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Context From The Talk

John Cogan Tells Us How To Think About Entitlements

Entitlement Programs

So here's a way to think about it for these entitlements. When an entitlement program is created, what it's doing is taking money out of one person's pocket and putting it into another person's pocket. The economic effect of that is a little bit ambiguous, but one thing we know is that when you impose a tax on work, you're going to tend to get less work. When you give an individual a benefit for retiring, that individual is going to retire a little bit earlier. 

From a pure economic standpoint, the way I've thought about these entitlement programs is they, through their financing and through their benefits, have adverse incentives for the economy. That doesn't mean that they're bad programs. There is a humanitarian purpose in these programs. Preventing poverty in old age is a noble goal. So you balance the economic harm that's done by these transfers against the value of that benefit to individuals and to society from fulfilling a humanitarian goal. That's the way I've come to think about entitlements.

But it's hard to argue that this transfer of money from one to the other person is somehow a net benefit to society. One can make a case, but it's very, very hard to show with any data that these programs actually benefit the overall economy. Especially if you read my introductory chapter in my book “The High Cost of Good Intentions” where I point out just who is getting the benefits. 54% of the population is receiving at least one entitlement benefit. Only 20% of all entitlement benefits now go to alleviating poverty. 

If you get rid of Social Security and Medicare, take them out of the equation, just look at the under 65 population. 40% of the under 65 population are receiving some entitlement benefits. It's sort of lost its rhyme or reason. We're not redistributing money through the entitlement system all that much from rich to poor. The reason for that is primarily these big social insurance entitlement programs, Social Security and Medicare. Both of those programs give you benefits solely because you reach a particular age and you have a particular work history, not because your income is low. But benefits that get distributed by Medicare and Social Security are independent of your income. They go to the rich and they go to the poor.


John Cogan, 2017 Hoover Institution Summer Policy Boot Camp