Monday, December 17, 2012

Policy Brief: A Winning Plan for Entitlement Reform


By: Peter Ferrara 
This essay is the first of a series of Heartland Policy Briefs by the author on entitlement reform.
Soon after World War II, U.S. federal government spending as a percent of gross domestic product (GDP) stabilized at around 20 percent. It remained there until President Barack Obama took office. That period covered close to two-thirds of a century.
All of the great debates, the political crusades, the battles between left and right, the liberal War
on Poverty, the steady rise of entitlement spending, the Reagan revolution—all of these together amounted to holding federal spending in equipoise during this entire period, growing in the end no faster than our enormously productive economy grew over the same period.
Until recently.
The Congressional Budget Office (CBO) projects that on our current course, under current policies, federal spending would soar to 30 percent of GDP by 2027, 40 percent by 2040, 50 percent by 2060, and 80 percent by 2080. Add in state and local government spending, and we are literally on a course toward full-blown communism, where the government takes and spends everything the economy produces.
Obama has exacerbated this problem. Federal spending soared to 25 percent of GDP in his very first year in office, breaking through the long-term, bipartisan, consensus. As a U.S. senator, Obama voted for the bloated budget of his presidency’s first year.
But the long-term expansion is not primarily due to him. It is due to the long-term expansion in our nation’s entitlement programs. That is why it was so reckless and irresponsible to pass Obamacare, which adopted or expanded three entitlement programs, adding napalm to the fire.
I don’t believe in allowing human suffering if we can prevent it. Conservatives and enlightened free-market advocates understand and embrace the injunction of Friedrich Hayek, the founder of modern libertarianism, in favor of social safety nets to prevent material deprivation.
The fundamental problem is that America’s current entitlement programs are all based on old-fashioned tax and redistribution models dating back to late nineteenth-century Europe. 
Instead of trying to address the entitlement crisis by raising taxes and cutting benefits, we need to think outside the box and advance fundamental, structural reforms that would transform the programs to rely primarily on modern capital and labor markets, with positive, pro-growth incentives. What is involved here is an extension of supply-side analysis to the incentives of essential social safety nets in evaluating how to structure those in order to maximize program effectiveness, economic growth, and national prosperity.
Read the full policy brief, here.


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