Entitlement America And The High Cost Of "Free"

Tyler Durden's picture

Almost three years ago we first highlighted the real math behind the surging entitlement class that America has become. So 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? This is the ugly reality we illustrated just six months ago and the situation - amid what is apparently called a 'recovery' remains a depressingly real sign of the times. 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. Indeed, while many are 'proud', 49% of American households now receive one or more government transfer benefits amounting to 18% of all personal income and a burden of $7,400 for every American - seemingly threatening the supposed self-reliance that has long characterized the American national psyche.

 

Via the Ludwig von Mises Institute,

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 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.”

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The Swedish Chef's picture

You seem to off course... HuffPost is that <=that way.

The Swedish Chef's picture

In Sweden a family of six can get just north of $5000 a month in welfare (barnbidrag (state child support), bostadsbidrag (housing subsidy) & socialbidrag (plain welfare)), with roughly 70% of that (all but the child support)  being in danger if any member of the household has any type of income. Where is the incentive to work? Who would shoot the goose that lays golden eggs, specially if your rifle is a minimum wage job?

Peter Pan's picture

What standard of living does $60,000 per annum give a family?

I ask this so as to gauge whether the $60,000 is truly generous or whether the cost of living is so high that $60k is just ordinary.

Good to see that socialism is having its problems as well.

notadouche's picture

$60k before or after tax?  Either way good luck being middle age with a couple of kids (and don't forget elderly parents that become financial burdens) because $60k ain't what it used to be and if you live on either coast with that amount you are below the poverty level.  If you can't make more than middle 6 figures don't bother having a family with dreams of yore.  Even if the government tells you there is minimal inflation for the last decade anyone living in the real world is living in the world of hyperinflation when it comes to the items needed to live on but conveniently left out of inflation calculations.

Freewheelin Franklin's picture

Collect disability/welfare and work under the table. Best of both worlds.

 

If you are not doing your part to help crash the economy, you are not trying.

robertocarlos's picture

The Free Shiite Army is causing problems for America.

 

Edit: Undo!  Last thing I need is a Jihadist without a sense of humour tracking me down.

rsnoble's picture

No one wants to live in poverty.  I'm not saying it's right but if there is help available vs. living on the streets and starving then duh.

Pulling the chain isn't the answer.  Neither was turning the US into a part time jobs only state wasn't either.  For the most part I blame this mostly on the gov't and stupid politicians. 

Peter Pan's picture

The article is all well and good but let us not forget and underestimate the level of corporate welfare doled out to corporations and let us not forget that the rate of remuneration and benefits for public servants has outstripped the growth of remuneration and benefits in the private sector.

If you add politicians at all levels, public servants, members of the armed forces to the entitlement class, that should give us all a clearer picture what the remaining real workers and contributors of the USA are really shouldering.

yogibear's picture

So many companies pay 0 taxes.

Disenchanted's picture

re: "The Balance Sheet on Government Giveaways"

Where's the rundown on bankster/corporate/MIC government(aka taxpayer funded) bailouts/subsidies/giveaways?

ZH11's picture

"So why does a large portion of the population choose not to work when there are many jobs available? "

WHAT A FUCKING LOAD OF IDEOLOGICAL DRIVEN BOLLOCKS!

 

http://www.marxists.org/reference/archive/wilde-oscar/soul-man/

evernewecon's picture

 

 

 

 

Entitlements are called entitlements cause

they're paid for, and when taken, it's analogous

to the self-important but failed corporate

management in denial about that taking their

employees' pensions.

People's elderly parents have had their

retirements ripped off as their retirement

securities' earning power's been ripped off in

favor of free reserves aimed at enabling banks

to avoid taking losses on their self-created

mortgage bubble.

 

All those who saw the bubble as it was inflating

sold it, notwithstanding being called nuts by

the peer pressuring bubble chasing crowd.

Those who did sell, their dollar volume in selling

matching the buying, have suffered the policy

of "hand it over."

They even finance this against their own interest.

http://ochousingnews.com/news/menendez-boxer-plan-bill-to-transfer-bank-losses-to-us-taxpayer 

and the same thing every day another way,

with of course $trillions self-entitled by those who

don't want people to know this:

http://www.opednews.com/articles/opedne_james_py_060422_warped_interpretatio.htm 

Ayn Rand:

https://duckduckgo.com/?q=ayn+rand+railed+but+grabbed 

Perfectly equal info/ease of entry implies S/D

always meeting at -0-, or no profit ever, except

intensely fleetingly (esoteric level virtually,) a

mathematical obsurdity insofar as economic life

is concerned. Techdirt’s notably attempted

 addressing persistent excess supply.

http://www.techdirt.com/articles/20070125/004949/step-one-to-embracing-lack-scarcity-recognize-what-market-youre-really.shtml

Let’s just say the days of unfair profiteering are numbered.
 

The opposite is monopoly.


Actually, monopoly, gatekeeping and risk filtering

best describe our large economic sectors.

You have to add pay to play.  It's a payback

arrangement, with billionaires in the past having

bragged about how little it takes for people

to bite.

 

I don't think it's worth jumping off the terrace

over, but rather think it enjoyable letting

markets provide efficiency and discipline while

the people they serve are assured a fair deal and

lack of want, particularly where want is

humanely unacceptable.  I call it "market progressive,"

market "sector process informed," "economic

melting pot."


 

In health care particularly economics has to share

what's happening with the realities of our

environmental, social and (unfair) economic

stressors, as well as basic biologic and epidemiologic

reality.  Plus, the manner of how medical care is

rendered is not automatically suited in every

aspect to simple supply and demand dynamics.

Germs, accidents, and an infinity of impactors

have a persistent disinterest in price motivation.

 

Stressors often involve someone's benefit at

someone else's cost, but that's what monopoly,

gatekeeping, risk filtering and pay to play

are all about.  Of course, they bear no relation

to democracy, and they're not capitalist.


 

The name calling is indistinguishable from what

the kids engage in, though they probably get

it from their parents.


 

This area's interesting in health care cause

ObamaCare's obviously been carefully crafted

along the lines that the Simpson Bowles Commisson

would have liked--to avoid entitlement status.


 

I welcome more coverage,

(health care, not talking about this:

http://momgrind.com/wp-content/uploads/2010/01/Cleavage-4.JPG  )


 

along with every other

purist/reformer, many of whom would think I should

be glad taking what we can get.


 

It used to be you couldn't move from San Diego to

Vegas for a job/r.e. op lest you suffer an exclusion,

often.  Also, having risk factors used to mean for

many the eventual choice of "go naked" or "premium

death spiral."

Unfortunately, ObamaCare's coverage is not as

comprehensive as advertised, and the very orientation

of the "exchanges" (now they prefer: "marketplaces")

reflects all how the sector could be better reformed.


 

The Difference Between

A System With High Risk Here,

But Not There, Vs. One With

Sector-Wide Risk Equalization,

Is Like The Difference Between

Homogenized Whole Milk

And Ice Cream.  

They're Two Entirely

Different Products.

If One Considers Medicare Was

Originally Conceived As National

Health Insurance For Unwanted

Customers (I Do,) Just As Amtrak

Was Born When The RR's No

Longer Wished To Compete With

A Burgeoning Interstate Highway

System And An Airline Industry

In The Midst Of Its Original Massive

Growth Phase, Then, BECAUSE

LIGIBILITY FOR SUBSIDY IS PARTLY

DEFINED BY NEED THAT'S

PARTLY DEFINED BY HIGHER RISK,

The "Exchanges," (Now

"Marketplaces,") Because They're

Most Essentially For High Risk

Customers, Is A Quasi-Partial Single

Payer (The Taxpayer) For Less

Wanted Customers System.


 
 

Risk Should Be Spread Across

The Population, The Market

Should Address That, And

Processes Can Then Be Instituted

To Assure Patient And Health

Provider Satisfaction, With

Legitimately Universal Coverage.

To The Person Who's Still

Not 100% Pleased With Total

Universal Coverage, Remember

Again All Unpaid Cost Is Shifted.


 

Much would-be shifted uncovered

unpaid cost is now captured in that

Quasi-Partial Single

Payer (The Taxpayer) For Less

Wanted Customers System.  Taking

customers back that way is a modified

form of collaborative care (in Medicare,)

so when carriers decline the business

it becomes comparable to the banks

declining biting for this in the face

of a liquidity trap--the insiders have left

too much risk on the outside.


http://www.bloomberg.com/news/2012-07-09/dealers-decline-bernanke-twist-bids.html

 

 

The cost of gatekeeping is so high, in

so many more ways than can be practically

listed here, that reverse engineering from

patient and health care provider satisfaction

in a market progressive way, with universal

coverage and minimal tiering is obviously

eminently doable.


Here’s an example as to much.

A woman under 65 on Medicare (yes--Disability)

thrives on physical therapy, but only stays alive

and loses her physical therapy gains on neurologic

meds.   But until her physical therapy allowance

resets, she has to returns to the meds, even though

the neurologist herself would prefer the patient being

on physical therapy.   (A true story.)

 


------------------------------------------------------

 

(Adding (ZH's sub-heading will have to change

to: on a long enough timeline ENEN

will stop editing:)) as to techdirt/others

on ample supply (above.)

As it’s been almost a day since the subject

column appeared, the following should

appropriately match the curiosity of those

very few actually following me here.


This

http://pages.citebite.com/r1h6b0n7u3bui 

explains how enabling others does not detract

from those already prosperous (democracy

and opportunity don’t have to be denied others

for one to retain their prosperity.)


I’ve drawn parallels elsewhere (my site--won’t spam)

as to

 

 1: civilly paying for higher premiums for when

police deny rights wrongfully and

 

 2: paying for

such things as gatekeepers so that risk can be

clumped for government with eligibility for subsidy

largely driven by that (so where Medicare was in its

origin national health insurance for unwanted

customers, the (most essentially high risk-) exchanges

(now “marketplaces”) are a zone for quasi-single “payer”

support for less wanted customers, the opposite of all

that being risk equalization and combining that with

a process-informed market (“market progressive”/

market “sector-process-informed”/ economic

melting pot.   Improving coverage even by way of risk

filter is better than nothing, but that’s still

carrier-centric, not patient and health provider

centric.


 

In short I quantify paying more to get

less for the advantage of a few, and that’s graphable

along time.   I think it’s a picture of slavery.


 

It’s where paying for one’s own control is less

obvious that hopefully makes the idea more

interesting.


 

The mathematical opposite is enriching oneself by

enabling others, though admittedly that wouldn’t

apply to the spectacularly rich control freak

 

buying puppets.


monad's picture

Check this out

http://en.wikipedia.org/wiki/Negative_income_tax

This subject was studied thoroughly at great expense to tax payers. Check the names involved in it. This outcome was intended, to weaken the nation for UN/FR NWO takeover. 

fallout11's picture

The demand for a free product is infinite.