The very first entitlement program in American history was to care for the wounded soldiers and widows of the Revolutionary War. If you look at the current federal budget and programs, it's clear, entitlements have grown over the centuries. We wondered how it all got out of hand, so we talked with author John Cogan, about the High Cost of Good Intentions.
Scott: Do you think people would be surprised to know, a) how big the problem has gotten and b) that there doesn't seem to be a great solution on the horizon?
John Cogan: It's a gradual process that takes place over many, many years.
Scott: Good intentions?
John Cogan: Good intentions, So we start with a group that everyone agrees is very, very worthy. And then the people that are just outside the eligibility circle, well they're nearly as worthy.
Scott: How badly has it ballooned?
John Cogan: In 2016, the last year from which we have data, 54 percent of all US households were receiving benefits from at least one federal entitlement program.
Scott: More than half of American households were getting some sort of entitlement?
John Cogan: Right, but if you take out those that are receiving social security and Medicare, because everyone over age 65 receives those, right, so take it out. Among households that are headed by a person under age 65, 41 percent of them are receiving an entitlement benefit. So back in the 1970s, it was closer to around 20-25 percent.
Scott: So talk about the consequences then, why is this a problem?
John Cogan: First, as well-meaning as these programs are, their cost is very, very high. Part of it is what I call a human cost. These entitlement programs to some extent undermine individual's incentives to be self-sufficient and for self-improvement, at the same time, you have to worry about the high fiscal cost. Our budget deficit for the last year was 666 billion dollars. The vast majority of that deficit is not due to defense spending, it's not due to NIH spending, not due to NASA. It's due to the large body of entitlements. We spend about 2.5 trillion dollars on entitlements. And it accounts for the large deficit we have today.
Scott: So then is Congress to blame if we had to point a finger?
John Cogan: Well I would point a finger at Congress cause I think they understand the problem and have just not chosen to address it. Having said that, I do think the problem is with us in a way, Americans.
Scott: What's your worst-case scenario that you think might actually occur one day? John Cogan: We know that either taxes have to be increased enormously if we don't take any action in the next ten years. Economics tells us if we try to raise taxes to finance this entitlement problem, we're going to kill off the economy. History tells us that if we issue too much public debt we are going to have a financial crisis of very serious proportions.
Scott: So right now, if there was a cliff, are we miles away from it driving in that direction? Are we in the vicinity? Or are we standing at the edge looking over?
John Cogan: We're not on the point where we're standing looking over the abyss. But I do think we're driving very rapidly, and more rapidly every year.
Scott: Of the entitlements right now that pose the biggest concern, what's the largest culprit?
John Cogan: In terms of dollars, Social Security and Medicare. Those are the two. I think today both of them will total about 40 percent of government spending, and they're growing at a very, very fast rate.
Scott: Alright so then, that's a relatively fatalistic viewpoint. Give me a reason to be optimistic that we can turn this thing around.
John Cogan: America has always been able to solve major problems. I have the ultimate confidence that America will step up, will figure out a way to get these entitlements under control, while at the same time maintaining those honorable goals that most of these programs began with.
A note of perspective on 'entitlements'. Of the two primary entitlements mentioned, Social Security and Medicare, most hardworking Americans pay into the system, our of your paychecks, every week. So the notion that at retirement we'll be paid an 'entitlement', might rankle some. We've earned it. The overriding problem, that most say -necessitates- reform, is that both of these are paying out far more than they're taking in.