Harvard economist Greg Mankiw recommends an article from today’s Wall Street Journal. The article is unusual in two ways. First, it is not gated, so can be accessed without subscription. Second, it promotes a view that the United States is on verge of collapse – morally and financially – because of federal government spending on entitlements.
A half-century of unfettered expansion of entitlement outlays has completely inverted the priorities, structure and functions of federal administration as these were understood by all previous generations. ….
In 1960, entitlement payments accounted for well under a third of the federal government’s total outlays—about the same fraction as in 1940 …. By 2010 they accounted for just about two-thirds of all federal spending ….
Government … entitlement spending [can be divided] into six baskets: income maintenance, Medicaid [healthcare for the elderly and disabled], Medicare [healthcare for the poor], Social Security [contributory public pensions], unemployment insurance and all the others. …. These entitlements account for about 90% of total government transfers to individuals, and the first four categories comprise about five-sixths of all such spending. ….
Although many Americans in earlier times were poor, even people in fairly desperate circumstances were known to refuse help or handouts as an affront to their dignity and independence. People who subsisted on public resources were known as “paupers,” and provision for them was a local undertaking. Neither beneficiaries nor recipients held the condition of pauperism in high regard. ….
The U.S. is now on the verge of a symbolic threshold: the point at which more than half of all American households receive and accept transfer benefits from the government. From cradle to grave, a treasure chest of government-supplied benefits is there for the taking for every American citizen—and exercising one’s legal rights to these many blandishments is now part of the American way of life.
Nicholas Eberstadt, “American Character Is at Stake“, Wall Street Journal, 1 September 2012. (ungated)
Excerpted from “A Nation of Takers: America’s Entitlement Epidemic” forthcoming from the Templeton Press. The complete essay, and the dissenting view of William A. Galston (Senior Fellow, The Brookings Institution) can be downloaded at the link above. The two figures shown here are copied from the Wall Street Journal article.
Mr Eberstadt assigns great importance to the fact that the United States is about to reach a point at which half of all households receive transfers in cash or in kind from government. If he were to add tax breaks (mortgage interest deduction, executive remuneration taxed as “carried interest”, tax-free employment-provided health insurance, tax-deferred retirement savings) to the list of transfers, this figure could easily reach 100%. But, is this a problem? Ignoring tax expenditures, all, or nearly all, households in the rest of the developed world receive transfers as government entitlements. In Canada, for example, residents of all ages and incomes are entitled to free health insurance. Are citizens of Canada or other OECD countries more ‘dependent’ because they rely on government, to a much greater extent than US citizens do, to finance their healthcare needs?
Political economist Nicholas Eberstadt (born 1955), is a resident fellow at the American Enterprise Institute (AEI). He has published numerous books and articles on Russia, North Korea and China.
Greg Mankiw is chairman of Harvard’s economics department. From 2003 to 2005 he chaired GW Bush’s Council of Economic Advisers. In 2006, he became an economic adviser to Mitt Romney, and has continued in this capacity during Romney’s current presidential bid. He is also a visiting scholar at AEI, which might explain the recommendation of Eberstadt’s article.