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Archive for the ‘Welfare State’ Category

Last week, I shared very grim data, going all the way back to 1880, on the growth of the welfare state.

I even claimed that the accompanying graph was the “western world’s most depressing chart” because it showed the dramatic increase in the burden of government spending for redistribution programs.

And I didn’t even mention that the numbers likely will get even worse because of changing demographics.

Now it’s time for the western world’s second-most depressing chart. Like the first chart, the data for this second chart comes from “Our world in data,” only this time it shows the relentless and astounding (in a depressing way) expansion in tax burdens starting in 1868. It only shows four countries, but other western nations would show the same pattern.

What isn’t shown in this chart is that the tax burden used to be reasonable because governments generally did not have income taxes.

The United Kingdom was an early adopter, but France, Sweden, and the United States didn’t impose that onerous levy until the 1900s. And it’s no coincidence that the tax burden exploded once politicians learned to exploit that source of revenue.

An obvious lesson is that it is never a good idea to give politicians a new source of revenue. We see in the above chart what happened once nations imposed income taxes. We’ve also seen increases in fiscal burdens in nations that imposed value-added taxes (which is why Americans should fight to their dying breaths before allowing that levy in the United States).

From the perspective of politicians, they like new sources of revenue because that increases “tax capacity,” which is an Orwellian term that describes their ability to grab more money from the economy’s productive sector.

And here’s another chart from “Our world in data” showing how income taxes and VATs (along with income-tax withholding) have become ubiquitous.

Very depressing trends. Reminds me of the biased grading of tax regimes from the World Bank.

Let’s close with the tiny bit of good news from the website. Here’s a chart showing how top rates for the personal income tax dropped substantially between 1979 and 2002.

This happened, needless to say, because of tax competition. As globalization expanded, it became easier and easier for taxpayers to move themselves and/or their money from high-tax nations to low-tax jurisdictions.

Politicians thus were forced to lower tax rates so the geese with the golden eggs didn’t fly away.

Sadly, updated versions of this chart now show top tax rates heading in the wrong direction, in large part because tax havens have been weakened and politicians no longer feel as much competitive pressure.

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Last week, I shared a graph showing that there are more guns than people in the United States, and I wrote that it was the “most enjoyable” chart of the year, mostly because it gets my leftist friends so agitated.

But I’m more likely to share gloomy visuals.

  • The “most depressing” chart about Denmark, which shows a majority of the population lives off government.
  • A “very depressing” chart about the United States, which shows how big business profits from cronyism.
  • The “most depressing” chart about Japan, which shows that the tax burden has nearly doubled since 1965.

Now it’s time to add to that list. There’s a website called “Our World in Data,” which is a great resource if you’re a policy wonk who likes numbers. But some numbers are quite depressing.

For instance,if you peruse the “public spending” page, you’ll find a chart showing the dramatic expansion of redistribution spending as a share of economic output.

These numbers are very similar to the table I shared from Vito Tanzi back in 2013, which isn’t surprising since Professor Peter Lindert is the underlying source for both sets of data.

While the above chart is depressing to a libertarian, it’s nonetheless instructive because it confirms my argument that the western world became rich when government was very small and redistribution was tiny or even nonexistent.

For instance, nations in North America and Western Europe largely made the transition from agricultural poverty to middle-class prosperity during the “golden century” between the Napoleanic wars and World War I. And that was a period when redistribution spending basically didn’t exist and most nations didn’t even have income taxes (the U.S. didn’t make that mistake until 1913).

And even as recently as 1960, welfare states were very small compared to their current size. Indeed, redistribution spending in western nations averaged only about 10 percent of economic output, about half the size of today’s supposedly miserly American welfare state.

These points are important because some folks on the left misinterpret Wagner’s Law and actually try to argue that bigger government is good for growth.

P.S. South Korea has been a great success story for the past five decades, but that redistribution trendline is very worrisome.

P.P.S. The trendline for Greece helps to explain why that nation is bankrupt.

P.P.P.S. The chart shows that Canada is better than the United States, though that may not last since Canada’s current Prime Minister is seeking to undermine his nation’s competitive advantage.

P.P.P.P.S. While fiscal trends in the western world have been unfavorable, that bad news has been offset by positive trends for trade liberalization. Whether we see a big step backwards because of Trump remains to be seen.

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America has a major dependency problem. In recent decades, there’s been a significant increase in the number of working-age adults relying on handouts.

This is bad news for poor people and bad news for taxpayers. But it’s also bad news for the nation since it reflects an erosion of societal capital.

For all intents and purposes, people are being paid not to be productive.

Guided by the spirit of Calvin Coolidge, we need to reform the welfare state.

Professor Dorfman of the University of Georgia, in a column for Forbes, pinpoints the core problem.

The first failure of government welfare programs is to favor help with current consumption while placing almost no emphasis on job training or anything else that might allow today’s poor people to become self-sufficient in the future. …It is the classic story of giving a man a fish or teaching him how to fish. Government welfare programs hand out lots of fish, but never seem to teach people how to fish for themselves. The problem is not a lack of job training programs, but rather the fact that the job training programs fail to help people. In a study for ProPublica, Amy Goldstein documents that people who lost their jobs and participated in a federal job training program were less likely to be employed afterward than those who lost their jobs and did not receive any job training. That is, the job training made people worse off instead of better. …Right now, the government cannot teach anyone how to find a fish, let alone catch one.

And Peter Cove opines on the issue for the Wall Street Journal.

…the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. More than a fifth of American men of prime working age are on Medicaid. According to the Census Bureau, nearly three-fifths of nonworking men receive federal disability benefits. The good news is that the 1996 welfare reform taught us how to reduce government dependency and get idle Americans back to work. …Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%.

Interestingly, European nations seem to be more interested in fixing the problem, perhaps because they’ve reached the point where reform is a fiscal necessity.

Let’s look at what happened when the Dutch tightened benefit rules.

A fascinating new study from economists in California and the Netherlands sheds light on how welfare dependency is passed from one generation to the next – and how to save children from lives of idleness.

A snowball effect across generations could arise if welfare dependency is transmitted from parents to their children, with potentially serious consequences for the future economic situation of children. …there is little evidence on whether this relationship is causal. Testing for the existence of a behavioural response, where children become benefit recipients because their parents were, is difficult… Our work overcomes these identification challenges by exploiting a 1993 reform in the Dutch Disability Insurance (DI) programme… The 1993 reform tightened DI eligibility for existing and future claimants, but exempted older cohorts currently on DI (age 45+) from the new rules. This reform generates quasi-experimental variation in DI use… Intuitively, the idea is to compare the children of parents who are just over 45 years of age to children whose parents are just under 45. .

Here’s the methodology of their research.

The first step is to understand the impact of the 1993 reform on parents. Figure 1 shows that parents who were just under the age 45 cut-off, and therefore subject to the harsher DI rules, are 5.5 percentage points more likely to exit DI by the year 1999 compared to parents just over the age 45 cut-off. These treated parents saw a 1,300 euro drop in payments on average. …the reform changed other outcomes as well. There is a strong rebound in labour earnings.

This chart from their research captures the discontinuity.

Here are the main results.

The second step is to see how children’s DI use changed based on whether the reform affected their parents. We measure a child’s cumulative use of DI as of 2014, by which time they are 37 years old on average. Figure 2 reveals a noticeable jump in child DI participation at the parental age cut-off of 45. There is an economically significant 1.1 percentage point drop for children if their parent was exposed to the reform, which translates into an 11% effect relative to the mean child participation rate of 10%. …welfare cultures, defined as a causal intergenerational link, exist.

This second chart illustrates the positive impact.

But here’s the most important part of the research.

Reducing access to redistribution to parents is a good way of boosting income and education for children.

…we examine whether a child’s taxable earnings and participation in other social support programmes change. Cumulative earnings up to 2014 rise by approximately €7,200 euros, or a little less than 2%, for children of parents subject to the less generous DI rules. In contrast, we find no detectable change in cumulative unemployment insurance receipt, general assistance (i.e. traditional cash welfare), or other miscellaneous safety net programs. Looking at a child’s educational attainment, there is intriguing evidence for anticipatory investments. When a parent is subject to the reform which tightened DI benefits, their child invests in 0.12 extra years of education relative to an overall mean of 11.5 years. …these findings provide suggestive evidence that children of treated parents plan for a future with less reliance on DI in part by investing in their labour market skills.

And it’s also worth noting that taxpayers benefit when welfare eligibility is restricted.

These strong intergenerational links between parents and children have sizable fiscal consequences for the government’s long term budget. Cumulative DI payments to children of the targeted parents are 16% lower. This is a substantial additional saving for the government’s budget, especially since there is no evidence that children substitute these reductions in DI income for additional income from other social assistance programmes. Furthermore, there is a fiscal gain resulting from the increased taxes these children pay due to their increased labour market earnings. Overall, we calculate that through the year 2013, children account for 21% of the net fiscal savings of the 1993 Dutch reform in present discounted value terms. This share is projected to increase to 40% over time.

Ryan Streeter of American Enterprise Institute explains that other European nations also are reforming.

Welfare reformers might draw some lessons from unlikely places, such as Scandinavia. While progressives like to uphold Nordic democratic socialism as a model for America, the Scandinavian welfare systems are arguably more pro-work than ours… For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. The Nordic model is more focused on eliminating reasons not to work such as caregiving or lack of proper training than providing income replacement. Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” The benefit is based on a sliding scale and decreases as a recipient’s earnings increase, replacing several differing formulas for phasing out of welfare programs with one. An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system. …Scandinavia and Britain learned a while ago that successful welfare reform is not just about how much money a country spends on people who earn too little. It’s really about how to help them find and keep a good job. It’s time for America to catch up.

Amen.

For what it’s worth, I think we’ll be most likely to get good results if we get Washington out of the redistribution business.

In effect, block grant all means-tested programs to the states and then phase out the federal funding. That would give states the ability to experiment and they could learn from each other about the best way of helping the truly needy while minimizing incentives for idleness.

P.S. This WIzard-of-Id parody is a very good explanation of why handouts discourage productive work.

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According to research from the Bank for International Settlements, the long-term fiscal outlook for the United Kingdom is very grim. The data generated by the International Monetary Fund and the Organization for Economic Cooperation and Development isn’t quite as dour, but those bureaucracies also show very significant long-run fiscal challenges.

The problem in the U.K. is the same as the problem in the United States. And France. And Germany. And Japan. Simply stated, the welfare state is becoming an ever-larger burden in large part because the elderly population is expanding in developed nations compared to the number of potential taxpayers.

The good news, as noted in this BBC story, is that some folks in the United Kingdom realize this is bad news for young people.

Lord Willetts…said the contract between young and old had “broken down”. Without action, young people would become “increasingly angry”.

The bad news is that these folks apparently think you solve the problem of young-to-old redistribution by adding a layer of old-to-young redistribution.

I’m not joking.

A £10,000 payment should be given to the young and pensioners taxed more, a new report into inter-generational fairness in the UK suggests. The research and policy organisation, the Resolution Foundation, says these radical moves are needed to better fund the NHS and maintain social cohesion. …The foundation’s Intergenerational Commission report calls for an NHS “levy” of £2.3bn paid for by increased national insurance contributions by those over the age of 65. It says that all young people should receive a £10,000 windfall at the age of 25 to help pay for a deposit on a home, start a business or improve their education or skills.

To be fair, proponents of this idea are correct about young people getting a bad deal from the current system. And they are right about older people getting more from government than they pay to government.

“There’s no avoiding the pressures for more spending on healthcare and social care, the question is how we meet those pressures,” he replied. “Extra borrowing is unfair on the younger generation. “Extra taxes on the working population – when especially younger workers have not really seen any increase in their pay – will be very unfair. “It so happens that the older people who will benefit most from extra spending on health care have got some resources, so at low rates, it’s reasonable to expect them to contribute.

But I fundamentally disagree with their conclusion that bigger government is the answer.

“It is better than any of the alternatives.”

For what it’s worth, what’s happening in the U.K. is an example of Mitchell’s Law. Young people are getting a bad deal because of programs created by government.

But rather than proposing to unwind the programs that caused the problem, the folks at the Resolution Foundation have decided that creating additional programs financed by additional taxes is the way to go.

By the way, you won’t be surprised to learn that the group also has other bad ideas.

The report calls for the scrapping of the council tax system, replacing it with a new property tax which would raise more money from wealthier homeowners. The proceeds would be used to halve stamp duty for first-time buyers.

Let’s close by looking at some interesting data about the attitudes of the young.

…a poll undertaken for the Intergenerational Commission also suggested people were more pessimistic in Britain about the chances of the next generation having “better lives” than the one before it – compared with almost any other country.

Here’s the chart showing data for the U.K. and several other nations.

Congratulations to France for having the most pessimistic young people (maybe this is why so many of them would move to the U.S. if they had the chance).

And I think the South Koreans are too glum and the Chinese are too optimistic. The Italians also are too upbeat. But otherwise these numbers generally make sense.

P.S. I was very pessimistic about the U.K. in 2012, but had a more upbeat assessment last summer. Now the pendulum has now swung back in the other direction.

P.P.S. If the Brits screw up Brexit, I’ll be even more downbeat about the nation’s outlook.

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I’m conflicted.

I’ve repeatedly expressed skepticism about the idea of governments providing a “basic income” because I fear the work ethic will (further) erode if people automatically receive a substantial chunk of money.

Moreover, I also fear that a basic income will lead to an ever-expanding burden of government spending, particularly once net beneficiaries figure out they can vote themselves more money.

Given these concerns, I should be happy about this report from the New York Times.

For more than a year, Finland has been testing the proposition that the best way to lift economic fortunes may be the simplest: Hand out money without rules or restrictions on how people use it. The experiment with so-called universal basic income has captured global attention… Now, the experiment is ending. The Finnish government has opted not to continue financing it past this year, a reflection of public discomfort with the idea of dispensing government largess free of requirements that its recipients seek work. …the Finnish government’s decision to halt the experiment at the end of 2018 highlights a challenge to basic income’s very conception. Many people in Finland — and in other lands — chafe at the idea of handing out cash without requiring that people work. …Finland’s goals have been modest and pragmatic. The government hoped that basic income would send more people into the job market to revive a weak economy. …The basic income trial, which started at the beginning of 2017 and will continue until the end of this year, has given monthly stipends of 560 euros ($685) to a random sample of 2,000 unemployed people aged 25 to 58. Recipients have been free to do as they wished… The Finnish government was keen to see what people would do under such circumstances. The data is expected to be released next year, giving academics a chance to analyze what has come of the experiment.

The reason I’m conflicted is that the current welfare state – both in the United States and other developed nations – is bad for both taxpayers and poor people.

So I like the idea of experimentation. There has to be a better way of alleviating genuine suffering without trapping poor people in dependency or punishing taxpayers.

Indeed, one of my arguments for radical decentralization in America is that states will try different approaches and we’ll have a much better chance of learning what works and what doesn’t.

And maybe we’ll learn that there are some benefits of providing a basic income. But, as reported by the U.K.-based Guardian, it’s unclear whether the Finnish experiment lasted long enough or was comprehensive enough to teach us anything.

The scheme – aimed primarily at seeing whether a guaranteed income might incentivise people to take up paid work by smoothing out gaps in the welfare system…it was hoped it would shed light on policy issues such as whether an unconditional payment might reduce anxiety among recipients and allow the government to simplify a complex social security system… Olli Kangas, an expert involved in the trial, told the Finnish public broadcaster YLE: “Two years is too short a period to be able to draw extensive conclusions from such a big experiment. We should have had extra time and more money to achieve reliable results.”

I will be interested to see whether researchers generate any conclusions when they look at the two years of data from the Finnish experiment.

That being said, there already has been some research that underscores my concerns.

The OECD is not my favorite international bureaucracy, but its recent survey on Finland included some sobering estimates on the cost of a nationwide basic income.

In a basic income scenario, a lump-sum benefit replaces a number of existing benefits, financed by increasing income taxation by nearly 30% or around 4% of GDP. …the basic income requires significant increases to income taxation. …Financing a basic income at a meaningful level thus would require considerable additional tax revenue, and heavier taxation of income would at least partially undo any improvement in work incentives.

And in a report on basic income last year, the OECD poured more cold water on the idea.

…large tax-revenue changes are needed to finance a BI at meaningful levels, and tax reforms would therefore need to be an integral part of budget-neutral BI proposals. …abolishing tax-free allowances and making BI taxable means that everybody would pay income tax on the BI, and on all their other income. Tax burdens would go up for most people as a result, further increasing tax-to-GDP ratios that are currently already at a record-high in the OECD area. …There are also major concerns about unintended consequences of a BI. An especially prominent one is that unconditional income support would reduce the necessity for paid work.

Indeed, it’s difficult to see how work incentives aren’t adversely affected. Why go through the hassle of being employed when you can sit at home and play computer games all day?

P.S. Given the option of voting on a basic income in 2016, Swiss voters overwhelmingly rejected the notion.

P.P.S. Former Vice President Joe Biden actually agrees with me about one of the downsides of basic income.

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There is a lot of good news about the job market in America.

The official unemployment rate, released just yesterday, is down to 4.1 percent, which is the lowest its been since the end of the Clinton years. Even more impressive, the number of people getting unemployment benefits (i.e., getting paid not to work) has dropped to the lowest level since the early 1970s.

I don’t want to rain on this parade, but the numbers aren’t as good as they seem.

Back during the Obama years, I repeatedly pointed out the real health of the labor market should be measured by looking at either the rate of labor force participation or the employment-population ratio.

These are the numbers that give us a more accurate picture of the extent to which labor is being productively utilized (remember, national income is determined by the quality and quantity of labor and capital in the economy).

So let’s dig into the government’s database on labor force statistics and see where we stand when examining these more-insightful numbers.

We’ll start with the data on the rate of labor force participation, which is basically a measure of those working and looking for work as a share of the adult population. As you can see, that rate dropped significantly at the end of the Bush years/beginning of the Obama years. And it hasn’t recovered even though the recession ended back in 2009.

By the way, we shouldn’t expect this rate to be 100 percent, or even anywhere close to that high. After all, the 16-and-up population includes plenty of full-time students, retired people, disabled, stay-at-home moms (or dads), and others.

But I worry about the downward trend.

Now let’s look at the employment-population ratio, which is slightly more encouraging. We see a precipitous drop during the recession, but at least the number has been trending in the right direction for several years.

Though it’s nonetheless semi-depressing that the increase has been rather slow and we haven’t come anywhere close to recovering from the downturn.

To help understand the rate of joblessness, here’s a video from the Mercatus Center.

And to better understand the rate of employment, here’s a video from Nicholas Eberstadt at the American Enterprise Institute.

As far as I’m concerned, the key factoid is near the end, where he points out that we would have 10 million additional working-age men productively employed if the rate of employment today was the same as it was in 1965.

And that’s largely the fault of government programs – such as unemployment insurance, disability, Obamacare, licensing, etc – that make it easier for people to choose to be unproductive.

Speaking of which, let’s close with some excerpts from one of Jason Riley’s columns in the Wall Street Journal.

Peter Cove dropped out of a graduate program at the University of Wisconsin-Madison more than 50 years ago to enlist in Lyndon Johnson’s War on Poverty. These days, he’s fighting a war on dependency. …Mr. Cove moved to New York in 1965 to work for the city’s new Anti-Poverty Operations Board… Mr. Cove…noticed… “The government’s unprecedented expenditures failed to bring about the decline in poverty that Johnson had promised. Instead, they made things worse.” Between 1962 and 2012, the percentage of the U.S. population receiving government assistance in the form of cash transfers almost doubled to 21% from 11.7%. …Between 1965 and 2011, the official poverty rate was essentially flat, while government spending per person on poverty programs rose by more than 900% after inflation. “…But as welfare spending soared, the decline in poverty came to a grinding halt.” …Mr. Cove…came to understand that the answer to poverty is prosperity, that the private sector is the better generator of prosperity, and that the best antipoverty program is a job. “Not only does big government get in the way when it provides disincentives to work, it also has a profoundly negative effect on community,”… The increase in government dependency that Mr. Cove laments predates President Obama by decades, but it did accelerate on Mr. Obama’s watch.

Great points, particularly about how the welfare state actually undermined progress on reducing poverty and also eroded societal capital.

All of which is captured in this Wizard-of-Id satire.

P.S. Some honest leftists admit that the welfare state has caused collateral damage.

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Writing about federal spending last week, I shared five charts illustrating how the process works and what’s causing America’s fiscal problems.

Most important, I showed that the ever-increasing burden of federal spending is almost entirely the result of domestic spending increasing much faster than what would be needed to keep pace with inflation.

And when I further sliced and diced the numbers, I showed that outlays for entitlements (programs such as Social SecurityMedicareMedicaid, and Obamacare) were the real problem.

Let’s elaborate.

John Cogan, writing for the Wall Street Journal, summarizes our current predicament.

Since the end of World War II, federal tax revenue has grown 15% faster than national income—while federal spending has grown 50% faster. …all—yes, all—of the increase in federal spending relative to GDP over the past seven decades is attributable to entitlement spending. Since the late 1940s, entitlement claims on the nation’s output of goods and services have risen from less than 4% to 14%. …If you’re seeking the reason for the federal government’s chronic budget deficits and crushing national debt, look no further than entitlement programs. …entitlement spending accounts for nearly two-thirds of federal spending. …What about the future? Social Security and Medicare expenditures are accelerating now that baby boomers have begun to collect their government-financed retirement and health-care benefits. If left unchecked, these programs will push government spending to levels never seen during peacetime. Financing this spending will require either record levels of taxation or debt.

Here’s a chart from his column. Only instead of looking at inflation-adjusted growth of past spending, he looks at what will happen to future entitlement spending, measured as a share of economic output.

And he concludes with a very dismal point.

…restraint is not possible without presidential leadership. Unfortunately, President Trump has failed to step up.

I largely agree. Trump has nominally endorsed some reforms, but the White House hasn’t expended the slightest bit of effort to fix any of the entitlement programs.

Now let’s see what another expert has to say on the topic. Brian Riedl of the Manhattan Institute paints a rather gloomy picture in an article for National Review.

…the $82 trillion avalanche of Social Security and Medicare deficits that will come over the next three decades elicits a collective shrug. Future historians — and taxpayers — are unlikely to forgive our casual indifference to what has been called “the most predictable economic crisis in history.” …Between 2008 and 2030, 74 million Americans born between 1946 and 1964 — or 10,000 per day — will retire into Social Security and Medicare. And despite trust-fund accounting games, all spending will be financed by current taxpayers. That was all right in 1960, when five workers supported each retiree. The ratio has since fallen below three-to-one today, on its way to two-to-one by the 2030s. …These demographic challenges are worsened by rising health-care costs and repeated benefit expansions from Congress. Today’s typical retiring couple has paid $140,000 into Medicare and will receive $420,000 in benefits (in net present value)… Most Social Security recipients also come out ahead. In other words, seniors are not merely getting back what they paid in. …the spending avalanche has already begun. Since 2008 — when the first Baby Boomers qualified for early retirement — Social Security and Medicare have accounted for 72 percent of all inflation-adjusted federal-spending growth (with other health entitlements responsible for the rest). …

Brian speculates on what will happen if politicians kick the can down the road.

…something has to give. Will it be responsible policy changes now, or a Greek-style crisis of debt and taxes later? …Restructuring cannot wait. Every year of delay sees 4 million more Baby Boomers retire and get locked into benefits that will be difficult to alter… Unless Washington reins in Social Security and Medicare, no tax cuts can be sustained over the long run. Ultimately, the math always wins. …Frédéric Bastiat long ago observed that “government is the great fiction through which everybody endeavors to live at the expense of everybody else.” Reality will soon fall like an anvil on Generation X and Millennials, as they find themselves on the wrong side of the largest intergenerational wealth transfer in world history.

Not exactly a cause for optimism!

Last but not least, Charles Hughes writes on the looming entitlement crisis for E21.

Medicare and Social Security already account for roughly two-fifths of all federal outlays, and they will account for a growing share of the federal budget over the coming decade. …Entitlement spending growth is a major reason that budget deficits are projected to surge over the next decade. …The unsustainable nature of these programs face mean that some reforms will have to be implemented: the only questions are when and what kind of changes will be made. The longer these reforms are put off, the inevitable changes will by necessity be larger and more abrupt. …Without real reform, the important task of placing entitlement programs back on a sustainable trajectory will be left for later generations—at which point the country will be farther down this unsustainable path.

By the way, it’s not just libertarians and conservatives who recognize there is a problem.

There have been several proposals from centrists and bipartisan groups to address the problem, such as the Simpson-Bowles plan, the Debt Reduction Task Force, and Obama’s Fiscal Commission.

For what it’s worth, I’m not a big fan of these initiatives since they include big tax increases. And oftentimes, they even propose the wrong kind of entitlement reform.

Heck, even folks on the left recognize there’s a problem. Paul Krugman correctly notes that America is facing a massive demographic shift that will lead to much higher levels of spending. And he admits that entitlement spending is driving the budget further into the red. That’s a welcome acknowledgement of reality.

Sadly, he concludes that we should somehow fix this spending problem with tax hikes.

That hasn’t worked for Europe, though, so it’s silly to think that same tax-and-spend approach will work for the United States.

I’ll close by also offering some friendly criticism of conservatives and libertarians. If you read what Cogan, Riedl, and Hughes wrote, they all stated that entitlement programs were a problem in part because they would produce rising levels of red ink.

It’s certainly true that deficits and debt will increase in the absence of genuine entitlement reform, but what irks me about this rhetoric is that a focus on red ink might lead some people to conclude that rising levels of entitlements somehow wouldn’t be a problem if matched by big tax hikes.

Wrong. Tax-financed spending diverts resources from the private economy, just as debt-financed spending diverts resources from the private economy.

In other words, the real problem is spending, not how it’s financed.

I’m almost tempted to give all of them the Bob Dole Award.

P.S. For more on America’s built-in entitlement crisis, click here, here, here, and here.

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