Paying people to be disabled, sick, reproduce, unemployed, unmarried, retired, poor, homeless, hapless, or drugged
by Loyd S.
Pettegrew and Carol A. Vance
Why does a large
portion of the population choose not to work when there are many jobs
available? The answer is simple. If you can receive 2-3 times as much money
from unemployment, disability, and/or welfare benefits (subsidized housing,
food stamps, free cellphones, etc.) as you can from a temporary or part-time
job, and live a life of leisure, why work? In 2011, the U.S. government spent
over $800 billion[1] on this
“welfare,” exceeding expenditures on Social Security or Medicare.
In the Denver
arena where Mr. Obama gave his DNC 2008 acceptance speech, a woman in the
audience became overwhelmed by the speech and said that she no longer needed to
worry if she could make her car or mortgage payments because he would take care
of it for her. In Cleveland, a woman claimed that she was going to vote for
President Obama again because he gave her a free cellphone (along with a litany
of other entitlement giveaways). Before you growl, you should know that the
free cellphone program was instated by President Bush in 2008 through the FCC’s
Universal Service Fund. Fees for these “free” cellphones are paid by all
telecommunications service providers out of the revenue received from their
paying customers. Despite the political rhetoric over the past half century,
entitlements were actually highest during Republican administrations. The
political allure of free is bi-partisan.
The political
allure of free is so strong that an alarming number of people choose to become
wards of the entitlement/welfare state rather than captain their own destiny.
Economist Nicholas Eberstadt of the American Enterprise Institute believes that
Americans have become a nation of takers, threatening the self-reliance that
has long characterized our national psyche. Eberstadt (2012, p. 4) presents
data showing that entitlement payments to Americans, since 1960, have risen
annually by 9.5 percent. He argues that over the past 50 years the
ever-increasing array of transfer payments to Americans have risen 727 percent.
In 2010 such payments alone totalled $2.3 trillion with Social Security (for
old age and disability) accounting for 31 percent, Medicare 24 percent,
Medicaid 18 percent, Income Maintenance 12 percent, other giveaways (free
cell-phones, support for a broken education system, housing, the arts, etc.) 8
percent, and Unemployment Insurance 6 percent (Eberstadt 2012, C1-2). This has
resulted in 49 percent of American households receiving one or more government
transfer benefits (Eberstadt 2013); this amounts to 18 percent of all personal
income and a burden of $7,400 for every American.
The Balance Sheet
on Government Giveaways
Our economic
analysis shows that retirees who worked for 40 years and then live 20 years
past retirement will receive more than twice what they, and their employers,
contributed over their lifetime of working. Only retirees who survive a decade
or less after their retirement do not take more out of Social Security than
they contributed. Most people will agree that the retirees should receive his/her
Social Security benefits at retirement. But with people living longer, who will
pay for all the additional benefits now promised? Most people who have not done
their homework (including Congress) fail to realize that the numbers for
Medicare benefits exceed those for Social Security. Since 1965, Medicare
required less than a 3 percent contribution from a worker’s gross wages, yet
most people receive over $250,000 in medical benefits before reaching the age
of 74, assuming no catastrophic illness. You can do the math on your own wages,
assuming a lifetime salary of $100,000 per year for all 40 working years, a
worker will have paid in only $120,000 into the Medicare system. Congress,
after agreeing to take care of everyone after retirement for the rest of their
lives, has broken a sacred trust and used incoming contributions to fund other
government expenditures, instead of letting the contributions build over the
past 50 years.
The Political
Allure of Free Runs Parallel with Tough Economic Times
The U.S. Census
data show that in 2000 the percentage of Americans existing at or below the
poverty level was 11.3 percent or 31.1 million people. The 2010 census showed a
75 percent increase in reported poverty by Americans rising to 15.1 percent or
46.2 million people from the previous census. As with most government
statistics, there is ample room for politicized error. For example, when people
get laid off from work, there is reason to believe that many join the
underground economy and do not report their income. Rahn (2009) reports that
26.5 million households are either unbanked or underbanked (from FDIC data) and
that while the economy may be improving slightly, the growth in the underground
economy should be decreasing but isn’t.
Another
contributing factor is a measure called labor force participation.
It is the total work force that includes people working and those actively
looking for work as a percent of the noninstitutionalized population. The
Reason Foundation’s Randazzo (2012) points to a circularity problem—when the
unemployment rate goes down the labor force participation rate should rise.
After the recession ended in 2009, both rates are tracking in the same
direction—the labor force participation rate was 64.9 percent, the lowest since
1981and the unemployment rate was 10 percent. In 2012 the labor participation
rate had dropped to 63.4 percent and the unemployment rate also dropped to 7.8
percent. Randazzo suggests this is because participation in the labor force has
been declining for over a decade. Despite President Obama’s recent crowing
about jobs, the drop in unemployment has factually less to do with the creation
of real jobs than with the fact that more Americans are dropping out of the
workforce for the allure of free things from their government. Randazzo
believes lower workforce participation will be the labor norm of the future.
Why work if you
can’t find a comparable job to what you had before you were laid off and the
government will give you free living expenses? We have analyzed what a single
parent with three children is eligible to receive from the state and federal
governments in a given year, working a part time job at minimum wage living in
Florida (a relatively benefit-frugal state). Free and subsidized benefits
include: housing, welfare, utilities, telephone, school breakfast and lunches,
child care, medical care, food stamps, commissary food, prescription and
non-prescription medications, education, education testing, and refundable tax
credits. All of these benefits are in excess of $47,000 per year, exceeding the
poverty level in Florida by 200 percent.
Researchers at the
National Bureau of Economic Research cite studies suggesting that in difficult
economic times approximately 30-40 percent of those applying for disability
would return to the workforce if the economy were better and disability were
not an available option (Autor and Duggan 2006, p. 19).
Choosing
Disability over Work
Many people add to
their free government benefits through working in the underground economy and
pay taxes on none of it. Others choose another free government benefit. Since
mid-2010 (the date when millions of U.S. citizens exhausted their 99 weeks of
unemployment insurance) the number of workers on Social Security Disability
Insurance (SSDI) benefits rose by 22 percent, an increase of 2.2 million
people.
Workers with
disability now get nearly a 20 percent chunk of the total Social Security
benefits budget and the number has increased (Kowalski 2012). Kowalski refers
to a government study that shows that 99 percent of people who have been
granted SSDI benefits remain on this entitlement the rest of their lives.
Economists David Autor and Mark Duggan (2006) argue that the spiral in SSDI
claims by the non-elderly adult population is the result of three main factors:
(1) Congress has dropped the threshold for receiving disability benefits
(inability to function in a work-like setting); (2) Congress has increased the
level of benefits for recipients giving people more incentive to apply. (3)
Congress increased the number of people in the workforce covered by SSDI (Autor
and Duggan 2006, p. 8-11). The allure of free has made the political class very
proud of its accomplishments in creating a welfare-dependent state.
When government
programs are seemingly free, recipients tend to use them more. Medicare is a
perfect example, where pharmaceutical and diagnostic tests multiply with the
change in new benefits (Pauley 2004). Research shows that even when controlling
for age and medical condition, if medical care is a bargain, people on Medicare
as opposed to people on private insurance utilize 50 percent more care
(Matthews and Littow 2011). They point to the fact that especially when
Medicare patients have supplemental care in the private sector, their
out-of-pocket expense nears zero, encouraging even more utilization. They
conclude: “Since private insurers are much better at controlling utilization
and reducing fraud, why not turn to the private sector to resolve Medicare’s
excessive utilization?” (p. A16)
Mises (1990)
analyzed this double-edged sword of government dependency and the cost to human
value. Today, George Gilder (2012) echoes this risk by pointing out that 70
percent of government discretionary spending devalues human life by paying
people to be disabled, sick, reproduce, be unemployed, unmarried, retired,
poor, homeless, hapless, or drugged. He believes these supposed problem-solving
programs accomplish nothing beyond expanding themselves by spreading dependence
and tragic waste and saying: “Reforming them [the first rule of bureaucracy
(Pettegrew and Vance 2012)] is all upside.”
Notes
The original title
of this article was simply “The Allure of Free” but as we read through Dan
Ariely’s Predictably Irrational: The Hidden Forces that Shape Our
Decisions, we discovered two references to “the allure of free.” To
avoid any accusations of plagiarism we have thus added the term “political” to
our title with this recognition of Ariely’s earlier use of the phrase.
[1] This
excludes Veterans’ welfare programs that Congress requested be removed from the
Congressional Research Services study which would bring welfare spending in
2011 to over a trillion dollars.http://budget.senate.gov/republican/public/index.cfm/files/serve/?File_id=0f87b42d-f182-4b3d-8ae2-fa8ac8a8edad
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