Deficit denial, American style

The Acton Institute’s Sam Gregg writes that despite the United States’ massive and unsustainable deficits, recent polls show that most Americans are seemingly unwilling to support cuts to the federal governments extensive entitlement programs. Gregg argues that entitlement cuts are absolutely necessary if America ever hopes to stay solvent . . .

Dr. Sam Gregg

Until recently most people thought the primary message of the 2010 Congressional election was that Americans were fed up with successive governments’ willingness to run up deficit after deficit — and their associated refusal to seriously restrain public spending.

If, however, the results of a much-discussed Wall Street Journal-NBC News poll released on March 2 indicate what Americans really think about fiscal issues, then much of the country is clearly in denial, refusing to acknowledge the truth about what America must do if it is to avoid the fate of many Western European nations.

While the poll reveals considerable concern about government debt, it also underscores how unwilling many Americans are to reduce welfare programs that, in the long term, are central to the deficit problem.

Here are the raw facts: America’s federal Social Security program has become the largest government pension scheme in the world in terms of sheer dollars. It is also by far the federal budget’s single greatest expenditure item.

According to the Office of Management and Budget, “human services” — Social Security; Medicare; Health expenditures; Education, Training, Employment, and Social Services; Veterans benefits; and the euphemistically named “Income Security” (i.e., unemployment benefits) — were consuming 4% of America’s GDP in 1949. By 1976, the figure had increased to 11.7%. In 2009, it was consuming 15.3% of GDP.

During the same period, human services began consuming a steadily increasing size of federal government expenditures. In 1967, human services spending was 32.6% of the federal budget. By 2009, this figure had increased to 61.3%. It’s predicted to rise to 67% by 2016. In 2010, 75% of human services spending was on Social Security, Medicare, and Income Security — in short, the core welfare state.

These disturbing numbers make it clear that any serious federal deficit reduction must involve spending cuts to federal welfare programs. That doesn’t mean other areas of government spending should be immune from cuts. But the deficit simply can’t be properly addressed without a serious willingness to reduce welfare expenditures.

And yet, despite all the passionate rhetoric from Americans about the need to diminish government spending, the WSJ-NBC News poll suggests that fewer than 25% of Americans favor cutbacks to Social Security or Medicare as deficit-reduction measures. As the WSJ’s commentators noted: “Even Tea Party supporters, by a nearly two-toone margin, declared significant cuts to Social Security ‘unacceptable.’”

Unacceptable? Think about that word. Do large numbers of Americans really believe there is something morally evil about significant reductions to welfare spending under any circumstances? Since when — apart from Greece and other models of fiscal rectitude — have welfare payments assumed the status of an absolute right subject to no qualification? Have we really gone so far down the path of economic Europeanization?

Granted, the same poll suggests much larger numbers of Americans are willing to raise the retirement age to 69 and to means-test social security. But is that the best Americans are willing to do?

Spain’s unreconstructed-1960s-lefty-Socialist government has just raised that country’s retirement age to 67. Not surprisingly, the measure won’t fully kick in until 2027, long after Spain’s political class and their tame voting constituencies have met their Maker and no longer need to live off their children’s futures. But can Americans who proclaim their attachment to free enterprise and personal responsibility really do no better than left-wing Western Europeans?

Back in 2007, journalist Robert Samuelson summarized the situation perfectly. “Most Americans,” he wrote, “don’t want to admit that they are current or prospective welfare recipients. They prefer to think that they automatically deserve whatever they’ve been promised simply because the promises were made. Americans do not want to pose the basic questions, and their political leaders mirror that reluctance. This makes the welfare state immovable and the budget situation intractable.”

Presidential campaigns are invariably accompanied by a great deal of posturing. It would be helpful, however, if some serious candidates for the nation’s highest office in 2012 — Republican or Democrat — would use their moment in the spotlight to educate Americans about what’s at stake.

One former American vice-president once reportedly insisted, “Deficits don’t matter.” Unfortunately, there is mounting proof that he was wrong. After examining data on 44 countries over approximately 200 years, two economists recently found evidence suggesting that developed nations with gross public debt levels exceeding 90% of GDP (i.e., the USA) find that their medium-growth rates fall by 1%, while average growth declines by an even greater proportion.

That’s troubling because while deficit cutting matters, wealth creation matters even more if we are to dig ourselves out of our fiscal hole. America now seriously risks seeing its burgeoning welfare costs suffocating the productive sector of the economy that makes social welfare possible in the first place.

Incidentally, it won’t be the rich who suffer. It will be the poor. In their laudable concern for the weakest among us, Americans ought to remember that and start matching political rhetoric with consistent fiscal action.

Dr. Samuel Gregg is the Acton Institute’s research director. He has authored several books including “On Ordered Liberty,” his prize-winning “The Commercial Society,” and “Wilhelm Röpke’s Political Economy.”