Parent’s Paying for Their Children’s Tuition With Taxes?

“Many former students, who took out loans to get through college, are finding it hard to pay the money back. Lenders are tightening up on the scholars too. And the Bush Administration is so alarmed at the thought of all the college keg parties that might be canceled; it has proposed to buy student loans from the lenders.

“Where will it get the money, you ask? From taxpayers, of course. Who are the taxpayers? The parents of the students, obviously. Then, why not let the parents keep their money and pay for their own children’s education?”

– The Daily Reckoning

This is what I like to call “Inverted Economics”. The professional community explains the issue one way while the classical economists laugh at its complexity.

Why do we pay taxes for things we may otherwise pay for ourselves? If there was need for a major highway, I would understand. No individual or business would want the burden, and besides, it would often be unprofitable. So we pool together our funds, give it to the government as a joint account to build roads for us. This contribution, or “social investment” if you will, is called “taxes”.

But what happens when we can otherwise pay for such things? Eventually taxes will be necessary to fund an ongoing war, a trade deficit and an exorbitantly high standard of living. Maybe in this case families with kids in college perceive themselves too foolish to personally hassle with the funds of tuitions and ask of the Government bureaucrats to instead just send them the bill, albeit in their tax form. [Unfortunately though, the country is shared by all and the bill will also be such].

Classical economics dating back to Adam Smith in the late 1770s, with history as its guide, has shown that all trade eventually comes full circle. The smart creditors who offer services to those in good standings, get paid. The foolish ones who cared more about their interests than their safety are taught the valuable lessons of risk and reward for the future, while their funds are handed, through the “invisible hand”, to those who will treat it with more respect, reserve and humility.

In the book “Economics in One Lesson”, Henry Hazlitt puts together the case that many economists today focus on short-term instances as oppose to also looking at the long-term effects, and on a specific group, without also considering the consequences, or rewards, of many groups, or to the economy as a whole.

Investing should be no different. We must always look beyond the horizon and pat attention to what the headlines may tell us tomorrow, not just what they “gibber” today.

Thus our multi-year investments still stand unscathed and unchallenged by the gyrations of both news, nuisances and markets.

Buy commodities! And for those of you who call such an act “unAmerican”: I’ll address that in the next article, G-d willing.

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