Last week, I came across an interesting CNBC interview with Alan Greenspan, former head of the Federal Reserve, who was discussing some of the economic challenges the country faces in the future. Mr. Greenspan is widely considered a preeminent economic expert and what he says can and often does move markets. In other words, when he talks, people listen. In this interview, he made a pretty shocking prediction about the national economy. He suggested that the burdens associated with financing entitlement programs would completely offset and eventually overwhelm the benefits associated with growth in the United States. Basically, he was saying that the social programs we have created will bankrupt the country such that new money coming in will not be able finance the promises we’ve made to people, which a scary prediction.
What are “entitlement programs” exactly? Basically, they’re promises government has made to people to ensure they receive benefits, which the government and the electorate have determined people are “entitled” to receive. You can also use the term “safety net.” It means the same thing. Social Security and Medicaid are two primary examples. Welfare, unemployment insurance, homeless shelters, SNAP, Pell grants, housing assistance, WIC, discounted phone service, SSI, earned income tax credits, child tax credits, and Head Start are other examples. Some of these programs are funded by the recipient’s contributions (e.g., Social Security, Medicare) whereas others are funded by the taxes collected by the government generally and are not based on contributions by recipients (e.g., welfare, Medicaid).
The challenges with many of these programs is that they are based on what is called a “defined benefit” strategy – that is, you will get a specific amount of money if you meet the program’s requirements. When the number of people who meet those requirements dramatically increase, the costs can skyrocket. This is happening with Social Security and Medicaid. As the Baby Boomer generation begins to collect in record numbers the amount being paid out of the system is not being replaced by enough new entrants to the workforce. If we believe Mr. Greenspan, that’s a recipe for national bankruptcy.
The politics around entitlements are obviously important considerations when it comes to discussions about reform. Nobody for example wants to tell seniors that their benefits are going to be cut. Nobody wants to tell hungry children that there’s no money for supplemental nutrition assistance. While the desire to avoid delivering hard news to struggling recipients is understandable, it’s not necessarily the best course. When asked whether the whole system had to break before any real reform of these programs would happen, Mr. Greenspan’s response was “Of course! That’s what the danger is. You don’t see these crises arising until it’s at your doorstep.” Simply put, not talking about the issue doesn’t prevent the problem.
How does that play out here in Mount Vernon? Everything that is playing out on the national stage is happening here too. You’ve heard the old expression, “all politics is local.” Well, all financial problems are local also. Some of these same issues with entitlements are beginning to pose real challenges to our city government as well. I’ll address some of these ideas in more detail in the coming weeks, but it’s important to understand that Mount Vernon is not immune from these problems. While our compassion for our fellow citizens may be infinite, our resources are finite. When that happens, we need to ask hard questions and make hard decisions.
That’s where Sweden comes in. Sweden has one of the most far-reaching concepts of a “safety net” of any country in the world. But in the 1990’s, Sweden fell into a deep recession and was faced with the prospect of running out of money or dramatically reforming its entitlement system. There are some great articles on the details of the plan they came up with but, in short, they decided that the only way forward was to move away from “defined benefit” programs and toward a “defined contribution” model where benefits are calculated based on what has been paid into the system, ensuring that the system wouldn’t run out of money. They didn’t scrap their safety net. They just made sure that it was funded before they spent the money. It’s a concept that we need to come to grips with in Mount Vernon too.
We cannot continue to be the dumping ground for the most expensive students and residents in the county. There isn’t enough money in our budget to continue to feed, house, and educate the neediest populations simply because our neighbors force them to our doorstep, even though we might want to and even though we might think it is important to do so. It’s time to start a conversation with our neighbors and with the County about the economic realities associated with Mount Vernon taking on responsibilities other communities ignore or avoid altogether. If a disproportionate number of people in this city are receiving entitlements because they can’t receive them in neighboring communities, it’s time for those neighbors to start “contributing” to those efforts.
The challenge here is the same one faced by the Swedes. It’s not about wanting to stop helping people; it’s about having a realistic conversation amongst ourselves about funding these priorities in a responsible way. We must first start with those who are presently living here in our city before taking on any more people. The consequence of failing to have these conversations is that there will be no money to help anyone if we spread to thin. That’s the point Mr. Greenspan was making at the national level and that’s the point we need to start talking about here as well.
Mount Vernon has been treating people with compassion for as long as anyone can remember. It has been providing assistance to those with the most needs and doing so at a tremendous cost, which, other communities have not had to bear. It is often suggested that our city has not developed as fast as some of our neighbors. That’s a true statement. Maybe the reason for that is not a lack of will or a lack of desire but, instead maybe it’s because we’ve been bearing a greater burden than others.
Maybe it’s time for cities and towns that receive a “benefit” from not having to provide these “safety net” programs and this kind of assistance begin to “contribute” to those that do. If we do not address this problem seriously, we will find a much bigger crisis on our doorstep.
If you have thoughts or comments about this issue or any other, reach out to me at ADWCMV@gmail.com.