Thursday, July 23, 2009

Entitlement Cycle

Are we entering another entitlement cycle? A broad look at the last hundred years suggests that in the early part of the 20th century it was pretty much every man for himself. The period following the Second World War resulted in a more active application of the Welfare State concept especially in the western world. This model appeared to deteriorate in attractiveness and soar in costs and in the 70s and 80s and some countries – notably the US – started dismantling some of the entitlements (e.g. unemployment benefits) or moving them to the private domain. Now another 20 years later increasing entitlements – especially universal health care - appear to be back in the forefront of the national spotlight.

It would appear that we move from entitlement to self reliance and back every 20 years. The movement is not stark or abrupt but a slow chipping away of the edifice in place resulting in the slow replacement of one system with the other.

The most obvious explanation to this is that the costing for the period of entitlement is inaccurate and the state cannot bear the burden of the costs these programs require. The fact that the citizenry get taxed punitively does not help the cause either. At some point therefore the state gives in. Over time reduction in entitlements lead to a loss in the general well being of the populace because though the people have more money in their hands, it is not enough to pay for the entitlements previously provided by the state. As the chorus of anger builds up over the lack of entitlements, the state is forced to take notice, reinstate some of the benefits and the whole cycle repeats.

The crucial aspect therefore is cost. And it is heartening to hear that in the current climate of healthcare reform considerable attention is being given to how to pay for the reform. Creating a feel good solution without considering the cost may be good for one or two presidential terms but not sustainable much longer.

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