The Common Good, Individualism, and Uncertainty in Personal Finance

uncertainty government personal finance

What happens when we place an individual’s well-being over the “common good” of the community? Are government benefits reliable for the long-term? 

Rebate checks vs giving teachers raises

I recently read an article that explained that South Carolina taxpayers received a check for $50 each. The money is coming from taxes on a recent lottery winner in the state.

One state senator quoted in the article mentioned that she thought the money should have gone towards education funding, instead.

In a related article, the governor is quoted talking about how leftover money should always be sent back to the taxpayer.

If you’re a single adult, you might not care very much about the education system — but it would benefit hundreds of thousands of students in the state. Conversely, if you do have school-age children, you might get much more than $50 of benefit if your kids experienced smaller class sizes or more qualified teachers.

Ultimately, in a Republican-leaning state, I have to wonder if legislators were primarily motivated by their future re-election aspirations. This $50 check is a tangible benefit to taxpayers that they can point to during their future campaigns.

This story is a great illustration of how politics and support for different government programs are ever-shifting.

Individualism vs collectivism (the “common good”)

All cultures or political systems can be viewed on a spectrum of individualism vs collectivism. What does that culture or ideology value more — individual liberty and control, or the well-being of the group and success of society as a whole?

These cultures and ideologies are formed over decades and generations. In the United States, for example, we historically tend to value individual freedom and achievement.

During political campaigns, politicians from both parties typically present themselves as hard-working, relatable people. They wear blue jeans and roll-up their shirt sleeves in their television ads to signal that they have a strong work ethic and to give the impression that they’re self-made, high achievers.

Entrepreneurship and individual achievement are considered to be valuable and admirable in American politics, too. This is a frequent theme in the personal finance blogging community, as well.

My point here is this: politicians want to present themselves the way that they think that we want them to be.

United States political incentives

In all political systems, politicians are incentivized to some extent to do what citizens or voters will like. Even in monarchies or authoritative governments, citizens can and will revolt if they become unhappy enough. US politicians are incentivized even further by the threat of losing their seat during the next election cycle.

This incentive is good, in many ways. It’s what the United States Constitution intended, and in my opinion it is preferable to a more authoritative form of government. But, there’s a flaw in this design.

Perverse incentives

There’s a perverse incentive for law-makers to do things that will make voters happy in the short-term, while disregarding long-term consequences.

In a previous post about planning fallacy, I referenced a Freakonomics podcast episode about the topic. In this episode, perverse incentives are discussed in close relation to planning fallacy.

For example, why should the mayor of New York City, be worried that the subway renovation project will take so long or be so expensive? The only thing that he is incentivized to care about (for his next re-election) is that the project appears to be valuable and, in the short-term, addresses an issue that voters care about.

Why should today’s lawmakers care about long-term climate change effects from using certain fuels and resources, when they can generate revenue or inexpensively provide energy to voters in the short-term?

So, who is incentivized to put the “common good” first in the long-term?

Basically, no one! Not the legislators, at least.

There are global leaders, academics, scientists, and non-profit organizations that do try to forecast long-term threats to society, but there is often a disconnect between what they advise and what voters and legislators want to do.

Does the common good matter? Absolutely. I believe that most people truly do want the world to be a “better” place, but we all disagree about what that looks like and how to get there.

What does this mean for your personal finances?

I didn’t write this post to try discourage you.

I think political awareness and participation is a worthy use of our time, and I don’t want to discourage those efforts, either.

But, political leadership and financial policy are all fluid and somewhat unpredictable. Government policies or programs that appear to be reliable are subject to change.

Retirement account contribution rules can change annually. Even Social Security benefits, many believe, may have to be reduced at some point in the future due to the deficit in incoming funds.

Regardless of your preference between individualism and collectivism, the United States seems to be trending towards more collectivist and socialist policies in the long-term. This creates even more uncertainty about the timing and extent of this evolution.

Are you prepared to be flexible?

Because these policies are fluid, we all need to be flexible, informed, and prepared for future shifts.

To me, this is one of the greatest benefits of early semi-retirement compared to other retirement strategies. You can adjust your working years, hours, or number of projects as the global market and policies evolve.

One other practical takeaway is to take advantage of tax-advantaged retirement savings methods now.

I’ve written before about different ways to access your retirement savings early, but I’m personally inclined to lean towards tax-deductible accounts like a 401k or IRA for this reason: you get the tax deduction now. By getting the tax benefit in the present, you eliminate one level of future uncertainty: tax law changing and eliminating your possible future tax benefit.

Plus, there are several great options for accessing those account types, specifically, without penalty in your early retirement.

How do you think about future risk and uncertainty?

This topic is, of course, a bit subjective since it deals with future uncertainty. I’m curious to hear how you are preparing for future unknowns.

What are you most confident in or most concerned about when you think about the future? What are you doing to be ready or to reduce your risk?

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