Power & Market

Outgrow Entitlements: Stop Losses, Cover Debts, and Help More

Entitlement spending, which includes administrative spending, totals 19% of GDP:

  • Healthcare spending for the elderly or indigent totals 8.6% of GDP.
  • Retirement income spending totals 6.9% of GDP.
  • Working-age income spending for the indigent totals 3.1% of GDP.

In each category, the outcomes are far below optimal.

The fatal flaw is that our earnings aren’t our governments’ money, they are our money. We care for ourselves best and help others best when our money remains our money.

Then we are in control. We choose retirement healthcare, retirement income, and charity the way we choose everything else, by carefully shopping. We do this everywhere we can, as long as we’re free.

We produce the best ongoing outcomes when we’re free to individually control our spending in these areas. We will produce the best transition outcomes if we become free as fast as possible.

During the transition, we will be subject to one constraint: wherever governments have taken away people’s past opportunities to choose for themselves, in return the governments’ debts to these people should be settled by delivering the promised outcomes.

These principles mean that there is an optimum end state, and there is an optimal path.

Stop Losses, Cover Debts

Medicare and Medicaid prioritize treatment over prevention. They maximize demand without regard to prices. They disincentivize people from producing or buying health insurance that, like other insurance, would pay for a loss when it happens, especially the major loss of receiving a chronic diagnosis that from then on would require actuarily-sound insurance to be more costly. They disincentivize people from saving for later-in-life care.

All these characteristics result from sidelining customers by granting crony favors: licensing, certificates of need, tax treatment, and regulations.

Social Security reduces people’s incomes and stops people from saving and investing this portion of their incomes. Social Security retirement ages also contribute to employers laying off, retiring, and not hiring older workers.

Welfare spending displaces far-more-efficient, more-customized charitable assistance and increases dependency. Terrible government schools then take away the best remaining opportunity for the next generation to escape and thrive.

These coercions leave people with irreversible losses. We must make our governments immediately stop adding to these losses.

To stop adding to losses, we must put an immediate end to the ongoing accrual of even-more promised future benefits.

On entitlements taken from taxpayers and spent on retirees—Medicare, Social Security, and government pensions—taxpayers should immediately be no longer required to pay in. Younger taxpayers will have already paid in some fraction of their prospective lifetime payments, and they should eventually receive the same fraction of their promised lifetime benefits.

On entitlements taken from taxpayers and spent on indigents—Medicaid and welfare income—taxpayers should immediately be no longer required to pay in. Since this spending is taken from tax revenues, taxes should immediately be reduced by this amount, freeing up funds for individual voluntary charity giving. The current generation of indigents should continue to receive government healthcare and income. Children born subsequently should receive assistance not through governments but through charity.

On all the entitlements, stopping the associated taxation will reduce revenues. As will be described later, the resulting shortfalls will be covered by improved efficiencies and by asset sales.

To further stop losses, we must put an immediate end to the current programs’ structural problems.

On healthcare, national and state governments’ interferences with people’s free selling and buying of health services must be stopped immediately.

On retirement, retirement at younger ages and at older ages must be facilitated immediately by extending early-retirement ages to as young as people choose for themselves and by extending late-retirement ages to as old as people choose for themselves; and by adjusting payments, the same as under the current retirement ages, so that on average the same lifetime benefits are paid out to each person regardless of which retirement age he chooses.

On indigent income-support spending, intergenerational poverty must immediately be made escapable, by immediately eliminating all government-monopoly schools and all government control of schools. Bridge funding with no strings attached can follow children until charity spending by newly-relieved taxpayers gets established. But schools themselves must immediately be no longer controlled at all by governments. Schools must be fully controlled by parents as customers.

Help More

It would be fiction to take as a baseline that the current system, despite being unsustainable, would nevertheless deliver all the benefits that are currently promised.

It would also be fiction to project that the same spending as now will be required after these changes. Breathtaking improvements will come in short order; low-hanging fruit is everywhere.

Shopping slashes administrative costs and brings competition. Under competition, entitlement-provider organizations will run radically leaner; some do already even now, as noted below.

On healthcare spending, substantial fractions of the charges in the current system are for government administrators, third-party-payer insurance company administrators, service-provider organization administrators, crony product-supplier charges, and provider compliance time imposed by all those bureaucrats.

Partial gains from bypassing these costs can be seen in the lower prices and favorable price histories for various procedures like LASIK vision-correction surgery that are not covered by insurance, and for the surgeries and other medical care provided by the few current free-market producers.

On indigent income-support spending, efficient private charities routinely deliver a given amount of income support while costing donors only 36% as much.

Spending will decrease, the benefit quantities actually received will be at least as good, and the benefit quality will increase. Freed to concentrate on providing direct services, and pressed by shoppers to do this better than the competition, the best way for a producer to differentiate its brand will be to deliver the highest quality.

Since the new systems will be radically leaner, the currently-projected massive outlays will be slashed.

In addition, there will be more abundance to be shared voluntarily. With the current systems’ drain of 18% of GDP cut away, all products’ producers will have more savings to invest. Soon their people will add considerably more value, bring home more, and willingly help others more.

As mentioned earlier, the current taxes used for these programs will be eliminated, so the general-revenue taxes will fall short of covering all the residual government entitlement spending that will remain under the grandfathered old promises.

Some of this spending will be reduced by the new systems’ efficiencies, as described above.

The remaining spending will be covered by establishing markets that deliver fair-market prices for privatizing various government assets: in large part, real estate, associated mineral rights, and improvements.

That the USA government could outgrow its entitlement spending in significant part by selling its considerable assets has long been suggested by José Piñera, the architect of the Chilean government’s successful privatized (but unduly paternalistically-controlled) public pensions.

The USA national government has enumerated powers to own only very-few assets, only for limited military operations or for other limited government-specific operations. The USA state governments, if they were of republican form as required by the Constitution, would likewise have enumerated powers to own only very-few assets. But USA governments have grabbed far-more assets, and these are of great value.

Privatization is a good all by itself. Private ownership greatly improves stewardship. Monopoly-governments’ appointees have no skin in the game. In contrast, private owners have their own investments at risk. Plus, the better they manage these investments, the greater the rewards they earn for themselves, and the greater our overall wealth.

Privatization can be applied to far-more assets than generally recognized: ultimately it can be total. As a side benefit, this will reduce political conflict.

Note that to the extent that assets are purchased by foreign nationals, this will only help.

Capital investment drives modern productivity. More capital investment is better.

Foreign investment in what was initially the world’s-freest, world’s-lowest-taxed nation greatly helped the USA grow to become the world’s most-valuable economy.

The Constitution protects and encourages investment by all people. It doesn’t enumerate powers to require permits. It prohibits governments from unduly depriving persons of liberty and property. It separates powers in national and state governments, delegating all legislative power to legislators and no legislative power to executives like the Committee on Foreign Investment in the United States (CFIUS)

People produce and provide much less when they’re coerced, and much more when they’re free.

The best way to help others is not to coerce people to pay rents to government-monopoly middlemen, but to instead simply leave people free to produce and help others abundantly.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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