On Valentine’s Day 2012, I first wrote about how the entitlement mentality is destroying America.
I know, I know. I’m such a romantic.
But it’s a serious issue. It’s no walk in the park. It’s a long-burning housefire that needs to be addressed before we pass out from smoke inhalation. It’s been more than five years since I first sounded the alarm. And it’s still a problem. A potentially devastating one that’s only getting worse by the day.
Little has changed in half a decade. The US government’s biggest role is still robbing Peter to pay Paul (and take a sizeable cut of 21 percent of GDP along the way). The US government’s entitlement programs—from the mighty Social Security and Medicare, down to food stamps and spending on the arts—are closing in on 70 percent of Uncle Sam’s spending. Add in interest our increasing debt, and very little of what the government spends money on goes to actual governing.
The problem is that it’s unsustainable. And even with the pro-business rhetoric of Donald Trump at play, it’s not likely to change anytime soon.
Trump’s words are admirable. Getting the country back to work is important. Change starts at the top, and he’s a far cry from his predecessor on the issue. But… there are a lot of headwinds to any meaningful change.
One of the biggest, and most off the radar, will be institutional resistance to change. Bureaucrats, and even many elected officials who don’t like where the wind is blowing don’t want to give up power. Of the two groups, bureaucrats are worse. They’re unelected, largely answer just to immediate supervisors, and have no incentive to care for government reform unless it gives them more power, not less.
Consider the Supplemental Nutrition Assistance Program—i.e., food stamps. Food stamp usage more than doubled in the past decade as millions were thrown out of work entirely or ended up in lower paying jobs and needed help to make ends meet. In the Great Depression, we had bread lines. In modern times, we have plastic cards to swipe that look like a credit or debit card. It’s a significant problem, but the government has made it a well-hidden one.
Trump’s budget proposal whacks $200 billion off the program. But that’s only a 25 percent reduction according to the Washington Post. And it’s not even a real cut, it’s a decline in growth of future spending. That’s what they call a cut in Washington.
In other words, even if Trump gets his moderate “cut” in, the program will still be bigger than it was 10 years ago, and will likely simply continue growing in size from the lower cut. It’s like cutting off a limb from a fast-growing tree. It might look good briefly, but it doesn’t affect the overall size.
Again, that’s if that level of cut gets through in the first place. We’ll likely first hear an outcry from the bureaucrats. And the media will be rife with stories about children starving in the streets.
In my view, however, the biggest and most pervasive issue is the entire concept of entitlements to begin with. It’s the slipperiest of slippery slopes. It’s the idea that the world somehow magically owes you scare economic resources without having to pay for them—in everything from food to housing to healthcare.
While many of the country’s entitlement programs involve some payouts now for a payback later— particularly Social Security and Medicare—they’re not sustainable without a growing population of younger workers supporting small number of beneficiaries. But we’ve gone from 40 workers per retiree to just over two thanks to aging demographics. And we’re just starting with the retirement of the Boomer generation. The door has closed to make major reforms that would be the least painful to the economy.
Can Trump still save things? Possibly. He’s willing to think boldly, and outside the traditional political boxes. That’s a good thing for making meaningful change, whether you agree with his politics or not. Donald Trump is a bit like a modern-day Midas—every property he has touched has turned to gold. Often, literally, as part of his style and brand.
The problem is that now he’s running the Executive branch. And the government is the anti-Midas. Everything it touches turns to garbage. Government run housing has created some of the worst ghettos in history. Government involvement in healthcare has caused a phenomenal surge in costs while other areas, like technology (nearly purely capitalistic thanks to low regulation) see prices go down. Trump can whack away here and there, but the swamp will likely prove draining on his energy rather than the other way around.
It’s not just with programs for individuals, either. The older an industry gets, the more it will be boxed in by regulations, until only a few names operate. Consider the airlines. The profitability of US firms is dominated by one factor alone: the government won’t let foreign airlines fly domestic routes. Choices are limited, and at some airports at the mercy of a near-monopoly.
Fares remain cheap, but airlines have figured out how to charge extra for just about everything (coming soon: a pressurized air fee). As a result, the airline companies look like capitalist organizations, but they’re regulated so much they’re essentially a utility. The government will even bail them out from time to time, most notably after 9/11.
In the meantime, the best way to avoid catastrophe is to invest in what few pockets of innovation are left. It’s no surprise that investors are scrambling into high-tech companies like Apple (AAPL), Google (GOOG), Facebook (FB), Amazon (AMZN), or Tesla Motors (TSLA).
Whether these companies succeed or fail, they’ll at least have the flexibility to do something different and with fewer burdens along the way until they are successful. And when these companies stop being successful, others will take up the reins. Investing in innovative companies with the fewest regulatory burdens gives you the best chance for huge returns over time. Investing in utility stocks will give you more predictable, but far lower, returns.
We still lead the world in innovation, and likely will for some decades to come. But we’re going down the path that many other nations, particularly in Europe, have gone. America was born to be something different. But the temptation of providing something for nothing has proven to be too great.
So, yes, the entitlement mentality is destroying America. It’s not being reversed quickly enough. There won’t be a single day or incident to point to and say that’s when America died. But the day is coming.
Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.
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