Entitlement Spending In Historical Perspective Essay Samples
Type of paper: Essay
Topic: Government, Finance, Investment, Politics, Economics, Growth, Budget, Money
The federal budget funds are targeted to provide social guarantees for US citizens and maintain sustainable development through economic growth. While the free market creates equal possibilities and competition that encourages companies to operate more efficiently by producing high-quality goods and providing top-class services, the prosperity of business does not always creates the background for the country’s development. Private business tends to invest in the most profitable projects. Therefore the government directs budget investments in the prior industries that are considered to be gainless or low-income by private entrepreneurs.
According to Perez et al. “periods with high levels of investment experienced higher growth, and as investments declined, so did our economy’s rate of expansion”. Government investments have the long term or even permanent effect. The most common example is the process of building the railroads all over the country during the nineteenth century which eventually gave a 15 percent boost to the US GDP in consequent periods.
Taylor in his article “Entitlements, Public Investment, and the Changing Nature of the U.S. Government” states that the structure of the budget structure has significantly changed over the last decades leaving less space for government investments programs. He claims that the share of investments in the structure of the Federal Budget has declined from more than 30 percent in 1960s to less than 15 percent in recent years, and continues to decrease. At the same time the share of major entitlements has increased from 10 percent to almost 60 percent in the same period. Basically, the US government has focused on the social aspect of economy while putting off the strategic development. The silver lining is that government entitlements majorly composed of retirement payments, Medicare and Medicaid programs, contribute to the overall level of the nation’s wealth and prosperity. However, government investments represent the foundation for future economic growth stimulation whereas entitlement payments relate to current outlays that cover current expenses of socially unprotected layers of society, so basically all entitlement payments finally add up only to consumption.
Perez et al. present the statistics that all major investment budget items such as R&D projects, educational and infrastructure programs have been curtailed over the last decades by several times. The level of government investment has fallen from 6 percent of GDP in 1962 to 2 percent in 2014 while the entitlement spending has increased from 2 percent of GDP in 1962 to almost 14 percent in 2014 (Perez et al.). Eventually, the growth of government entitlement payments has outpaced the growth of GDP by several times. To put it another way, the consumption of individuals secured by entitlement programs has disproportionally increased while providing no benefits to the US economy.
A nation that consumes more than it can afford today will have to cut down the consumption for future generations which eventually creates the economic burden for the latter. Moreover, there are another two reasons for that to happen. Firstly, the consumption-concentrated budget does not provide the sufficient amount of investments to guarantee sustainable economic growth in future which eventually leads to budget deficits and the increase of the national debt. Secondly, generous entitlement payments ensure individuals that the government will always take care of them. This psychological factor stimulates unemployment level and decreases labor efficiency in terms of the nation.
Disproportionally large entitlement spending imposes economic burden on the next generations of tax payers and discourages economic growth. The only right way to solve this problem is to reduce the number of entitlement programs and make some important changes in the existing ones. However, such unpopular changes can meet active social resistance as they will result in reduction of benefits of a significant share of society and create public tension. In such conditions the best decision is to reform the Medicare and Medicaid programs as being the most expensive while highly inefficient and widely criticized. No wonder that the US government is actively working on presenting the substitute for Medicare and Medicaid programs in recent years.
Taylor, Timothy. "Entitlements, Public Investment, and the Changing Nature of the U.S. Government." CONVERSABLE ECONOMIST. 2 Aug. 2012. Web. 13 Apr. 2015. <http://conversableeconomist.blogspot.com/2012/08/entitlements-public-investment-and.html>.
Perez, Jessica, Gabe Horwitz, and David Kendall. "Collision Course: Why Democrats Must Back Entitlement Reform." 1 July 2012. Web. 13 Apr. 2015. <http://content.thirdway.org/publications/564/Third_Way_Report_-_Collision_Course_Why_Democrats_Must_Back_Entitlement_Reform.pdf>.