There are 3 primary "entitlements", Social Security, Medicare/Medicaid, and Welfare. Let's discuss the Social Security System(SS) to illustrate some basic common features.
The first such system was introduced in Germany by Bismark to provide a basic minimum safety net for the elderly poor. Our system was introduced by FDR in the 1930's to do the same for the elderly poor during the Great Depression. The key concept for both was that only a few people would get benefits for short periods of time; and the cost would be low and easily affordable by a relatively large worker population.
In fact, Bismark designed his version to begin paying benefits after the age when most workers were expected to die. FDR was more generous in starting benefits a bit before expected death. Even so, the US system began with more than 65 workers paying taxes for each retiree getting benefits. FDR sold his program as "insurance" rather than "welfare"and created the SS Trust Fund to "account" for the extra income over benefits payments. N.B. "Account" for funds; not "Receive" funds.
SS has always been funded as current worker contributions paying for current retiree benefits with any remaining funds used for current government operations. Those remaining funds are also accounted for as ledger entries in the Trust Fund and interest is calculated and accounted for by additional ledger entries.
Today, as a result of national demographics, there are about 3 workers paying for each retiree; and they are not paying enough. Demographic trends indicate fewer workers, more retirees and longer lifespans, leading to about 2 workers per retiree by 2025.
SS income has been inadequate to fully pay benefits since 2012. The gap is small compared to SS Trust Fund; but there are no negotiable funds in the Trust only non-marketable bonds comprising the "ledger accounts". So the Gap is filled by issuing negotiable bonds or diverting general income funds to get real funds to pay real benefits. (Or by the Obama option : print more money, inflate prices and deflate savings.)
KEY POINT : All Three Big Entitlements need today's workers/taxpayers to pay for today's beneficiaries. National and world demographic trends are going the wrong way for this to be sustainable. Some examples.
According to Slate Magazine, World population may actually start declining, not exploding. :
“For hundreds of thousands of years,” explains Warren Sanderson, a professor of economics at Stony Brook University, “in order for humanity to survive things like epidemics and wars and famine, birthrates had to be very high.” Eventually, thanks to technology, death rates started to fall in Europe and in North America, and the population size soared. In time, though, birthrates fell as well, and the population leveled out. The same pattern has repeated in countries around the world. Demographic transition, Sanderson says, “is a shift between two very different long-run states: from high death rates and high birthrates to low death rates and low birthrates.” Not only is the pattern well-documented, it’s well under way: Already, more than half the world’s population is reproducing at below the replacement rate."
Most of Europe is below the 2.1 births/woman replacement rate; the US has just dropped below that rate for the first time. Fewer children mean bigger problems funding a "Welfare State" or big entitlements.
From the Wall Street Journal Drop in Number of Children Poses Economic Challenge for California: "Declining migration and falling birthrates have led to a drop in the number of children in California just as baby boomers reach retirement, creating an economic and demographic challenge for the nation's most populous state."
Both above articles are worth reading. But if you only have time for one, I strongly recommend Joel Kotkin's discussion of Demography as Destiny: The Vital American Family :
"Yet family size is far more than just another political wedge issue. It is an existential one – essentially determining whether a society wants to replace itself or fall into oblivion, as my colleagues and I recently demonstrated in a report done in conjunction with Singapore’s Civil Service College. No nation has thrived when its birthrate falls below replacement level and stays there – the very level the United States are at now. Examples from history extend from the late Roman Empire to Venice and the Netherlands in the last millennium. .......
Falling birthrates and declining family formation clearly effect national economies. One major United States’ advantage has long been high birthrates, akin to a developing nation’s, as well as a vibrant family-oriented culture. .......
If birthrates continue to decline, Western nations may devolve into impoverished and enervated nursing homes. And without strong families, children are likely to be more troubled and less productive as adults."
Kotkin's article goes a lot further in discussing causes, dangers, and reasons for optimism. My "Family First" SS post postulated a dramatically different SS reform idea as a counterpoint to move the entitlements discussion away from incremental financial improvements to the existing impersonal social-entitlements paradigm and towards a new paradigm based on a family ethos and current demographics trends. Think of it as a start point for devising a 21st Century Social Support (not Entitlements) system. Kotkin's article provides a lot of intellectual background and encouragement for that idea; so I'll close with his closing statement .
" “No matter how many communes people invent,” the anthropologist Margaret Mead once remarked, “the family always creeps back.” Let’s hope she’s right, not only about the past but the future as well."
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