Americans Do Not Know About The Welfare State Crisis?

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“People in Washington assume that Americans understand how big the problem [of solvency for the US welfare state] is, but most Americans don’t have a clue”.

–John Boehner, Republican Speaker of the House of Representatives

WASHINGTON – Now, this is a revelation, coming in an interview with The Wall Street Journal (“GOP Aims to Tame Benefits Programs”, March, 4, 2011). So, Americans are clueless about one of the most talked about and debated critical issues of our time.

But how can this be? We just had elections fought mostly on the need to cut spending. The Republicans won the fight with a huge upset. John Boehner got to be Speaker of the House precisely because of this victory. But now he candidly tells us that the very people who voted his party into the majority in the House on a spending cuts platform do not really know much about the future insolvency of the welfare state –which is the core issue of federal spending. And now, because of this ignorance, before we can fashion reforms aimed at reducing the weight and cost of the welfare state, according to Boehner, we really need to go out and explain to the same Americans what this is all about, so that hopefully we can bring them on board.

What were the 2010 elections about?

And so, what were the 2010 elections about? And what about the sizable army of 87 Republican freshmen, many of them propelled by the anti-spending Tea Party Movement, who have come to Washington with the fierce determination to lay waste on the federal budget? Whom do they represent? Well, who knows.

Be that as it may, Boehner’s (perhaps inadvertent) admission that the public is not aware of the real issues highlights the populist, as opposed to substantive, tenor of last fall’s campaign. People were in truth very uncomfortable. The economy was very bad and unemployment historically high. On top of that, many thought that president Barack Obama was a Socialist, (yes, some actually did). They thought that the Democrats were going to nationalize “everything”. A small but significant minority seriously believed (no, this is not a joke) that Obama is a Muslim and thus an alien element in American society. In simplistic terms, many Americans concluded that such disarray had to be the fault of the party in power. And so they whacked the Democrats.

Tell the truth now?

But now, if we are really serious about rebalancing the books and cutting the spending that we were told would ruin us, (and it will), well now we discover that nobody really understood that this wretched spending includes the money that they, the voters, are getting via substantial welfare programs, benefiting mostly retirees.

The 2010 campaign was dominated by emotional issues

Well, for anybody still under the illusion that in a well oiled democracy like America an election is an opportunity for a serious debate “on the issues” and then choosing the best political option via a freely given vote, this is another reminder that it is not so. While hard issues are out there during the campaign, people in large measure vote their emotions of the moment. Last November it was fear of the future and distress about the economy. Punishing the incumbent party, the Democrats, looked like a good plan, and so America did just that.

But, based on Boehner’s comment, it would appear that there was not much substance in the campaign that led to the almost historic Republican victory in the House, (and throughout America, with state legislatures and governors turning Republican in large numbers).

Now it is time to get serious

And now, ironically, the Republicans, the victorious party, if they want to be serious in leading on how to solve the fiscal crisis –and some of them, including Boehner himself and House Budget Committee Chairman Paul Ryan are serious– find themselves in the uncomfortable position of having to tell the people “the truth”: any serious action on federal spending will take some stuff away from them. It is not at all clear that the Republican Party as a whole wants to go ahead and do it. As all politicians, the Republicans know that voters usually shoot the messenger.

Obama is not on board

To get cover, the Republicans would want the Democratic president Barack Obama to lead on this, thus creating a national political consensus that would not make the Republicans the primary target of voters’ anger. But president Obama has already shown that he is unwilling to lead now on something so complicated and divisive as welfare reform, just as he starts organizing his re-election campaign for 2012. He does not want to jeopardise his second bid for the White House. His proposed budget for fiscal 2011-2012 illustrates his timidity on the issue. There are cuts in his budget, but not the serious ones that could be politically damaging. The president right now does not want to fix federal spending for the long haul. Right now, he wants to be reelected.

So, if the Republicans really want to honor their campaign promises, they need to get in front, on their own, knowing full well that in American politics you normally do not win on a platform centered on taking stuff away from millions of voters.

Naive belief that it was all about “fraud and abuse”

Last fall there was a lot of generic talk about spending cuts. But it was mostly in the context of a strong anti-Obama sentiment. People did not vote for a clearly understood reform plan of the welfare state. They voted against Barack Obama and in favor of generic cuts. Many naively thought that the deficit and debt problems are really due to waste, pork barrel programs and earmarks. Do away with abuse and favoritism and all is taken care of. Well, it ain’t so, America, not by a long shot. If that’s what you were told, well, you were lied to –once more. You can eliminate all pork barrel programs, all earmarks and all “waste, fraud and abuse” and you’ll make only a small dent in the deficit. The real issue is entitlement reform.

The real money is in entitlement programs

If we really do get serious about spending reform, we got to start where the real money is: Social Security, Medicare, Medicaid and the other large welfare programs that collectively eat about 60 per cent of total federal spending, for a total of almost 2 trillion dollar in fiscal 2010. I repeat: that is where the real money is.

Of course, next to entitlements, (and leaving aside another 5 per cent of the budget that is devoted to paying interest on the existing national debt), there is the entire discretionary spending, totaling about 1.360 trillion in 2010. And that is also significant money. However, of this large sum, about 800 billion is represented by defense spending that constitutes about 22 per cent of total federal outlays. The Pentagon should not be immune from cuts. Yet, it is politically more difficult to cut the military when we are fighting wars and supporting deployments in theatre of hundreds of thousands of troops and all they need.

Discretionary spending is not a lot

If we assume that we cannot really pare down defense that much, (at least until we fight in Afghanistan), what is left, amounting to about 528 billion in 2010, is what is normally referred to in federal budget jargon as “non defense discretionary spending”. This is only about 15 per cent of total spending. And it includes all the federal programs you can imagine, from health to education,to the environment, to energy, national parks and space programs. Without too many calculations, it is obvious that, even doing away with entire chunks of supposedly useless spending, we do not accomplish much. You can abolish entire Departments and you save may be 2 or 3 per cent of total spending.

Why are we in this mess?

Again, while some cuts across the board would certainly help, the real money is in entitlements and then defense. Defense is a difficult topic in war time. Entitlements –remember that they consume 60 per cent of the budget–are difficult any time, as they have an enormous constituency of elderly, and thus more inclined to vote, citizens.

But why are we in this mess? Very simple. Because of demographics, and unexpected increases in the cost of medical care over the course of many decades. Welfare programs were designed to take care of the elderly, then (1930s and 1960s) a relatively small percentage of the total population. But now they provide federal assistance to much larger numbers of people, simply because Americans live much longer. At the same time, medical care has advanced technologically; but it has gotten to be more expensive. More elderly people require more expensive medical services and the bill increases every year much more than inflation.

No higher taxes means fewer services

It is fairly clear that Americans are unwilling to pay higher taxes in order to provide the additional funds necessary to re-balance the ever expanding welfare accounts. Without additional funds, people will have to get less or later, or both. In the case of Social Security, it is relatively simple. You raise the eligibility age, so that less money is given to each recipient. People will have to wait a little longer in order to receive benefits. You can also means test the system, given less to those who already have higher incomes.

Medicare is much, much tougher, as medical costs have to do with systemic deficiencies far too complex to summarise them here. Still, unless we can rein in out of control costs, the only way out is rationed care and/or having better off people pay more out of pocket. Which is to say that people will get services, only less than they are used to. Tough, but necessary.

Who wants to give the news and pay the price of honesty?

This is the unpleasant stuff Americans, according to Speaker Boehner, are still clueless about. And the reality is that, if we want to fix our books, the era of practically free stuff coming from Washington is over. And it is about time someone would say so –in plain language. It is a shame that president Obama decided to pass on this one. The Republicans may be more serious on real fiscal reform. However, they know that, if they go ahead and spread the message, they may fall into a huge political trap –ironically of their own making. By becoming “the bad guys” on entitlement cuts, they will end up losing politically; while Obama, by defining himself as the protector of federal checks for the middle class, will get re-elected.