Personal Snapshots
Forecasts & Strategies
November 2000
by Mark Skousen
“Middle of the road policy leads to socialism.” -Ludwig von Mises
At the recent San Francisco Money Show, I asked an audience of several hundred investors, “By a show of hands, how many of you are on food stamps?” Not a single hand went up. Then I asked, “How many of you are on Social Security or Medicare?” A third of the audience raised their hands.
Finally, I asked, “How many of you think you will be on the food stamp program during your lifetime?” Again, not a single hand went up. But when I asked how many would eventually go on Social Security or Medicare, almost everyone raised their hand.
My point was simple. The food stamp program is a social welfare program limited to the very poor; there’s a means test to qualify for food stamps, and most Americans attending investment conferences don’t need food stamps. On the other hand, Social Security and Medicare are universal social insurance plans. Everyone pays these taxes and at age 65 (sometimes earlier) they all participate, even though most Americans could afford their own pension program and health care insurance. Is there any wonder voters are more worried about Social Security/Medicare than they are about food stamps?
The following table shows the stark contrast between the food stamp program and Social Security/Medicare.
U.S. SOCIAL WELFARE SYSTEMS
| Program | Total Coverage |
Current Recipients |
Total Annual Expenditures |
| Social Security |
180.0 million |
44.2 million |
$375 billion |
| Medicare | 180.0 million |
38.4 million |
$215 billion |
| Food Stamps |
19.8 million |
19.8 million |
$17 billion |
Note: Figures for Social Security and Food Stamps are for 1998, Medicare for 1997, the latest available.
Why Not “Foodcare”?
Suppose the President of the United States proposes a new welfare program called “Foodcare.” Since food is even more vital to each American citizen than health or retirement, he argues, the food stamp program should be expanded and universalized, like Social Security and Medicare, so that everyone qualifies for food stamps and pays for the program through a special “food stamp” tax. Congress agrees and passes new welfare legislation. Thus, instead of 19.8 million Americans on food stamps, suddenly 180 million or more begin paying the “food stamp” tax and collecting food stamps, representing perhaps 10% of household budgets. What effect do you think this universal “Foodcare” plan would have on the food industry? Would we not face unprecedented costs, red tape, abuse and powerful vested interests demanding a better, more comprehensive “foodcare”? And suppose “snacks” were not covered by “Foodcare”–wouldn’twouldn’t the general public start demanding that “snacks” be covered by the government because the cast of snack foods was rising too fast? Ludwig von Mises was right: “Middle of the road policies lead to socialism.”
Fortunately, there is no nightmarish “foodcare” program. Granted, there have been abuses and waste in the food stamp program, but the problems of efficiency are few compared to, say, Medicare. In fact, since 1995, the number of Americans on food stamps has declined from almost 27 million to under 20 million, and the costs have fallen from $22.8 billion to $16.9 billion. Yet has the size of Social Security or Medicare declined? Never.
Safety Net or Dragnet?
The conclusion is clear. Government welfare systems-if they should exist at allshould be limited to those who really need assistance. They should be safety nets, not dragnets that capture everyone. It was a tragic mistake to create a Social Security and a Medicare system where everyone became at some point a ward of the state. I’m convinced that if President Roosevelt had conceived Social Security in 1935 as a retirement plan for only those less fortunate to plan ahead financially, it would be a relatively inexpensive welfare program that would require taxpayers to pay at most 2%-3% of their wages/salaries to FICA, not 12.4% as they do today. If President Johnson had proposed Medicare in 1965 as a supplemental medical/ hospital plan limited to the needy, today taxpayers would be paying 0.5% of their wages/salaries to Medicare, not 2.9% as they do today. Instead, the systems were made universal, and the duplication is horrendous-and unnecessary.
Because we all pay in and we all benefit, we don’t always think straight about these “entitlements.” Example: A stockbroker recently told me about a client who called and complained bitterly about attempts by Congress to revamp Medicare. He angrily said, “They can cut spending all they want, but don’t touch my Medicare!” While the stockbroker listened patient to this man’s tirades, he pulled up the client’s account on his computer screen. He had an account worth $750,000! If anyone could afford his own medical insurance plan, it was this man. He didn’t need Medicare. Yet he saw Medicare as his right. He had paid into it all his life, and he deserved the benefits.
Imagine, what this man would be saying about Congress and food prices if we had “Foodcare.”
