The Shocking Truth on Entitlements

Entitlement spending is the highest in history, and both parties are to blame.

Retirees are likely to get smaller monthly payments using this new measure of inflation
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Do you enjoy a meaty page turner you can really sink your teeth into? Forget the Twilight series. Need some winter reading that will really get you hot and bothered? Never mind Fifty Shades of Grey. I've got something even more riveting for you—A Nation of Takers: America's Entitlement Epidemic (Templeton Press, 2012) by economist Nicholas Eberstadt of the American Enterprise Institute. It's a quick read and, seriously, it will get you hot under the collar. Just as the Daily Beast did a "speed read" of the 14 "naughtiest bits" from Fifty Shades, here are Eberstadt's most shocking facts on entitlements:

[See a slide show of five shocking facts about entitlements.]

Spending on entitlements is the highest in American history. In 2010, entitlement spending had grown to be almost 100 times higher than it was in 1960; it has increased by an explosive 9.5 percent per year for 50 straight years. Entitlement transfer payments to individuals (such as for income, healthcare, age, and unemployment) have been growing twice as fast as per capita income for 20 years, totaling $2.2 trillion in 2010 alone—which was greater than the entire gross domestic product of Italy and roughly the same as the GDP of Great Britain.

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In 1960, entitlement spending accounted for less than a third of all federal spending; in 2010, it was just about two thirds of government outlays, with everything else—defense, justice, all the other duties of government—making up less than one third. Over the last half-century, income-related assistance (which we used to call "welfare") multiplied more than thirtyfold after adjusting for inflation. The most shocking growth has been in Medicare and Medicaid. In the early 1960s, neither program existed; by 2010, these two programs cost more than $900 billion a year.

More Americans rely on government handouts than ever before. The United States is on the brink of disaster now: Half of all American households currently receive transfer payments from the government. According to the Census Bureau, only 30 percent of American households in the 1980s relied on any public assistance.

The proportion of Americans accepting antipoverty aid has soared over the last 30 years. As of 2009, roughly 4 percent of Americans lived in public housing; 6 percent lived in households receiving means-tested cash assistance; 11 percent accepted food stamps; and almost 25 percent received Medicaid. As of 2009, Eberstadt estimates that a stunning 45 percent of all American children were receiving means-tested government aid.

[See a collection of political cartoons on the budget and deficit.]

Out-of-control entitlements are a major threat to national security. Adm. Mike Mullen, former Chairman of the Joint Chiefs, famously warned that our national debt is the biggest security threat we face. What he didn't say is that government spending on entitlements not only exceeds defense spending these days, it completely overwhelms it. In 2010, America spent well over three times as much on transfer payments to individuals than it did on its entire national security budget—including on both wars in Iraq and Afghanistan. If current trends continue under President Obama, entitlement spending is set to increase by more than $700 billion over the next four years; the current national cost of all defense and security programs is roughly $700 billion as well. That means it will take only one presidential term, Eberstadt writes, for the growth of entitlement spending to absorb the entire defense budget of the United States. (Is it warm in here or is it just me?)

The explosive growth in entitlement spending, while well-intentioned and in many cases necessary, is bad for the economy and our workforce. Because many government benefits to individuals are in the form of cash, the share of government transfers as a percentage of personal income has grown over the last four decades, which means people are actually earning less of their incomes. Public assistance for retirement, income maintenance, and unemployment insurance has made it possible for a smaller percentage of adult men to be working today than at any time since the Great Depression. We can argue about which caused which, but the fact is that the growth of entitlement spending has coincided with an unprecedented decline in the number of working adult men over the last several decades. In fact, last year more Americans received a steady income from public assistance than were working in the construction, transport, and warehousing or information technology industries. In 2010, more Americans were getting disability checks from the government than were working for any U.S. manufacturer. (I'm thinking your blood pressure is going up now.)