The biggest political problem the United States faces––runaway entitlement costs on track to bankrupt the treasury––is like the weather. Everybody talks about it, but no one does anything about it. Even talking about it can be politically dangerous, as the Republicans learned in November and during the “fiscal cliff” negotiations. They chastised Mitt Romney’s post-election comments about the entitlement “gifts” President Obama promised voters. And the Republican demand that tax-hikes be linked to spending cuts to avoid the “fiscal cliff” was demonized as “holding the middle class hostage.”
Yet, as Nicholas Eberstadt documents in this brief but powerful book, if left unreformed, our metastasizing entitlements will continue to corrupt not only our economy, but also our national character itself. Eberstadt, a political economist and fellow at the American Enterprise Institute, has written extensively on economic development, foreign aid, global health, demographics, and poverty. His latest work, A Nation of Takers, combines his international experience and economic knowledge into a relentless, fact-based argument for reforming entitlement spending.
Vintage food stamps. Photo credit: NCReedPlayer
A Nation of Takers documents the explosion of spending with thirty shocking charts and graphs illustrating just how quickly what Eberstadt calls the historically unprecedented “vast and colossal empire of entitlement payments that it [the state] protects, manages, and finances” has spread. This transfer of wealth primarily via income maintenance, Medicaid, Medicare, Social Security, and unemployment insurance has become the federal government’s primary objective, and it devotes more time and resources to it than all other functions combined.
As a result, by 2011, just over 49 percent of Americans received at least one government benefit, up from 30 percent in the early 1980s. This growth, moreover, has been swift. Between 1960 and 2010, entitlement spending by government at all levels skyrocketed from $24 billion in today’s dollars to almost $2.2 trillion––a yearly average growth rate of 5.5 percent when adjusted for inflation. This largess amounts to $7,200 for every man, woman, and child. Worse yet, this growth trajectory is speeding to “the day in which entitlement spending comes to exceed all other activities of all levels and branches of the U.S. government.”
When that day comes, both political parties will have to share the blame. Indeed, “from a purely statistical standpoint,” Eberstadt writes, “the growth of entitlement spending over the past half-century has in truth been distinctly greater under Republican administrations than Democratic ones.” In any given year, the growth was 8 percent higher if the president was a Republican. Eberstadt’s melancholy conclusion regarding this bipartisan fecklessness is that “both political parties have, on the whole, been working together in an often unspoken consensus to fuel the explosion of entitlement spending in modern America.” And let’s not forget the voters who demand these programs and punish politicians for trying to cut them or even slow their rate of growth.
A Crisis of Character
Even more valuable than Eberstadt’s documentation of the fiscal facts is his discussion of how radically the growth of entitlements has changed the American people. What makes Americans exceptional, as Eberstadt puts it, is a “fierce and principled independence” and “proud self-reliance.” This individualism, which has been noted by earlier commentators like Alexis de Tocqueville, extended to personal finance. Americans back then highly valued social cooperation, but they “viewed themselves as accountable for their own situation through their own achievements in an environment bursting with opportunity.”
The corollaries of this “optimistic Puritanism,” Eberstadt continues, were “an affinity for personal enterprise and industry” and a “horror of dependency and contempt for anything that smacked of a mendicant mentality.” No matter how poor Americans were––and many more were poor then than now––accepting help or handouts was considered “an affront to their dignity and independence.” Needless to say, these American ethical principles and norms are fast disappearing, and a large part of that change has been driven by the policies of a government that has engaged in “norm-changing.” As a result, the United States is on the verge of a “symbolic threshold: the point at which more than half of all American households receive, and accept, transfer benefits from the government.” These benefits are today understood as deserved legal and civil rights.
Eberstadt provides two examples of this change in character. Funds to assist households buy food used to come in the form of “food stamps” or coupons that were obviously different from cash. These coupons, the use of which communicated to others in line at the store that the person was receiving relief, were replaced with the “electronic benefit transfer” or EBT card starting in the 1990s. The card is indistinguishable from a credit or debit card. (The welfare version of the EBT, by the way, can be used to purchase anything from a participating vendor, and even to get cash back.) Under George W. Bush, the words “stamps” or “coupons” were removed from law in 2008 because they could be perceived as “stigmatizing.” Of course, in the past, that stigma would have been seen as a good thing, for it could spur people to do everything in their power to provide for themselves and avoid the humiliation of having to accept a handout.
A particularly notorious example of this destigmatizing of dependence was the “Julia” cartoon that appeared in one of President Obama’s campaign ads. “Julia” was shown enjoying government entitlements from preschool to retirement. No longer humiliating emblems of dependence, these social welfare transfers were “positively celebrated as part of the American dream,” Eberstadt writes. As Julia illustrates, Americans now are no longer deemed exceptional because of their self-reliance and fierce independence, but rather are growing more and more indistinguishable from like their European cousins. And like Europeans, the autonomy of Americans has been surrendered to what Tocqueville called an “immense, tutelary power,” which has taken “sole charge of assuring their enjoyment and of watching over their fate,” the “only agent and the sole arbiter of [their] happiness.”
The Culture of Dependency
This erosion of character has spread throughout the country. In the four decades from 1969 to 2009, the share of government benefits in personal income rose from 8 percent to 18 percent. In some counties, people were getting more than 40 percent of their income from the government. Even more indicative of the insidious spread of the entitlement mentality, dependence was greater in rural counties and red states.
According to a study of the Bureau of Economic Analysis and Census commissioned by the New York Times, “two-thirds of the one hundred most dependent counties in America voted for the Republican rather than the Democratic candidate in the 2008 presidential elections,” Eberstadt writes. The difficulty of reforming entitlements in part results from this tension among voters who claim they want government to “do less”––74 percent of Romney voters in this year’s exit poll said government “does too many things”––and yet who also want their own entitlements to continue.
Some may argue that this expansion in government transfers reflects adverse economic conditions such as unemployment or poverty. But the data Eberstadt collects dispute this rationale. As unemployment rates have risen and fallen over the past thirty years, “the proportion of Americans living in households seeking and receiving means-tested benefits has moved in an almost steady upward direction, essentially unaffected by the gravitational pull of the unemployment rate.” Nor do increases in entitlement spending correlate with the poverty rate. Indeed, by 2009, the “share of American families receiving poverty-related entitlements was almost three times as high as the official poverty rate for families,” and over three times the unemployment rate. Dependence on entitlements has now become a “Main Street phenomenon.”
Our Unsustainable Future
The consequences of this transformation of attitudes toward dependence have been baleful for private life as well as the economy. With family support increasingly derived from the government, the traditional role of men as providers has eroded. The result has been the “male flight from work” and “the proliferation of fatherless families and an epidemic of illegitimacy.” Although labor force participation rates for adults rose to 66 percent between 1948 and 2011, that increase is due to a steep rise in the number of women working. During that same period, male labor force participation sank from 89 percent to 73 percent. This drop is twice as large as the number of men who left the workforce because of the Great Recession. Even more shocking, before the 2008 financial crisis, men in their late thirties in America participated in the workforce at rates lower than the same cohort in Greece, the international emblem of feckless dependency and the bloated welfare state.
Another result of the spread of the entitlement mentality to the middle class is the abuse of Social Security disability insurance. In 1960, an average of 455,000 workers were receiving monthly disability payments. Fifty years later, 8.2 million were––four times the number of people on welfare. In 2011, the cost was $130 billion. This rise took place despite the remarkable improvements in health and longevity. And the average age of those receiving disability has lowered. In 2011 the rate of workers in their thirties and forties receiving disability was more than double that of the same cohort in 1960. A major driver of this increase was the addition of “mood disorders” and “back pain” to the diagnostic categories that made workers eligible for disability. Given that these can be subjective ailments, the existence of which doctors have no way of disproving, it is no surprise that today these conditions make up nearly half of all disability claims.
Finally, the biggest elephants in the room, when it comes to entitlements, are Social Security and Medicare. Despite the widespread belief that these benefits are earned through payroll taxes, in fact they represent a massive transfer of wealth from the young and unborn to the old. Rather than endowments funded by worker contributions, they are “accounting contrivances built upon a mountain of future IOUs,” Eberstadt notes. According to the Heritage Foundation, Social Security alone is projected to run a $344 billion deficit in 2035. No surprise, then, that the unfunded liabilities of Social Security for the next 75 years are $8.6 trillion, and those of Medicare are somewhere between $27 to $37 trillion. The monstrous deficits the government has been amassing for four decades correspond to payments for these two programs. And the growing $16 trillion debt caused by these deficits represent yet another transfer of wealth from future generations.
Needless to say, if these trends continue, there will be nothing left in the treasury to pay for the most important Constitutional function of the federal government––national security and defense. Despite America’s responsibilities as the maintainer of global order, without which a globalized economy cannot function, today the federal government spends three times as much on entitlements as on defense. And this ratio will worsen if the projected half a trillion dollars in cuts to the defense budget take place over the next ten years. At this pace, we will duplicate the mistake of England after World War I, when cuts in military spending to pay for social welfare programs facilitated the aggression of Nazi Germany.
The trends Eberstadt documents in this indispensible book are clearly unsustainable. But as Eberstadt cautions, the enormous wealth of America and the privileged global role of its currency mean this state of affairs can continue for a long time, as the destigmatization of dependence and the demonization of success insidiously eat away at both our massive wealth and our moral capital. As Adam Smith once said, “There is a lot of ruin in a nation.” But sooner or later, the bill will come due, and Americans will no longer be the people who created the richest and most powerful nation in history. They will be just another “nation of takers.”