## Review for *Democracy* of Nicholas Eberstadt (2012), *A Nation of Takers: America's Entitlement Epidemic* (Washington: American Enterprise Institute: "New Threats to Freedom" series)

Review for Democracy of Nicholas Eberstadt (2012), A Nation of Takers: America's Entitlement Epidemic (Washington: American Enterprise Institute: "New Threats to Freedom" series):

If there was a moment when Mitt Romney lost the presidential election, it was the moment in mid-May when he stood up in front of the $50,000 a plate audience at Sun Capital honcho Marc Leder's place in Boca Raton and said: [The] 47%… dependent upon government... believe that government has a responsibility to care for them... believe that they're entitled... people who pay no income tax... my job is not to worry about those people. I'll never convince them that they should take personal responsibility and care for for their lives… This is what Mark Schmitt calls "the theory of the moocher class". And Romney is all-in with it. In July he boasted: the NAACP... weren't happy.... That's OK.... If they want more stuff from government tell them to go vote for the other guy--more free stuff... And after the election he ranted about Obama's "gifts" to African-Americans, Hispanics, young people--especially young women--etc.: "the President’s campaign focused on giving targeted groups a big gift... [that] add up to trillions of dollars." Those of us whoknow the numbers, or who simply live in America and look around, know that the 47% are by and large not "moochers". By and large they do not lack work ethic. They do take personal responsibility for their lives. They are not the Democratic base--more than half of the 47% who pay no income taxes are the elderly white and southern white low-income voters who voted for Romney by substantial margins. So how does a Mitt Romney, along with his peers and all their staffs, become convinced that 47% of Americans are the moochers, the takers, dependent on "free gifts" from the government, lacking work ethic, lacking personal responsibility, the Democratic Party base? Enter Nicholas Eberstadt of the American Enterprise Institute with his contribution to its "New Threats to Freedom" series: Nicholas Eberstadt (2012), A Nation of Takers: America's Entitlement Epidemic (Washington: American Enterprise Institute). At the bottom of the second text page he writes: The breathtaking growth of [personal] entitlement payments over the past half-century is shown in Figure 1. In 1960, U.S. government transfers to individuals from all programs totaled$24 billion. By 2010, the outlay for entitlements was almost 100 times more. Over that interim, the nominal growth in entitlement payments to Americans by their government was rising by an explosive average of 9.5% per annum for fifty straight years...

But that 9.5%/year number is not the right headline number.

Inflation averaged 4.0%/year from 1960 to 2010, meaning that real spending growth was some 5.5%/year. Real GDP grew at 3.1%/year from 1960-2010, and we would expect real spending to match our increasing resources. So the headline number should be 2.4%/year--not 9.5%/year. Moreover, one-seventh of our current transfers are the result of the downturn, as Barack Obama and company follow the advice Joseph gave to Pharoah: the government should spend more during lean years. That spending is appropriate, and temporary, and not at all worrisome on any level. In addition, 36% of federal transfer payments are health program--Medicare and Medicaid and SCHIP and WIC--that did not exist at all in 1960. If you worry about our becoming a nation of moochers--as Eberstadt does--you should put those to the side. Very few quit their jobs saying "I don't need to work, because government programs will pay my doctor and hospital bills". Very few abandon their pregnant girlfriends because their unborn children-to-be are eligible for federally-funded nutrition supplements.

The right number to keep in your head is cyclically-adjusted spending on non-health government transfer programs as a share of potential GDP. That is the spending that might conceivably turn us into a nation of moochers. And that number is a growth rate of 1.2%/year.

So why lead with the nationwide nominal spending "9.5% per year" growth rate?

I can untangle the issues. I can correct the 9.5%/year number down to the 1.2%/year number that should have been presented. I can do this in five minutes.

But Mitt Romney--and his peers, and their staffs--cannot.

Mitt Romney has been working 90 hours a week for the past six years. He has been running for the office of President of the United States. He has spent roughly 1/3 of his time raising money and assembling his social-political network. He has spent roughly 1/3 of his time managing his campaign operation and refereeing fights among members of his staff. He has spent 1/3 of his time--30 hours a week--trying to learn and keep up with the substance of major national policy issues. The shape and functioning of America's social insurance programs is one of perhaps 15 major issue areas. So Mitt Romney has spent about two hours a week on it.

During those two hours a week, Romney (and his peers, and their staffs) have seen numbers and charts like those headlining Eberstadt's Nation of Takers thrown at them over and over again--increases from $24 to$2300 billion a year in entitlement spending, 100-fold growth, 9.5%/year, doubling every eight years. But then Romney (and his peers, and their staffs) go on to the other 15 issue areas, and to growing the social-political network, to fundraising, and so forth. What sticks is that growth in federal government transfer programs has been enormous. What sticks is that there has been a huge redeployment of resources that have been taxed away from America's makers and given to America's takers.

So is it any wonder that Romney (and his peers, and their staffs) deeply believe in their hearts of hearts that America has become a nation of moochers?

Late nineteenth-century British politician Robert Gascoyne, 3rd Marquess of Salisbury, withered one of his critics in the House of Lords with the observation that:

a great deal of misapprehension arises from the popular use of maps on a small scale.... [P]ut a thumb on India and a finger on Russia... [and] at once think that the political situation is alarming and that India must be looked to..." But, he went on, if the noble Lord would look at a more detailed map or try to travel from Moscow to Delhi...

Nicholas Eberstadt (and his peers) have led Mitt Romney (and his peers, and their staffs) to fall victim to an analogous misapprehension. What Romney needed to know was that:

• the real shift over the past fifty years has been the growth of the health-care programs
• few quit their job to join the slacker hordes because the emergency room at the local safety-net hospital has added an MRI machine and will, as mandated by EMTALA, stabilize them if they show up at its door.

But Romney (and his peers, and their staffs) do not have the time to dig deeply into the numbers himself, and did not have the inclination to get straight shooters like Peter Diamond or Henry Aaron or William Gale to give him his briefings. After looking at all those rapidly-rising lines and rapidly-growing spending programs, concluding that we have become a nation of moochers is the only logical deduction Romney (and his peers, and their staffs) could make--the poor S.O.B.s.

But, for reference, here is the real briefing Mitt Romney should have gotten:

The real briefing would have started with the observation that the American government spends a huge amount of money transferring resources from some members of the middle class to other members of the middle class: unemployment insurance, Social Security, Medicare, and (increasingly) Medicaid (which every day shifts more from a program focused on the non-elderly poor to one spending a greater share oon the disabled and on the elderly who can no longer make their Medicare copays). It would note that the recipients of these social-insurance benefits do not think of themselves as moochers. They paid into the system or they would not be receiving unemployemnt insurance. They paid into the system or they would not be receiving Social Security: they believe that they earned those benefits--and in large part they did (it is not their fault that the Social Security lockbox set up by Clinton was raided and emptied--that is, rather, the fault of George W. Bush and his Republican allies).

In order for Nick Eberstadt's argument that America's moral fiber has been rotted away because people have received free stuff from the government to have any traction, people need to believe that they have received free stuff. And in the case of UI and Social Security, they don't. Similarly with Medicare: those receiving Medicare overwhelmingy paid into the system when they were younger (given how much we expect medicine to progress and how costly we expect that progression to be, they did not pay in nearly enough--but that is a problem at at right angles to Eberstadt's argument about the rise of the moocher class). The psychological insult administered to middle-class Americans by the knowledge that they have been receiving free stuff from the government is simply not there.

The real briefing would have continued with the observation that large-scale government social-insurance programs are the best way we have found to achieve major and important public purposes. There never has been a private marketplace offering unemployment insurance. The mandatory government UI program works quite well. Edward Filene's welfare-capitalist ideas that defined-benefit pensions provided by employers and more recent hopes that defined contribution 401(k)s could provide old-age pensions more efficiently and effectively than Social Security have not covered themselves with policy glory over the past generation. In health care, the private insurance marketplace works--with extraordinary administrative inefficiencies and little ability to improve quality and cost-effectiveness--unless you are (a) old, (b) sick (and happen to lose your job working for a large bureaucracy), or (c) poor. Yet it is the old, the sick, and the poor who need health insurance--the young, the healthy, and the rich almost by definition do not. Hence Medicare and Medicaid. I don't think you can claim the broad middle-class to middle-class social-insurance programs don't provide appropriate value for the money. There are substantial bureaucratic and policy inefficiencies in the social-insurance programs. We need bold future experimentation to try to find better models and mechanisms to satisfy those important public purposes. But worrying that they turn us into a nation of moochers--that dog doesn't hunt.

How about those programs in which the less money you make the more you receive--the ones that really do provide incentives to work less and collect more? Few of any political stripe think that our nutrition programs--food stamps, now SNAP, and the others--fail to deliver value for the money. But public disability insurance is a mess. And welfare proper--what was AFDC and is now TANF--is an underfunded mess. Could they be turning us into a nation of takers?

The real briefing would have ended by doing the math, and finding that our cyclically-adjusted spending on traditional safety-net programs has risen from 1.1% of GDP in 1960 to 1.5% of GDP today. That is a substantial increase. These programs do make it markedly less painful to be poor in America. And their increase is in large part the result of a bipartisan policy to extend the safety net to cover the low rungs of the working poor as well as the non-working poor. Is that rise--a bipartisan policy, promoted as much by Ronald Reagan and George W. Bush as by Bill Clinton--a "new threat to freedom"? To ask the question is to answer it: it is too small an increase to be a plausible Destructor of the moral foundations of American society.

Recognize that what terrifies Eberstadt is not the programs where how much you receive goes down when your income goes up. What terrifies Eberstadt is that he sees the U.S. at a tipping point:

a symbolic threshold... more than half of all American households receive, and accept, transfer benefits from the government. From cradle (strictly speaking, from before the cradle) to grave, a treasure-chest of government-supplied benefits is open for the taking... exercising one's legal rights to these many blandishments is now part and parcel of the American way of life... the great American postwar migration to general entitlement dependency...

But that is not what Social Security does any more than any pension program, or what Medicare does any more than any health-insurance program, or than unemployment insurance does more than any other income-insurance program, public or private.

Why does this book get it wrong?

One reason, I think, is that the book does not fully understand the origins and growth of America's social-insurance system. The initial 9.5%/year headline number instead of the correct 1.2%/year headline number made me fear that the bok did not have control of his subject. And that fear was reinforced when I got to the bottom of the fourth text page to read:

The Bureau of Economic Analysis... identifies only two calendar years before 1960 in which federal transfer payments exceeded other federal expenditures: in 1931, with President Herbert Hoover’s heretofore unprecedented public relief programs...

The 1931 federal transfer payment bulge is, predominantly, the Congressionally-mandated early payment to World War I veterans of up to half of their service bonus. It wasn't "Hoover's": Hoover had vetoed it, and had then been overridden. Moreover, it is only a "public relief program" in a very peculiar and partial sense: the government is giving World War I veterans early access to money that was already theirs. Those who took the bonus offer were glad to get it. But they were glad in the sense that you are glad that a buyer comes along willing to pay you market value for the house you are trying to sell, rather than in the sense that you are glad when a previously-unknown distant relative leaves you a bequest.

A second reason, I think, is that the book does not fully understand the structure of America's social-insurance system. I read:

The adverse influence of transfer payments on family values and family formation in America is one of those critical consequences... that had already attracted comment... before Charles Murray's seminal study, Losing Ground.... AFDC and its allied benefit programs had... become a vehicle for financing single motherhood and the out-of-wedlock lifestyle in the United States.... Before the age of entitlements, self-reliance and the work ethic were integral and indispensible to the idea of manliness.... The dignity of work no longer has the same call on men...

And I think: AFDC--Aid to Families with Dependent Children--has been gone for 15 years now. The replacement of AFDC with TANF, the EITC, and the CTC created a low-income support system that is not vulnerable to Murray's Losing Ground critique: it does not make you richer the less you work. Why does the book think that it still does, and so speak of the "adverse influence of transfer payments on family values and family formation"? Moreover, the end of AFDC did not bring even a temporary or partial reversal to the growth of the "out-of-wedlock lifestyle". Shouldn't that failure have given at least some pause those who were so certain in the 1980s that AFDC was the major factor?

Nicholas Eberstadt's A Nation of Takers is but one of a number of books making similar arguments coming out of the American Enterprise Institute these days: consider Charles Murray's Coming Apart: The State of White America, 1960-2010, and AEI President Arthur Brooks's The Battle and The Road to Freedom. I do not think any of them shed much light on the problems and opportunities of American governance. But they have already had a major impact on America.

Few think tanks can justly claim that their writings' influence on their presidential candidate may well have led him to say things that diselected him.