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Rational discussion of entitlements is possible

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TORONTO — A feature in the Wall Street Journal provides an intelligent discussion of American entitlements — defined as the public transfer of money, goods and services to individual citizens.

Addressing the topic of whether such entitlements are corrupting, a pair of academics — Nicholas Eberstadt and William A. Galston — offer opposing perspectives. Or perhaps one should say complementary perspectives.

Eberstadt lays out his case succinctly. Since 1960, there’s been a dramatic change in the role of the federal government, a change that’s transformed it into what he describes as "an entitlements machine." Whereas such transfers accounted for less than one-third of federal outlays in 1960, by 2010 the proportion had grown to two-thirds.

Looked at another way, the transformation is even more dramatic. To quote directly: "Even after adjusting for inflation and population growth, entitlement transfers to individuals have grown 727 per cent over the past half-century, rising at an average rate of about four per cent a year."

While there have been spectacular increases over a broad array of programs, the most significant are in the health care area. Medicare (for senior citizens) and Medicaid (for the poor) didn’t exist until the mid-1960s. Now they cost more than $900 billion annually.

And savour this counter-intuitive nugget. Entitlement spending growth was particularly aggressive under two Republican, eight-year presidential terms, those of Richard Nixon-Gerald Ford and George W. Bush!

In addition to long-term fiscal sustainability, Eberstadt has a couple of concerns. One, that the traditional American ethos of independent self-reliance is succumbing to a culture of dependency. And two, that much of the tab is being foisted on future generations.

Galston’s response is interesting, in part for what it doesn’t do. There’s no attempt to dispute Eberstadt’s numbers. Nor is there any resort to name-calling or accusations about throwing granny off the cliff.

Instead, he injects two broad considerations.

The first has to do with major social changes over the past 50 years, ranging from America’s aging demographic profile to the increase in earnings inequality. In the normal course of events, changes of this kind would tend to drive up entitlement spending.

The second consideration has to do with the nature of dependency. On its own, Galston finds the dependence/independence formulation too crude, preferring to add the concept of interdependence.

In his telling, modern societies inevitably have a high degree of interdependence, including generational interdependence. And the principle of reciprocity is what makes this work.

At its core, reciprocity implies an exchange of value or a quid pro quo. You’ll do something for me and I’ll do something for you. Ideally, the exchange would be voluntary and would involve goods or services of perceived equal value.

But even absent those ideal conditions, the key is that everyone contributes. In other words, no freeloading.

The earned income tax credit, which supplements the earnings of low-wage workers, is an example of what Galston has in mind. To get it, you must work. He puts it this way: "Though these low-wage workers are not self-sufficient, they are not dependent either, because dependency is a matter of character, not arithmetic."

That said, his analysis recognizes that not all entitlement increases necessarily meet the reciprocity test. For instance, the number of individuals participating in the food stamp program has exploded from 26 million to 46 million over the last five years.

While much of that increase is attributable to the poor economy, there’s also been a liberalization of eligibility standards. Accordingly, it’s "plausible (though hardly certain) that these changes may have encouraged dependency among some of the beneficiaries, especially those who were not living in poverty prior to receiving benefits."

Both Eberstadt and Galston are of the view that, as currently structured, American entitlements are fiscally unsustainable over the long-term. Reform is therefore necessary. But while they would surely differ on the details of where to draw the line and how to finance the appropriate outlays, at least it would be a rational discussion.

Let’s give the final word to the columnist Clive Crook, whose exasperated observation the other day minced no words: "Seething intolerance for the other side’s point of view is the main thing wrong with American politics right now." Perhaps all sides could take lessons from the likes of Eberstadt and Galston.

 

Columnist Pat Murphy worked in the Canadian financial services industry for over 30 years.

 

—Troy Media

 

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