The Entitlement State and America’s Fiscal Crisis: Capitalism vs Socialism

by | Aug 8, 2016 | Healthcare, Welfare

The enemies of capitalism indicted the society of liberty; they distorted the reality of capitalism and its brilliant triumphs in freeing man from poverty; and they imbedded in the minds of many the conception of political entitlements that serve the power ends of political paternalists and which requires the plundering of the peaceful and productive members of society.

The social political and economic crises of our time are the outcome of an earlier battle of ideas that the enemies of freedom and capitalism succeeded in winning to a great extent. They indicted the society of liberty; they distorted the reality of capitalism and its brilliant triumphs in freeing man from poverty; and they imbedded in the minds of many the conception of political entitlements that serve the power ends of political paternalists and which requires the plundering of the peaceful and productive members of society.


The Republican and Democrat Party Conventions are now behind us, but through all the cheers and jeers, hoopla and poopla, warnings of a dark and dangerous future or promises of a bright and beautiful shape-of-things-to-come, one of the most serious shadows hanging over America was hardly mentioned at all: the unsustainability of the “entitlement” programs of the welfare state.

In fact, Clinton and the Democrats have proposed to both maintain and expand the redistributive state, and Trump has expressed his intention of not challenging Social Security or Medicare.

Growing Government Debt as Far as the Eye Can See

In July 2016, the Congressional Budget Office (CBO) issued its “2016 Long-Term Budget Outlook.” Looking over the next 30 years from 2016 to 2046, the CBO estimates that the federal government’s debt held by the public will increase from its current level of equal to 75 percent of Gross Domestic Product (GDP) to 141 percent of GDP in 30-years time. The national debt will be far above its previous high of 106 percent of GDP shortly after the end of the Second World War in 1945.

This will be due to an unending stream of annual federal government budget deficits between now and 2046. Indeed, the CBO has projected that beginning in 2022 the U.S. government will be once again running over $1 trillion annual budget deficits, and growing from there.

By 2046, assuming no change in the current legislation concerning eligibility, demographic trends, and taxing and spending laws in effect, the CBO anticipates that in 2046 expenditures on Social Security and major federal healthcare-related programs (Medicare, Medicaid, ObamaCare, etc.) will absorb around 50 percent of all federal government spending.

Social Security expenditures will increase by 28 percent and those major healthcare-related programs will grow by nearly 62 percent between 2016 and 2046. In addition, since tax revenues will fall far short of all of this spending by Uncle Sam, the net interest on the federal government’s debt will increase by over 400 percent, from 1.4 percent of GDP today to 5.8 percent of GDP in 2046, the CBO projects. So by 2046 nearly $6 of every $100 collected as tax revenues by the federal government will be spent just paying the net interest on money borrowed to cover earlier government deficit spending.

“Entitlements” Mean Plunder

Both Democrats and Republicans take it for granted that “Big Government” and the Entitlement State here to stay. Even most of those Republicans who emphasize the need for “reforms” in the “entitlement” programs such as Social Security or Medicare do not challenge the idea that these programs are permanently part of the American political landscape. They merely wish to make them more “financially sound,” or “cost efficient,” or managed in ways that would give those eligible for these programs some “choice” in managing their Social Security accounts or in selecting among doctors and medical treatment.

This is, perhaps, most easily appreciated by the fact that scarcely anyone in the Washington political arena challenges the idea and the use of the word “entitlement.” The Merriam-Webster dictionary defines entitlement as “the state or condition of being entitled.” A “right to benefits specified by law or contract” as in “a government program providing benefits to members of a specified group.” It is based upon the idea, the dictionary tells us, of “a belief that one is deserving of or entitled to certain privileges.”

According to the Merriam-Webster dictionary definition, therefore, in the political arena an “entitlement” is a program of benefits that the government provides to a privileged group, a group that comes to believe that it deserves those benefits, and even comes to consider such benefits as their “right.”

The government, however, cannot provide benefits to any privileged group in the society that does not reciprocally obligate others to supply the required resources, goods, or financial means to cover what has been promised. Since government has no supply of resources, goods or sums of money that it does not first tax or borrow from others, any such entitlement compels some other people in society to provide the means necessary for the government to meet its promises to the privileged groups.

That is, one group’s privilege entails a compulsory obligation on others that is imposed and enforced through the government’s police power to tax and garnish the income and wealth of any and all members of society. Thus, society becomes divided into two groups: taxpayers and tax receivers; the unprivileged and the privileged; those who are forced to give up a portion of the production, income and wealth they have honestly earned in the peaceful transactions of the market place and those who have that production, income and wealth transferred to them through the power of the state.

This is, of course, what the famous nineteenth century French free market economist, Frederic Bastiat, referred to as legalized plunder. The government, instead of acting as a protector and guardian of each individual’s right to his life, liberty and honestly acquired property, becomes the most powerful and intrusive violator of people’s liberty.

The government’s concentrated, monopoly power over the use of physical force is far greater and far more dangerous than even the worst of any private individual or private group that attempts to plunder and abuse innocent individuals in society. But equally important, government is the only user of force in society that widely succeeds in indoctrinating and persuading the large majority of the people under its jurisdictional control that it is “just” and “right” that it plunder one part of the population for the privileged benefit of another portion of society.

Political Rule vs. Individual Self-Rule

In earlier times, governments acquired legitimacy over and acquiesce of its subjects by insisting on the divine right of kings. It took many centuries to overthrow the belief that monarchs ruled, regulated, and taxed because of an ordination from God. With the end or weakening of monarchy in the eighteenth and nineteenth centuries, a new ruler was ordained with equal if not greater divine political authority to demand obedience from the citizenry – the divine right of “the people.”

Democracy replaced monarchy as the legitimized basis of political power. If “the people” ruled by their own democratic vote, how could they ever tyrannize and plunder themselves? How can a man abuse himself, when his actions are dictated by his own will?

In the United States, the idea of “self rule” originally had a different meaning. It did not primarily or exclusively mean political self-rule through a voting process. It meant the right of each individual to have the freedom to rule over himself. When the American Declaration of Independence spoke of “unalienable rights” possessed by the individual to his life, liberty and pursuit of happiness, the Founding Fathers were saying that each man owns himself, and had the right to live his life as he chooses, as long as he peacefully goes about his chosen business, and respects the equal rights of others to do the same.

The role of government in this uniquely American conception of individual rights and personal self-rule was that of protector and securer of each person’s liberty. The political authority was to be a servant of each sovereign individual, who chooses his own goals and purposes in life and who pursues them with his own mental and physical energies. When he needs the assistance and association of others to attain some of his purposes the method is freedom of choice and voluntary exchange.

Socialism and the Anti-Capitalist Mentality

How, then, did America move away from the idea of sovereign and self-ruling individuals with government limited to a small though essential number of rights-protecting functions, to the notion of the government as itself the sovereign in the name of “the people,” with the individual reduced to the servant who is required and expected to pay any tax and bear any regulation in the name of a “common good” or “national interest,” or “general welfare”?

In a word, the answer is socialism. This year marks the twenty-fifth anniversary of the end of the Soviet Union. After the reality of almost 75 years of socialism-in-practice in the Soviet Union and elsewhere around the world, very few people any longer believe in and yearn for dictatorial rule by a Communist Party claiming to know the “inescapable” laws of history; few want to live under a system of comprehensive and all-encompassing socialist central planning. Experience has persuaded enough people around the world that such a system leads to nothing but brutal tyranny, along with economic stagnation and poverty.

While the ideal of Soviet-style socialism and central planning has been rejected and has few explicit adherents nowadays, what does continue to endure and influence general attitudes about political power, economic policy and the role of government in society, both in the United States and around the world, is the socialist critique of capitalism and the free market society.

The rationale for the vast network of government welfare programs as well as regulation and control over private enterprise is based on the socialist analysis of the market economy. When private enterprise is left free, the socialists claimed, the selfish profit motive guides businessmen to act in ways that harm the common good or general welfare. Workers searching for employment will be exploited and abused by greedy employers unless government protects them with workplace rules and regulations, including the establishment of a “fair” wage.

The state must take on the role of paternalistic provider of health care, old age pensions, unemployment insurance, public housing, education, and a wide variety of other social services. Why? First, under unrestrained capitalism workers will not earn enough to provide these necessities for themselves. Second, private enterprises driven by mere self-interest will inevitably fail to supply these goods and services in sufficient quantity and quality.

Individuals, in other words, cannot be trusted to rule over their own lives, to make their own choices, and to interact freely with their fellow men in a society of liberty. Collective control, under the cover of the democratic process, needs to restrain and restrict the individual’s sovereignty in the arena of his own affairs.

In the name of protecting people from such unrestrained capitalism, governments everywhere, including in the United States, have created ever-expanding bureaucracies that regulate nearly every aspect of our lives. As a consequence, our world today is in the grip of a continuing ideology of anti-capitalism.

State bureaucracies ruling through anti-market policies have grown into ideological and political elites who arrogantly presume to know and dictate how we should all live and work. Those holding political power may be compared to the nobility of old, before whom the commoners had to grovel so they might live and prosper.

Capitalism as the Liberator of Man

Are these accusations against capitalism and the free society justified? Absolutely not. Indeed, never has an historical record been more twisted and distorted that this socialist critique of the free market society.

Beginning in the eighteenth century and throughout the nineteenth century, capitalism and the political philosophy of classical liberalism that accompanied it insisted on the freedom and dignity of the individual. The classical liberals campaigned against and brought about an end to human slavery, first in Europe and then around the rest of the world. These free market liberals called for ending the rule of kings and princes or at least restraining their powers through constitutional government and peaceful elections. It called for impartial rule of law, and the end to torture and other cruel punishments.

The classical liberal and free market agenda included the abolition of all privileges, favors, and subsidies that benefited the aristocracy, as well as the end to all monopolies created by government regulation and protection. It called for free enterprise, freedom of trade and occupation, and freedom of movement. In other words, classical liberalism and capitalism have been an ideology for the liberation of man from political oppression and economic poverty. It has been the foundation for human freedom and material prosperity in the modern world. It has served as the foundation of the American Republic.

Capitalism in the nineteenth century did not doom the worker to a life of perpetual poverty. Instead, the expanding market economy kept creating new and better-paying employments as the decades went by. It produced the wealth and rising income that resulted in the emergence of a phenomenon completely new to human history: a self-supporting and educated middle class that grew more and more as the lower classes bettered their economic well-being.

Through private investment, capitalism kept raising the productivity of labor to new heights. Parents were able to earn enough so their offspring did not have to join the work force at an early age. This produced something unique in history: childhood, a time when the young could experience the innocence of play and the opportunity of schooling before entering the world of work.

Classical liberalism and the market order fostered the private associations and charitable organizations that enabled the working poor to provide medical care, pensions, and education for their families. Famines disappeared; poverty was dramatically and continuously reduced; and hard and long hours of work were slowly but surely eased and shortened to a degree never before experienced.

Capitalism has been the liberator of mankind. The great history and glorious achievements of that earlier free market capitalist epoch must be relearned once again in a society that knows little of the system that has provided the comfort and standard of living that too many of our fellow countrymen take for granted.

The Dangerous Growth of Government

For more than a hundred years, now, the anti-capitalist mentality has undermined the original American political philosophy of individual rights and economic liberty. In its place has grown a politics of paternalism and dependency. This has easily played into the hands of those who have desired political power under the umbrella of democracy, and by those who have desired and now believe that they have an entitlement – a “right” – to redistributive largess because they cannot imagine life without those government “safety nets” and who believe that a free market, limited government world would be cruel, uncaring, and inhumane to them and others.

Big Government has brought with it this big and growing debt because the entitlement society, the redistributive society, the political plundering society has no limit once government is viewed as paternalistic provider rather than an essential but more modest protector of each individual’s life, liberty and property.

No deals in Washington, D.C. among the political culprits, whose interactions with special interest groups have created and maintain the Fiscal Leviathan State, will solve America’s debt and deficits problem. What we need is a change in the ideas and beliefs among many of our fellow citizens.

As long as too many of our fellow Americans believe they are “entitled” to the income, wealth and productions of others, and as long as so many of our fellow Americans accept either through ignorance or guilt that they have an obligation to be taxed, regulated and plundered to fulfill those entitlements little change can or will happen to radically shift the direction we are moving in.

Making the Moral Case for Liberty

Another way of saying this is that we must reawaken the moral case for liberty. The starting point for such a moral reawakening is the rejection of the collectivist conception of man and society. Collectivists of all types – socialists, communists, fascists, interventionists, and welfare statists – presume that the group, the tribe, the “nation,” or the social “class” takes precedence over the individual. He is to serve and if necessary be sacrificed for the “common good” or “general welfare,” since the individual has neither existence nor “rights” separate from the collective to which he belongs.

Compare this with the unique and starkly different philosophy of man and society captured in the American Declaration of Independence: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty, and the Pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.”

Rights precede government, and are not something given to man by any political authority. Each of us possesses rights that may not be taken away or undermined by those in political power. We all possess an inalienable right to our life, liberty, and property. We own ourselves, and by extension we have a property right to what our creative minds and efforts have peacefully produced. We may not be enslaved, sacrificed, or plundered by others, whether they are private individuals or organized governments.

The individual, not some mythical collective, is the center and starting point of society. The free market is the arena in which people form relationships for mutual benefit on the basis of voluntary exchange. The free man finds his own meaning for life, guided by the philosophy or faith of his choice. He refuses to coercively impose his will on others, just as others may not use force against him. He persuades others to live and act differently through reason and example, and not with the bullet or the bayonet. And no political authority can make claims against his life, liberty, and honestly acquired property, because the function of a limited government is to secure his freedom from predators and plunder.

This is the philosophy of individualism and capitalism that must be reawakened in our fellow men if we are to free our society from the stranglehold of Big Government and its ocean of debt. It requires a confident belief that we are right, that both reason and history have demonstrated the value and benevolent results of what Adam Smith once called “the system of natural liberty.”

The Importance of the Battle of Ideas

Such an appeal to a battle of political and economic ideas is essential. The social political and economic crises of our time are the outcome of an earlier battle of ideas that the enemies of freedom and capitalism succeeded in winning to a great extent. They indicted the society of liberty; they distorted the reality of capitalism and its brilliant triumphs in freeing man from poverty; and they imbedded in the minds of many the conception of political entitlements that serve the power ends of political paternalists and which requires the plundering of the peaceful and productive members of society.

Our society is living under a paternalistic and plundering political system that threatens to bring its productive potentials to, if not a halt, then at least a sluggish crawl compared to its free market potential. In the extreme, it could lead to a situation of capital consumption, under which the government’s taxing, spending, and borrowing policies take so much away from the private sector that it becomes impossible for private enterprises to maintain the productive capacity upon which our standard of living is dependent. Civilizations have regressed in the past. And it can happen again.

Whether the final phase of the fiscal crisis of the government’s redistributive and entitlement system is reached in ten years, twenty years or thirty years, the question then will be, what will follow the failure and collapse of the Fiscal Leviathan State? Our society will stand at a crossroads. And when that time comes it is essential that there are enough people who understand, can explain, and are willing to defend the ideas and ideals of individual rights, economic liberty, and the free market system. If not, the future may see a tragic return to a less civilized and much poorer past.

Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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