Posted on 03/31/2008 3:14:00 PM PDT by KeyLargo
Entitlement Mentality Is Wrecking Economy
By Jonathan Hoenig March 31, 2008
FROM WELFARE TO food stamps to Medicare, Medicaid and Social Security, our country now marshals a massive network of trillion-dollar entitlement programs colloquially known as the "social safety net." Many Americans, including a few of those running for president, see these bureaucracies as defining achievements of a nation where "nobody is left behind."
Forget the fact that the entitlements, many of which began with the goal of providing "basic minimum benefits" have grown into a gargantuan burden costing over $1.5 trillion a year and careening toward total collapse. For example, payouts will begin to exceed the revenues into Social Security in just nine years and current estimates have the entire system going belly up1 in 2041.
The fundamental problem with the social safety net, however, isn't bankrupt economics but bad philosophy.
A government can only provide a safety net insofar as the wealth that net consists of — food, clothing, shelter, medical services — has been created by productive individuals. The freebies government is so eager to expropriate don't grow from the ground, but must be produced by entrepreneurial individuals who create corporations, raise cattle, invest in financial markets, run restaurants, develop pharmaceuticals, and so on. From the creation of kidney dialysis to the transportation of affordable food, it's the reasoning mind that produces the wealth that makes our lives secure, not a bloated government bureaucracy.
As I've written2 before, it is America's historical commitment to capitalism and individual rights that has differentiated our prosperous economy from the socialist3 basket cases of North Korea, China and communist Cuba. When economic freedom is protected, societies see vast increases in productivity that result in higher-quality, lower-cost products.
One only need look at the least-regulated sectors of our economy — electronics, computers and food, all of which have declined in price — to see that phenomenon occur. Yesterday's luxuries, like huge flat-panel TVs from Best Buy (BBY4), become affordable mass-market items in just a few years.
This is true even in health care, which proponents of the entitlement safety net argue is uniquely vital enough to require governmental interference. Procedures like laser eye surgery that are not part of the government safety net have dropped in price and improved in quality in a short period of time. This is precisely what would happen if our entitlements were eliminated: Less-wealthy individuals would not go without care, but would become the eager focus of entrepreneurial businessmen competing to offer them cheap, quality health care...or education...or anything else.
In reality, skyrocketing health-care costs are a government-created phenomenon, where someone besides the patient (usually the government) pays the bills and insurance is assumed to be infinite. So there's no need for the producers of advanced medical devices to cut costs because such treatments quickly become a "right" under government-regulated health plans. If an innovative chemotherapy or AIDS treatment immediately has a huge, state-provided market, why focus on cutting costs? You'll note that the producers of notebook computers5 or hamburgers6 have no such disincentive.
Most disturbing is the reality that the "security" promised by the safety net is anything but secure. Unlike a mutual fund or checking account, there's no actual investment or savings when it comes to Social Security. It is, at its core, a Ponzi scheme in which the government loots your money today for the benefit of retirees and promises to do the same to future generations on your behalf.
So there is no real account with your name on it. In fact, the Supreme Court has ruled that the government does not owe us Social Security benefits by law, meaning that Congress is perfectly able to modify or cut benefits, which it has already done well over a dozen times since the program began.
At the heart of the social safety net is the moral belief that the government is responsible for our lives, and that, as Barack Obama has often said, "We are our brothers' keeper7." Under this altruist sensibility, we are duty-bound to serve the needs of others, meaning that anyone needy has an inherent claim on anyone better off. The wealthy aren't merely able to deal charitably with those in need, but are legally obligated to sacrifice their earnings for the benefit of those they might not voluntarily wish to support.
As entitlements grow, so does regulatory authority. As I wrote8 a few weeks back, the Federal Reserve is now getting explicitly in the business of being the de facto risk manager of the nation's largest banks. Treasury Secretary Henry Paulson's new mandate to overhaul oversight of U.S. financial markets moves us more toward a controlled society where individual choice is subordinate to "the public good," whatever the ruling class believes that to be at the time.
Moral bankruptcy eventually leads to financial collapse as well, and the evidence is growing more obvious with each passing day. As noted in Barron's9 over the weekend, the future obligations of Medicare are now so staggering that liquidating all the residential real estate in the country — a sum of almost $12 trillion dollars — wouldn't even cover the costs. The Social Security tax rate, which began at 2% in 1935, has been raised consistently since, with the system's trustees suggesting the payroll tax will need to be increased to 16% by 2041 in order to maintain benefits — higher if life expectancy rates continue to climb. The same suffocating scenario will inevitably play out for insurance, health care, housing or any other government-controlled efforts to redistribute wealth from those who've earned it to those who haven't.
It's more than evident that a government "safety net" is anything but safe. Instead of the altruist philosophy that only the needy matter, our country desperately needs to return to the notion of rugged individualism under which we are each responsible for and capable of achieving our own security without the immoral coercion of publicity-seeking politicians. Any alternative leads to dependency, stagnation and economic despair.
Jonathan Hoenig is managing member at Capitalistpig10 Hedge Fund LLC.
URL for this article: http://www.smartmoney.com/tradecraft/index.cfm?story=20080331-stock-investing
We must be near the point of no return, when more than half of American voters are now net tax takers, not payers.
Don’t forget government bail outs of Wall Street!
While this is a good read, the author casts a lot of doubt on his conclusion by mentioning that food has been decreasing in price. It hasn’t, and we all know this to be true.
it’ll never run out! we’ll just print more!
**Money for Illegals’ Care Runs Out(AZ-250 million/year)**
http://www.ktar.com/?nid=6&sid=765971
People faced with the prospect of no health care after retirement and no retirement fund are going to demand these entitlements continue. And so will most of their relatives. We are talking about tens of millions of people and an awful lot of them vote. The government can tweak these things but I doubt they can ever do much more than make minor changes. Not if the politicians want to keep their jobs.
Gone are the good old days of “you don’t work you don’t eat”. The liberal’s nanny state mentality has fostered generations of welfare families who have relied on the guvmint to pay their way. I am sure that there are some people that truly need these programs but the abuse far outweighs the legitimate cases.
Maybe we NEED to leave some people behind. Maybe then they will have to go out and get a job. McDonalds and the car wash are always hiring.
BUMP!!!!
The last figure I saw was 41%. That’s too close for comfort.
Great comments by John. I listen to him on WLS AM 890 out of Chicago sometimes in the morning.
The Great Society is truly a terrible example for a country.
Throw the old folks to the wolves if they can’t chew their meat.
Nice.
Yes. And George Bush has added prescription drug entitlements to this staggering load. And just when Social Security teetered on the brink of insolvency, he decided to extend benefits to Mexico. Let’s hope McCain has better sense. You can bet you last dollar that neither of the Democrat contenders has.
I think we are past the point of no return.
The “entitled” AKA, liberals/democrats, consider themselves children. They may think they are adults, but what kind of adult requires so much supervision over their lives? What kind of adult worries so about who will take care of them and their needs? What kind of adult hands over so much responsibility for their own care to another?
In reality, skyrocketing health-care costs are a government-created phenomenon, where someone besides the patient (usually the government) pays the bills and insurance is assumed to be infinite
Uh no. The majority of insurance is paid through private companies.
Yes we are. Entitlements have become a self-fulfilling prophesy.
Entitlements are a life style that is generational,handed down from mother to daughter, father to son. Encouraged by the liberals in return for thier vote and support have strangled cities, states and government. All we here is the liberal dems stating they will increase these entitlements, they are not enough, and we will pay for this by taxing the rich. The only problem with this is the RICH is me and you, middleclass Americans who have to pay for thier sons and daughters college education, put food on thE table and a roof overhead, pay these gas prices to make it to work to earn this money, pay for daycare, healthcare and a million other things we do not have the privelege of getting for free BECAUSE WE PAY FOR THEM! I SAY, WHERE IS OUR BREAK? WHEN DO WE GET A LITTLE OF WHAT WE PUT IN? We don’t! Thanks to the skunks we elect to office who use us and abuse us!
I do not see that getting my SS for retirement constitutes any sort of entitlement. I had no choice and would rather have invested it.
But unless you are in the ruling class, you pay.
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