Started by Lyndon Johnson in 1965 with “something for the old folks,” spending on Medicare became an “entitlement.” Then, as the use of the term skyrocketed, so too did our spending.
According to the Trustees that oversee each of our major entitlement programs, within two decades, Social Security and Medicare will need new financing or a new design.
Instead, the candidates appear to be “…embracing free lunch economics.” (from Maya MacGuineas, the Committee for a Responsible Federal Budget)
For Social Security and Medicare, the problems are similar. Not enough is coming in and too much is going out.
Meanwhile, the trust funds that take care of shortfalls are heading toward zero:
What to do?
For Social Security, the non-partisan Committee for a Responsible Federal Budget says that these 5 “easy” fixes won’t work:
- Do nothing.
- Minimize fraud.
- Increase what the rich pay.
- Grow the economy.
- Increase certain taxes.
Similarly, for Medicare, there are no easy fixes. Negotiating Part D drug prices or paying more to caregivers won’t cut costs.
Our Bottom Line: Public Choice Theory
The candidates’ position on entitlements reminded me of public choice theory. First developed by Nobel economics laureate James M. Buchanan, public choice theory explains the negative externalities of a politician’s self-interest. Because politicians engage in utility maximization, they might cater to voters who ignore national well being.
My sources and more: After identifying Hillary Clinton’s entitlement proposals and Donald Trump’s entitlement proposals, you will see why we have made such little progress with spending problems. For the budget specifics, it was productive to look at the Committee for a Responsible Federal Budget and the Trustees Report on Social Security and Medicare. Finally, for more about public choice theory, I recommend econlib and Lecture 32 in Thinking About Capitalism” from the Teaching Company.