In the United States, the national debt now equals 100 percent of gross domestic product (GDP), and is still growing. With the retirement of the baby boomer generation, 78 million additional people will turn to the federal government for Social Security, Medicare and Medicaid benefits — roughly $40,000 per beneficiary per year, on the average. If we continue on the current course, the federal government will need to more than double the tax revenues it now collects by the time we reach midcentury, according to the Congressional Budget Office. At the same time the government prepares to take more of our income, it is also making it increasingly harder to earn that income. Additional taxes and regulations are raising the cost of labor, reducing the rewards for working and making the economy less productive than it could be.
Why are we having these problems? What can be done about them?
The main reason for the growth of government in the 20th century was the creation of programs designed to protect the middle class against certain risks. This took the form of social insurance against contingencies most people could not easily insure against on their own in the private marketplace. In the United States, the federal government provides an income, pays medical bills and covers a large part of the cost of long-term care for people during their retirement years. For people of working age, the federal government is insuring against disability and unemployment. State governments are also involved — forcing employers to insure workers for injury, death and disability on the job.
In almost all cases, government insurance is monopoly insurance, instead of a service that arose through competition in the marketplace. Government insurance is also subject to special interest political pressures that undermine its rational provision. As a result:
• Social insurance is almost always more expensive than it needs to be. Disability insurance in the United States and Europe, for example, is twice as expensive as private disability insurance in Chile. Both Medicare’s health insurance for the elderly and the disabled and Medicaid’s long-term care insurance cost about twice as much as well-designed private insurance should cost.
• Social insurance is impervious to consumer needs. Medicare, for example, covers many small expenses that the elderly could easily afford to pay for out of pocket, while leaving seniors exposed for thousands of dollars in catastrophic costs. Both Medicare and Medicaid prevent patients from adding out-of-pocket expenses to the government’s fees in order to purchase timelier, higher quality care.