According to the American Society of Civil Engineers, the United States needs to invest $3.6 trillion to return our roads, airports, bridges, schools and parks to good repair by 2020. $3.6 trillion is only slightly less than the annual budget of the federal government. How did the Country that won World War II and the Cold War, the biggest economy in the world, the Country that still embodies the hopes and dreams of all mankind reach a point where 20% of its bridges are structurally deficient, and airports and city streets resemble those in third-world countries?
The answer lies in the fact that we have diverted funds increasingly toward entitlements and away from projects designed to improve our highways, bridges, airports and mass transit facilities, what the government calls “discretionary” projects, no matter the urgency. Social Security, Medicare, Medicaid, other healthcare programs, welfare and other entitlements comprised 60% of 2013 federal spending. Interest expense took another 6%. Were interest rates at their post-World War II average, interest expense would have been closer to 15%. That would place mandatory spending at 75% of federal government spending. Sometime between 2030 and 2040 it is expected that mandatory spending will exceed federal revenues. When the highway program was instituted in the 1950s, mandatory spending was about 30% of total spending. That difference – 36% to 45% of our annual budget – represents about $1.5 trillion.
This is not an argument suggesting we forego all public assistance. We should not. But today government gives money not just to the needy, but to many who would be better off with less assistance, those who can work and care for themselves. Why should a resident of Connecticut, for example, take a minimum-wage job when state and federal aid pays twice what they would earn?
Two decades after the end of World War II, the United States was feeling flush. As a nation, we were rich. The Eisenhower highway program had made us connected as never before. We had the largest economy in the world and the highest standard of living among all nations. Lyndon Johnson inherited the Presidency following the assassination of President Kennedy. While he vigorously pursued the Vietnam War, his real interest lay in his vision for a “Great Society.” He wanted the state to assume a bigger role in the caring for those less able to care for themselves. The concept of a safety net had been devised earlier, with Social Security in 1933. The “Great Society” expanded government’s role, with the additions of Medicare, Medicaid and other social welfare programs. In an era of “guns and butter,” too little attention was paid to the long-tail costs of such programs; too little attention was paid to the inhibiting nature of a government that has since become an even bigger part of GDP, and too little attention was paid to the deleterious effect of such programs on the able-bodied.
It has been widely known for years that we would be facing a cash crunch in programs such as Medicare, Medicaid and Social Security. Attempts at reform never got off the ground – they are referred to as the “third rail” of politics. However, the precarious nature of our nation’s financial condition can no longer be ignored. Cash deficits are expected to grow dramatically. Ratings on U.S. Treasuries were lowered one notch by S&P in August 2011. According to the Congressional Budget Office (CBO), both Medicare/Medicaid and Social Security will be in deficit by fiscal 2019. The Highway and Mass Transit Trust Funds, which are already operating at deficits, have only survived because of transfers from general funds.
As the Country moved increasingly leftward, generous contractual agreements for healthcare and pensions were offered municipal and state workers. With the Affordable Care Act, we have moved further in the direction of Western Europe. These were noble gestures, supposedly made with the best of intentions. (Though I suspect politics played a not insignificant role.) Besides allowing our infrastructure to deteriorate to Third-World levels, the unintended consequences have been manifested in two distinct ways. We made promises without providing the means to honor them and we have created a class of citizens overly reliant on the state. The former has forced some cities into bankruptcies and threatens the financial health of some states. The latter has been detrimental to the recipients in terms of diminished self-respect and abandoned aspirations. Mayor de Blasio’s settlement with (or payoff to) the New York City’s teacher’s unions is a case in point. It is structured so that tax payers in 2019 and 2020 will be paying for work done in 2009 and 2010. By then, de Blasio will be gone and the burden of finding the funds will fall on the shoulders of a new Mayor.