June 29, 2001
Is More Always The Answer for Social Programs?
"Programs for the poor are poor programs." I'm not sure who to attribute that expression to, but there's little doubt what it means. Programs for the poor run by government at all levels -- from the Federal government all the way down to townships -- are perpetually starved for resources. That's why you have to admire the genius of those who designed the biggest social welfare program on the planet, Social Security. Even though it was founded on the premise of helping the poor, it opened its doors to every working American. The fact that everyone, not just the poor, could participate led to its meteoric growth and, within a few short decades, its political invulnerability.
That lesson has hardly been lost on designers of programs created since that time. Thus we have farm support programs aimed at helping small family farms paying millions to large agribusiness corporations, unemployment compensation programs paying factory workers during scheduled summer shutdowns, and older Americans with millions of dollars of assets receiving payments for routine medical care. That fact that so many of us, rich and poor alike, "belong" to one or more of these programs gives them a political base that makes them all but untouchable.
But that popularity also creates inefficiencies, distortions, and tremendous bureaucratic inertia. Because they offer universal coverage, programs like Social Security and Medicare are doing much more than simply taxing the rich to support those of more modest means. They are also taxing people of modest means to pay for each other's needs. Even under efficient administration, the overhead associated with conducting these trillion dollar transactions is immense.
What is most disturbing to economists, however, is the "dead zone" universal entitlement programs place between their participants and the realities of the marketplace. Signals sent by the market -- which would ordinarily guide the economy to a more sensible distribution of resources -- never get through to us as we make our decisions about what to produce and what to buy. Thus in a market glutted with dairy products, price supports cause farmers to produce more milk. And huge increases in prices for many prescription drugs have done little to curb demand, thanks to the coverage offered by many health plans.
Of course, every worthwhile social program, from food stamps to tax refunds, imposes some kind of distortion on the market economy. But when the programs grow to nearly half a trillion, those side effects can be as bad as the original disease. There is little doubt, for example, that Social Security has caused Americans to save less on their own, reducing the pool of resources available for investment, or that unemployment compensation increases employment in seasonal industries.
The feeble voices of a few economists are likely to go unheard in the coming weeks, however as the Democratic leaders of the U.S. Senate take up the so-called patients' bill of rights legislation in Washington. Should HMO's and other health plans be required to allow their patients to direct access to medical specialists, to include contraceptives in prescription drug coverage, or to extend limits on hospital stays? As an affluent and caring society, we certainly ought to assist those who are unable to meet essential medical needs. But some of the rhetoric in Congress suggests that the only way for us to keep needy families afloat is to raise the Titanic.
About the Author
Bank Failures Warn of Deeper Economic ProblemsDuring the Great Recession, a whopping 0.014 percent of banks were closed by the FDIC.
Remote Work Through the Eyes of Three 20-SomethingsRemote work is here to stay.
Remote Work and Labor MarketsThere are more remote workers today than there are immigrants in the U.S.
The Amish in IndianaIt is hard not to draw similarities between the Amish and newer immigrant groups.View archives