If it's Considered Good, People Will Fight for It

This is a good chronology of the expansion of our entitlement programs. I think it illustrates clearly why the argument to disband the welfare state has to be taken to the moral level, i.e. if something is good but expensive, people will tend to advocate for it. The real issue is whether it's good (and what does judging the good entail).

Article Published

Thanks to Capitalism Magazine for publishing my article on our entitlement programs.

What To Do With Our Entitlement Programs?

America’s financial situation is precarious. Over the past 8 years our national debt has doubled to $14.5 trillion and our total unfunded liabilities now exceed an astonishing $114 trillion. That’s $1,115,000 per federal income tax payer.

Even the most unrepentant spendthrift understands that these debts and liabilities are unsupportable, nor can they be solved by immorally targeting the rich. Instead, we must enact immediate, across-the-board spending cuts, with special emphasis on the biggest components of our financial wreck: Social Security, Medicare and Medicaid. These entitlement programs constitute the majority of our unfunded liabilities, because, despite being labeled “trusts”, they’re not actually savings plans.

Rather, the programs are essentially pay-as-you-go schemes. (What little surplus the trusts did accumulate was used to fund other government programs such that nothing’s been saved[1].) Operating this way has two terrible consequences. First, because funds aren’t saved and invested, they don’t generate returns. Thus there’s no compounding effect for any of the money that’s been withheld. Second, for every year that the programs are in existence, their total future liabilities increase.

Moreover, the programs have grown inexorably over time, partly because they were deemed good in principle, and partly because it takes nothing but a vote to increase benefits.

When Social Security was first rolled out in 1936, the promise was that the program would be very limited, both in terms of contributions and of payout. The most anyone would contribute was $360 per year including the employer’s contribution. By 2010 entitlement programs cost employees up to $12,648 for Social Security and an unlimited amount for Medicare (at a rate of 2.9% of salaried income). Promised — but unfunded — benefits grew even faster, with payouts exceeding inflation and the years of retirement coverage continuously increasing. By some estimates, a typical 66 year old couple today will get back double what they paid in. It’s no wonder that our entitlement programs are often compared to criminal Ponzi schemes.

A myopic focus on the short term may previously have allowed some to gloss over the long term insolvency of the programs, but that’s no longer possible. For we’re now rapidly approaching the time when the money deducted from employees’ paychecks is much less than payouts promised to program participants. Already today, approximately half of Medicare’s funding comes from general tax revenues.

Clearly then, our entitlement programs are an unmitigated financial disaster. But if we’re to properly deal with them, we mustn’t limit our analysis to economics alone. For after all, the deepest arguments underlying the programs aren’t financial — they’re moral. Indeed, much of the reason that there’s never been any reform of the programs is that, until recently, few would question the moral views of man’s nature upon which they’re justified.

What are some of these questions?

As recently discussed here and at length here, one fundamental question pertains to whether men are ends in themselves or means to others’ ends. I won’t recap the arguments, but suffice it to say that when the Founders created this land of opportunity (not of entitlements), they clearly enunciated a new — American — ideal in which each of us pursues our own happiness. This put them squarely in the camp of treating individuals as ends in themselves. It’s a camp to which more and more of us are proud to belong.

Another crucial question is whether, in general, men are capable of thinking and fending for themselves?

This question is best answered by observing people throughout history. Compare the success and can-do attitude of citizens living under freedom to those living under any form of statism and one has to conclude that — when left alone — men are eminently capable of thinking and fending for themselves. It’s only when the state removes and restricts incentives and choices that men become dependent.

For nearly two centuries, Americans — including millions of penniless immigrants — eloquently proved the point. The world marveled at the typical American’s self-reliance, be it his ability to earn a living, build his house, fix his car, or move up the social ladder. In every domain — when left free to think, act and enjoy the rewards of hard work — Americans surpassed themselves and the rest of the world.

But advocates of entitlement programs deny this. They view man (except perhaps that special breed which constitutes the governing class) as feeble and incapable. He can’t think or plan for himself. He must be forced to act for his own “good”. Indeed, as we saw with the passage of Obamacare, there’s no longer even a pretense of persuasion; we childlike peons are to find out what’s in store for us when the laws have been passed. Ever since the New Deal, it’s this paternalistic view that’s guided government policy.

Tragically, however, the paternalists have the causation backwards. In actuality, it’s their myriad of forced redistribution programs which has fostered a mentality of dependence among the populace. With each new program they implement, they further sever the link between personal action and personal outcomes. Slowly people lose the idea of individual responsibility and begin to believe that somehow they’re “entitled to”, or have a “right to”, the products of other people’s efforts. As a result, America’s independent spirit is waning.

A final key moral question is whether people should be treated primarily as independent individuals or as interchangeable parts of a larger collective?

Here again history provides ample evidence. Wherever and whenever they’ve been free to do so, people have exhibited differing values, plans and priorities. Societies succeed by respecting and catering to these individual choices and preferences; they fail when individuals aren’t even recognized. Take, for example, the contrast between the Free World’s outpouring of diverse and imaginative consumer products with the Soviets’ monotonously drab and barren output during the Cold War. Or the Maoists’ brutal mainland uniformity versus the flourishing trade and production of free Hong Kong. Or, for history buffs, the contrast between ancient Athenian and Spartan cultures.

But the evidence isn’t only historical, it’s also intimately personal. We each have unique dreams and aspirations which require differing paths and choices. No one else, much less the government, can know what’s best for us (despite what might be “good” for a fictional “average person”). College may be generally worthwhile, but the next Bill Gates might be completely justified in dropping out to start a business. Following a safe and steady career path may be good for most, but for the aspiring actor or musician, success may mean taking a very unorthodox route to that one big break.

Yet those pushing entitlement programs see it otherwise. They have a collectivized, one-size-fits-all approach to man. To whatever extent possible, the government should create and impose uniformity: All children should go to public schools until they’re 16. Patients should only be allowed to take drugs approved by some government board. Everyone should contribute 15% of their income to their future retirement and medical needs each and every year. Everyone should retire at 65. Etc.

Part and parcel of this collectivized view is the refusal to see individuals at all. Thus there’s no recognition that it’s particular people, engaged in particular processes and efforts, who earn and produce wealth. By dropping the individual from their world view, collectivists don’t have to confront the moral question of why they find it proper to take from some to give to others.

The result of these collectivist and paternalistic views is a continuous assault on individuals and their rights. This is borne out in the implementation of our entitlement programs.

For example, consider all those who haven’t yet acquired sufficient skills and experience for a potential employer to justify both their salary and the additional burden of a 15.3% FICA tax. Entitlement programs price these people out of the labor market and thereby contribute to our stubbornly high rates of unemployment — particularly among the young.

The same type of analysis applies to those employees trying to save enough to start a family or a business of their own. For many starting out, the 15.3% withholding tax represents a huge percentage of their discretionary income. Forcing them to prioritize retirement over other genuine values is inimical to their personal success and happiness. Contrary to the one-size-fits-all mentality, people’s circumstances vary widely, and there are often times in a person’s life when withholding for retirement is not a good thing.

Next, consider every responsible person who could have — and would have — saved and invested the equivalent of his mandatory FICA withholdings had he simply been allowed to. Over the years many wanted to opt out of the entitlement programs to build their own nest eggs, but they were prohibited from doing so in the name of protecting them from themselves. Now, thanks to our paternalistic caretakers, all that money is gone.

But it doesn’t end there, for not only is inclusion in these Ponzi schemes mandatory to employees, but when FICA contributions are inadequate, as they already are for Medicare, every taxpayer is forced to contribute to the deficiency via the general revenues.

As bad as all this is, perhaps the most egregious violation of rights comes in the treatment of future generations. Thanks to a complicit majority, those of voting age have for years now sought to burden (some might say indenture) the next generation with their retirement and medical bills. It’s a classic case of trying to have one’s cake and eat it too. Voters approve and enjoy all the current year spending to which their withholding taxes go, but still expect someone else — indeed a whole generation — to provide them with the very goods they refuse to set aside.

Redistributing wealth in any form is bad enough, but there’s a certain audacity to forcing the young and not-yet-born to become the primary victims. (This type of conflict is far from an anomaly; collectivist schemes to redistribute wealth always pit one group against another, here the strife they cause is intergenerational.)

Having now established the moral and economic bankruptcy of our entitlement programs, the question becomes: what do we do with them? Given how long the programs have run and how many people have been forced to participate, there can be no easy answer. But to get us started, why not look at an analogous situation? There are obvious differences between Madoff’s and FDR’s Ponzi schemes, but reviewing how Madoff’s is being handled does provide two valuable insights.

First, as soon as Madoff’s scam was discovered, it was shut down. Second, a trustee was appointed to return what funds remained, and then to reclaim money from anyone who’d knowingly or unknowingly profited from the scheme. In justifying this, the trustee appropriately decided that no one had a right to “fictitious profits” or “other people’s money”. Since there was no investment to generate returns, the most anyone could get back was the dollar amount they’d contributed.

With this in mind, here are some initial ideas on how to tackle our entitlement mess:

1) Stop the programs immediately. No one would accrue another cent towards Social Security, Medicare or Medicaid.

2) Continue to make Social Security payments on the existing schedule, but cap the lifetime payouts to the nominal value of past contributions. For younger people this would be an easy transition as they could plan their retirements accordingly. For some older people this would be more difficult, and in those cases of real hardship, they could be added to the welfare rolls. (Indeed, it’s been argued that entitlement programs are already a form of welfare.)

3) Convert Medicare and Medicaid to a monthly payment similar to Social Security and cap these to lifetime contributions as well.

4) Fund the remaining liabilities through the general revenues. This is already how SMI and Part D of Medicare are funded, but the difference here is that over time expenditures would taper to zero rather than growing exponentially as they do now.

Ending a fantasy is never welcome for those who want the impossible and who think that all they have to do is cast a vote to make it happen. Nor can there be any easy or completely just solutions to a colossal, multi-decade, Ponzi scheme. But the solution outlined above has several merits:

-- It ends the program.

-- No one is cut-off “cold turkey”.

-- Anyone who lives long enough gets back what they put in (less inflation).

-- Unemployment is reduced by the elimination of the FICA payroll tax.

-- People are once again able to prioritize their values and plan for their own retirements and medical care.

Finally, and most importantly, future generations can once again enjoy the freedoms and opportunities that were — and should be — this nation’s hallmark.

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[1] President Obama recently admitted as much when he declared that Social Security checks might not go out absent a debt ceiling increase. In other words: we must incur new debt to pay for the programs since the “trusts” are empty.

Atlas Shrugging?

An interesting account of one coal miner deciding it's not worth opening another mine. (The comments contain more similar stories.)

Presumed Guilty

This is an incredible story about Stanford University's policies on sexual assault.

"Imagine being a male Stanford student at your sexual assault hearing," said FIRE Senior Vice President Robert Shibley. "The 'jury' has been told that denying the charges is a sign of guilt, and so is being persuasive and logical. They've been told that accusers almost never lie, that they need to be extra suspicious of men who don't seem like they'd commit rape, and that being neutral is taking the side of abusers. Additionally, the Department of Education has mandated that a sliver of certainty is all that is required to find you guilty. Would any Stanford administrator volunteer to be tried for sexual assault in a real court under the same conditions that they have imposed on their students?"

Stanford's definition of consent to sex imposes a concept that is foreign to most people's idea of adult consent and inconsistent with California state law. Stanford policy states that sexual assault occurs "when a person is incapable of giving consent. A person is legally incapable of giving consent ... if intoxicated by drugs and/or alcohol." In other words, any sexual activity while intoxicated to any degree constitutes sexual assault. This is true even if the activity was explicitly agreed to by a person capable of making rational, reasoned decisions, and even if the partners are in an ongoing relationship or marriage. Further, under a policy like Stanford's, if both parties are intoxicated during sex, they are both technically guilty of sexually assaulting each other.

OT Blockbuster and Netflix

Off topic post. Just thought I'd mention that in light of Netflix's recent dramatic price increase, anyone who plays video games or lives near a Blockbuster store might consider Blockbuster's deal to current Netflix subscribers.

Steyn on the Debt Ceiling Negotiations

Mark Steyn has nice column in this weekend's OC Register. As usual, I enjoy his pithy use of language, for example the last sentence of this paragraph:

Meanwhile, the World's Greatest Orator bemoans the "intransigence" of Republicans. OK, what's your plan? Give us one actual program you're willing to cut, right now. Oh, don't worry, says Barack Obluffer. To demonstrate how serious he is, he's offered to put on the table for fiscal year 2012 spending cuts of (stand well back now) $2 billion. That would be a lot in, say, Iceland or even Australia. Once upon a time it would have been a lot even in Washington. But today $2 billion is what the Brokest Nation in History borrows every 10 hours. In other words, in less time than he spends sitting across the table negotiating his $2 billion cut, he's already borrowed it all back. A negotiation with Obama is literally not worth the time.

Capitalism on Video

This is a pretty well done, short video explaining various aspects of capitalism's working, including how rich first adopters are necessary for technological advancements, and how even the poor in America today are much better off than the rich in previous times. The latter always reminds me of the time I went through Versailles and saw the gold pick that was used to get the lice out of Louis the XIVth's hair...

Earth Day Interview

I just realized that I'd accidentally posted this to the OActivity blog back in April. But on the premise better late than never, here it is on Thrutch:

For his most recent Power Hour podcast, Alex Epstein interviews Onkar on the topic of environmentalism. Check it out.

Subsidies and the Robber Barrons

I enjoyed this talk by Prof. Burt Folsom. But as a warning, it's quite slow paced, so I'd recommend listening to it while doing other things (chores, stretching, etc.)

Companies Continue to Leave California

This is an interesting article summarizing the woes which force businesses to relocate from California. And given that the state thinks the solution to the problems is to create another government agency, I doubt that the trend will be reversing anytime in the near future.

Newsom's plan will focus on California's premier industries, including biotechnology, agriculture and digital media. It will highlight the state's strengths in innovation and research and cultivate more manufacturing and exports. It also will examine how to address executives' concerns about regulation, taxes and layers of bureaucracy.

Later this year, California will set up a new agency that will serve as a focal point for economic development and job creation, he said. Among its goals will be to reverse the perception that California is business-unfriendly.

Santelli vs. the Pragmatists

This Rick Santelli clip appears to be going viral. I found it particularly interesting not for his input (which is good and refreshing), but for the clear exposure of the compromising/pragmatist mentality of his opponents ("we have a problem now, never mind how we got here, etc. etc."). It really concretizes the weak and pathetic nature of the typical mainstream mentality that we must overcome.

Broun Proposes to Reduce Debt Limit

I'd be in favor of reducing the limit by $1.3T every year until the debt is gone and the budget balanced. Here's the gist of representative Broun's proposal:

Today, I introduced a unique bill that goes in a completely different direction than everything else we’ve been hearing out of Washington. It would force politicians to start practicing what they’ve been preaching by lowering the debt ceiling from $14.3 trillion back down to $13 trillion. Admittedly, this is not your run-of-the-mill kind of law, but it would make it imperative for Congress to think outside of the box and come up with ways to pay off a portion of our debt while drastically cutting back spending. Since 1996, the national debt has increased by an inexcusable $8.79 trillion. I firmly believe that this calls for emergency measures to reduce the debt.

Lawmakers on both sides of the aisle are equally responsible for the government’s past fiscal irresponsibility. Sadly, whenever Congress has been given a chance to make a real impact on the budget, our spending habits, and our nation’s livelihood, Democrats and Republicans alike have caved.

Moreover, in this time of crisis, liberals are pushing for a $2 trillion increase in our debt ceiling. And their only answer for our financial fiasco is to cut nothing and raise taxes on everything — which would simply give Washington more money to burn through. Even more disturbingly, under the president’s budget proposal, the debt would double to $26.3 trillion by 2021, and he has no intention or plan to pay it down.

Should my legislation be signed into law, Washington would have to get serious about making the cuts they’ve been talking about, and our national debt would be one step closer to being manageable. My legislation would not just slow down, or stop the reckless spending train; it would completely turn it around. To be realistic, we can’t lower the debt limit today, but if we set a deadline, the beginning of FY 2012, it would force politicians to make those decisions in the months to come.

Onkar on NPR

Onkar was recently interviewed on NPR's Interfaith Voices. I haven't listened to it yet, but here's the link.

Regulation Impedes Innovation

I think this short post over at Marginal Revolution makes some important points.