Wednesday, April 17, 2013

Pauper Kingdom: Living Through the Decline of the Republic


Over the past two years, I have partnered with Senator Reid (R-Ogden) to push forward welfare reform in Utah.  In 2012 we passed a bill creating the Intergenerational Poverty Study to help us begin to understand the scope and causes of successive generations of welfare dependence in our State.  This year, we passed Intergenerational Welfare Reform which is designed to break down the silos of governement and create regular communication between departments of education, corrections, and social services. It is hoped these open lines of communication will help stir the creative juices of our top bureaucrats to deliver real solutions to the ongoing issue of intergenerational poverty in Utah.

In 2014, we will draft legislation based on the recommendations from our department directors.  While the first two framework bills were unanimous in their support, the next step of implementing policy will likely involve much more debate.  Thus, it is imperative that we be informed as policymakers and as a citizenry to the context in which Utah's future policies are being created.

While we work diligently to solve Utah's welfare problems with the tools available to us, there is a pending disaster on the horizon at the Federal level.  I don't wish to cast a pall of gloom on your day; yet, we must be willing to acknowledge the facts of our circumstances if we wish to claim the right of being a self-governing people.  So, to better understand the backdrop in which Utah will be crafting its own welfare policy, let us explore the challenges and illuminate the peril we are immediately facing as a Nation.
 


The textbook for today's expose is Nicholas Eberstadt's work A Nation of Takers: America's Entitlement Epidemic.  It is a searing indictment of our nation's fiscal mismanagement as laid out in the cold hard facts.  The book removes any willful ignorance about our country's entitlement programs as example after example illustrates the truly dangerous predicament in which our United States finds itself.  If you are a policymaker, this book is a 'must read'.    

The problem we are experiencing is systemic.  Over the past 50 years, our Federal government has expanded its size and scope so that today, 2/3rds of our Federal spending is done so on welfare programs.  These include Social Security, Medicare, Medicaid, Unemployment Insurance, Disability, and a few more  means-tested poverty assistance programs like TANF.  Taxpayer money issued from these programs are euphemistically called "Transfer Payments".

So, what impact do these transfer payments have on our citizenry?  Here is our first chart.


For starters, nearly 1/5th of all household income in the United States comes from Federal transfer payments. This is a staggering number and illustrates why we have become dependent on Federal programs for our subsistence.  If 18% of your income disappeared, what would that mean to your standard of living?

However, we didn't arrive at this unenviable situation in one day.  It has taken us 50 years to arrive at this point.


Let's compare Federal entitlement spending between 1960 and 2010.  As you can see from this chart, Government Entitlement Program spending increased from $24 Billion in 1960 to $2.2 Trillion in 2010.  That is an increase of almost 100 times.  Meanwhile, the U.S. population grew from just 179 Million in 1960 to 308 Million in 2010...or an increase of 1.72 times. 

How does this spending impact us personally?  Eberstadt tells us:

 "In 2010 the burden of entitlement transfers came to slightly more than $7,200 for every man, woman, and child in America. Scaled against a notional family of four, the average entitlements burden for that year alone would have approached $29,000. And that payout required payment from others, through taxes, borrowing, or some combination of the two."
So, today each American's annual share of the burden (if distributed equally among all) is $7,200 per person.  Why is the burden so high?   Here are some more facts to consider:


  • "Total entitlement payouts on a real per capita basis have been growing twice as fast as per capita income over the past twenty years [1990-2010]"
  • "The Census Bureau reports that over 49 percent of Americans are obtaining at least one government benefit."
  • "By 2009 the share of American families receiving poverty-related entitlements was almost three times as high as the official poverty rate for families—and it was well over three times as high as the national unemployment rate."

While entitlements are spreading farther and wider to individuals who's real need for the assistance may be suspect, the ratio of people contributing to the system versus those who are drawing on the system has reached unsustainable proportions.  


When it comes to balancing the workers in proportion to the needy, things have changed significantly for the worse since 1960.  Today there are only 16 workers for every one person on disability assistance. 

Also, disability as a form of a claim on public assistance has exploded in proportion to those claiming assistance based on poverty. 


Part of this mushrooming in disability payments may be attributed to the qualifying factors.  


When it comes to qualifying for disability assistance, 44% are related to "mood disorders" or "musculoskeletal/connective tissue" problems.  Eberstedt duly points out that even though diagnostics may have improved with technology over time and accounted for this increase, yet "it is exceptionally difficult—for all practical purposes, impossible—for a medical professional to disprove a patient’s claim that he or she is suffering from sad feelings or back pain."

In the book, opposing viewpoints are offered.  William Galston, who agrees with the numbers yet rebutts many of Eberstedt's conclusions, still concedes: "There is little doubt that the Social Security Disability Insurance program (SSDI) is subject to serious abuse. During the past decade, the number of workers receiving monthly benefits has soared from 5.3 million to 8.6 million. And because SSDI recipients qualify for Medicare after receiving benefits for two years, few working-age beneficiaries leave the program once they have entered."

With this being the case, it should be no surprise that the SSDI program is scheduled to go bankrupt in 2016!

Now lets take a look at food stamp growth in just the past five years.


Even Food Stamp growth has been exponential as the program has loosened eligibility requirements and targeted an ever wider swath of society...including college students.  

Our entitlement spending problems look bad from many different perspectives.  Here are some other interesting facts to consider about our situation:

  • "The level of means-tested benefit dependency for Anglos today is almost as high as it was for black Americans when Daniel Patrick Moynihan was prompted [1965] to write his famous report on the crisis in the African American family."
  • "From a purely statistical standpoint, the growth of entitlement spending over the past half-century has in truth been distinctly greater under Republican administrations than Democratic ones. Between 1960 and 2010, to be sure, the growth of entitlement spending was exponential—but in any given calendar year, it was on the whole over 8 percent higher if the president happened to be a Republican rather than a Democrat."   
  • "Entitlement spending has exceeded defense spending since 1971."
  • "As of 2010, America spent three times more on entitlement spending than on national defense." 
  • "On its current trajectory, the U.S. government’s transfer payments are on track to increase by over $700 billion over the next four years. As it happens, our total current national outlay for all defense and security programs is roughly $700 billion. Even if our national defenses were to be eliminated totally tomorrow, it would at this juncture take just one presidential term for the growth of personal transfers from the U.S. government to absorb the totality of our entire current defense budget." 

There are strong moral implications to our entitlement spending policies.  We are cobbling the future of our children for today's high living. We are paying for today's largess by heaping debt onto future generations.  To add insult to injury, our children are fewer in number than we are today in large part because of our lack of desire to bring children into the world.  So, not only will our children be responsible to pay our bills, there will be fewer of them around to pay when the bills come due.  What kind of hope for the future is that?

The bottom line is that current U.S. entitlement spending policy is irresponsible, reckless and politically self-indulgent. Ironically, Eberstedt demonstrates that Rupublican presidents have been worse shepherds of entitlement growth than their Democratic counterparts.  In order for us to reclaim the mantle of a vibrant and responsible Republic, the Federal government needs to give the States the room to innovate their own solutions to the pressing social needs within their own borders.  States like Utah balance their budget every year.  They can't print money to pay the bills.  This restraint creates the perfect pretext for creative and affordable solutions.  

Within our lifetimes we will have an epic struggle regarding our national welfare state.  Utah policymakers should prepare for the day when Federal entitlement programs reach their ultimate arithmetic conclusion of bankruptcy and dysfunction.  That day, and the furor that will follow, is not too far distant on the horizon.  

5 comments:

  1. Are you saying that the purpose of the intergenerational poverty bills passed by the Utah legislature was to lay the groundwork for transferring full control of Social Security, Medicare, Medicaid and Food Stamps to the state so that all of those programs can be made smaller?

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  2. Bill, there are two parts to your question that need to be dealt with separately.

    1. The welfare reform bills that passed are so Utah can deal with welfare within the scope of its current jurisdiction. We want to do better with what we have as a state.

    2. The failure of the Federal welfare state will by default kick these responsibilities down to the state. If the Federal government continues to tax at its current rate when these entitlement institutions fail, the states will be forced to make the programs smaller since we will be using the existing State revenue base. However, if the Feds relinquish taxes, then the states may very well be able to pick up the slack where the Feds left off.

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  3. There are third options for how things could go, including:
    1) The economy grows faster for a few years so that entitlements cost a smaller share of GDP.
    2) The President and Congress agree to make minor changes to entitlements and the tax code and the budget gets under control, or
    3) We ignore the problem as long as Japan has ignored the problem and we continue to be able to borrow cheap money for 10+ more years.

    Problems do not always reach a crisis point.

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  4. Bill,

    10 years may be all that we have. Hence, the qualifier "within our lifetimes". In a historical context 10 years is no time at all. Japan is right now heaving itself on the rocks after 20 years of fiscal insanity and a demographic pyramid inversion. We won't be as bad as Japan but our turn won't be fun either. Also, demographics and macro economics seem to indicate that GDP growth will not outstrip entitlement growth for some time...and I doubt we will see Congress or the President move on this issue in the next 3 years. These scenarios are possible but I don't think they are probable. Given the Fiscal Cliff, and The Debt Ceiling, I don't see how anything gets done before a crises hits

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    Replies
    1. Japan's economy is projected to grow 1.6% this year. That might be slower than optimal but it is hardly "heaving itself on the rocks". It can take a very long time for a problem to reach the point that it is a "crisis".

      That does not mean it is smart to wait for a crisis. It does mean that it is unwise to assume a crisis is pending-- or that if we reach a crisis point there will only be one or two ways to address that crisis.

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