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Origins of the Entitlement Nightmare

Summary:
Currently, the U.S. federal government spends about .4 trillion per year--about 12% of GDP--on entitlement programs. This amounts to ,500 per person annually. Only 48% of this spending goes to people officially classified as poor. The federal government provides more than ,000 per year in Social Security and Medicare benefits to retired middle-income couples. And this is at a time when almost half of households headed by people under age 65 have incomes less than ,000. How did we get to this fiscal state? When did Congress's irresponsibility with entitlement spending begin? When the federal government ran budget surpluses, how did that affect Congress's decisions about entitlements? What

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Currently, the U.S. federal government spends about $2.4 trillion per year--about 12% of GDP--on entitlement programs. This amounts to $7,500 per person annually. Only 48% of this spending goes to people officially classified as poor. The federal government provides more than $50,000 per year in Social Security and Medicare benefits to retired middle-income couples. And this is at a time when almost half of households headed by people under age 65 have incomes less than $50,000.

How did we get to this fiscal state? When did Congress's irresponsibility with entitlement spending begin? When the federal government ran budget surpluses, how did that affect Congress's decisions about entitlements? What president in the 20th century made a heroic effort to restrain entitlement spending and then, later, created the largest and most expensive such program in the century? What Republican president helped increase Social Security benefits by a double-digit percent? Finally, is there a way to rein in such spending in the future without kicking up such strong opposition that the restraints will be undone? Hoover Institution economist John F. Cogan answers these questions and more in his fact-filled, carefully researched book, The High Cost of Good Intentions. (Disclosure: John Cogan and I are colleagues at the Hoover Institution.)


These are the opening two paragraphs of my review of John Cogan's book. The review is in the latest issue of Regulation.

Although I liked the book overall a lot, I did have a couple of criticisms, as is my wont. Here's one:

Only one major reform [of Social Security] occurred on the spending side: a gradual increase in the age at which one could receive full benefits, from 65 to 67 by the year 2027. But this reform was not one proposed by the Greenspan Commission. Instead it was the handiwork of Jake Pickle, a Democratic congressman from Texas, whose mentor, interestingly, had been LBJ. Cogan mentions the age increase but does not specify Pickle's role or the fact that the Greenspan Commission had recommended no such age increase. He does point out, though, that "remarkably, the slowly increasing retirement age since 2000 has occurred with little or no controversy."


David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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