme is that fear would cause contributions to soar in uncertain times - exactly when redemptions increase.

One of the important elements is the bar on court ordered assessments/garnishments on this "personal survival" income. There is an element of psychology referred to as "Maslow's hierarchy of needs" - a person concerned about personal survival is unlikely to have any consideration for others or his obIigations to society. I think one of the biggest mistakes of the Bush regime was the elimination of or high hurdles to the use of personal bankruptcy. This fueled predatory and unwise lending - people can accumulate and no longer deal with untenable debt. In some countries, this kind of debt is regarded as tantamount to slavery, which it really is, and is referred to as "indentured servitude". We really should consider how each of our new laws are contributing to reinstating "debtor's prisons", and if the existing ones have not already.

I have spent some time thinking about this, and would be happy to go into further detail with a member of your team about the implementation, the psychology, some of the problems, and how to address them if you are interested.