Entitlement Reform: The Compassionate Solution

5.7 trillion.  It’s an almost unimaginably huge number.  It’s about six times the cost of the wars in Iraq and Afghanistan since 2001.  It’s more than five times the amount that federal, state and local governments combined spend on educating our children every year.  It is almost half as large as America’s entire GDP.  And yet, that is what America will spend on interest on the national debt over the next decade—not principal—interest.  And things are quickly getting worse.  President Obama’s budgets will add more than $10 trillion to the national debt over the next decade, and America’s debt to GDP ratio will jump from an already alarming 63% today to 90% by the end of the decade.

America is clearly on a fiscal crash course.  Fortunately, some politicians have shown courage and put forward solid ideas to put America back on a sustainable path.  However these solutions are said to lack compassion; the left spreads doomsday scenarios about Americans cancelling retirements, going without medical care and even spending their waning years eating dog food.  No bombast, hyperbole or imagination is spared in the left’s attempt to convince Americans that any action to control the growth of entitlement spending is a heartless sop to rich voters.

The problem with these supposedly compassion based arguments from the left is that entitlement reform is no longer optional—it is an absolute existential imperative.  No amount of willful ignorance can erase tens of trillions in debt or prevent an implosion of America’s social safety net when the money finally runs out.

Given the need for entitlement reform it’s worth asking: which side in American politics is truly compassionate?  The left has long claimed to be the advocates of society’s downtrodden and abused.  And rather than challenge the left’s false assumption of the meaning of compassion, the American right has all too often fallen into the trap of trying to outspend the other side rather than promoting its core philosophy which is inherently compassionate and empowering.

I ask the left: what is compassionate about spending $5.7 trillion on interest alone every ten years when that money could be better spent on education, or left to America’s families?  What is compassionate about hoovering up an ever larger portion of America’s wealth to send to overseas creditors?  What could possibly be compassionate about trying to convince Americans that the programs they have paid into their whole lives are safe and dependable when the exact opposite is true?

The debate over entitlement reform is not a dichotomy between the heartless right and the compassionate left.  It is between a realistic, compassionate and forward thinking right and a woefully ignorant, irresponsible left.  With so much at stake, nothing could be more compassionate than putting America back on a responsible, sustainable path to secure a bright future for America’s children.

Zach Howell is the National Chairman of the College Republican National Committee

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I agree with every premise.

I would like to see some specifics.  The underlying thought is sound.  We need to talk about specific entitlements, and what manner of reduction is permissible.

Good work. 

Wait till Obama pays back the Unions with taxpayer $$$$s

Then Obama will be Compassionate.....maybe...possibly...well, if he doesn't need the money to buy Votes.

Yes, Obama did a recess appointment of a Union President to .........(office goes here, look it up)

I'm lost

How does that address entitlements, exactly?

What are these payoffs you say Obama is making to these unions?  And which unions are they?

I would just like to know. 

Geez, two union lawyers, recess Appointments, NLRB and EEOC

66 million in Campaign donations from the Unions,
Word association fail ?
I'm sorry, I guess there is no association for some people.
Let's talk SocSec is Broke, Medicare is being robbed and is going broke...WHAT ENTITLEMENTS ?
Oh, Un-employment....Naw, that's Insurance as you would say.
That only leaves Welfare and Congressional Pensions entitlements.

I suppose that's what you call the scattergun approach

Social security and medicare are both entitlements.  Campaign contributions aren't.  Welfare is entitlements, but the NRLB is not.

It might help a bit if you could stay on topic.

If any solutions are to be found, we have to be able to discuss one thing at a time.

Entitlements, ok? 

What was compassionate about

George W. Bush's "compassionate conservatism" and where were you posting your protests when he was turning the budget surplus that he inherited into a deficit by starting the second most expensive war in history and cutting taxes for the rich at the same time.

5.7 trillion.  It’s an almost unimaginably huge number.  It’s about six times the cost of the wars in Iraq and Afghanistan since 2001. 

Actually, if you are honest with the accounting, it is less than twice the cost of Iraq. However, it is still horrendous and something has to be done about it.

However, the years 2001 to 2008 demonstrate quite clearly that the Republicans are not the ones to be trusted with the task - especially the years 2001-2007 when you had controll of both houses as well as the White House.

What was wise about letting the Democrat's PayGo rules expire so that Bush could go off on his folly - which included not just war but Medicare Part D, which is the biggest ever entitlement expansion and which was completely unfunded?

PayGo is, of course, now back in place - and it is going to be essential to starting the long and painful process of returning the country to fiscal sanity.

Here is what Obama said to Fred Hiatt of the WaPo in July, 2009

Obama: What I think has to happen is if we can show that we have a disciplined health care reform package that is serious about cost savings and is deficit-neutral, you combine that with the pay-go rules that we have been promoting and I believe that we can get through Congress, and you are imposing some discipline on the appropriations process -- and I thought that the F-22 victory yesterday was a good example of us starting to change habits in Washington -- then I think we're in a position to be able to, either at the end of this year or early next year, start laying out a broader picture about how we are going to handle entitlements in a serious way.

It may start with Social Security because that's, frankly, the easier one. And I think that it's possible to also look at tax reform and think about are there ways that we can maybe even lower marginal rates but eliminate all the loopholes and have that a net revenue generator. I think there are going to be a bunch of things that we can take a look at, but I think health care reform combined with pay-go, combined with how we deal with appropriations bills over the next six months will help lay the foundation for us to be able to make some of these broader structural changes.

The challenge I've got, Fred, is that obviously -- our biggest problem right now in terms of short-term deficit is the recession. And nobody -- no economist I've talked to thinks that it would be wise for us to start early, start now, in reducing government outlays, when states are already cutting back drastically, and you'd have a hugely destimulative effect on the economy. But we have to begin to prepare on the midterm and the long term. And that's why I think health care reform is so important.

As you can see, it is next on the very long to-do list he inherited from W. However, how is he going to be able to get it done whithout an ounce of good-faith cooperation from the Republicans?

Bush Derangement Syndrome on Display

They're coming to take you away, ha ha, they're coming to take you away....To daily Kos I hope, but MoveOn would be better.

The Bush years are gone

...and good riddance.  Sure, there were plenty of conservatives that were ready to shed their conservative principles in that bandwagon phase; and I'm all for those people being held accountable.

But the "Why didn't you speak up sooner," is out of line in addressing the National Chairman of the College Republican National Committee.  Here's a young person that is only starting to become politically active.  So let's focus on what's there, instead of bemoaning what's not.  He's on a good foundation; I would like to see him build a little on that.

If Obama can trim back entitlements, I'll support him in that.  If he can balance the budget, I'll support him in that.

In my experience, people that insist on helping things without first learning how tend to do a lot of damage.  And that's my overview of the Left.

Really, there's a leadership vacuum in both parties right now.  Talk radio isn't going to do anyone much good.  Some hippy movement isn't going to do the trick.  But it's going to have to come from somewhere.

But the sloppy thinking stays with us.

Bush may be gone but the fiscal irresponsiblity lives on. Here's Tim Pawlenty arguing for tax cuts and railing against spending without, of course, actually identifying anything that should be cut.

I saw that, too

The guy's a doofus.

On that we can agree.

Bartlett's analysis of his piece was savage.

Minnesota has a huge budget deficit, Moody's recently downgraded the state's rating, and Pawlenty is about as popular in the state as the Packers. His term is up this year and he is not running for reelection, so there isn't much time left for him to improve on his record/endear himself to the locals. These things are going to be a drag on his candidacy

Entitlement Solutions ?

We will get a preview of how "unsustainable" entitlements are dealt with at the State Level before any Federal solution is addressed.
California State Pensions (SEIU) are under funded by 500 billion. Same with Illinois, Michigan, and a couple of others.
You can't fix that with Taxes, not and have anyone still living in your State.
NEW JERSEY is setting the example of how to Deal with it.
Watch and learn. I have no solutions at this time other than CUT Government, Give porkulus stimuli to the Citizens, not to the EPA or the Harvest Mouse in San Francisco bay.
I don't know.

 A commission is the only

 A commission is the only possible way to deal with this. It will be a study by an independent group. The electorate will expect congress to work on what will be a document to fix our runaway spending.

Sure, led by Henry Waxman

Just another lefty, Obama talking point, straight from the man himself.



Actually it was proposed in the Senate

by Republican Judd Gregg, but it died because he couldn't get enough of his fellow party members to sign on. So Obama revived it in a different form.

A bit like HCR and the individual mandate - Obama may be one of the best Republican presidents ever.

However, it is a real shame that the Gregg's plan was killed, becaause it would have required that congress vote on the commission's findings; the president doesn't have a way to submit his commission's report to the same test.

It's called macroeconomics

While it sounds good in theory, when tried, paygo hasn't been an astounding success for a variety of reasons I won't get into here. On top of that 63% or even 90% debt to GDP ratios are far from unsustainable as evidenced by many stable countries with higher ratios.

The theory behind running deficits isn't necessarily bad. If a growing company needs a bigger place to conduct business, they don't stay small and lose business until they save up so they can build a bigger place. They build the place now so they can conduct more business now and then pay it back with a mortgage. Similarly, the federal government of a growing nation invests in goods that will serve it in the future. Every business does it. It's good business practice. If an efficient government is run like a business, then why should this be any different? If educating a child leads to higher wages and more tax income, then the child pays for that in the future with interest. If a military vehicle is being designed for construction in 5 years to protect the country over the following 30 years, then it should be paid for in the future, not by the people paying taxes today. In this respect, carrying debt isn't a bad thing and totally acceptable. It's nice that you want to "give your children a smaller debt burden," but it doesn't really make economic sense. A federal highway built today will benefit people in the future, so it shouldn't be paid for by people from the past. R&D today leads to jobs that create more tax receipts in the future. And on and on...

Unlike for businesses or governments, debt is usually bad for individuals because it's usually created by individuals trying to meet immediate desires rather than investing in their ability to make more money in the future. You can't compare a macroeconomic system like the entire US government to how one should make personal financial decisions. It's apples and oranges. So many conservatives can't seem to understand this concept. A true conservative should want the government run more like a business, not more like a household. A balanced budget is good for households but a bad sign for companies.

Further, you can argue the true issue with borrowing is who is being barrowed from. The borrowing should be funded internally so that the government is paying itself interest. The way it is done now is a giveaway to banks, wall street and foreign governments. Again, a page from the corporate system should be taken. Businesses issue stock to raise capital, and the stockholders own the business. If all the debt was owned by working class, tax paying Americans (the stockholders), rather than concentrated at banks getting corporate welfare and foreign interests, then the interest would be paid back to the taxpayers (by way of reduced income taxes).

If there is an atrocity here, it is that China, Japan, fat cats on Wallstreet with Cayman Island accounts, etc. are getting those payments instead of taxpayers. In macroeconomics, the realm where federal spending exists, the reality is that money is just a proxy for labor. You can't save labor, or go into labor debt. Debt to buy goods is just an agreement to do labor later in exchange for labor done to create the good. Savings is just a stockpile of labor credits. Interest simply pays for the privilege to make that exchange. If you look at it this way, then debt isn't a bad thing, the fact that the interest isn't coming back to the taxpayers is.

Never heard of Macro Economics, I heard about Greece though

90 % debt to GDP isn't that bad eh ?
California must be doing wrong ?
Are you the Tax cheating Treasury Secretary Dude by any chance ?
Geez, I gotta have some really strong liquor to help swallow this crud. I Wonder why we haven't tried this Macro "Solution" before now ?
Amateurs experimenting with Economics is what we have, and it ain't working....at all.

Please do.

While it sounds good in theory, when tried, paygo hasn't been an astounding success for a variety of reasons I won't get into here.

Please do go into it. I'm interested. It has been tried once in my lifetime and was a success; when it was abandoned we got the unfunded Iraq War and Medicare Part D. It is now in place again. So if there is something wrong with idea, I'm sure we'd all like to know about it.

Not quite

"In this respect, carrying debt isn't a bad thing and totally acceptable. It's nice that you want to "give your children a smaller debt burden," but it doesn't really make economic sense."

Yes, and no.  Since the business model is referenced, stop for a minute and think about what happens to a business that issues bonds beyond its ability to repay.  Not good.  Doesn't quite fit in with the governmental model (iilegal for business to print currency).  Debt translates directly into inflation.  Always.

In essence, the bonds are a claim on future revenues.  When the claims outweigh the revenues, default occurs.  Or more bonds are issued to cover the call.  That second round of bonds loses its value a bit because of the increased risk.

Other than that, business exists to turn a profit; governments do not.  There is some parallel, but it is limited.

"debt is usually bad for individuals because it's usually created by individuals trying to meet immediate desires rather than investing in their ability to make more money in the future."

Not really.  Most big ticket items purchased by households represent future gains; a vehicle, a home, education expenses.  They just don't have the option of issuing bonds. (They do, really, but they're practically worthless.  The cost of printing would likely exceed the value.)

"A balanced budget is good for households but a bad sign for companies."

This statement neglects that excessive debt on the part of a company indicates the very same thing that it does for a household: Future claims on revenues, up to and including impending insolvency.

"If there is an atrocity here, it is that China, Japan, fat cats on Wallstreet with Cayman Island accounts, etc. are getting those payments instead of taxpayers."

Not really.  Those bonds pay about 4%, and they are sold at an auction.  Whoever wants to pay more is welcome to.  They're not really that good of investment for a citizen, but foreign banks want these t-bills as reserve notes.  The big reason for them is that oil is denominated in greenbacks.

"money is just a proxy for labor."

That simplistic line of thinking might make sense to Ayn Rand, but macro-econ recognizes five factors of production (not figuring in the notable exclusion of raw materials).  Labor is but one factor of production.

"paygo hasn't been an astounding success for a variety of reasons I won't get into here."

Oh, really?  Was this in some D&D game or something?  What hippy ever told you such a thing?

A resounding success, as far as I can tell.  It's main failure is that is fails to address entitlement spending (and that's where the action is).  I would love to hear otherwise.

Reply to Paleo-Skeptic

I don't know why my replies don't end up where they should.  Anyway...

Governments do run like a business.  Maybe more like non-profits than for-profits, but businesses none the less.  I think it's a mistake to assume that a business must turn profit.  While most exist for this reason, it's not a necessary component.  Like a business, the government provides services for payment.  They don't run like households, which exist primarily consume goods and services (whether needed or discretionary).  Households are the fruits of labor, so to speak. 

I would argue that a majority of dollars are borrowed based on desire, not need or investment.  If you need a vehicle to get to work, a $5000 car will do that reliably.  Most people probably spend 5 times that.  So while you can argue that $5000 of that is an "investment in transportation," about $20,000 is because you want a nicer newer car (BTW, I'm pulling numbers out of the air, those aren't actual stats).  Similarly, does the average american need a $200K house to serve as shelter, or would one half the price do until they've saved up enough?  So while mortgaging a cheap house is similar to a making a business decision, a majority of outstanding debt is based on the idea that people want nicer newer things.  An extra 1000 square feet lets your business do more business.  An extra 1000 square feet of house doesn't really provide more toward the need for shelter.  Though it may be a lot more comfortable for your family for each person to have their own room.  For every dollar borrowed to buy a house for shelter, there's at least another dollar borrowed to buy a nicer one. 

My point about labor is that basically even raw materials boil down to labor.  If I want to mine a metal, I need labor to build the machinery, labor to pump the oil to run it, labor to run the machines, labor to build the powerplants that power the smelter, labor to build the smelter and provide the materials to build it, labor to transport the goods, etc.  You even need labor to make all the decisions.  It really all eventually boils down to labor.  On a grand scale, it's all about labor.  Even scarce resources like oil and gold are subject to this.  When the price gets high enough, more is recovered.   As a simple example, the reason bottled water costs money is because of labor involved.  The water is free.  The point is, it all boils down to the question of how much labor we want to devote to government run services versus private sector.  Whether there is a plus or minus sign in front of the budget surpus/deficit doesn't really make a difference in the grand sceme.  From the protectionist standpoint, the only reason it matters is if we're agreeing to give away our labor to other countries in order to have a minus sign in front, which is what we are doing right now.  Though I'll kind of counter myself by saying that I'm not really a protectionist, and understand that it's really more complicated than just that.  The world is complicated and can't be explained in a blog post, so I'll just leave it at that!  :)

I'll keep it brief, as this was not the point of my post.

EDIT: This is a reply to the question(s) why paygo isn't an astounding success, but ended up as a new post. 

But since you insist, here are a couple:

1. Most importantly, it's not socially or politically feasible in a society with democratically elected leaders. Many states, countries etc. have tried it and as soon as constituents find out there is money not being spent, there are demands to spend it. If they don't, they'll vote in a guy who will (see GWB). That's just how society works. Some individuals (probably both you and me) have restraint, but society as a whole doesn't. Maybe after many more generations of fiscal education, there might be a chance, but probably not in any of our lifetimes. We've all been raised in a world where debt is expected. Simply put, you need to have a debt for people to worry about for them to demand less spending.

2. Like it or not the federal government has taken on the role as a smoothing mechanism for boom and bust cycles. Paygo severely limits the ability to do so, since the government cannot spend more during a recession and less during the up cycle. To do that effectively without debt means there needs to be massive reserves sitting on the sideline. That translates to lost potential and severely conflicts with problem 1 above.

Probably the best response I've heard

1).  That's why entitlement reduction is so unpopular in actual practice.  Everyone wants more of the pie than they helped to bake.  Still doesn't mean that it's not the right thing to do, or necessary.  Maybe if people were confronted with the choice that their dollar could be worth a dime, then they would see the wisdom in trimming back benefits to a sustainable amount.

2).  True enough, short-term debt is different in nature than long-term systemic failures.  But I see no reason that allowances couldn't be made explicit.