How to Control Entitlement Spending

The government is having some trouble figuring out how best to control the growth of entitlement spending. I have the answer.

For millennia, responsible adults in the private sector have jealously guarded the secret of an ancient accounting technique called "budgeting." In 1804, J. Thomas Bagwell, who ran a small textile mill in Bristol, threatened to reveal this secret to the government. The night before he set out for London, his home and mill were burned to the ground, with him and his entire family inside. His name was purged from all official records. He is now forgotten in all but the inner circles of the private sector, and his story remembered only in the form of whispered warnings of the fate awaiting anyone who dares to reveal their secrets.

So I bring you this information at no small risk to myself. But this is knowledge that the world desperately needs, and it's a risk I'm willing to take.

The way government currently does entitlement spending is to decide what it wants, and then beg, borrow, and steal* as needed to pay for it. This is backwards. Using budgeting, what we do is first figure out how much money we have, and then decide how to spend it. For example, if you decide you can afford to spend 5% of GDP on Social Security, and your payout schedule has you spending 6%, you reduce the payout ratio, raise the retirement age, impose means testing, or find some other way to stay within the budget.

Sometimes you might want to spend more than you have. That's a perfectly normal desire. The way responsible adults in the private sector handle this desire is simply to acknowledge that you can't have everything you want, and live with it. While this may sound strange at first, it's a technique that's served us well for millennia.

Another example: Suppose you can afford to spend 4% of GDP on Medicare, but under your current policies you're spending 5%. As with Social Security, increasing the age of eligibility or imposing means testing is one way. You can also cover fewer expensive treatments and on-patent drugs, increase premiums, or reimburse less (insofar as you can do this without losing too many doctors). It's that simple.

The cast of Saturday Night Live fields questions. I expect to see them taken off the air any day now, assuming I live long enough myself.


Update: It probably goes without saying, but of course I do realize that not everyone in the private sector budgets responsibly, especially not in the last few years. But responsible budgeting does dominate in the private sector, as evidenced by the fact that net private savings have been positive every year for the last 50, while net public savings have been negative for 34 of the last 50 years. See table B-32 here for details.

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budget is useless without honest book keeping

Half the spending is off budget. The US has nnot kept an honest set of books in the last 150 years.

Further, a half to a third of the US economy is under the table (untaxed) and this is how the voters must like it.

The only possible way to get an honest money system is to eliminate cash (folding) money and go 100% electronic transfer except for coins up to say $20 denomination. A briefcase could then no longer hold a decent sized bribe.

Further, I put in 30 years to get my (state) govt pension

Would you take it away?