Sunday, December 30, 2012

Cliff Diving

We are just over 24 hours from officially going over the Fiscal Cliff.

Photo Credit: Boney Dias,
Waterfall and statutes inside the Dubai Mall

What a sad testament to the leadership of our President and the workings of our Congressional representatives.  We are not talking about something that snuck up on them.  This specific issue has been front and center for at least two years when the Bush tax cuts were first extended.  The issue even got messier when the can of necessary spending cuts got kicked down the road in the aftermath of the failure of the debt limit talks in August, 2011.

I know the Media is eager to blame the intransigent Republicans in the House but we also have not seen Senate Majority Leader Harry Reid and the Democrats in Senate do any better.  Of course, anyone who understands our system knows that this is really a total failure of leadership from our President.

Two Beltway insiders on different ends of the political spectrum, Evan Thomas, former Newsweek editor, and syndicated columnist Charles Krauthammer both point the finger of blame squarely at President Obama in The Daily Caller.

“This is not Congress’ fault,” Thomas said. “Congress is behaving like Congress. This is the president’s fault. The president needs to go to the country and explain why they need to get this done. He has never done that.” 
Thomas later reiterated his point by saying the aftermath of the election is a time for the president to spend his political capital not on gaining political advantage, but on solving a crisis.
“All political advances are with the president,” Thomas added. “What is he running for? He won, right? This is his time to actually take some political hits and tell the truth for a change instead of trying to get political advantage.”

Krauthammer adds,

“The president has never gone to the nation and made a serious speech about debt,” Krauthammer said. “He ignored it the first two years. He appoints a commission that he studiously ignores for the next two years. That’s why we’re at the cliff now. He’s not serious about the debt — none of his proposals. You raise the taxes on the rich, it’s eight cents on the dollar on the deficit. It reduces it a trivial amount of money and he’s never put any political capital in entitlement reform or tax reform. Oh, we’ll talk about it here and there — never invested any capital in it."

I have no doubt that John Boehner had the best of intentions in trying to work with the President on finding common ground.  However, Boehner was in  a "no-win" situation from the outset.  He was trying to find common ground with someone who clearly had little interest in finding common ground.  He never should have been negotiating in private with Obama.  This undermined his credibility with his own members.  He should have put all his efforts into putting together a package that would pass the House and could be sent to the Senate.

People are tired of back room deals that are driven by special interests.  The Republicans should start to build a new brand on three fundamental pillars-straight talk, no back room deals and shared sacrifice.

That would be a nice New Year's resolution to make when you are six feet underwater after going over the cliff.  I will some other ideas that build on this framework in my next post.

Wednesday, December 26, 2012

Where is our U.S. Grant?

I just finished reading Jean Edward Smith's biography of Ulysses S. Grant.  He was a remarkable man. There is little doubt that if it were not for Grant and Lincoln we most likely would not have saved the Union. Grant was also a very underrated President.

What struck me most in reading the book were the vast differences in life experiences when comparing Barack Obama to U.S. Grant before they were elected President of the United States.  Grant was actually one year younger (age 46) than Obama when he took office.  However, Grant seemed to have had three lifetimes of experiences before he ever set foot in the White House.

Born in Point Pleasant, Ohio in 1822, from an early age Grant had an enduring affinity for horses. He had an uncanny ability to train horses and his riding skills were unsurpassed.  When he was at West Point he was considered one of the greatest riders ever at the Academy. It was about the only area in which he excelled at the U.S Military Academy.  He finished 21st among 39 who graduated in 1843.  He ranked 28th in infantry tactics.

He saw combat in the Mexican-American War in which he was away from home (and his fiance, Julia) for almost three years. He married Julia in 1848 and stayed in the Army only to be ordered to California in 1852. Julia was 8 months pregnant with their second child and could not make the long trip to San Francisco which entailed a steamship voyage from New York to Panama, an overland trek across Panama and another steamer to San Francisco.

700 soldiers and their dependents embarked on the journey but only about half made it to San Francisco two months after they left New York.  A cholera epidemic ravaged the group as it transgressed Panama. All twenty children younger than three died on the journey. While most of the orderlies refused to care for the sick because of their fear of contracting the disease themselves, it was Grant who undertook the nursing of the ill himself.

Grant spent another two years in California without his wife and family. In his spare time he dabbled in numerous side business ventures attempting to make enough money to bring his young family to live with him. The California Gold Rush was in full swing and everyone seemed to be cashing in on the action in some way. Everyone but Grant. 

Grant lost money on almost every venture he attempted. His loneliness and bad luck eventually led him to rely too much on the bottle.  He resigned his officer's commission (many speculate he was forced to resign because he was drinking on duty) and headed home without enough money in his pocket to make the entire trip home to St. Louis which entailed retracing his previous path across Panama and by ship to New York.

He arrived in New York City with no money, and not even sure that his wife would want him to return to her parent's home in St. Louis.  He borrowed money from an old friend to pay his hotel bill in New York and waited to hear from Julia.  He eventually had to ask his father for the train fare home and a letter arrived from his wife welcoming him home with open arms.

Grant was 32 years of age when he left the Army. He spent the next four years working a 60 acre farm near St. Louis on land that his wife had received from her father as a wedding present. He never succeeded at farming.  Most of the money he made was selling cords of wood he would cart into St. Louis. He eventually had to look for work in St. Louis. He tried real estate and other jobs but he was not successful in any endeavor in the world of commerce.  He could not afford to have his family with him in the city and lived in a boarding house during the week. He walked twelve miles on Saturdays to see his wife and children and walked twelve miles back to St. Louis each Sunday. 

In 1860, at age 38, he eventually faced the inevitable, swallowed his pride, and asked his father for a job. His father had a leather business that had prospered over the years and he operated a half dozen retail outlets in the upper Mississippi River valley.  He gave Ulysses a job as a billing clerk and collection agent in his Galena, Illinois store.  Grant moved to Galena about one year before the start of the Civil War.

With this background you begin to see how incredible the story of Ulysses S. Grant is. Within four years of his move to Galena to take a job as a billing clerk, he was General of the Union Army. Within eight years he was President of the United States.

What made Grant successful?  First, he was not afraid to engage.  Except for Grant, most of the Union's field commanders were unwilling or unable to take the fight to the enemy. Grant knew that to win you had to be on the offensive.  Second, he led from the front and was cool under fire.  He took reversals in stride and often looked to take a disadvantage and turn it into an advantage.  Third, he was unassuming, honest and considerate.  Grant always put his country and men first.  He was as honest as they come and he always treated his enemies with the utmost of respect.

It is indeed sobering to read about the life and times of Grant and compare that life and experience to Barack Obama and other political leaders of today.  Men like Grant were tested in ways and manners so far removed than what we have in our leaders today that it is no wonder we find us where we are today.  We can't maneuver around a fiscal cliff?   What is that compared to the Battle of Shiloh or Vicksburg?

I found it particularly interesting how Grant responded to the Panic of 1873 in his second term as President.  By the way, when Grant was nominated by the Republicans for President in 1868 he gave but one speech-his acceptance of the nomination-of which he principally just focused on one theme, "Let us have peace".  He conducted no campaign as such.  Similarly, in his reelection bid in 1872 he also never campaigned.  How times have changed!

The Panic of 1873 was caused by "an insatiable desire for money that spawned a speculative boom that skyrocketed out of control.  Banks had lent money recklessly and brokerage houses had marketed securities that were often worthless", according to Smith in the Grant biography.  Does that sound familiar?

In 1873 Wall Street financial institutions started to fall like dominoes.  Grant soon came under pressure from Washington politicians to inflate the currency.  People were hurting as bankruptcies and unemployment soon followed as businesses, farms and factories were lost.  Congress felt that pumping more paper money into the system would solve the problems.  Again, does that sound familiar?
Grant was torn.  Having suffered in the Panic of 1857-that was the Christmas the president had pawned his gold watch to buy presents for his family-he sympathized with the nation's farmers and small businessmen.  Grant knew what it meant to be poor, to try to make a crop, to have a business fail, to be out of a job, and as a last resort to peddle firewood on a St. Louis street corner.  His heart was responsive to those who wanted to pump more money into the economy, yet as president he felt his responsibility was to the nation's future.  Cheap paper money might look like a panacea, but inflation was never a friend to stable government.  The United States would be driven from the world standard, the return to specie-backed currency would be set back, property values would be unsettled, and speculation rekindled.  If Congress could simply print unredeemable paper money to appease popular demand, the nation was in peril.
Congress passed a bill to greatly increase the nation's money supply (this was before the creation of the Federal Reserve). Grant then had to decide whether to sign the bill into law or use his veto power.  He initially decided to approve the measure bending to the political pressures but as he wrote down his rationale he determined that his reasoning was fallacious.  He vetoed the bill much to the shock and anger of his Cabinet and the Congress.  His veto was upheld and the nation soon moved solidly behind Grant's call for sound money and a stable currency.  The gold standard was resumed shortly thereafter that paved the way for the enormous growth of the U.S. economy in the last quarter of the 19th Century.  By 1900, the U.S. dollar had replaced all other currencies as the international symbol of financial stability. 

Where is our U.S. Grant today?

Tuesday, December 11, 2012

Cliff Dwellings

A few years ago I visited New Mexico and had the opportunity to see some of the historic cliff dwellings that the Pueblo Indians carved into the side of steep cliffs.  These cliff dwellings are not only beautiful but also speak volumes about the ingenuity of human beings to adapt to their surroundings.

Bandelier National Monument
National Park Service
Photo Credit: Richard Hasbrouck

Fast forward to the fiscal cliff that is fast approaching at the end of the year.  What we are seeing right now in Washington is certainly not beautiful.  We are also not seeing much ingenuity.  We certainly do not seem to have evolved in the slightest based on what we are seeing.

The Pueblo Indians eventually had to abandon their elaborate cliff dwellings in northern New Mexico as drought forced the indians to relocate to areas nearer to the Rio Grande valley.  The parallels of history are interesting as we are on the cliff today not because of prolonged drought but because of prolonged deficits.   The indians didn't have enough water to continue to sustain themselves.  Today we don't have enough money to sustain ourselves.  Our well is as dry as it was for the Pueblo Indians in the late 16th century.  They had to change, move and adapt.  We have little choice but to do the same.  We just can't seem to be able to do it.

I hate to keep dwelling on the cliff but I can't help myself.

  • President Obama's leadership on this issue has been atrocious.  His public proposal is laughable.  He wants to raise taxes $1.6 trillion and he has offered the grand sum of $400 billion in spending cuts.  $4 in taxes for every $1 in spending cuts? This is balanced?   In my view, he has the ratio right he just has the numbers reversed. How about $4 in spending cuts for every $1 in taxes?

  • Speaker Boehner is in an unenviable position from all accounts.  He is in a tough position to begin with but he has made it much worse with the way he has handled the cliff negotiations.  In light of the fact that he needs to deliver a couple hundred votes to whatever plan he agrees to with the President,  I think he has made an enormous mistake in not putting forth some clear principles and made it public.  For example, he should have said that for any revenue increase there needs to be $4 of spending cuts.  I think he should have also been putting plans up for votes by the House that his caucus would support and sent the legislation to the Senate.  Make it clear to the American people it is the Senate and President Obama who are not putting anything on the table.  

  • If the best deal the Republicans can put together is the proposal they sent to the President that they are willing to accept $800 billion of tax increases for $600 billion of spending cuts, they might as well do nothing.  That is merely going to anger their base for nothing. I have long supported a tax increase (including a rate increase) as a bargaining chip. However, I would not agree to any tax increase without spending cuts of at least $3 for every $1 of revenue ( I would have started at 4:1).

  • I think that John Boehner is going to have a hard time retaining his position as Speaker based on how this is playing out right now.  I know that John Boehner is a responsible person who is trying to do what is right.  However, at this point, the man has not been equal to the moment.  I hope he can strike a deal for the good of the country that is truly balanced and can result in meaningful spending restraints.

  • I continue to believe that Barack Obama has the most to lose long term from any failure to get our fiscal house in order.  We are heading for a day of reckoning.  When that day comes people are not going to blame John Boehner or Mitch McConnell.  He is the quarterback.  Ask Mark Sanchez how that works.

  • No one wants to lead on the fiscal cliff negotiations because no one (with the notable exception of Paul Ryan) has tried to tell the American people the truth.  As a result, you see these types of poll results.  It basically comes to this.  We need to do something about the deficit but don't tax or take any government goodies from me, take it from thee.  Tax the rich.  Tax large corporations.  Cut Medicare for the rich.  The one thing that people say they would accept is cutting government spending across the board.  In fact, that gets more support than taxing the rich.  

  • This underscores the fundamental problem we have in this country today.  Everybody thinks someone else is taking advantage of the system to their detriment.   On taxes, people thinking the rich are using loopholes to avoid paying their "fair share".  On spending, people know that everybody is getting something from the federal government and they are worried someone else is getting more than them.   Total reform of the tax system to eliminate all deductions and preferences and across the board spending cuts are the only solutions.  I wrote about my tax reform plan last August. It's time to put the public interest ahead of special interests.  Why isn't this the Republican plan and their main talking point?  
I am heading back to my cave dwelling now.

Friday, December 7, 2012

Why Work?

There is a lot of debate and discussion about the fiscal cliff in Washington right now.  However, we never hear anything about the welfare cliff.

What is the welfare cliff?

It is the point in which it makes more sense to sit at home and do nothing and collect welfare benefits than do work.

Tyler Durden of Zero Hedge writes about the welfare cliff in "When Work Is Punished: The Tragedy Of America's Welfare State".  He cites a recent presentation by Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania, in making his key points.

To illustrate the welfare cliff consider this fact about a single mother in Pennsylvania with two children.

The single mom is better off earning $29,000 with gross income of $57,327 in net income and benefits including welfare assistance than to earn gross income of $69,000 solely from working that nets out to income and benefits of $57,045.

The two charts below are from Alexander's presentation which is worth looking at to also see the massive growth in welfare and Medicaid over the years.

What is also sobering is what the welfare burden has become on working taxpayers.  For every 1 person receiving welfare assistance nationally, there are only 1.65 employed persons in the private sector.

For every, 1 person who is either receiving welfare or works for the government, there are only 1.25 persons working in the private sector.  After all, either way, taxes are needed from the private sector to support these payments.  Ouch!

One big factor in why the welfare recipient makes out so well is the tax-free nature of welfare benefits and the refundable tax credits that are built into the Internal Revenue Code. Tax loopholes are not just for the rich any more.

Providing housing assistance, food stamps (EBT), welfare, Medicaid, child care assistance and Obamaphones in after-tax dollars provides a significant income advantage to the welfare recipient compared to a middle-class worker.

Consider a cell phone.  If a private sector worker and taxpayer wants a $50 monthly cell phone plan, they need to earn about $65 to pay for the cell phone.  They need to pay income taxes (15%), FICA (7.65%) and state taxes before they have the money to spend on the cell phone.  People on welfare are just given the cell phone.

I am all for helping people who need a helping hand.  However, this is clearly not a sustainable path.

It also clearly shows that the incentives in the system are not properly aligned to get us the results we should be getting.  Our goal should be to get as many people in productive roles in our society as we can.  Our welfare programs are clearly not doing that.

We should also have policies that foster as much alignment between people in our country as possible. The disconnect between the people working and paying the bills and those receiving government benefits will do nothing but create greater discord in society if we don't fix this.

If we get past the fiscal cliff I certainly hope that we will soon start looking at the welfare cliff.

Tuesday, December 4, 2012

FISCAL Cliff Notes

A few short cliffs note summaries on how I see the Fiscal Cliff negotiations at this time.


  • Congress undoubtedly will recess no later than December 21.  Any bill to be voted needs to be ready by at least three days before that (December 18).  That is exactly two weeks away.  There is very little time to get something done. 

  • The Obama White House is not conducting a negotiation.  They appear to only be interested in playing a blame game.  The Republicans should have understood this from beginning and a big priority should have been in taking positions that would shift responsibility (and blame) to Obama.  Conceding the tax rates is the best way to put the onus on Obama.

  • I agree wholeheartedly with the substance of attempting to reduce rates and broaden the tax base.  However, this is too complicated for the average person to understand.  The Republicans should concede the tax rates in return for substantial spending reductions or they will continue to get beat up.  Raising rates on the rich are the only thing that they have to use to get the spending cuts that are necessary.  That is the reality whether they like it or not.  It is a valuable bargaining chip and they should get something very big for it.

  • I wrote previously that I thought they should have conceded the tax rates right after the election and asked for the repeal of Obamacare and spending cuts equal to at least $3 for every $1. There would probably be little chance that Obama would take this deal but what would Obama be talking about right now?  It would have changed the conversation dramatically as well as the blame.

  • The Republicans have an inherent difficulty in these "negotiations" as there is no one person that can really speak for them.  The President has a lot of authority to take positions and lead.  John Boehner and Mitch McConnell cannot do that.  They have to make sure they have almost 300 other members of Congress with them to do anything.  That is an almost impossible task.  It also puts them at an enormous disadvantage in the fiscal cliff talks.

  • The most outrageous demand that Obama has made in the negotiations is that he wants to have the  unilateral power to raise the debt ceiling.  This is not only audacious (The Audacity of Hope?) but also would completely usurp the Constitutional responsibility of Congress.  It is almost akin to Franklin Roosevelt's attempt to stack the Supreme Court in the 1930's.  For those who might have forgotten, the U.S. Constitution, Article 1, Section 8 says in part.
The Congress shall have the Power to lay and collect pay the Debts of the United States...To borrow Money on the credit of the United States.
           It does not mention the President at all.

           The Constitution in Article 1, Section 7 also states
All Bills for raising Revenue shall originate in the House of Representatives

  • Due to this Constitutional power and the inherent difficulty the Republicans have in "negotiating", I believe that the only way forward for the House is to write legislation, pass it and send it to the Senate.  I would have 3 or 4 bills ready to go.  Pass the first and send it on.  If the Senate does not act, pass another option and send it on.  Do this between now and December 18.  If nothing is done by December 18 go home and the Democrats can decide which of the options (if any) they want to use to avoid the fiscal cliff (if they really want to avoid it).  
    • I still believe the best alternative is to pair the tax rate increase on the rich with a repeal of Obamacare.  
    • A back-up plan is to take a one-year increase in the rates on the rich for a one -year deferral of Obamacare.  This provides time for tax and entitlement reform.  Set goals on each and if they are not met the tax increase expires and Obamacare is repealed at the end of 2013.
    • There are probably other good ideas.  The idea in each is to give Obama and the Democrats what they profess they want (tax rate increases on the rich) but extract a very, very large concession for it.  

  • Many ask me what I think will happen.  I have no idea.  I know John Boehner to be an extremely responsible person.  He will do everything he can to produce a deal.  However, I am not sure that Obama wants a deal.  If I had to bet, I think we will go over the cliff because I think Obama does not really want a deal.  He wants more revenue, he wants big defense cuts and he wants to blame it on Republicans.  He gets all of this by going over the cliff the way things stand now. That is why I think the Republicans are making a mistake by not agreeing to the tax rate increase on the rich in some form or manner as I suggest above.  Forget the negotiations.  Win the blame game and let Obama live with whatever comes.

Monday, December 3, 2012

Data, Drop-Outs and Dreams

I came across an interesting data set published by the U.S. Department of Education on elementary and secondary education over the weekend.

A few of the highlights.  All data is for the 2010-2011 school year.
  • There are 50 million students enrolled in primary and secondary schools in the U.S.
    • 48% are considered "low income" and qualify for either free or reduced-price lunches.

  • Only 52% of students are white.  24% are Hispanics, 16% Black and 5% are Asian.
    • In Texas, 50% of all students are now Hispanic.  Only 31% of Texas students are white.  
    • In California, 51% of all students are now Hispanic.  Only 26% of California students are white.

  • There are 92,699 schools but only 47,832 (51.6%) are considered to be making Adequate Yearly Progress (AYP) by meeting all of their performance goals.

  • Only 77% of students nationally who begin the 9th grade graduate four years later. 
    • Iowa has the best record of graduating students with 88% receiving their diploma.  In the District of Columbia a mere 59% graduate.  I thought it was interesting that Texas tied for third with a 86% graduation rate.  Other states of interest-California (76%), Massachusetts (83%), New York (77%).  Low tax Texas has a much better graduation rate than these high tax states.

  • On reading achievement, only 32% of all students nationally in the 8th grade were considered proficient.  The breakdown by demographics-whites (41%), blacks (14%), hispanics (18%), low income (18%).
    • Math achievement is slightly better overall with 34% of 8th graders considered proficient.  The breakdown by demographics-whites (43%), blacks (13%), hispanics (20%), low income (19%).

How much are we paying for all of this?  Another data set from the National Center for Education Statistics provides those answers.  This data is from the 2008-2009 school year.
  • School districts had total expenditures of $610 billion.  $519 billion of this was for current expenditures for public elementary and secondary education.  Of the remaining expenditures, the bulk of it ($74 million) was for capital outlays and interest on debt.
    • To put this in perspective, total costs for Social Security and Medicare were $1.1 trillion in 2009.  Therefore, we are spending roughly twice as much on these programs for seniors as we do for public elementary and secondary education for the young.

  • Current expenditures for public elementary and secondary education amounted to $10,591 per pupil.  In constant 2010 dollars, this is equivalent to $10,694.
    • Since 1971, spending on education has increased almost 1,200%.  In constant dollars, spending has increased 133%.

Current expenditures per pupil in fall enrollment in public elementary and secondary schools: Selected years, 1961-62 through 2008-09
School year
Current expenditures in unadjusted dollars

Current expenditures in constant 2009-10 dollars1

                                Source:  National Center for Education Statistics

One of the data points that I found interesting was the excellent performance of Texas in graduating its students.  The liberal mantra is that a state like Texas is shortchanging its education system with its low tax philosophy compared to other states.  Let's look at spending compared to results in D.C., California and Texas.  All of these states have large minority populations. However, D.C and California have high tax, liberal philosophies and Texas has a more conservative, low tax outlook.  What type of results are they getting in the classroom?

  • The District of Columbia spent $19,698 per pupil ( 89% higher than the national average)  despite the fact that only 59% of its students graduate from high school.  California spent $9,503 per pupil and graduated 71%. Texas spent $8,562 per pupil (19% below the national average) and graduated 86% of its students.  

  • The District of Columbia had a pupil/teacher ratio of 12.03 compared to 14.73 in Texas.  California had the worst pupil/teacher ratio in the country at 24.12.  The second worst is Utah at 22.80.  

  • Only 10.5% (average of reading and math scores) of low income students in the 8th grade (this seems to be a more objective standard of measuring school performance as it cuts across race elements in the data) in D.C. were proficient in reading and math achievement.  In California,  the comparable score is 13.5%.  In Texas, 22% of low income students are proficient.

What does all of this data tell us?  Despite what we often hear, spending more on education does not necessarily correlate into better academic performance. If money alone was the answer then the District of Columbia would be leading the nation in Advanced Placement test results.

30 years ago I did extensive analysis on what factors had the biggest influence on academic performance in primary and secondary schools.  After looking at a lot of data I came to the conclusion that children living in two parent households seemed to have the highest correlation with academic performance in the classroom.  It appears that this fundamental fact still holds true.  There is a limited ability to affect the educational outcome of a student in the classroom if a good foundation is lacking in the home.

In Washington, D.C. only 36% of children live in two-parent households.  By comparison, 79% of children in Utah live in two-parent households. Therefore, even though D.C spends nearly $20,000 per  pupil and has only a 12/1 pupil/teacher ratio, its student performance is abysmal.  Utah spends only 6,612 per student (1/3 of D.C.) and has a 22.8/1 pupil/ student ratio (almost double that of D.C.).  Utah does have the advantage of having far fewer low income students than D.C, however, 20% of its low income students are performing at a proficient level of achievement compared to 10.5% in D.C.

Last year, 41% of all births in the United States were to unmarried women.  For blacks, 72% of all births are to unwed mothers.  53% of Hispanic births are to unwed mothers.  This compares to 29% for whites and only 17% for Asians.  In 1960, before the War on Poverty, blacks had a lower percentage of illegitimate births (22%) than whites. What has happened and why is it important?

The Brookings Institution sponsored a study in 2009 that found that if an individual does just one of two things--graduates from high school or marries before they have children--the chances that they will end up in poverty are only 1 in 4.  However, if they do neither, the chances that they will end up in poverty is 3 out of 4.  If an individual graduates from high school, marries before they have children and gets a full-time job, the chances they will end in poverty is only 1 in 50!  More importantly, if an individual adheres to all three of these social norms, the chances they will end up in the middle class or above is 3 in 4.

I have long thought that we have been way too lenient when it comes to high school drop-outs.  We spend billions of dollars to provide a free education in our public schools.  In doing so we are also providing real opportunity to everyone.  If someone chooses not to take advantage of this opportunity, we know from the data cited above that the individual will most likely end up in poverty.  This means that society will most likely need to continue supporting that individual for most of their lifetime. And there is a good chance that the cycle will continue into the next generation. Is this right?  Does this make sense?  Are the incentives in our system aligned properly to get the right results?

What if it was our policy to provide notice to every 9th grader entering high school with something like this?
The taxpayers are providing you with a free public school education.  In the world today, a high school diploma is essential to your future economic well-being.  It is the bare minimum if you are to become a productive citizen in our country.  We are delighted to be able to provide you this opportunity.   
Please be advised that should you not avail yourself of this opportunity and choose to not graduate from high school, you will be permanently prohibited from access to any government benefits in the future.  This is not something we want to do, but if you are unwilling to assume the responsibility for preparing yourself for the future, the taxpayers are not willing to support you if you cannot support yourself.  
As a society we stand ready to assist anyone who is willing to take responsibility for themselves.  However, we will not provide public assistance to anyone in the future who does not take advantage of this most basic educational opportunity that is being provided to you.   
Good luck on your next four years!  You are on the right path to soon assume your place as one of the taxpayers who can return this favor to the next generation of Americans as it has been provided to you.  
It would be interesting to see what the high school drop out would be if this policy was in place.  This would be my own version of what I call the American Dream Act!  I can still dream, right?