Fellows with Friedman
Like many other governmental programs, federal entitlements were adopted for functional purposes but have had adversary effects. An entitlement program is defined as a “statutory mandate or requirement of the United States to incur a financial obligation unless that obligation is explicitly conditioned on the appropriation in subsequent legislation of sufficient funds for that purpose.” In other words, entitlement programs are those that guarantee benefits to any individuals who meet the eligibility criteria, regardless of need. Typical entitlement programs include Social Security retirement and disability insurance, veterans’ pensions and health care, Medicare, Medicaid, unemployment insurance, Temporary Assistance to Needy Families (TANF), food stamps, Supplemental Security Income (SSI), the earned-income tax credit, and the Affordable Care Act’s health insurance subsidies.
While these programs were created to assist individuals who are destitute through no fault of their own, the programs increasingly have become inefficient and costly. Entitlements have also grown over time because of a force John Cogan calls “the equally worthy claim,” where eligibility for benefits continually expands until programs no longer resemble their initial, honorable intentions. Neither tax revenues nor revenues generated by the national economy have been able to keep pace with the rising growth of such benefits, bringing the national debt to a record peacetime level.
In The High Cost of Good Intentions, Cogan provides a comprehensive history of these federal entitlement programs. Combining economics, history, political science, and law, he reveals how the creation of entitlements brings forth a steady march of liberalizing forces that cause entitlement programs to expand.
The following video also provides an overview of entitlement programs and their cost.
Governmental involvement in public programs is not the only issue. Russ Roberts contends that if not for mistakes made by the government, housing prices could have remained stable. According to him, “the fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What's missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.”
Not only that, the government has had a history in raising housing prices. In 1992, Congress pushed Fannie Mae and Freddie Mac to increase their purchases of mortgages going to low- and moderate-income borrowers. However, Fannie and Freddie failed due to bad business decisions and insufficient capital. Fannie and Freddie also had only one line of business, which was residential mortgage finance. As such, they did not have other sources of income to compensate when home prices began to fall. They lost a combined $47 billion in their single-family mortgage businesses and were forced to dig deep into their capital reserves.
While Fannie Mae and Freddie Mac have survived, they have a very long way to go to further improve their finances. To learn more, read “How Government Stoked the Mania.”
One of the most disturbing trends in the United States is the relentless concentration of power in the federal government. Ever since the New Deal, the classical liberal vision of limited government and strong property rights has taken a back seat to a progressive vision of a robust administrative state, dominated by supposed experts whose powers are largely unimpeded by legal constraints. Wholly apart from Congress, the new administrative state has adopted and enforced its own laws and regulations, and is defined by unilateral actions by the president and other members of the executive branch, all of which threaten the system of checks and balances built into the original constitutional design.
To learn more, read “The Perils of Executive Power,” available here.