Recorded on October 24, 2017.
How old are entitlement programs in the United States? Entitlement programs are as old as the Republic, according to John Cogan, former deputy director of the US Office of Management and Budget (OMB) and a Hoover Institution senior fellow. Cogan joins Peter Robinson to discuss his latest book, The High Cost of Good Intentions, on the necessity for entitlement reform in the United States.
Currently there are a bevy of entitlement programs in the United States, each costing a large percentage of the federal budget each year. These programs are open-ended and hard to estimate into the budget because people with the average number of benefits vary greatly from year to year. These programs have become complex and bloated over the many years since they’ve been instated and are in dire need of reform.
According to John Cogan, entitlement programs such as pensions, Medicaid, and Social Security have been a part of US history since the Revolutionary War when Congress first created pensions for all the soldiers who had served the Republic during the war. Congress then went on to expand entitlement programs after the Civil War to include soldiers who had fought in the war. Entitlements remained restricted to only those who had served the Republic until the New Deal when entitlements were extended to all citizens above a certain age (Social Security). This was the first time that entitlements were given to citizens who had not served. This was also the first time that entitlements were granted to everyone until the end of time.
- Blueprint for America: Entitlements and the Budget
- Pension Pursuit
- The High Cost of Good Intentions: A History of US Federal Entitlement Programs
- America the Fixer Upper
- Finding the Money for America the Fixer Upper
About the Guest
John Cogan is the Leonard and Shirley Ely Senior Fellow at the Hoover Institution and a faculty member in the Public Policy Program at Stanford University.
Cogan is an expert in domestic policy. His current research is focused on US budget and fiscal policy, federal entitlement programs, and health care. He has published widely in professional journals in both economics and political science. His latest book, The High Cost of Good Intentions: A History of US Federal Entitlement Programs was published in September 2017. The book traces the history of US federal entitlement programs from the Revolutionary War to modern times. His previous books include Healthy, Wealthy, and Wise: Five Steps to a Better Health Care System, coauthored with Glenn Hubbard and Daniel Kessler, and The Budget Puzzle (with Timothy Muris and Allen Schick).
Cogan has devoted a considerable part of his career to public service. He served as assistant secretary for policy in the US Department of Labor from 1981 to 1983. From 1983 to 1985 he served as associate director in the US Office of Management and Budget (OMB) and was appointed deputy director in 1988. His responsibilities included developing and reviewing all health, housing, education, and employment training programs and policies.
Cogan has served on numerous congressional, presidential, and California state advisory commissions. He served on the California State Commission on the 21st Century Economy and the California Public Employee Post-Employment Benefits Commission. He has served on President George W. Bush's Commission to Strengthen Social Security, the US Bipartisan Commission on Health Care (the Pepper Commission), the Social Security Notch Commission, and the National Academy of Sciences' Panel on Poverty and Family Assistance.
Cogan received his AB in 1969 and his PhD in 1976 from the University of California at Los Angeles, both in economics. He received his MA in economics from California State University at Long Beach in 1970. He was an associate economist at the Rand Corporation from 1975 to 1980. In 1979 Cogan was appointed a national fellow at the Hoover Institution, in 1980 he was appointed a senior research fellow, and in 1984 he became a senior fellow.
Peter Robinson: Every month, the Federal Government spends hundreds of billions, hundreds of billions on entitlement programs. Of course, that's all right because all that money goes toward helping the poor. If you think that, I'm afraid you have to think again. Joining us today John Cogan, the author of The High Cost of Good Intentions. Uncommon Knowledge now. Welcome to Uncommon Knowledge. I'm Peter Robinson. A fellow at the Hoover Institution here at Stanford, John Cogan received his undergraduate and doctoral degrees from UCLA. He has devoted his career to studying American domestic policy, especially fiscal and budgetary policy. Dr. Cogan acquired practical experience during the 1980s when he served in senior positions in the Reagan administration first at the Department of Labor and then at the Office of Management and Budget. John Cogan's newest book The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs. John Cogan, welcome.
John Cogan: Well, thank you, Peter. It's a pleasure to be here.
Peter Robinson: John, first things first, what are we talking about when we're talking about entitlement programs? Why are they a separate category different from other kinds of spending?
John Cogan: Well, it's actually a great question to start off with, Peter. Entitlements have come to mean very different things to different people. To some people, an entitlement is a handout. It's an unearned benefit. For them, entitlements are a derogatory term. To other people, an entitlement is a benefit that cannot be taken away. A person has a legal right to that benefit and that right is irrevocable. We have very different views about what entitlements are. For us today we'll adopt the non-loaded definition of entitlements. An entitlement program is simply a program that provides a benefit under the law to anyone who qualifies for the benefit as provided in the law. Let's take Social Security as a good example. If you've worked in a covered job for 10 years and you reached the age of 66, you are entitled under the law to receive a benefit. You have a legal right to receiving that benefit. But since these benefits are prescribed in law, Congress can write another law to change those benefits and so the legal right is a little bit attenuated in the sense that any future Congress can change that right. What are the best examples of entitlements, the entitlements that I cover in the book whether Social Security, Medicare, food stamps, the Medicaid program, supplemental security income, the earned income tax credit? There's a bevy of these programs. What makes them different than other programs in the budget is that from an expenditure or budgetary standpoint, they are open ended. The amount that gets expended in any year on an entitlement is determined by the number of people that qualify for the benefit and the benefits that are paid to each qualified person. Ex-ante, when the government is trying to set a budget for the total, it has to estimate the number of entitled persons, the number of recipients and it has to estimate the average benefit that each one will get. In a very complex country with a lot of moving parts, that's a very difficult thing to do. You can only know after the fact what an entitlement expenditure is going to be. You can't forecast it very well in advance.
Peter Robinson: The critical distinction, say for example, on defense spending, Congress says, "This year we will spend $750 billion. Department of Defense, you figure out how to spend that." But an entitlement spending god tells you how many 66 year olds there are in America. There just are so-and-so many 66 year olds.
John Cogan: You're absolutely right.
Peter Robinson: I said god but the demographics tell Congress how much it's going to spend.
John Cogan: Absolutely right. The demographics, the economic conditions and the behavior of individuals who might wish to quality for that benefit.
Peter Robinson: This is a history. It's entitled A History of Federal Entitlement Programs and you say several times in the book, "Look, folks, I'm just telling you what's happened here." I bear that in mind. We'll get to the history in a moment. I'd like just a snapshot of where we are, where entitlement programs have brought us. I'm going to quote a couple of passages from The High Cost of Good Intentions. "55% of all US households receive cash or an in-kind assistance from at least one major federal entitlement program. The 2.4 trillion the Federal Government currently spends annually on entitlements equals $7,500 for every man, woman and child living in the United States." Now, what I find so striking about that is that I immediately remembered the controversy when five years ago Mitt Romney was running for president and what he thought was an off the record moment, he said to a group of donors, "Look, folks. We have a serious problem. 47% of people in this country receive federal benefits. Of course, they're going to vote for bigger government." Here if you measure it by household, it's well over half. How can this be, John?
John Cogan: Well, it's-
Peter Robinson: How can just be moving that over half of people get some federal assistance?
John Cogan: It is truly an extraordinary place that we've arrived at. When you go back and look at the origins of each of these modern entitlements, each one was established with what you and I would agree, I'm sure most of your listeners would agree, is a set of good intentions. The Great Society and the New Deal programs were established to provide a safety net against poverty for those in old age and for those younger people who ended up in poverty through no fault of their own. From that small honorable beginning we end up with a set of programs, as you said, that cost $7,500 for every man, woman and child and provide assistance to over half of the population.
Peter Robinson: Here's one more quotation from The High Cost of Good Intentions. "The amount of Federal Government spends each year on entitlement programs is five times the money necessary to lift every person out of poverty." The original good intention: let's help the poor. And, we are now spending five times more than necessary to satisfy that original and honorable good intention. Am I understanding that correctly?
John Cogan: It's a very good way of illustrating just how different the current system is from those original noble intentions. Very little goes to alleviating poverty. As you said, 20%.
Peter Robinson: All right. Now, I want to come to the history. You start with the Revolutionary War, pension programs for Revolutionary War veterans. I would like to explain to you I'm going to sit here with my eyes wide and my jaw dropping as I listen to the early part of the history, Revolutionary War pensions, Civil War pensions, because I thought and I believed that a lot of people of my general age and education also thought that it all started with the New Deal. We'll come to the New deal in a moment but it didn't start with the New Deal and you proved that it didn't. Tell us about Revolutionary War pensions and Civil War pensions.
John Cogan: The way I've put it is entitlements are as old as the republic and the Revolutionary War pension program, which was a program that provided assistance initially for soldiers who had served in the Continental army and who had been disabled as a result of wartime service. That was the very first entitlement. Within about 20 years, Congress decided that they would expand that entitlement beyond those that had served in the Continental army to those that had served in the state militia and to those that had volunteered for service, again, so long as they were disabled in wartime service. Congress then subsequently extended the program again and again. By the 1830s, when we would have thought that most Civil War veterans had gone to their final reward in heaven, Congress extended the assistance to anyone who had served in any capacity regardless of disability during the revolution. That was the first inkling of the explosive nature of these entitlement programs. Congress thought at the time that they might be extending benefits to just a few remaining Revolutionary War pensioners. But, in the end, over 33,000 Revolutionary War pensioners ended up collecting benefits, three times the number that were collecting benefits just prior to the war.
Peter Robinson: Then about 60 years later, they do it all over again. You write that in 1873 ... So we have a Civil War, pensions for Civil War soldiers. 1873, about 200,000 Americans received Civil War pensions. By the 1890s, 20 years later, that number had risen to one million. Same kind of pattern?
John Cogan: Absolutely. Exactly the same kind of pattern. I call the Civil War pension program the first grand entitlement program because it was so large compared to the Revolutionary War pension program. By the 1890s when nearly a million individuals were receiving Civil War pensions, the Civil War pension program accounted for 40% of all federal spending. Now, then it was a lot lower then than it is today but it was 40% of the budget. You mentioned that 8,000 pensioner number in 1870-
Peter Robinson: 1873.
John Cogan: Right.
Peter Robinson: 1873. Right.
John Cogan: Right. You would have thought that by 1873 anyone who was going to qualify for a disability pension based upon their disabling injury and wartime service would have already qualified, that there'd be no new people qualifying.
Peter Robinson: If you've been shot by 1865, you'd certainly have known it by 1873.
John Cogan: Fair point. It was a series of expansions both legislative and administrative that ended up expanding the program to cover Civil War Union veterans only. The Confederate soldiers need not apply. They ended up covering Union solders that were disabled in the 1890s regardless of whether their disability was related to wartime service or not. Then eventually by the end of the century, virtually all Civil War veterans, Union veterans, were covered by the program the same way as it happened with the Revolutionary War.
Peter Robinson: This is a good moment. New Deal comes next but we're coming up to a couple of the big themes of your book. One is the reason for this ratchet, they get bigger and bigger and bigger and that starts right back at the beginning of the republic with the Revolutionary War pensions and every entitlement program since. Why? John Cogan writes, "Because of a well meaning human impulse to treat all similarly situated people equally under the law." Explain that. How does that account for the ratchet?
John Cogan: What happens when an entitlement is created? You end up establishing forces that caused the expansion and you just hit on the main force. When an entitlement is created, usually the eligibility rules confine the group of recipients fairly narrowly for policy reasons or budgetary reasons, Continental army soldiers and seamen only, right?
Peter Robinson: Right.
John Cogan: But over time those individuals that are just outside of that eligibility circle that just don't qualify for the benefits start clamoring for assistance on the ground that they're no less worthy of assistance than the individuals who are receiving benefits. In the case of the militia, they bled just as much. They suffered just as much for their injuries from the war of independence as members of the Continental army did. Congress eventually acquiesces and expands the entitlement to include them. But all that does is bring another group of individuals—
Peter Robinson: Just outside the circle.
John Cogan: ... Just outside the circle. They start clamoring. You get this constant pressure for extending benefits to equally worthy individuals.
Peter Robinson: Everybody wants to come in from the dark to be near the campfire so you need to keep throwing logs on that fire.
John Cogan: That's right. These pressures, Peter, now are magnified when you have large budgets surpluses. Of course, they're magnified by the desire by elected officials to be reelected.
Peter Robinson: Right. We mentioned the Civil War veterans. These expansions are taking place in the 1880s, the 1890s. One other interesting thing is happening in the 1880s and 1890s which is that the Republicans, the GOP, is consolidating its power as the dominant political party in the country and that last right actually into the early part of the 20th century with Grover Cleveland is the honorable exception. You can read a lot of American history. I've read a fair amount myself and you think, "Well, the Republican Party, they're consolidating their gains in the Northeast. They're the party of industry and developing." Nobody has ever said, "They bought their way into it by using entitlements." Yet, Cogan says, "Of course they did. Just look at the facts."
John Cogan: Look at the data. In the book, I make the case that the provision of pensions really did play an important role in this realignment of the electorate in the 1880s, 1890s and first part of the 20th century behind the Republican Party. The Republican Party had a great platform. They were a party of high tariffs to protect the manufacturing sector and the workers in the cities. The high tariffs generated enormous amount of revenue and with those revenues, they lavished pensions on Civil War veterans. It was a wonderful combination. It proved to be very, very effective in their electoral prospect.
Peter Robinson: You've got the impulse that lives in the heart of every decent human being to treat people fairly and if you're just outside the circle, oh, come in. Then you've got the discovery that in times of economic ... When Congress has money to spend, it'll spend it.
John Cogan: Right.
Peter Robinson: Then, and this is something that doesn't seem to be true of the Revolutionary War pensions exactly but certainly by the last part of the 19th century, politicians have figured it out. They can use entitlements to solidify support. Now, we come to the 1930s and the New Deal. The High Cost of Good Intentions. "The new Deal broke new ground by extending entitlements to people in the general population who had performed no particular service to the Federal Government." Why is that an important departure?
John Cogan: Well, when you think about a pension or entitlements prior to the New Deal, they were confined to wartime soldiers who had suffered disabilities and eventually that group ... It was a close group, only people who served could get it. Eventually, that group would pass on and the entitlement expenditures would decline. Now, very often that would take a long time and a surprisingly long time. If I could make a little aside, there is still one Civil War pension recipient alive today. That's how long the entitlement last.
Peter Robinson: How is that even possible?
John Cogan: Here we are 152 years from the end of the Civil War and there's-
Peter Robinson: And we're still paying out.
John Cogan: Her name is Irene Triplett. Irene's father, Mose Triplett, was first a Confederate soldier but then he changed sides towards the end of the war to the Union side. Mose married Elida Hall in 1924 I believe. He was 78 and she was 28.
Peter Robinson: I see. I see.
John Cogan: Yes. He was the recipient of a pension and so when he passed on, his wife received that pension. Then when she passed on, Irene received the pension.
Peter Robinson: Irene is the ...
John Cogan: The daughter.
Peter Robinson: The daughter of that late ...
John Cogan: I'm sorry. Yes. Irene was born I believe in 1930.
Peter Robinson: She's still with us.
John Cogan: Yes. Yes.
Peter Robinson: Well, God bless her.
John Cogan: It's a modest pension, believe me.
Peter Robinson: Yes. Right. Right.
John Cogan: It's a very modest pension. Right. But in any event, those entitlements for wartime soldiers, they were confined to a particular group in society that was not a large group, but it was a group that was going to pass on. The New Deal entitlements on the other hand opened up entitlements to members of the general population who had never performed any service to their country, to individuals just because they reached a particular age opened up unemployment benefits.
Peter Robinson: A population that would constantly renew itself.
John Cogan: Right. There was no end to it. This phenomenon once you've granted a benefit, it's very difficult to take it away. When you have this continually renewable group that's entering, the benefits continue to escalate. If you have a case on the other hand with wartime veterans, one group passes away. Another war starts and you're in effect starting over again.
Peter Robinson: You get to rethink it at least in theory.
John Cogan: That's right. Try a reset. Much more-
Peter Robinson: I'd never thought of this before but Social Security would be the first time in American history when the Federal Government committed itself to paying a certain kind of benefit to a certain class of people until the end of time.
John Cogan: Outside of those that had performed public service. Yes.
Peter Robinson: Right. But I mean to say those who performed public service would die but from now on we give anybody ... You reach a certain age and until the end of the republic everybody who reaches that age get ...
John Cogan: Gets benefit. That's right.
Peter Robinson: All right. Then from the New Deal quickly to the 1960s and Great Society, quoting again from The High Cost of Good Intentions. "The launch of Lyndon Johnson's Great Society program in 1965 marks the beginning of a remarkable 10-year period of entitlement legislation that is unprecedented in US history." Great Society, we see the creation of Medicare and Medicaid, dramatic expansions in Social Security and other programs. Quoting you once again, "Revenues from a rapidly expanding economy," the economy is booming in the early '60s, "provided the fuel." Why do we get this ... The economy is booming but this is something new. The Great Society, we worked for a man, Ronald Reagan, who didn't really have that much against the New Deal but it was the Great Society that he thought was the overreach. How do you distinguish the Great Society from the New Deal or was our beloved Gipper simply mistaken about that? Is it just a line extension of products the Federal Government is already providing?
John Cogan: Well, it's a very good question. I'm not sure I've got a great answer for you. But there were important differences between the New Deal and the Great Society. The New Deal established social insurance as the central means of providing assistance to senior citizens. There would be no means test. You would get the benefit independent of your income. In welfare on the other hand, the New Deal said, "The Federal Government is not going to be involved in welfare. It is going to give grants to states so they can run their programs as they see fit. The Federal Government will provide a means of support for those welfare programs." What the Great Society did was of course expand the social insurance programs creating Medicare, the sister of the Social Security program, and expanding the disability insurance program. But its major change I think was involving the Federal Government directly into the provision of welfare for individuals and that's the main, I think, distinction between the new deal which was a hands off policy when it came to welfare, and the Great Society where the Federal Government became involved in writing the rules, writing the regulations and ordering states to modify their rules and regulations.
Peter Robinson: Now, you mentioned earlier that ... I think it was with the Civil War you get tariffs providing revenues. The money is rolling into Congress. In good times, they're willing to spend on entitlements. We got the good times during the early '60s so the federal revenues are expanding. The Great Society makes a certain kind of sense but the New Deal was not good times. You've got this strange ratchet which you addressed in the book where they grow during good times because the revenues are there and they grow during bad times why?
John Cogan: In the 19th century, growing during good times was simply because there was money on the table and Congress will spend any money that they have and then some. The New Deal and the Great Society changed the nature of entitlements to become antipoverty programs. Now, during economic down times when the misery of the population increases, the extent of impoverishment increases, you end up generating pressures for expanded entitlements. Now, when you think about the entitlement problem we have, when we get economic good times and the revenues flow into the treasury, Congress will start expanding entitlements. But it's also the case at the other end of the business cycle when you have economic recession, there's a bigger need to provide assistance to individuals who are suffering from that recession. There's a larger number of them suffering. You get another round of expansions.
Peter Robinson: The argument, no matter what the state of the economy, is always expand the entitlement programs. Expand them because we have the body and we can do so or expand them because we don't have the money and people need help.
John Cogan: When you look at the '60s and the '70s, the late '60s and '70s, we have very big economic cycles, especially in the '70s and you see at the top of the cycle, expansions in Social Security. At the bottom of the cycle, expansions in welfare.
Peter Robinson: Got it. One more point. I want to return to the present day. But before we finish this quick historical overview, if Republicans play politics with the Civil War pensions, the Democrats played with the New Deal and the Great Society. Again, The High Cost of Good Intentions. "Democrats raised the practice of using entitlements for electoral gain to a finely honed skill. From the end of World War II through 1975, 7 of the 10 legislative increases in Social Security monthly benefits took effect during an election year." What's the word we're looking for here? Shameless, brazen or just politics as usual? That's just the way Washington does business now.
John Cogan: It is the way. Can I tell you a little story?
Peter Robinson: Of course.
John Cogan: About the last of these large increases during an election. It occurred in 1972 and it's very, very illustrative of the way the system worked. At that time, Social Security was not indexed or benefits were not indexed to inflation. If there was inflation, Congress would have to raise benefits through legislation. In early 1972, the process was going along as normal. The house had agreed to something like a 5% increase. Senate wanted a benefit increase that was a little bit higher to compensate individuals for inflation. But it was an election year and there were four candidates on the Democratic side running for that party's nomination.
Peter Robinson: McGovern, Muskie.
John Cogan: McGovern, Muskie, Mills.
Peter Robinson: Wilbur Mills.
John Cogan: Yes, the chairman of the committee that writes Social Security legislation. And The Happy Warrior Hubert Humphrey.
Peter Robinson: Hubert Humphrey.
John Cogan: Right. The bidding process began after the senate. Muskie came in with a 20% benefit hike, Mills a 20% benefit hike, McGovern a 20% benefit hike.
Peter Robinson: These are big hikes.
John Cogan: Big increases for everybody on the rolls then and of course it would apply,
Peter Robinson: Forever.
John Cogan: ... To all future recipients as well. Then Hubert Humphrey capped off the bidding with a 25% increase in benefits. This is all in the spring of 1972. In June, members of the senate on the Democratic side were looking for a bill that they could attach the 20% or 25% increase to and they latched on to a debt ceiling bill. The debt ceiling was set to expire at midnight on June 30th. The Democrats got together and proposed to add to that debt ceiling bill a 20% increase in Social Security benefits. They did that a few days before the 30th, debated it, went for a vote on the 30th, got sent over to the House of Representatives at the last minute. The House had no other alternative but to sign the bill or to pass the bill and Richard Nixon signed the debt ceiling bill with the 20% increase right before midnight. Nixon was upset. He didn't think this was very fiscally responsible and said so in his veto message or his signing message.
Peter Robinson: His signing message.
John Cogan: Excuse me, his signing message. The scheduled increase was to occur in the October Social Security checks.
Peter Robinson: Just before November which is election month.
John Cogan: Exactly. When the checks went out to over 25 mega recipients, it contained a little note from the Social Security administration which said, "Your check contains a 20% benefit increase due to the actions of the 93rd Congress and Richard M. Nixon."
Peter Robinson: Making it one reelection in 1972.
John Cogan: That's right. That's right.
Peter Robinson: One president tried to change the rules of the way Washington worked and rein in entitlements. There's a long and fascinating chapter on Ronald Reagan but this is television. We've got to move. Let me just quote your conclusion here. "Despite the Reagan administration's achievements, the entitlement state in 1989," the year he left off, "has remained largely intact." The achievement was he didn't actually shrink it but he did keep it from growing roughly. Isn't that right?
John Cogan: 1.4% a year in real per capita terms was the growth rate. The smallest growth rate for any administration in the post-World War II period except for a period where the GI bill was winding down. But no other president in the modern era took such a comprehensive approach to reining in entitlements and no other president was as successful as President Reagan was. But, as you said, the success was pretty limited. Entitlement extended growth-
Peter Robinson: We were there and you were in the Office of Management and Budget. It took everything you had just to keep this thing from getting bigger, didn't it?
John Cogan: That's exactly right. Most of the changes that were made would have a longterm effect but they were enacted in 1981 and in 1982 and a little bit in 1983 with Social Security reform. After that-
Peter Robinson: Get your reforms early in the administration.
John Cogan: Yes. Yes. Then Reagan hung on for the next six years, five years as Congress again and again tried to undo the entitlement changes that had been made in the early part of his administration. He was largely successful in combating most of the large reversals of his policies. Hence, of the success.
Peter Robinson: Even though he is succeeded by a fellow Republican and, indeed, the man who served as Ronald Reagan's own vice president for eight years, George H. W. Bush, the entitlements take off all over again. All the vectors have been pointing up ever since. Is that correct?
John Cogan: That's right. The trajectory has been ever upwards since.
Peter Robinson: We've spoken about the fiscal cost. You write with great passion really, an overused word, about the human cost. Let me quote a couple of passages and ask you to explain what you mean. "Social Security and Medicare have reduced the perceived need by young workers to save for their retirement and have induced senior citizens to forgo years of productive and rewarding employment." Well, if you're not saving when you should be saving and you retire too early, that's a distortion of the entire workforce of people's entire careers. Correct?
John Cogan: Correct.
Peter Robinson: It's bad, John.
John Cogan: And getting worse. Let's go back to the first statistic that you mentioned. 54% of all households in the US are receiving some entitlement benefit. Now, for some of those individuals-
Peter Robinson: 55% according to you in your own book.
John Cogan: Oh, we updated it.
Peter Robinson: Oh, I'm sorry.
John Cogan: No, no. I'm sure you're right. It's 54 or 55.
Peter Robinson: 55 is what's in print. All right go ahead.
John Cogan: In any event, with such a large fraction of the population receiving assistance, the incentive effects that the assistance carries with it is going to have an effect upon the economy as a whole.
Peter Robinson: The whole economy.
John Cogan: Right. If we go back 30, 40 years, when we thought about the welfare system, we would recognize that our efforts to help people often ended up being counterproductive because we created incentives for individuals to stay out of the labor force, to not get married, to have child out of wedlock, actions that were probably not necessarily in the long-term interest of those individuals. We recognized that along with the assistance we were providing to individuals in need, we had to be mindful of the incentives that we were creating for these individuals to behave in certain ways. Now that 54, 55% of the populations receiving these benefits, we now have an economy wide problem. It used to be a microcosm of welfare recipients. Now, it's an economy wide problem.
Peter Robinson: One more quote. You touched on it just now. One more quotation here. "The system has created incentives for young women to bear children out of wedlock and remain unmarried. It has discouraged fathers of young children from meeting their parental responsibilities." I have to try something on you. What came to mind when I read that passage was the famous report just over 50 years ago, Daniel Patrick Moynihan. It was called The Negro Family: The Case For National Action. He wrote that the fundamental problem is that a family structure, the Black family in urban ghettos is crumbling. 1965. That was an alarming fact to Daniel Patrick Moynihan. When he wrote that in 1965, the first year of the Great Society, the illegitimacy rate among African Americans was 25% and it shocked Daniel Patrick Moynihan into writing that famous memorandum. Today after more than half a century of the Great Society, the illegitimacy rate among Whites is 36%, among Hispanics is more than 50% and among African Americans is more than 72%. Your argument is that some unknowable portion, but some portion of that is because of federal entitlement programs.
John Cogan: Yes. I think-
Peter Robinson: We have been spending hundreds of billions of dollars to dissolve the American family.
John Cogan: Well, I wouldn't quite put it as strongly as that. I would think about it a little bit differently. That is I would go back to the title of the book. That the intentions of these programs are good. They're honorable. They're noble. But not enough attention has been paid to the cost that is incurred both at the individual level and at the national level. We need to pay more attention to those costs and when it comes to welfare, try to design programs that provide that assistance to those through no fault of their own are in poverty. But, at the same time, don't have these incentives for counterproductive behavior.
Peter Robinson: All right. You know what the final couple of questions have to be. What do we do about this? What do we do about this? Here we have what you write is that the problem is worse than I thought and I've read a fair amount about this over the years. It goes right back to the founding of the republic. As you say, we now are in a position in which we're moving our money around. The redistribution is so extreme that more Americans are getting something from the Federal Government than not. Politicians have figured out how to use this to buy votes so politicians aren't going to give it up very easily and we're now in a position where if the economy is bad, the entitlement program should expand. And if the economy is good, well entitlement programs should expand then, too. And, this is the part that breaks my heart, eight years of Ronald Reagan and John Cogan in the Office of Management and Budget just prevented it from ... It was a eight year containment and then it took off all over again? What do we do? There is an argument that it's over. The founders spotted the importance of freedom of speech. They spotted all kinds of pernicious effects that democracy might have unless they give us the Bill of Rights. They construct this but they missed the willingness of Americans to pick each other’s pockets by way of the Federal Government and the American experiment is doomed. We're in such a trap right now. We can't get out of it.
John Cogan: That's not a very optimistic story.
Peter Robinson: Well, I'm hoping that you will tell me I'm wrong in every particular.
John Cogan: Well, other parts of the book I talk about efforts that have been made to rein in entitlements. Now, if we could get the growth of entitlements down to the level that Ronal Reagan did, we would take care of most of our entitlement problem going forward, our financial problem.
Peter Robinson: Just hold it to a percent and a half a year and grow the economy at 3% and you're okay.
John Cogan: You're okay. Exactly. But there are other very important examples of presidents that have managed to get Congress to reduce benefits. We look back over the last two decades and we don't see any retrenchment on entitlements. For most of us, we say, "We can't do anything about it. Nobody has." But farther back in history, you can find-
Peter Robinson: What about Clinton in 1996 welfare reform? Is that an example of anything we ought to be happy about it?
John Cogan: I think it is.
Peter Robinson: Good.
John Cogan: I think it is. In fact, it might actually have a little bit of a lesson for Obamacare or the Affordable Care Act. When President Clinton took office, welfare was in crisis. The welfare rolls had shut up after Reagan had left office during George Herbert Walker Bush's term in office. President Clinton, as you know, entered office with a pledge to end welfare as we know it. What people don't know about Clinton was that he used authority that had been granted to the executive branch during the Reagan years to allow states to operate their own welfare programs under federal waivers of the federal law. Bill Clinton, when he entered office, six states were operating under these waivers, their own programs. By 1996, before the welfare reform act was passed, 45 states were operating their own welfare programs under federal waivers. Some states, severely restricted eligibility. Other states established childcare programs, training programs.
Peter Robinson: You're getting 45 experiments,
John Cogan: Going on.
Peter Robinson: ... Taking place.
John Cogan: Right. Then when the Republicans took over Congress, they took up the cajole of welfare reform and eventually welfare reform passed and President Clinton signed it into law. I believe that had it not been for this demonstration that states could spend tax payer money better on welfare than the Federal Government could, I don't believe absent that demonstration that we would have seen the welfare reform law of 1996 passing. It is a remarkable law, arguably the most successful entitlement reform in US history.
Peter Robinson: One big lesson is push this stuff back to the states. Let them experiment.
John Cogan: When it comes to the Affordable Care Act or Obamacare, which is now being debated in Congress, maybe it's time to take the Medicaid program and block grant that to the states and the same thing with the insurance exchanges. Maybe it's time to let the states experiment with those exchanges to allow them to develop exchanges that work better for their mix of the population.
Peter Robinson: Got it. John, moving toward a close here, a couple of quotations. The first is John Cogan in The High Cost of Good Intentions. "The basic purposes of entitlements, their structure and the level of government that operates them," move them back to the states, "need to be thoroughly restructured." Here's a second quotation. Donald Trump announcing his candidacy for president. "Save Medicare, Medicaid and Social Security without cuts. Have to do it." What do we do? Anybody who is concerned about reforming entitlements just has to wait out the Trump administration or is it the case that Donald Trump is making a calculation here? First, we got economic growth. We've got to cut taxes. We've got to get growth. I'm not taking on these huge fights. After all, George W. Bush spent the first two years of his second term trying to get Social Security reform and got nothing. Legislation wasn't even introduced. They ran into a wall. Trump is saying, "I'm not running into that wall. We're going to get growth first." What do you think?
John Cogan: Well, who am I to try to get inside Donald Trump's head? But I can only hope that he has decided that economic growth is going to be the central policy of his first couple of years in office and then he'll turn to entitlement. I think when he becomes more familiar with actually how important these entitlements are for his own budget, I'm hoping that he'll see the need for some type of change.
Peter Robinson: All right. Last question. Toward the end of The High Cost of Good Intentions you quote your friends, the late economists Rose and Milton Friedman. "Tides in the affairs of societies begin in the minds of men then spread to the conduct of public policy." It actually reminds me of Margaret Thatcher who said, "First win the argument. Then change the policy."
John Cogan: Right.
Peter Robinson: The question I have is that's a slow process. You've kicked it off here but that's a slow process. An entitlement spending is choking the budget. In particular, it's squeezing out defense spending. Is there time? Do we have three decades for all of the intellectual ferment to work its way through to policy change? Are you optimistic?
John Cogan: Yes, I am optimistic.
Peter Robinson: You've just become a grandfather.
John Cogan: I am optimistic.
Peter Robinson: Is your little granddaughter going to grow up in a country that has entitlements under control?
John Cogan: Absolutely.
Peter Robinson: Really?
John Cogan: Yes, yes. I'm a complete optimist on this. Look, the tide has been coming in for sometime.
Peter Robinson: Well, since the beginning of the republic.
John Cogan: No.
Peter Robinson: No?
John Cogan: I think the tide-
Peter Robinson: The tide of correction. I'm sorry.
John Cogan: The tide of correction has been coming in. I think Ronald Reagan's administration was the beginning of that tide. I think the Obama administration was a complete exception to the tide. If you've looked at the intellectual world, what you see is very sound arguments that are slowly gathering support among the populace for some type of change in the entitlement system. I think what we need to move it forward though is a president and maybe a Congress but mostly a president who believes in the necessity of reform. We don't have that right now but hopefully we'll have a president who recognizes the need for reform and the need to get these entitlements under control.
Peter Robinson: John Cogan who argues that Obama was the anomaly, not Ronald Reagan. That Reagan was just the beginning.
John Cogan: Yes.
Peter Robinson: John Cogan, author of The High Cost of Good Intentions: A History of U.S. Federal Entitlement Programs, thank you.
John Cogan: Peter, thank you very much.
Peter Robinson: I'm Peter Robinson for Uncommon Knowledge and the Hoover Institution. Thank you.