The Paradox of Aid

When our kids get in money trouble, they turn to us for help. That’s okay when they’re eight, not so good when they’re eighteen, and alarming when they’re twenty-eight. For them to be full-fledged adults, our kids should understand—strike that, should have it ingrained--that we won’t bail them out. Their first instinct should be to solve problems on their own. If they get used to Dad and Mom coming to the rescue, they’ll never learn to fix things by themselves.

A society built upon the dependency ethic is headed for decline. To use a current example, if debtors facing foreclosure learn that they can cause their legislators to require lenders to halt proceedings, debtors quickly discover that passing a law is easier than taking the painful personal steps to pay the debt. Lenders then garner government aid because they’re in a weakened condition themselves. Future taxes inevitably increase.

The government’s power to tax (the power to tax is the power to destroy) distinguishes the societal from the simplistic familial circumstance. When the kids hit a rough patch, Dad and Mom choose whether to help. There are (usually) feelings of gratitude and goodwill on the part of donee and donor. If, however, Dad and Mom are compelled to turn over their hard-earned dough, resentment is often their natural reaction. Worse, they may just decide to work less; there’s little point in their labor’s fruit going to such ungrateful human beings who show little inclination to stand on their own.

In recent weeks there’s been a repopularization of the Keynesian concept of the paradox of thrift, in which the virtue of savings is counterproductive to a recessionary economy that needs higher consumer demand. As we embark on the largest deficit spending program in world history, let’s not forget the paradox of aid, where large-scale efforts to help the unfortunate lead to stifling the productivity and innovation that make such help possible in the first place. © 2009 Stephen Yuen