Our Declaration of Dependence

As we get into the final stretch of the 2012 Presidential election, both parties are trying to convince the voters that this is the most important election of their lifetime and their choice will determine the course of the nation for the generations to come.   

If this is truly the most important election of our lifetime, it surely does not look like from the problems being discussed and the solutions being prescribed by  the two candidates.   One of the biggest problems the new administration will face will be the cost of our growing entitlements.  None of the candidates are providing any serious plans to address this problem.

In a fantastic essay written by Nicholas Eberstadt (A Nation of Takers: America’s Entitlement Epidemic), author makes the case that entitlement mentality is fundamentally changing the American character, which may be sacrificed long before the credibility of the US economy.   In this blog, I will try to summarize key points from this article.

Eberstadt suggests that while the American republic has endured for almost two and a quarter centuries, over the past fifty years, American government has become an entitlement machine which devotes more attention and resources to public transfer of money, goods and services to individual citizens than to any other objectives.

Eberstadt shares some breathtaking numbers.   In 1960, US government transfers to individuals totaled about $24 billion.  By 2010 that total was almost 100 times larger! It was around $2.2 trillion.   In 1960, entitlement related payments accounted for well under a third of the federal government’s total outlays.  By 2010, this share accounted for about two-third of all federal spending, with all other responsibilities of the federal government including defense making up barely one-third.  US government budget divides entitlement spending into six baskets: income maintenance, Medicaid, Medicare, Social Security, unemployment insurance and all the others.  Broadly speaking, the first two baskets attend to entitlements based on income status, the second two based upon old-age status and the next two based upon employment status. 

Income related entitlements including health-care services account for over $650 billion in2010.  For older Americans-Medicare, Social Security  and other pension related payments amounted to about $1.2 trillion in 2010.  To put things in perspective,  total revenue collected by the federal government in 2010 was around $2.2 trillion which is equal to the total entitlement spending that year.  It means every other function of the government including defense was funded thru deficit funding.  Budget deficit in 2010 was more than $1 trillion.

Eberstadt argues that there has been a steady shift towards entitlement lifestyle especially in the last couple of decades.  At the time of the founding of the country, there was an affinity for personal enterprise and industry and a contempt for anything that will smack of entitlements.  That resistance of government entitlement was ultimately overcome.  Today more than half of all American households receive transfer benefits from the government. 

Author argues that omnipresence of entitlements have already altered the American way of life.   With personal dependence on government handouts not only destigmatized but being enshrined as a right, mass behavior is changing in highly uncivil directions.  How many times have we seen elderly protesting “hands off my Medicare”, without realizing that their consumption will be at the expense of those born after them.   They rationalize this behavior with the notion that they have “already paid for” these benefits not knowing that on an average they will take out three times from the system more than what they put in.  The fact is that neither Social Security nor the Medicare trust funds can honor the future promises they have made today.   Unless we make significant changes in entitlement spending, we have decided to mortgage our future for a more comfortable retirement today.

Current fiscal trajectory is unsustainable.   The 2010 Bowles/Simpson commission report dealt with this problem squarely.  Their report was aptly called “The Moment of Truth”.   They provided a framework, which can provide solid underpinning of a legislation to address this problem. 

It is incumbent upon the Presidential candidates to share their plans for addressing this most “predictable crisis” facing us.  Until they clearly articulate their plans to implement recommendations of Bowles/Simpson commission report, they have not earned our vote.