The Upcoming Entitlement Implosion

The last few months I’ve seen articles from well-meaning columnists and editorial writers attacking the tea party premise that government spending, especially Federal spending, is too big.  Often they point out that we drive on government provided roads, rely on our court system, use public schools, and depend on the game warden and the local cop.  So what?  In 1970 we had courts, roads, game wardens, cops and public schools.  I’m not sure about the cops and game wardens, but many of the roads, courts and public schools were better in 1970 that they are today.

We rely on the government to provide infrastructure and public services; no sensible person will deny this.  What’s changed over the past 40 years is the explosive and unsustainable growth in public entitlements.  Ronald Reagan’s eight years of presidency are hailed by many conservative Republicans as the “good old days.”  Reagan ended the cold war, but he also doubled the national debt during his administration; hardly a conservative act.  Since then Federal deficits and the resulting national debt have exploded.  Entitlements are the problem, and frankly they are not sustainable at their present levels.  They will implode in the next few years regardless of what slick-tongued politicians say or do.  When these entitlements implode, the US economy will be saved.  There is no question that they will implode; it’s a mathematical certainty.  The only question is how soon.

There are three entitlement categories that will crash in the next few years.  They are (1) social security, (2) Medicare, and (3) public sector employment.  Here’s the how and why.

SOCIAL SECURITY: Of the three entitlements mentioned above, Social Security will have the softest landing.  Actuaries have known for years that social security will run out of money when the baby boomers cash in.  This could have been avoided if social security benefits had been cut or if FICA taxes had been raised over the past forty years, but there was no political will to do either.  Social Security has $5 trillion in unfunded liabilities.  Ironically, the social security shortfall has been lessened significantly by the recent stock market smackdown that reduced the investment nest egg of baby boomers, causing them to delay retirement.  The Social Security “soft landing” will occur in the next 5 years, consisting of benefit freezes and a significant increase in the benefit eligibility age.  Eventually social security will be replaced by moderately subsidized mandatory savings accounts.

MEDICARE: This is the 800 lb gorilla in the rubber room of debt.  The unfunded liabilities of the Medicare system are currently $78 trillion dollars with projections of $98 trillion by 2020.  The entire US economy generates only $13 trillion a year.  Every American citizen and every American company would have to give to Medicare everything they earn or make for six years to save it.  Obviously that’s not going to happen.  Medicare is going to implode quickly.  The promises can’t be kept; there’s no more money!  Whether government borrows or prints money to save Medicare, that can’t save it.  Boomers better stay healthy because (Obamacare or no Obamacare) Medicare will either be discontinued or massively cut in the next few years.  Medicare math dictates that little will be available for seniors with serious (and especially end of life) health issues.  The die was cast years ago; the country can’t afford the politician’s Medicare promises.  The illusion of free healthcare for seniors is just that; the Medicare party is over.   Did anyone let Dr. Jack out of jail yet?

PUBLIC SECTOR EMPLOYMENT: This is an entitlement category that is often overlooked, but it is hugely significant.  We’ve seen massive growth in public sector employment over the past 40 years.  These federal, state, county, and municipal employees are unionized.  They make more money than their private sector counterparts and their fringe benefits are nearly double that of their friends who work in the private sector.  We’re not just talking about cops and firemen here; we’re talking about the ESL teachers, school grief counselors, city planners, social workers, environmental impact scientists, and community organizers.  None of these positions existed two decades ago.  While it is nice for these wonderful government workers to hold our hands when we need them, these are positions that cannot be sustained by our economy.

The 17 million immigrants who passed through Ellis Island came to a new land of opportunity.  For them health care, food stamps, welfare, and business bailouts were not a “right.”  They wanted only freedom and an opportunity to WORK.  As our economy starts to collapse under the weight of the above mentioned entitlements, rank and file voters won’t stand for it anymore.  When it comes down to putting food on the table or saving the job of a community organizer downtown, we all know what decision will be made.  When it comes down to having the lights go on when we flick the switch or meeting some politician-created carbon emission standard the outcome is assured.  Entitlement implosion isn’t a possibility, it’s a certainty.  There’s nothing that can be done politically to save these bloated entitlements; they are mathematically doomed to crash, and crash soon.  We’re going to see a slashing of public sector jobs, payroll, and retirement benefits.

Ironically, the crash of entitlements is a crash we can afford.  The eventual result of the entitlement implosion will be a more vibrant US economy with more of the kinds of opportunities and private sector jobs that those who passed through Ellis Island imagined and realized.

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