The Personal Website of Mark W. Dawson

Entitlements

"Don't take away your entitlement, don't take away my entitlement, take away the entitlement of that fellow behind the tree!"
- a variation on Russell B. Long tax reform quote

General Principles

Social Security, Healthcare (Medicare and Medicaid), Health Insurance, Food Stamps, Education, Public Housing, Aid to Dependent Children, Unemployment Benefits, etc., etc., etc... All of this was done with the good intention of helping people in need, during a time in which they could not afford to help themselves. But it must be remembered that “The road to hell is paved with good intentions”. Our good intentions of helping people when they could not help themselves have morphed into helping them all the time. Thus, the nanny state has evolved. It is now possible that you can live a very modest life doing nothing to support yourself or your dependents. This is economic and social madness.

The goal of entitlements should be to help you in times of need and to help you get off the need for entitlements. One of the best ways to accomplish this is to have a robust economy, an economy in which there is a demand for employment or self-employment. Employment or self-employment, that allows you to support yourself and your dependents, allows you to afford housing and food, allows you to obtain or purchase health insurance, and allows you to obtain or save for retirement.

The current entitlement system is economic madness as there is, and cannot be, sufficient tax revenues to support a nanny state. It must be remembered that the government doesn’t make money, the government takes money. It, therefore, must take more money from working people to give more money to non-working people. And the working people will then have less money to support themselves and their families, and may themselves become more dependent on government entitlements. And I do not believe that the government has the right to take the monies of hard-working people to support non-working people unless it also has a plan that makes for the transition of the unemployed into the employed.

It is social madness as it rewards being nonproductive. Nonproductive people lose a sense of self-worth, and gain a sense of dependency on the government and not themselves. This dependency erodes their personal freedoms and liberties and allows more governmental control of their lives. And as entitlements affect more than a 1/3 of Americans, and more people are becoming dependent on entitlements, the government is gaining more control of our lives. And the more people get for free the more they want for free, but there is no such thing as a free lunch. You give up self-worth, independence, and freedoms when you become dependent on entitlements and government. You also negatively impact the financial lives of those who monies you have taken to support your dependency. Those people whose money you have taken to support your dependency have less money to support their families, less money to send their children to good schools and colleges, less money to purchase goods and services, less money to purchase better housing, less money to save for a rainy day, and less money to save for retirement. It is therefore morally wrong to take monies from others to support your dependency if you have no intention or plan to unshackle yourself from the dependency. Or as Benjamin Franklin said:

“I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.”
- Benjamin Franklin

Excessive entitlements and increased taxes to support them leads to the erosion, if not outright failure, of our Constitutional Republic. The words of Scottish political philosopher, Alexander Fraser Tytler, were so prescient, and relevant to where we are today in our Constitutional Republic, America:

 “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years. These nations have progressed through this sequence: From bondage to spiritual faith; from spiritual faith to great courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to apathy; from apathy to dependence; from dependence back into bondage.”
 - Alexander Fraser Tytler

More Economics of Entitlements

In all commerce, there are three types of exchanges that can occur. They are:

First Party Purchases
I pay for something with my money for services or products that I will consume for myself.

Second Party Purchases
I pay for something with someone else’s money for services or products I will consume for myself. Or I pay for something with my money for services or products someone else will consume.

Third-Party Purchases
I pay for something with someone else’s money for services or products consumed by someone else.

It should be noted that these types of purchases are neither good nor bad, or fair nor unfair. They are simply descriptive of an exchange between two or more parties. It should also be noted that if all parties are satisfied with this exchange then it is probably both a good and fair exchange. And these types of exchanges occur in consumer, company, industrial, and all forms of commerce.

For example, let’s assume the consumer purchase of a home coffee maker as follows:

Your coffee maker breaks and you need to replace it. You look at what you need in a coffee maker and what your budget is for the purchase of the coffee maker. You then search (and research) for the best coffee maker that meets your needs, that is within your budget, and purchase the coffee maker with your own money that is within your ability to pay for it. The manufacture of coffee makers knows this and attempts to provide a coffee maker with the most capabilities at the lowest price so that you will choose their product for purchase. This motivates the coffee maker manufacturers to drive down prices and increase capabilities of a coffee maker, which gives you the most bang for your buck. This is a First Party Purchase that benefits both you and other purchasers of coffee makers.

Your friend is getting married and you decide to purchase a coffee maker as a wedding gift. As you will purchase the coffee maker, and another person will utilize the coffee maker, your primary concern will be the purchase price, and your secondary concern will be the capabilities of the coffee maker. Or, your coffee maker breaks and a friend or relative offers to buy you a new coffee maker. In this case, your primary concern will be the capabilities of the coffee maker, and your secondary concern will be the price. The coffee maker manufactures also are aware of these scenarios and will produce coffee makers with different price/capabilities ratios that can meet this need. This is a second party purchase that benefits both you and other purchasers of coffee makers.

Finally, a limited giveaway of coffee makers is sponsored by a coffee maker manufacturer, or a coffee company, or a civic group you are involved with, etc. to a charitable institution for their usage. They request a small contribution from you and others to purchase these coffee makers for the charitable institutions. You decide to donate a modest sum for this charitable cause. In this case your, and others, monies are being utilized, but someone else is determining which coffee maker to purchase, with what capabilities, and who will receive the coffee maker. The coffee maker manufactures may be aware of this activity, but it is extremely difficult to adjust the price/capabilities to meet this need as they cannot determine the quantity or price level to meet this need. This is a third-party purchase, in which there is no motivation for a coffee maker manufacture to meet this need, and produce a more cost-efficient and/or better coffee maker.

All government spending on entitlements is a Third-Party Purchase. The government takes money from the taxpayers and determines what is to be spent and who will receive the benefit. As such, there is no motivation (except altruism) to tax and spend wisely. There are no economic, political, or bureaucratic constraints to assure the most efficient utilization of taxpayers monies, and the scope of the benefits and beneficiaries of the entitlement programs. Indeed, many politicians are generally interested in increasing entitlements, as this will help their re-election chances. Many bureaucrats are interested in expanding entitlements as this increases their power within the government. And the beneficiaries of the entitlements are more than happy to receive increased benefits. The negative consequents of this situation are borne by the taxpayers from decreased income through increased taxes, and the general economy from the expansion of government (a non-wealth producing economic actor) to the contraction of the private economy (a wealth-producing economic actor). 

Many people claim that the side benefits of entitlements are worth, or may exceed, the costs of the entitlement. However, this is economically very difficult to quantify, and more difficult to prove. And even if this is true there is still no way to assure that the entitlement spending is being done efficiently and effectively (what in government is efficient or effective).

These economic and social factors must be accounted for in the creation and expansion of entitlements. But it is easy for the proponents of the entitlements to expound on the benefits of the entitlement, and much more difficult for the opponents of the entitlement to expatiate the costs of the entitlements. After all, everybody wants to do good for their fellow citizens. But doing good must always be tempered with the possible bad impacts of doing good, both socially and economically.

Please note that Social Security, Medicare, and Medicaid taxes should not be viewed as taxes. They should be viewed as an insurance policy. Something that you pay into to receive a benefit when you are eligible. Therefore, they are not an entitlement, but an investment that is due to you by your having contributed to them. However, when the government expends more than it has collected or saved, then it becomes an entitlement. Therefore, we must put our financial house in order regarding Social Security, Medicare, and Medicaid funding and expenditures.