The High Cost of Good Intentions – A Book Review

By Henry Oliner

The High Cost of Good Intentions- A History of U.S. Entitlement Programs by John Cogan may be the first comprehensive look at the growth and dynamics of this government function.  It is meticulously researched and documented, yet remains digestible for the nonacademic policy wonk.

There is a sense of balance from the endorsements on the back cover:  Alan Greenspan, George Schultz, Sam Nunn, Bill Bradley and Paul Ryan all lend their praises for this book.

There is recognition for the good the government has accomplished to help the poor and disadvantaged, but a sobering look at the failures to maintain fiscal prudence in their administration and funding.  Historical perspective illuminates problems that are repeated, the difficulties in controlling new programs, and the seduction of expanding benefits as a political strategy.

Beginning with the Revolutionary and Civil War Pensions there is a tendency to expand a program soon after its inception.  This expansion becomes a new base for further expansions.  The expansion comes from expanding the value of the benefits and the eligibility; the multiplier effect increasing the total dollar cost dramatically.

Once a target group is identified a sense of fairness drives an expansion of the eligibility requirements. First benefits are directed to those physically injured in battle, then expanded to those injured outside of the battlefield.  Soldiers suffering from other illnesses are included, and then soldiers falling on hard times after their service are deemed worthy. In the 19^th century and after WW I all veterans were considered a special class worthy of government benefits. On the eve of WWI veterans benefits, mostly from the Civil War, consumed 20% of federal spending.

A budget surplus made veterans’ benefit expansion politically palatable. Surpluses in trust funds induced benefit expansion even if the general budget was not in a surplus.

In the 19^th century fiscal conservatives warned of the rapidly rising costs of these pensions but demagoguing these issues for political gain is as old as the constitution.  FDR, with the backdrop of the budget crisis of the Great Depression, was able to reduce veterans pensions substantially for the first time in our history.

FDR did not think that veterans should be entitled as a special class.  He began the expansion of social programs with Social Security in 1935, and it was expanded substantially in 1939.  As with the veterans pensions in the previous century this only raised the base for many increases to come.

The 20^th century saw three structural changes that unleashed benefit expansion. The first was the acceptance of Keynesian deficits as policy during economic downturns. Gone was the fiscal restraint of the previous periods. To be fair Keynes saw periods of deficits to be followed by periods of surplus; and never proposed long term growing deficits. But if there is one constant in Cogan’s book it is our inability to prudently protect and manage a surplus.

The second change was Supreme Court rulings that elevated benefits to the legal protections of property, making even small cuts difficult.

Benefit programs grew further from the New Deal to the Great Society of Lyndon Johnson.  Social Security was expanded to include disability.  Medicare, Medicaid, AFDC, Food Stamps and a host of other programs were added. The prescription drug benefit was added to Medicare under George W. Bush, and of course the ACA was the pinnacle of progressive entitlements, despite its controversy and flaws.

Early programs made cash payments that required very little administration. But concern was raised how the poor would manage cash payments and benefits became more supervised by case workers.  This created a third structural change of government proxies and workers with an interest in the expansion of entitlement programs. This added to the cost of the programs and with the beneficiaries created a powerful lobby to maintain the benefits.

There were only a few times when benefits were scaled back. FDR’s cut in veteran’s benefits was the first and Clinton’s restrictions on welfare qualification was another.  Reagan passed a law to review those receiving disability benefits, but a public outcry led to a near unanimous reversal.  Contrary to political stereotypes two of the biggest cuts in entitlements came under Democrats and two major expansions came under Republicans Nixon and George W Bush with the Medicare prescription expansion.

The result of this history is that entitlements have expanded far beyond assisting the poor. Many of the benefits go to beneficiaries far above the poverty line. Congress has proven totally untrustworthy in managing surpluses or trust funds or maintaining a sound financial basis.   The explosion in entitlements is the primary driver of the post-World War II debts.

Entitlement growth will have to be restrained, but neither party is likely able to withstand the demagoguery that slams even the mildest cuts. The population will not tolerate a tax increase strong high enough to fund it, and such a tax increase would create a spiral of economic stagnation accompanied by demands for greater public assistance. Cogan believes a tax solution would require a 33% increase on all federal taxes. The middle class would face a combined federal and payroll tax of 40%.

It may be politically unpalatable to address entitlement restraint after a corporate tax cut, but the two are not related. We need a balance of spending cuts and a pro-growth economic policy.

To protect these benefits for those who need them we must recognize and clarify their limits. There are those who pretend this problem is inflated, and those who think we can just tax the rich to pay for them.  This is mathless fantasy.  We must resist the demagoguery that will inevitably follow. This book is a great tool to bring reason and facts to the ensuring battle.