Abolish the Welfare State to Solve the National Debt Crisis

by | Apr 8, 2019 | Welfare

Why is it so difficult to win the case for freedom in modern American society? A variety of possible answers come to mind. The collectivists are more effective in appealing to people’s emotions. The interventionist-welfare-statist argument is easier to make than it is to follow the logical chains of reasoning required to make the free-market […]

Why is it so difficult to win the case for freedom in modern American society? A variety of possible answers come to mind. The collectivists are more effective in appealing to people’s emotions. The interventionist-welfare-statist argument is easier to make than it is to follow the logical chains of reasoning required to make the free-market case. Socialist-leaning teachers and professors who indoctrinate their students with statist ideas from a very young age dominate the government educational system from kindergarten through the Ph.D.  Popular, celebrity culture inculcates society with leftist biases and presumptions.

All those answers have strong elements of truth in them. But there is one other element at work that makes it difficult to effectively make the case for a fully and truly free society, indeed, that can undermine the ideal and understanding of the free society. That element is that too many advocates of a free society compromise its case.

Trillions more in debt on the way

For example, let’s look at the national-debt crisis. The Congressional Budget Office (CBO), in its June 2018 Long-Term Budget Outlook projected that given current trends for federal tax revenues, government expenditures under existing legislation for “entitlement” programs, and likely general economic growth over the next ten years, the national debt will continue to dramatically increase because of the return of $1 trillion-a-year budget deficits just over the horizon.

The primary source of all the federal government’s budgetary problems is the entitlement programs. In Uncle Sam’s 2018 fiscal year that ended on September 30, 2018, total government spending was $4.1 trillion. Social Security and health-care spending (Medicare and Medicaid) combined, was about $1.95 trillion. Net interest on the national debt came to $371 billion. Together these mandatory spending categories came to almost 60 percent of the federal government’s total budget. Department of Defense and other related military spending came to $601 billion, or 15 percent of Uncle Sam’s expenditures. The remaining items in the budget were those counted as part of “discretionary spending.”

The CBO projects that in ten years, in 2028, total government spending will come to $7.05 trillion, with total tax revenues of $5.52 trillion. The budget deficit a decade from now will be $1.53 trillion just for that fiscal year. The CBO forecasts that because of annual budget deficits of more than $1 trillion, by the end of the federal fiscal year for 2028, the national debt will have increased from its approximately $21.8 trillion today to $34.8 trillion, for a 60 percent increase over the decade.

The growing debt burden

In 2018, the total population of the United States is estimated to be about 327 million people. The per capita burden of the national debt, therefore, comes to around $66,600. In 2018, 126 million people filed federal tax returns. That means the average burden of the national debt came to about $172,000 per taxpayer in America.

Demographers estimate that the population of the United States in 2028 will have increased to around 360 million people. If the national debt has grown to $34.8 trillion by 2028, the per capita debt burden will have gone up to $96,660, for a 45 percent increase per person in America by that time, but the population will have increased only 10 percent. If the percentage of Americans filing and paying taxes remains about the same over the next decade, then the average taxpayer’s burden of the debt will have gone up to $255,880, for a 49 percent increase.

Government spending on Social Security during this coming
decade will rise from 4.9 percent of Gross Domestic Product (GDP) to 6.0 percent, or a 22.4 percent increase. Medicare, Medicaid, and related federal health-care expenditures will go from 5.7 percent of GDP to 6.8 percent, for a nearly 20 percent increase.

Net interest on the national debt will rise from 1.6 percent of GDP in 2018 to 3.6 percent in 2028, for a 52 percent increase. In fact, forecasts suggest that by 2028, the annual net interest on the public debt will exceed $1 trillion. In other words, just the net interest on the national debt for the year 2028 will be equal to the entire expected federal budget deficit of $1 trillion in 2019.

The economic-growth argument

One would think that libertarian-oriented economists and policy analysts would argue and emphasize the importance of making the case for ending the interventionist-welfare state, if this colossal debt burden hanging over the American people is to be handled in the only truly long-run way possible: the repeal and abolishing of government Social Security and government health-care programs (e.g., Medicare and Medicaid).

Instead, some proponents of a freer society hope to make the problem go away through a sleight of hand: by inducing a general economic growth rate that exceeds the increase in welfare-statist spending. If the national economic pie can increase in size faster than the slice of that pie that represents entitlement-program spending is growing, then all will be well. Runaway government spending due to the welfare state would be brought under fiscally manageable control, without having to challenge the existence of those programs or the rationale for them.

Stephen Moore, who is a senior analyst at the Heritage Foundation, and a former policy expert at the Cato Institute, has recently made just such a case. In an opinion column that appeared in the Washington Times (November 18, 2018) called “Avoiding Fiscal Armageddon,” Moore argued that projections such as those published by the Congressional Budget Office concerning the national debt are all based on their forecasts for U.S. economic growth in the years to come.

The CBO estimates average annual economic growth rates of 1.9 percent for the coming decade. But assume that economic growth will average, instead, around 3 percent a year. Moore then says, the “Federal debt as a percent of GDP will be cut in half by 2048,” that is, in thirty years. After all, there have been long periods, and not that long ago in modern American history, when annual economic growth was regularly significantly greater than 1.9 percent.

What is needed are further tax cuts to stimulate work savings, and investment; and more deregulation of business to reduce the heavy hand of government over the businessman’s attempt to better and more efficiently run his enterprise to bring about more, better, and less-expensive goods and services offered to consumers on the market, Moore reasons.

Cheating the American people to save Social Security

Furthermore, the faster the economy grows, the more real income rises for the vast majority of American workers. “The more money you make, the worse your return is from Social Security. This is why revenues from faster growth would overwhelm rising Social Security benefit costs.” If one reads Moore right, what he is saying is that the faster the economy can be growing, the more people can be cheated in their receiving a smaller return on the amount they are compelled to pay into the Social Security system. Bilking people is part of the answer to saving Social Security!

For Moore that means there is no need to cut or abolish the entitlement programs. Now in fairness, Moore, as an advocate of the free-market society, would have no objections if those programs were reined in. “We support sensible market-based reforms that will reduce Medicare’s runaway costs and that will give young people a much better payback from the raw deal of Social Security,” he says.

The rationale for trying to get the economy growing at a faster clip is not simply that it would make Americans more prosperous and more materially better off with more and better consumer choices. No, it is meant to be a way to get around having to take the welfare state head on.

Moore, like too many others who view themselves as conservatives and even libertarians, has clearly decided that the welfare state is here to stay; that it is “politically impossible” to challenge, oppose, or repeal the redistributive programs of the modern paternalistic system. However, when such a position is taken certain things follow from it.

Paternalism versus liberty

First of all, it takes for granted the welfare state is and will be a part of the present and future political landscape. By doing so, many if not all of the assumptions underlying the redistributive system are tacitly being accepted by default. What are they? That it is the duty and responsibility of the government to plan people’s retirement and health-care needs; that people lack the ability to plan those activities for themselves and they need a fiscal guardian to take care of it for them; that the government has the right to take from people in taxes and then decide what they will get in return in the form of the amount and content of such entitlement programs.

By implicitly accepting the foundational rationales of the welfare state, Moore and others play into the hands of all those progressive paternalists who long ago rejected the very idea upon which the country was founded: that each human being has certain unalienable rights that include the rights to life and liberty. That everyone should be viewed and treated as a self-responsible citizen who makes those and many other decisions for himself. That the very definition and hallmark of a free man is that he is neither the slave nor the ward of another person who claims a right to lord over him and direct how he lives or what he does.

Once the paternalistic premise is accepted there is, in principle, no limit to how far it is taken. If you cannot be trusted to make your own retirement or health-care planning, then how can you be considered intelligent enough to know what foods you can eat or beverages you can drink, or what drugs you may ingest to fight off pain or induce some momentary pleasure? How can you be assumed to be adult enough to find your own job, negotiate over the wage you may be paid, or decide who and for what common purposes you and others might form associations and clubs; or what written or spoken words used by you and others are to be considered “inclusive” rather than “hateful”?

Paternalistic logic

This danger was pointed out by the Austrian economist Ludwig von Mises long ago his book Liberalism (1927), one of the classic statements of the principles of freedom and the free society. Said

It is universally deemed one of the tasks of legislation and government to protect the individual from himself. Even those who otherwise generally have misgivings about extending the area of governmental activity consider it quite proper that the freedom of the individual should be curtailed in this respect, and they think that only a benighted doctrinarism could oppose such prohibitions.

Indeed, so general is the acceptance of this kind of interference by the authorities in the life of the individual that those who are opposed to [classical] liberalism on principle are prone to base their argument on the ostensibly undisputed acknowledgement of the necessity of such prohibitions and to draw from it the conclusion that complete freedom is an evil and that some measure of restriction must be imposed upon the freedom of the individual by the governmental authorities in their capacity as guardians of their welfare. The question cannot be whether the authorities ought to impose restrictions upon the freedom of the individual, but only how far they ought to go in this respect.

Mises warned that if the state is to be concerned with the health of the citizens in terms of what they smoke or drink, then why is it not reasonable for the government to concern itself with what sports people participate in, in terms of their fitness to stand the strain; or whether sexual conduct should be policed under a concern that some people might be overdoing it after a certain age? And if the body is to be policed in these and other ways by the state, what about the harmful effects from reading “dangerous” or “immoral” literature? And what about socially questionable political or religious ideas that could undermine the stability and ethical norms of a community? Mises went on:

We see that as soon as we surrender the principle that the state should not interfere in any questions touching upon the individual’s mode of life, we end by regulating and restricting the latter down to the smallest detail. The personal freedom of the individual is abrogated. He becomes a slave of the community bound to obey the dictates of the majority. It is hardly necessary to expatiate on the ways in which malevolent persons in authority could abuse such powers. The welding of powers of this kind even by men imbued with the best of intentions must needs reduce the world to a graveyard of the spirit.

No logical limit to welfare-state growth

Second, Moore and those who think like him presume that the projected growth path of the “entitlement” and other paternalistic programs will remain on the one currently traced out for them, and that all that is needed is to devise the right taxing and regulatory policies to generate the necessary tax revenues to cover their cost without the government’s having to go any further in debt to meet all such redistributive obligations under current legislation.

But in reality there are no set limits to the growth and costs of the welfare state once a society has begun down that road, a road that the German sociologist and historian Alexander Rüstow once referred to as “the other road to serfdom.” In 1960, entitlement spending equaled about 5 percent of federal expenditures; by the early 1980s, entitlement expenditures represented about 13 percent of federal government outlays, compared with nearly 50 percent today. The German free-market economist Wilhelm Röpke pointed out 60 years ago, in 1958, the unbounded reach of the redistributive state:

Once we accept the principle of state coercion (even in the particularly plausible shape of social insurance) for assisting individuals in coping with the vicissitudes of life, where is the limit?… What, indeed, we observe everywhere is the strong and seemingly irresistible tendency of the Welfare State towards continual extension. Always new fields of assistance are discovered; always new groups of the population are included in the system, and always larger benefits are granted…. To extend the Welfare State is not only easy but one of the surest ways for the social demagogue to win votes and influence.

(It is unfortunate that in spite of insightfully seeing this dynamic within the welfare state, Röpke could never give up his own policy prescription of a set of minimum government social-welfare safety nets.)

More government revenues, more spending

Even if fiscal and regulatory policy were to successfully induce an average annual economic growth rate of 3 percent over the next decade, there is one thing that can be predicted with a fair degree of certainty, namely that, given the current and foreseeable ideological and policy climate in America, significant infusions of larger government tax revenues from higher incomes and more business profits will only serve as a stimulus for even more government spending.

Already there is a hue and cry by progressive ideologues, pandering politicians, and various special-interest groups for “single-payer” (i.e., government) health care, for “free” college tuition for all, and for a “Universal Basic Income” for everyone as a right as a human being. New revenue inflows into Uncle Sam’s coffers will only intensify the demands for those and other programs on the reasoning that “You see, there is plenty of government money to do all of these desirable things for the people, without any increase in the budget deficits above $1 trillion a year. No problem, everything is under control, and the welfare state can be safely expanded.”

It is a fool’s errand to believe that by chasing after lower taxes and less regulation the U.S. economy can grow its way out of the dilemmas of the welfare state and its entitlement programs. Lower taxes and reduced regulation of the private sector are, of course, desirable policies. Leaving more of the honestly earned money in the pockets of those who have acquired it through peaceful and productive activities in the competitive marketplace is a good thing in itself. And repealing and abolishing any and all of the regulations imposed on private enterprise, so that entrepreneurs may more effectively and successfully earn profits from better serving consumer demands, is equally all to the good.

Government budget deficits and resulting growing mountains of national debt are not a tax-revenue problem in the sense that government doesn’t bring in enough to serve its necessary and constitutional functions. It has far, far more than it needs to do the tasks needed to protect the rights of the citizenry to their lives, liberty, and honestly acquired property, prescribed in the Constitution as left to us by the Founding Fathers.

It is a government-spending problem that originated in and persists precisely because of the false political philosophy of paternalism, collectivism, and welfare statism. It cannot be solved simply through reform of eligibility standards and benefit thresholds; it cannot be fixed with more tax revenue; and it cannot be made more cost-efficient with more businesslike management.

The problem is deeper and more difficult than those frequently heard calls for reform or infusions of more tax revenues, as Moore proposes and thinks would solve the whole issue. The policy debate will not be won, and the fiscal problem will not be taken care of, until the battle lines are drawn with a call for abolishing the entitlement state and separating matters of private self-responsibility from the realm of governmental activity.

This article was originally published in the February 2019 edition of Future of Freedom.

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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