Some ideas for dealing with entitlements

Ideas for dealing with entitlements (not by any means complete, but rough ideas, and comments are certainly welcome)

One huge problem I see with both Medicare and Social Security is that they really are no more than arbitrary taxation ponzi schemes in which there is no guarantee of return and no limit to what can happen to the money that is taxed in order to fund them. Because of the rather fluid structure of these programs, the scope of benefits has only increased and the programs have been expanded over time way beyond original intent with very little comprehension of reality or impact to solvency of the programs (as congress can always raise taxes or print money to make up shortfalls) and ultimately the solvency of the nation with posterity on the hook for funding the monstrosities.

Other possible problems might be that they also relieve the politicians from a large portion of political liability for inflation and for interfering with natural market pricing mechanisms in health care. Who really cares, except working folks, if the government inflates away or hammers the health care markets with liability issues and mandates if people have the idea they’ll be taken care of no matter what happens to the value of the dollar or cost of health care over the course of their lifetime. And again, our kids (whether we have any yet or not) get handed the bill for the waste and abuse of power for the sake of political expediency while struggling themselves to make ends meet.

I’m aware that these programs are “popular”, and I think that has more to do with the impact the existence of these programs have on an individual’s propensity to save over their lifetime. This is also not without impact to the condition of our macroeconomic situation over time concerning net saving and investment vs. net consumption. As an example, Japan’s debt to GDP ratio is nearing 200%, but because of the net savings and investment vs. consumption makeup, that debt is held mostly by Japanese citizens themselves, rather than by foreign entities and international debt markets have little impact on the ability of the Japanese government to borrow. Of course that degree of debt is not a healthy situation in which to be, and I am by no means advocating replicating that *exact* formula here, but is quite helpful to not be up to our eyeballs in debt to foreigners.

What I think might help solve the problem of the current entitlement situation and peripheral political problems that come with them (other than a hard stop on constitutional grounds- which isn’t really workable or fair to anyone), specifically concerning Social Security (and it might even work with Medicare) is to maintain the program as is for everyone who is receiving it now and select a reasonable place for a cut off for new recipients.  At that point, make it a voluntary program that removes the employer contribution mandate and has caps on contributions to say, 20-25% vs. contributions to other retirement savings/investment programs and provisions for emergency measures to ensure that program obligations are met during economic downturns or to allow for congressional goosing of the program based on economic conditions, within limits, from time to time. There should also be some money devoted to marketing of the program to try to impact society’s perception of the responsibility to save for the future.

This would still provide the “safety net” feature, only based on real contributions and real returns of the of the individual’s own money from government bonds, and in general our kids and grand kids won’t be on the hook to fund the majority of the program. But also it would provide a dose of reality in management of the program over time. In other words, if the program is looted or expanded to insolvency while voluntary, market discipline would be brought to affect and it would eventually disappear if the problems are not immediately corrected.

Of course, this cannot work in isolation. There are other things that should and need to be changed, as well as other beneficial impacts to be identified. One thing is there should be better treatment and enticement of charitable giving, especially to the elderly. There will always be those who decline to invest in a government safety net and I don’t think anyone would ever propose that they should be left on their own, unless that is how they prefer. States could also do their own version of the program and/or become more involved in the quality of life of the elderly if they so choose. Additionally employers would have another tool to attract employees by offering matching funds, like many already do with 401(k)s.

Other considerations are that it would not be a “privatization” of the programs. It merely puts the power of the people back into consideration regarding what happens to their retirement money and in how we are treated in markets where government tends to throw its weight around without much in the way of political consequence only to use the mess it creates to remove more of our liberties with socialized medicine. Program funds would still be invested in treasury bonds, and the government would still use the money as it does today – the only difference is that it is no longer a blank check with which people can vote themselves goodies from the Treasury virtually without limit and kicking the can down the road for posterity to deal with.