How Growth In The Entitlement / Protectionist State Has Increased

Yahoo published an interesting article about a $22 minimum wage. It was based on a comment by Senator Elizabeth Warren, stating that if minimum wage growth has increased with productivity, the current minimum wage should be $22.

The interesting trend that Elizabeth Warren fails to note is that the growth in wealth disparity in the US largely coincides with the growth of the welfare / entitlement / protectionist state. This isn’t a coincidence.

Programs like Social Security, Medicaid, and Medicare have resulted in a massive burden to middle income employees, which have reduced their upward mobility. We’re frequently told these programs aid the middle class, but they require us to pay a tax of 15.3% every year, and we receive little in return.

Social Security is the most egregious offender in many ways, since over 12.5% of our wealth is taken away from us, and in return, we get the money back only with inflation; or in other words, we make a 0% real return. Technically, even this is optimistic since the real return you receive on Social Security is based on a complicated formula that is only somewhat related to how much you contribute. In reality, it’s possible that the average real return on Social Security is negative. Even in a worst case scenario, most Americans would make significantly higher returns with a 401(k) account than they do with Social Security.

Meanwhile, Medicaid and Medicare have created massive economic distortions in the healthcare system, which has led to a cost spiral. In the late 1960′s, US healthcare costs were on par with the rest of the developed world. By 2013, our costs are significantly higher than everywhere else, and it’s almost perfectly correlated with the rise of Medicare and Medicaid. The fact that our tax system encourages employers to maximize insurance coverage also helps create misaligned incentives that encourage over-consumption, driving up costs further.

It’s also somewhat misleading to say that American incomes haven’t increased over the past several decades. Rather, what’s more true to say is that our incomes are being increasingly eaten up by healthcare expenses. Expect this trend to continue with the latest Federal abomination: the Affordable Care Act (i.e. “Obamacare”).

It’s worthwhile to note that the two sectors of the economy where expenses have increased the greatest are in healthcare and education. These just happen to be the two sectors where the most Federal government intervention has occurred over the past five decades, in order to supposedly promote “affordability.”

In essence, while Elizabeth Warren bemoans rising income inequality in America, it’s the policies that she supports that have fueled this disparity. It’s true that the rich are getting richer, while the middle class stagnates, but that’s largely because the rich aren’t as vulnerable to the ill-affects of the growing entitlement state, whereas the middle class is buried by it.

This is why individuals are best equipped to make their own economic decisions. When technocrats try to intervene to improve things, they inevitably make them worse by applying one-size-fits-all solutions to all middle income Americans. The past fifty years is proof of this.