The Pledge Every Politician Should Be Asked to Make: No New Entitlements
Entitlement programs are strangling the U.S. economy. In “Capitalism in America,” Alan Greenspan and Adrian Wooldridge show that from 1965 to 2016, entitlement program benefits grew “at average rate of 9 percent a year,” and increased their share of gross domestic product “from 4.6 percent to 14.6 percent.”
Rising entitlement program spending, they explain, is “crowding out domestic savings … on almost a dollar-for-dollar basis.” By draining savings, the increasing spending on these programs cuts the growth of capital investment which is “the primary driver of productivity.” The bottom line of their analysis is that growing entitlement program spending is “reducing productivity growth, and as a result, poisoning GDP growth.”
The biggest entitlement programs – Social Security, Medicare, and Medicaid – are gargantuan. In 2018, Social Security spent over $1 trillion and Medicare spent over $740 billion; and in 2017, Medicaid spent over $580 billion.
In just one year, that’s over $2.3 trillion – over ten percent of the nation’s $21 trillion GDP – drained from savings that could have been invested to increase productivity and expand the economy. No wonder GDP growth has been declining since 1965.
Time will not make this problem disappear. Rather the opposite. The nation’s aging population makes both the total amount of entitlement spending and its share of GDP rise substantially faster than the rate of economic growth, weighing down GDP growth more every year.
The new entitlement programs that so many are demanding – free medical care, free college education, universal basic income, and forgiving all outstanding student loans – would compound this economic harm.
The free medical care program, a.k.a. Medicare for all, has an estimated price tag of $32.6 trillion over ten years.
A free college education program would cost even more. The Census Bureau reported that there were 18.4 million students attending U.S. colleges in 2017. The Department of Education calculated that a year’s tuition, fees, and room and board charges at these colleges averaged a total of $22,432 in 2015-2016. Paying $22,432 for each of 18.4 million students would cost $412.7 billion. And this tab would skyrocket with a free college education program, because many more would choose to attend college on the government’s dime and the increased demand would push colleges to substantially raise their prices.
A universal basic income that pays $1,000 each month ($12,000 each year) to each of the nation’s over 200 million people aged 18 to 64 would mean annual payments of over $2.4 trillion.
As for the cost of forgiving the $1.5 trillion of outstanding student loan debt, a reasonable estimate so far has proven too complex to calculate.
These programs would steal hundreds of billions (if not trillions) from savings each year, deprive the economy of yet more capital investment needed to increase productivity, and further constrain GDP growth.
As economic growth declines, it becomes more precious. Economic growth, as President Kennedy put it, is the “rising tide that lifts all boats,” lifting people out of poverty and into the middle class and increasing prosperity. To maximize it, it is essential to reject proposals for new entitlement programs and instead do the hard work of restructuring the existing entitlement programs (as Sweden did starting in the 1990s) to at least loosen their chokehold on the economy.
The first and simplest step on this rigorous path is to insist that every officeholder and candidate take a new pledge: no new entitlements!
