Commentary 24- Entitlement Mentality

Entitlement Mentality is Wrecking Economy
By Jonathan Hoenig

FROM WELFARE TO food stamps to Medicare, Medicaid and Social Security, our country now marshals a massive network of trillion-dollar entitlement programs colloquially known as the "social safety net." Many Americans, including a few of those running for president, see these bureaucracies as defining achievements of a nation where "nobody is left behind."

Forget the fact that the entitlements, many of which began with the goal of providing "basic minimum benefits" have grown into a gargantuan burden costing over $1.5 trillion a year and careening toward total collapse. For example, payouts will begin to exceed the revenues into Social Security in just nine years and current estimates have the entire system going belly up in 2041.

The fundamental problem with the social safety net, however, isn't bankrupt economics but bad philosophy.

A government can only provide a safety net insofar as the wealth that net consists of — food, clothing, shelter, medical services — has been created by productive individuals. The freebies government is so eager to expropriate don't grow from the ground, but must be produced by entrepreneurial individuals who create corporations, raise cattle, invest in financial markets, run restaurants, develop pharmaceuticals, and so on. From the creation of kidney dialysis to the transportation of affordable food, it's the reasoning mind that produces the wealth that makes our lives secure, not a bloated government bureaucracy.

As I've written before, it is America's historical commitment to capitalism and individual rights that has differentiated our prosperous economy from the socialist basket cases of North Korea, China and communist Cuba. When economic freedom is protected, societies see vast increases in productivity that result in higher-quality, lower-cost products.

One only need look at the least-regulated sectors of our economy — electronics, computers and food, all of which have declined in price — to see that phenomenon occur. Yesterday's luxuries, like huge flat-panel TVs from Best Buy (BBY: 42.89, +0.36, +0.84%), become affordable mass-market items in just a few years.

This is true even in health care, which proponents of the entitlement safety net argue is uniquely vital enough to require governmental interference. Procedures like laser eye surgery that are not part of the government safety net have dropped in price and improved in quality in a short period of time. This is precisely what would happen if our entitlements were eliminated: Less-wealthy individuals would not go without care, but would become the eager focus of entrepreneurial businessmen competing to offer them cheap, quality health care...or education...or anything else.

In reality, skyrocketing health-care costs are a government-created phenomenon, where someone besides the patient (usually the government) pays the bills and insurance is assumed to be infinite. So there's no need for the producers of advanced medical devices to cut costs because such treatments quickly become a "right" under government-regulated health plans. If an innovative chemotherapy or AIDS treatment immediately has a huge, state-provided market, why focus on cutting costs? You'll note that the producers of notebook computers or hamburgers have no such disincentive.

Most disturbing is the reality that the "security" promised by the safety net is anything but secure. Unlike a mutual fund or checking account, there's no actual investment or savings when it comes to Social Security. It is, at its core, a Ponzi scheme in which the government loots your money today for the benefit of retirees and promises to do the same to future generations on your behalf.

So there is no real account with your name on it. In fact, the Supreme Court has ruled that the government does not owe us Social Security benefits by law, meaning that Congress is perfectly able to modify or cut benefits, which it has already done well over a dozen times since the program began.

At the heart of the social safety net is the moral belief that the government is responsible for our lives, and that, as Barack Obama has often said, "We are our brothers' keeper." Under this altruist sensibility, we are duty-bound to serve the needs of others, meaning that anyone needy has an inherent claim on anyone better off. The wealthy aren't merely able to deal charitably with those in need, but are legally obligated to sacrifice their earnings for the benefit of those they might not voluntarily wish to support.

As entitlements grow, so does regulatory authority. As I wrote a few weeks back, the Federal Reserve is now getting explicitly in the business of being the de facto risk manager of the nation's largest banks. Treasury Secretary Henry Paulson's new mandate to overhaul oversight of U.S. financial markets moves us more toward a controlled society where individual choice is subordinate to "the public good," whatever the ruling class believes that to be at the time.

Moral bankruptcy eventually leads to financial collapse as well, and the evidence is growing more obvious with each passing day. As noted in Barron's over the weekend, the future obligations of Medicare are now so staggering that liquidating all the residential real estate in the country — a sum of almost $12 trillion dollars — wouldn't even cover the costs. The Social Security tax rate, which began at 2% in 1935, has been raised consistently since, with the system's trustees suggesting the payroll tax will need to be increased to 16% by 2041 in order to maintain benefits — higher if life expectancy rates continue to climb. The same suffocating scenario will inevitably play out for insurance, health care, housing or any other government-controlled efforts to redistribute wealth from those who've earned it to those who haven't.

It's more than evident that a government "safety net" is anything but safe. Instead of the altruist philosophy that only the needy matter, our country desperately needs to return to the notion of rugged individualism under which we are each responsible for and capable of achieving our own security without the immoral coercion of publicity-seeking politicians. Any alternative leads to dependency, stagnation and economic despair.

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Comments

My Commentary:

Judging by some of the commentary here, it seems that certain basic points have to be made.

Money is not wealth. The idea that simply “circulating” money away from those who earned it and may invest in future production through their savings to those who didn’t earn it and who will thus consume the economy into prosperity is absurd. When you receive money for your work (i.e., the wealth you produced), you have not received wealth in return. You have merely received something that you hope can be exchanged for real wealth. When you are ready to make the exchange, you had better hope that there are people out there “greedy” and “selfish” enough to have produced the wealth that you desire and did not produce, but which gives your money value. This leads to the next point.

Production comes before consumption and need. This I think is one of the main points of Mr. Hoenig’s essay. I would call it an axiom. The great virtue of the Gateses and Buffetts of the world is the production of the fortunes…the wealth…that they accomplished. Their philanthropic endeavors are merely a consequence and are minor by comparison. This same principle applies to productive people at all levels of income. Anyone who reverses this axiom is advocating mass destitution and poverty and thus cannot claim any kind of compassion or concern for those in need. Need doesn’t produce wealth. If it did, the world would be awash in prosperity, without any human effort what-so-ever. Capitalism is the only social system that recognizes production for personal gain as the primary virtue, which is key to its success at alleviating poverty. Which leads me to the next point.

Freedom from force, including governmental force, is a necessary pre-condition of human production. This means individual rights. Need is everywhere, but wealth production is not. To the extent that individuals are free to pursue their own welfare and happiness, is the extent to which a country prospers. Failing to recognize the destructive nature of physical force in human relationships is an evasion of all of human history. Equating the voluntary charitable efforts of Gates and Buffett with the coercive efforts of those seeking to “do good” with other peoples tax money through government programs obliterates the very concept of moral action.

I applaud Mr. Hoenig’s courageous stand for individual rights and the productive members of society, and he does not deserve the vitriol of some of the commentators here. His stand against the growth of welfare statism in America is the truly compassionate stand.