Entitlements

The Bipartisan Rush to Bankrupt America and Screw Millennials

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Over at David Stockman's Contra Corner, the former Reagan budget director recalls the time when the national debt was $1 a paltry $1 trillion. The year was 1981.

He writes:

In the great fiscal scheme of things, October 22, 1981 seems like only yesterday. That's the day the US public debt crossed the $1 trillion mark for the first time. It had taken the nation 74,984 days to get there (205 years). What prompts this reflection is that just a few days ago the national debt breached the $18 trillion mark; and the last trillion was added in hardly 365 days….

So in the fall of 1981 it was not merely the symbolic ignominy of crossing the trillion dollar national debt threshold for the first time that weighed on the White House. It was actually driven by fear that acquiescence in giant, permanent deficits would lead to economic ruin.

And by the standards of the past, where even Lyndon Johnson's infamous "guns and butter" deficit of 1968 had only amounted to 2.5% of GDP, the outlook was indeed dire. As I put it at the time, the nation faced 6% of GDP deficits "as far as the eye can see"."

Times have changed. In 2014, the debt reached $17.9 trillion, or over 100 percent of Gross Domestic Product, and will continue to grow. The good news is that we know what to do to shrink the debt to GDP ratio. Economists have shown that the best way to put our fiscal house in order is to adopt fiscal adjustment packages mainly consisting of spending cuts. We also know that the spending cuts that work the best are the ones that target entitlement programs (e.g., Social Security, Medicare, and Medicaid). However, you don't need economists to tell you that. A simple look at federal spending patterns reveals that entitlements are the drivers of the government's current and future debt.

The following chart shows per capita discretionary, mandatory, and net interest spending as a share of total per capita federal spending since 1962 (this is in real 2014 dollars). Rising government spending has largely been fueled by increases in mandatory spending, which includes the major entitlement programs.

Mercatus Center

As the chart shows, inflation-adjusted mandatory spending per capita skyrocketed from $1,124 in fiscal year 1962 to $6,634 today. Although the initial rise was sparked by the creation of Medicare and Medicaid under the administration of Lyndon Johnson, successive Democratic and Republican administrations pursued policies that fueled the growth in mandatory spending. And while mandatory spending per capita has dropped from its peak of $7,391 in fiscal year 2009 the decrease is only temporary. The aging of the baby boomer generation will worsen the ratio of people collecting benefits to people working to pay for those benefits. 

The good news, as I said, is that we know what should be done. The bad news is that neither party has the gumption to do it. Republicans, who have contributed handsomely to the explosion of entitlement spending, have become the party of Medicare. Even reform plans such as the one put forward by Rep. Paul Ryan (R-Wis.) wouldn't go into effect for a decade after passage. And since there is no way to prevent future Congresses from reneging on previously enacted reforms, one should place little faith in a plan that relies on policymakers holding the line in the long run.

But the need to tackle the federal government's unsustainable system of entitlement programs isn't just about dollars and cents. Indeed, the runaway federal entitlement state we have now is the inevitable outcome of the government assuming responsibility for the provision of healthcare and disability and retirement income security. Thus, our goal should be to extricate the federal government from involvement in such concerns rather "reforming" programs that should not exist in the first place. Unfortunately, that's a discussion and debate that nobody on Capitol Hill has the guts to initiate.

The GOP's approach to Obamacare is a perfect example. When pressed on the specifics of abolishing Obamacare, Republicans often proceed to list all of the stuff in the law they are committed to keeping. Democrats are as unreliable when it comes to reforming entitlement spending but at least they are honest about the fact that they're committed to maintaining (or even expanding) the untenable status quo.

Does it matter that neither party is willing to do anything about mandatory spending that will eventually swallow the government and, possibly, the whole economy? Of course it does. But here is where I've got some hope in millennials and younger Americans in general. The generations raised on Amazon Prime, Uber, Reddit, The Hunger Games, and Divergent ultimately won't stand in line for sub-par government healthcare. Will they really accept the massive transfer of wealth from them to relatively well-off seniors? I doubt it. Call me a dreamer but I expect the generations that are the biggest beneficiaries of permissionless innovation to start putting pressure on politicians to come up with ways to get them out of this nightmare fiscal scenario and demand serious reforms of these entitlement programs. We will see.

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  1. Screw Millennials eh? Sign me up!

    1. Send two, if they’re small.

  2. Goddamn, I hate entitlements.

    I would just let the government have everything I’ve paid in to Social Security if they would let me opt out after that.

    1. Why would they allow you to do that when they can force you to stay in and still take everything you paid in anyway?

    2. Oh, don’t worry, they’ll let you opt out after pilfering your paycheck for your working life.

      “Sorry. Out of money; we’re broke. NEXT!”

  3. Simpson Bowles was our best chance but both parties helped kill it.

    Tom Coburn voted for it and Obama wanted it but special interests choked it to death.

    1. Politifact: “Says his deficit plan “made some adjustments to (Simpson-Bowles), and we’re putting it forward before Congress right now, a $4 trillion plan.” Obama

      Verdict: Half-Truth

      Or to put it more specifically:

      “One of our experts — Gleckman — described Obama’s wording here as “legalese” or “Talmudic.” Other than the general framework, “these plans have very little common,” Gleckman said.

      Many of our experts cited vast differences between the two plans.”

      http://www.politifact.com/flor…..-simpson-/

      1. If Congress had passed it Obama would have had to sign it as is.

  4. But here is where I’ve got some hope in millennials and younger Americans in general. The generations raised on Amazon Prime, Uber, Reddit, The Hunger Games, and Divergent ultimately won’t stand in line for sub-par government healthcare. Will they really accept the massive transfer of wealth from them to relatively well-off seniors? I doubt it. Call me a dreamer but I expect the generations that are the biggest beneficiaries of permissionless innovation to start putting pressure on politicians to come up with ways to get them out of this nightmare fiscal scenario and demand serious reforms of these entitlement programs. We will see.

    What makes American kids different from European kids? And aren’t these the same American kids who went to government schools and voted for Obama?

    1. You think some kid who is buying PRIVATE health insurance through an exchange believes it is “government” healthcare?

      They are not that stupid. Medicare is and Humana us not.

      1. Oh, I dunno.

        Medicare is administered by private companies, including Blue Cross. The government collects the revenue and sets the benefits.

        Post-OCare, “private” insurance is administered by private companies. The government sets the rates (indirectly, for now) and sets the benefits.

        Not as big a difference as you seem to believe.

        1. The funding source is the big difference.

          The ACA market is funded by individual participants with a bit of taxpayer funded subsidies.

          Medicare is funded through worker payroll deductions.

          Of the two the ACA is far more of a private model marketplace. But of course it is heavily regulated. Medicare should (according to Paul Ryan) look more like the ACA in order to decrease costs.

          1. ACA is money taken from private people and transferred to other people by government fiat.

          2. The funding source is the big difference.

            Medicare is funded with mandatory payments collected by the IRS.

            ACA insurance is funded with mandatory payments collected by the insurance companies, with additional mandatory payments collected by the IRS.

            Still not a big diff, as far as I can tell.

            What you are missing is that a marketplace consists of voluntary transactions. ACA exchanges lack that crucial characteristic.

    2. Less government.

    3. A tiny number of those kids voted for Obama Mr Tiresome.

  5. And what do polls say about millenials opinions on socialized medicine? Pro or Con?

    1. The free no co-pay healthcare, student loan forgiveness, and legal marijuana were the three main reasons millenials voted for Obama.

      Ending all the wars and instilling racial harmony were just the gravy.

  6. So what about that odious racial discourse eh Gillespie? I know you have such great predictive capabilities.

  7. Reason may think this headline will bring millennials massively into the libertarian fold, but it won’t. As soon as millennials see a “no free shit for anybody” article they lose interest.

    1. This is generally true of people in general. Millenials are not very different in this regard.

  8. The Millennials don’t vote like seniors do. And seniors are key to winning the large swing state of Florida and swing districts across the nation. As such, Medicare/SS won’t be touched in any substantive way in the future (Obamacare’s rather modest reforms to Medicare spending resulted in seniors voting en masse for the Republicans (I doubt they gave a crap about anything else in the law)).

  9. Teh yutes have been quite accepting of SS, Medicare and the Public School system for generations and millenials are no different.

    1. More and more people are option out of traditional public schools.

  10. These Libertarian Moment and Millenials are libertarian strike me as wishful thinking. Never mind that Matt Welch will contradict it when it suits him (see his Obama “stealth libertarian” article) but the fact there is discontent with the current two-party system doesn’t mean that there is any sort of consensus beyond “the status-quo sucks” let alone a libertarian one.

    1. Eh, I’m sympathetic to this trope. Its a decent marketing wrap for outreach to folks in that demographic. Might help bring a few into the fold.

  11. mumble something something spending.

  12. Mandatory spending

    Such a big lie in only two words.

    To add to the absurdity of the joke graph “interest” is not considered mandatory.

  13. You would think we’d have printed enough money to cover this by now. If the Fed had just given it to Uncle Sam instead of the bankers.

  14. HEY VERONICA BABY! NEXT TIME YOU QUOTE DAVID STOCKMAN IN AN ARTICLE ABOUT DEFICITS, YOU SHOULD GOOGLE HIS NAME FOLLOWED BY, SAY, GRACE COMISSION! HE IS A PUTZ!

  15. You were probably too busy getting your PHD in the 80’s to notice.

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