This is well written and informative...just an FYI for those who are interested in such things.
Read the entire article at the link.
In 1960, government transfers to individuals totaled $24 billion. By 2010, that total was 100 times as large. Even after adjusting for inflation, entitlement transfers to individuals have grown by more than 700 percent over the last 50 years. ... There are sensible conclusions to be drawn from these facts. You could say that the entitlement state is growing at an unsustainable rate and will bankrupt the country.
—David Brooks, “Thurston Howell Romney,” New York Times, September 17, 2012
Is the view that “entitlements”—government programs like Social Security, Medicare, and Medicaid—“will bankrupt the country” a “sensible conclusion”? No. It’s scare-mongering of the “OH MYGOD WE’RE ALL GOING TO DIE!” variety, completely unjustified by a sober look at data on government transfer payments between 1960 and 2010.
New York Times columnist David Brooks starts the passage on entitlements in his September 17 column by noting that total government transfer payments have increased by an alarming-sounding 100 times over the last half-century. In the next sentence, he acknowledges that this figure is not adjusted for inflation. (Nor for population growth.) As it turns out, the “100 times” mostly reflects the increase in the general price level (more than seven-fold between 1960 and 2010) and the growth of the U.S. resident population (not quite doubled), not the growth in transfer programs specifically. Correcting for these factors, Brooks admits, the increase is just “700 percent.” One can only guess that he switched to percentage terms because he’s trying to sound scary, and “700 percent” sounds far scarier than “seven times.” (Brooks actually describes this figure simply as “after adjusting for inflation,” but it appears that he actually adjusted for both inflation and population growth.)
That’s as far as Brooks gets, so he misses another crucial adjustment. The average income in the United States is far greater today than it was in 1960. Real GDP per capita grew by more than two-and-a-half times between 1960 and 2010. Now, looking at real entitlements spending per capita relative to real GDP per capita (or just real entitlements spending relative to real GDP), the growth over the last 50 years is down to less than three-fold. It makes perfect sense that cash benefits programs like Social Security—which send people checks and allow them to spend the money as they see fit—should grow with increasing incomes. These programs are meant to help people maintain something resembling the customary standards of living of today, after all, not those of the Eisenhower era.
With a few sensible adjustments, then, Brooks’ alarming initial figure of “100 times” vanishes almost into thin air. That still leaves, however, an increase of a little less than three times. What accounts for that?
To begin with, over 70% of the increase in social benefits at all levels of government, over the half century between 1960 and 2010, is accounted for by three programs: Social Security, Medicare, and Medicaid. Two of these, Medicare and Medicaid, did not even exist in 1960. (Social Security, meanwhile, did not cover anywhere near the percentage of the labor force it covers today.) It is rather disingenuous to bemoan the “unsustainable growth” of certain government programs, over a certain period, when they did not even exist at the beginning of that period.
More generally, the growth in the Big Three social-benefits programs is the combined result of several different effects. Partly, it reflects changes in the demographic composition of the population. Social Security and Medicare primarily benefit the elder population. This age group has grown as a percentage of the overall U.S. population because people are, on average, living longer and because the demographic “bump” of the baby-boom generation is beginning to reach retirement age. Partly, the increase reflects the growth in medical costs, which has been faster than the increase in the general price level. Finally, it reflects the expansion of benefits associated with these programs (Social Security retirement benefits, for example, are tied to lifetime earnings, so as earnings go up so do benefits).
Even aside from the numbers, Brooks is fundamentally wrong that transfer programs can “bankrupt the nation.” Transfer programs, as their name suggests, transfer income from one part of the population to another. Social Security, for example, is primarily an intergenerational transfer program. It taxes current workers to fund benefits for current retirees. (Most people pay taxes that fund other people’s benefits, during one part of their lives, and then receive benefits paid for by other people’s taxes, during another part.) The “losses” for those who are paying the taxes, at any given time, are not losses to society as a whole. They are balanced by the gains to those who are receiving the benefits. <snip>
<snip>Brooks acts as if budget issues are one-sided: a matter only of how much a particular program or combination of programs costs. This one-sided view is especially evident in U.S. political discourse on deficits, which politicians and commentators often frame as a problem of excessive spending. A budget deficit, however, is the difference between expenditures and revenue—it is an inherently two-sided issue—so looking at the expenditures side alone doesn’t help us understand the causes of deficits or the possible policy responses.
Could the U.S. government just raise more revenue, as a percentage of GDP, to pay for transfers that have grown as a share of GDP? Well, somehow a couple of dozen other countries seem to manage. So probably yes.
http://truth-out.org/news/item/12929-the-big-lie-about-the-entitlement-state
Read the entire article at the link.
