The Economy

Peter Crabb: Feeling entitled? Think about your impact on others

PETER R. CRABB, professor of finance and economics at Northwest Nazarene University in NampaNovember 5, 2013 

Peter R. Crabb

As the old economic adage goes, "there is no such thing as a free lunch." Unfortunately, many people, many organizations, at many levels of society, have come to expect their lunch money.

At the national, state, and local government levels interest groups are looking for something for nothing. These benefits are sometimes referred to as entitlements, but it is really just a matter of expectations. We have somehow created expectations at all levels that the government will provide us with some kind of benefit.

In October, the federal government ended the partial shutdown and averted a debt default, but put off important decisions on spending and taxation issues until January and February. The short-term agreement did nothing to address the long-term fiscal issues of Social Security and Medicare expenses which make up most of the federal budget today.

In a Wall Street Journal in interview, renowned money manager Stanley Druckenmiller said Medicare and Social Security allow the "old to rip off the young." The pushback, largely from those of retirement age, is that they earned it by paying into these systems. Druckenmiller, however, is giving speeches around the country using government data to show that the payout to beneficiaries far exceeds what was paid in.

They didn't earn it; they have just come to expect it. And this is no free lunch; the expenses for these entitlements are a direct tax on the working young. Spending on these programs also serves as an indirect tax on everyone, since government resources are diverted from other programs.

Another group has come to expect something from U.S. monetary policy. As reported by The New York Times, retail giants Costco and Walmart expect inflation and would like to see it go up, because higher inflation can increase profits.

Retailers and other businesses expand profit margins through inflation at a cost to their workers and all households. When wages don't rise as fast, workers and households lose purchasing power. Inflation is also a tax on savings, as it reduces the real return on deposits or investments.

New laws affecting state policy also are changing expectations. Many state policymakers are promoting expanded Medicaid benefits under the Affordable Care Act because the federal government will cover the costs of this expansion for the first three years. The Idaho Legislature is expected to take up this question again.

Raising the benefits at the state level, even for a short period, raises expectations for continuing benefits.

When a low-income worker considers taking a new job the potential increase in pay may actually end up costing them more than it provides. When the worker loses benefits, such as Medicaid insurance, they are essentially being taxed for taking the new job.

Finally, business expectations at the local level are also becoming firmly entrenched in today's marketplace. Business managers have come to expect local governments to offer tax breaks and other incentives before the firm will move into or expand in the area.

We have to change our expectations. We can't look to government programs at the national, state, or local level to create some benefit for us all.

Please don't ask someone else to pay for your lunch.

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prcrabb@nnu.edu

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