Investments and Entitlements

This week and next, The American Prospect, in conjunction with The Democratic Strategist, is proud to sponsor a special forum titled: Progressive Perspectives on the Future of the New Deal/Great Society Entitlement Programs.

This unique forum will proceed through seven essays—from Henry Aaron, Andrew Levison, Bob Kuttner, Bill Galston, Dean Baker, Mark Schmitt, and Will Marshall—with occasional summaries from the co-moderators, Kit Rachlis of the Prospect and Ed Kilgore of the Strategist.

The distinctive goal of this forum is to offer a “progressives-only” debate on entitlements—a debate that is often avoided or distorted by the necessity to resist conservative ideological assaults on the New Deal and Great Society safety net or by media-driven elite “deficit hawk” campaigns that seem to begin with the assumption that America’s only fiscal problem stems from “unaffordable” or “runaway” entitlements.

That in the mainstream media “entitlement reform” has become a synonym for structural changes in entitlements designed to cut benefits, shift costs to beneficiaries, or abandon national responsibility for these programs, has inhibited an important intra-progressive debate over how the safety net can be enhanced, sustained, and harmonized with other important progressive priorities.

Progressive discussions of this subject are also frequently hampered by the conflation of substantive arguments about social policy itself with those focused on more practical matters of political strategy. 

Now, we believe, is an ideal time to re-open and clarify the intra-progressive debate over the future of Social Security, Medicare, and Medicaid (and perhaps food stamps and the post-entitlement cash assistance program Temporary Assistance for Needy Families, which also form elements of the safety net). After all, declining federal budget deficits have taken a lot of the steam out of the “fiscal crisis” campaigns on the right and center-right. Moreover, the abandonment of any “grand bargain” budget negotiations for the foreseeable future (mainly due to conservative refusal to consider tax increases on the wealthy) has taken “entitlement reform” proposals—particularly those conditionally proposed by the Obama administration—off the table as well. And finally, the “wait and see” period we have entered with respect to implementation of the Affordable Care Act means we can now discuss long-term prospects for Medicare and Medicaid without assuming these programs are eternally defined by their present role in the “Obamacare” system.

We have asked a broad spectrum of progressive thinkers and writers to offer their thoughts on the future of entitlements. Some of these individuals are generally identified with a staunch defense of Social Security and Medicare as they are now, others fear entitlements violate intergenerational equity or threaten non-entitlement “investments.” What they all share, however, is a fundamental commitment to the preservation and strengthening of a robust social safety net as a central goal of progressive social policy. 

Aside from the light this forum may cast on the options facing progressives in maintaining a strong social safety net and the economic climate needed to sustain it, we also hope the forum will offer a model for an enhanced intra-progressive discourse. With the Obama administration soon to enter its final stage—and with progressives coming out of the defensive crouch conservative political tactics have induced—it is likely that we will soon witness one of those periodic “struggles for the soul” that occur when values, goals, policies, strategies and tactics are all under active discussion.

As we all know, such discussions have in the past occasionally taken on a bitter tone of recrimination and name-calling, and have also become associated with the agendas of individual politicians and organized factions. In keeping with the philosophy of the Prospect and the mission of the Strategist, we have sought to foster an atmosphere of civil and empirically-based debate in which no one is presumed to have a monopoly on the mantle of progressivism and no one attempts to score political points by decrying either excessive orthodoxy or incipient heresy rather than achieving persuasion by careful, reasoned argument.  

As a practical matter, after the initial essays in this forum have been presented, we will then entertain rejoinders and follow-ons from all participants—and if appropriate, from others. The forum will continue until all that’s worth saying has been said.  We hope you enjoy, and most of all, benefit from, this discussion of Progressive Perspectives on the Future of the New Deal/Great Society Entitlement Programs.

Having rolled the rock of entitlement reform up Mt. Sisyphus more than a few times over the last decade or so, I know it’s important to begin with the obligatories.  I prefer to define the challenge as “modernizing social insurance” but in truth such semantic fine-tuning doesn’t make the politics of reform easier.  Any suggestion that Medicare and Social Security need fixing touches the rawest of liberal nerves. It’s seen as sacrilege – literally, as Vice President Biden might say -- by votaries of the programmatic status quo. This quasi-religious fervor has never made much sense to me, given the utterly pragmatic and experimental spirit in which FDR conceived Social Security. Nonetheless, let me say for the record that I’m reasonably fond of Social Security, Medicare and Medicaid and, far from compassing their destruction, would like to see them reformed for the benefit of my children and theirs.

So what’s the problem? Leaving aside some lesser flaws and anachronisms – including the fact that the basic Social Security benefit isn’t generous enough -- the big entitlement programs present us with two large dilemmas. As currently structured, they squeeze out public investment and they create generational inequity. This post focuses on the former, economic problem, because it tends to get less attention than the distributional problem. Since the government’s resources are always going to be finite, it’s important that it strike a sensible balance between spending that supports present consumption and public investment that makes Americans more productive and competitive down the road. Today the balance is badly out of whack. 

Regardless of where they stand on entitlement reform, most progressives agree that jobs and economic growth should take precedence over austerity. What I think many are missing is the link between constraining the growth of social insurance costs and a stronger economy. America is stuck in a slow growth trap. Since 2000, the economy has averaged less than 1.8% GDP growth a year, its worst performance since before World War II era. The slowdown in job and GDP growth, as well as middle class wage stagnation, began before the recession-cum-financial crisis of 2007-2008.

The basic problem, in other words, is structural. Due mainly to lagging business investment and innovation, eroding competitiveness, and skill shortages, our economy has lost its productive mojo. Americans have grown accustomed to consuming more than they produce, and borrowing to make up the difference.  Federal spending priorities have reinforced this consumption bias. Since the 1960s, Washington has been channeling an ever-rising proportion of the revenues it raises into consumption, especially of health and retirement benefits, while the portion of the budget devoted to economic and social investment has shrunk.

Feeding this dynamic is the inexorable growth of automatic, formula-driven spending on older Americans. Such “mandatory” spending now accounts for 60% of the nation’s budget. Meanwhile, discretionary spending (excluding defense), has fallen to just 17 percent. (In 1962, the ratio was roughly reversed: Discretionary spending (including defense) 67% percent of federal spending, mandatory spending 26%.) With most of federal spending on autopilot, the domain of democratic deliberation, where our elected representatives debate the nation’s needs, decide which priorities are worth funding and figure out how to pay for them, keeps shrinking. Lawmakers oversee a dwindling portion of the nation’s income and outgo, most of which already has been pre-committed to the big entitlement programs by politicians who are long dead.   

I can think of many things to call this “crowding out” phenomenon, but progressive is not one of them. After all, domestic spending supports priorities liberals once fought and bled for. These include common goods like transport, water, and other vital infrastructure that supports economic growth; our national commitment to science and technology, perhaps our prime source of comparative advantage in global competition; and, the public education and training institutions that make “equal opportunity” more than a hollow slogan. Also being starved are progressive programs to help people lift themselves out of poverty, curb hunger, and expand early learning opportunities for families that can’t afford costly day care, not to mention environmental protection, public health and law enforcement.

Medicare and Social Security, which alone account for more than 37% of federal spending, are on track to absorb (along with interest on the debt) almost every dollar of revenue Washington collects over the next several decades. Meanwhile, the Urban Institute estimates that federal spending on children will decline about 20 percent over the next decade.  This growing disparity seems perverse at a time when poverty rates are higher for children than seniors (18 versus 14.8 percent in 2012, as measured by the Supplemental Poverty Measure). From the standpoint of investing in children and families, uncontrolled mandatory spending on seniors is like a fiscal version of the Doomsday Machine from Dr. Strangelove.

The fiscal skirmishing in Washington has aggravated this systematic whittling down of public investment. Since 2011, the Obama administration and Congressional Republicans have agreed to nearly $4 trillion in debt reduction over the next decade. Of the $2.7 trillion in savings thus far (excluding the effects of the odious “sequester” in future years), $1.55 trillion has come from spending cuts, $700 billion in new revenues from the fiscal cliff deal, and about $450 billion in interest savings. In other words, for every dollar in new revenue, lawmakers have cut spending by $2, and almost all of that has come out of the hide of domestic spending. 

This is the inevitable consequence of twin ideological obduracies – the GOP’s anti-tax fanaticism and Democrats’ denial of the need to align social insurance with the inescapable reality of an aging society.  And it suits conservatives just fine. Before the Murray –Ryan budget deal softened the sequester’s bite (for two years anyway) The Wall Street Journal’s Stephen Moore chortled over the sequester’s “success:”  

 

The sequester is squeezing the very programs liberals care most about – including the National Endowment for the Arts, green-energy subsidies, the Environmental Protection Agency and National Public Radio. Outside Washington, the sequester is forcing a fiscal retrenchment for such liberal special-interest groups as Planned Parenthood and the National Council of La Raza, which have growth dependent on government largess.

 

One reason enough Republicans voted to partially suspend the sequester is that it will also eviscerate defense spending. There was a time when the GOP identified itself as the part of national strength and “resolve” expressed through more military spending. Today Tea Party types and libertarians apparently feel more threatened by the federal government than by America’s enemies.

Of course, progressives could avoid a zero-sum conflict between entitlements and domestic programs by borrowing more money or hiking taxes. Unfortunately, either expedient collides with economic and political reality. More borrowing would propel the national debt to 100 percent of GDP and beyond, driving up interest and shrinking the “fiscal reserve” we’ll need to combat future downturns. Given the halting recovery, big tax hikes now are economically dumb as well as politically infeasible. Many liberals have convinced themselves that the entitlements can be made solvent as the boomers surge into retirement simply by raising the payroll tax. This is probably the least progressive “solution” imaginable. By making labor more expensive, it would discourage employers from hiring workers, especially young and low-skilled ones. And it would transfer more wealth from young workers to retirees.

What progressives ought to do instead is strike a more equitable balance between mandatory and domestic spending (if not eliminate the distinction altogether by bringing entitlements on budget). Yet when President Obama dared to endorse “chained CPI,” a more accurate inflation measure that would reduce cost-of-living adjustments for Medicare and Social Security recipients, he was instantly flamed by lefty activists. Declared Stephanie Taylor of the Progressive Change Campaign Committee:

 

You can’t call yourself a Democrat and support Social Security benefit cuts. The president is proposing to steal thousands of dollars from grandparents and veterans by cutting cost-of-living adjustments, and any congressional Democrat who votes for such a plan should be ready for a primary challenge.

 

Will Democrats allow themselves to be intimidated by such reactionary liberalism, as Republicans now cower before Grover Norquist and the Club for Growth? If progressivism means anything, surely it’s a commitment to adapting old policies and programs to new economic and social realities. As custodians of America’s venerable social insurance programs, progressives are responsible for ensuring they work for future generations as well as for past ones. Today that means making the Big Three solvent amid an unprecedented demographic bulge; rebalancing the intergenerational compact to avoid putting unjust financial burdens on the young; and shifting public resources from consumption – especially by well-off retirees – to investments aimed at accelerating growth and social mobility.  

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