PrintMarch 13, 2010
The Land of Entitlements
Even though more than half of government spending goes to entitlements, the era of entitlements is a relatively recent phenomenon in the history of our country.
Democrats are eager to defend creating yet another health care entitlement by flatly stating that "everybody loves Medicare." To put this in context, one must realize that there are no Medicare recipients alive today who have firsthand knowledge of being without Medicare while elderly. Some may remember their parents or grandparents surviving well into old age without Medicare, but not themselves. Very few alive today remember a time without Social Security. Within the space of a human lifespan, our society has become a culture conditioned to accept (and expect) entitlements as the norm without questioning the consequences. It has been a very effective strategy to enlarge government.
Social Security was enacted in 1935 (75 years ago). The country was suffering in the Great Depression. Communism was actually popular in this country at the time. The very concept was unprecedented. It is important to realize that the average life expectancy in 1935 (all races, both sexes) was 61. Social Security was originally intended to provide supplemental retirement income for workers (and their spouses) after they retired and reached the age of 65. At the time Social Security was enacted, it was palatable to the American public and a reasonably safe bet for the federal government. Most people didn't live long enough to become eligible. For several decades, Social Security did not appear to be the obvious Ponzi scheme that it is. At its inception, there were something like sixteen workers for every Social Security recipient, and the associated payroll taxes were low. Left alone, Social Security would be solvent to this day and perhaps far into the future. But things changed.
Before too long, Social Security was funding all sorts of things for which it was never intended (e.g., disability and dependent children). Congress viewed it as a giant vote-buying machine. Further, they saw that great big pile of money from Social Security payroll taxes and couldn't help but spend it and replace it with worthless IOUs. Perhaps more worrisome, within thirty years of Social Security's being enacted, the average life expectancy increased to about 70. As a result, over time, there were more and more living eligible recipients and fewer workers per recipient. By this time, it was politically impossible to stop the Social Security juggernaut. Every worker who had been taxed for this entitlement expected to receive it. Many had parents or grandparents who had come to depend on their Social Security payments. What was originally envisioned as a supplemental income came to be viewed as a total government-funded pension. If the money collected through payroll taxes had not been spent as fast as it came in, Social Security might still be solvent today. But this is not the case.
Estimates vary, but right now, the Social Security Administration is posting an unfunded liability of about $38 trillion. The current worker-to-recipient ratio is just under 3:1 and is expected to reach 2:1 within only a few years as baby boomers start to retire. For the first time, Social Security is paying out more in benefits than it is collecting in payroll taxes. The nation is staring down the barrel of a very real financial crisis...and politicians are fretting about the planet being slightly warmer ninety years from now.
Had Social Security never been enacted, or (at least) had it been reformed when we had a chance, our country would be in much better financial health now. I clearly remember my father complaining that my maternal grandparents drew far more from Social Security than they ever paid in. This is probably true for every generation ever since Social Security was enacted. My father passed away last year at the age of 90 (he retired when he was 63) and my mother is still alive at age 87. They have drawn many times more from Social Security than they ever contributed. We are today witnessing the inevitable implosion of the largest Ponzi scheme ever devised by mankind. Social Security essentially defines "unsustainable." We can buy some time, but none of the necessary measures are palatable to either politicians or the American public.
The obvious remedies are to raise the age of eligibility to at least 70 (today the average life expectancy is nearly 79), increase Social Security withholding taxes, establish some form of means testing (i.e., don't pay Social Security benefits to retiring millionaires), and perhaps somehow correlate total lifetime benefits paid with total contributions. These measures will buy us time, but they won't fix the fundamental problem. In short, it is utterly impossible to continue down the path FDR established 75 years ago.
If Social Security doesn't pose enough of a threat, then there's this: Left unchecked, Medicare will utterly bankrupt the nation. Medicare was enacted in 1965 following other "Great Society" welfare measures. At the time, the average life expectancy was 70. More significantly, medical care was not as sophisticated or expensive as it is today. There were few effective interventions for the big killers -- cardiovascular disease and cancer -- in 1965. Who could have predicted the absolute explosion in medical and pharmacologic innovation? Who could have anticipated that life expectancy would continue to increase? Consider how common such procedures as total knee and hip replacement are today. Think about coronary artery bypass graft surgery, stents, pacemakers, implantable defibrillators, intraocular lens replacement, advances in the diagnosis and treatment of cancer, advances in the management of diabetes, and the myriad of drugs that treat and prevent disease. No, to LBJ and the liberal Congress of 1965, Medicare appeared to be a relatively small-ticket vote-buying initiative. The problems Medicare (and Medicaid) present today nearly dwarf Social Security, but we can employ the same tactics to buy some time while we formulate a more realistic solution for the long run.
The fact is that our current entitlement programs threaten to consume virtually 100% of GDP if left unchecked. In truth, we can't go on much longer without making some unpopular changes. Why Obama is pushing for an expansion of our current entitlement system defies logic. We can't even afford to maintain the programs we already have.
The generations of our parents and grandparents gave rise to these entitlement programs and milked them for all they were worth. Let us pray that the generations of our children and grandchildren will learn the lesson of such folly. Let us pray that all of us wake up from our entitlement stupor in time to enact necessary changes before the entire nation falls prey to a true financial and social crisis.
