The Agenda

Douglas Holtz-Eakin on the Future of the Welfare State

In a short opinion piece, Douglas Holtz-Eakin calls for reversing the basic strategy of the U.S. social welfare state:

From a budgetary perspective, the goal should be not only to rein in the over-promises of existing entitlements, but also to reverse the basic strategy. Why provide an entitlement for retirement income, health care and elder assistance? Why not provide the entitlement early in life so that pre-K school, primary education, nutrition and preventive care provide the capacity for strong returns to human capital and the capacity to finance those same old-age needs in a vibrant market setting?

Why structure unemployment insurance, food stamps, Temporary Assistance for Needy Families and other low-income programs as cash flows, conditional on meeting eligibility criteria? Those programs send checks based on income and/or work status, regardless of the individuals’ economic past or future. Why not integrate these programs with individual-specific accounts that can be managed to accumulate wealth and provide strong incentives for reliance on work and timely exit from support. Staying at work would mean more wealth in the future. If work is interrupted and individuals are running down their own nest egg, they will not overstay their time on unemployment roles or other support programs.

This is an ambitious vision, particularly in light of tight budget constraints and the loss-aversion of the U.S. electorate. Yet it’s one I hope Holtz-Eakin continues to pursue. 


The Latest