“There is a strong case for reducing the role of the government budget in providing health services beyond a minimum.”

—Vito Tanzi and Ludger Schuknecht^[1]

How Many of You Are on Food Stamps?

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 his 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, and most Americans attending investment conferences don’t need food stamps. On the other hand, Social Security and Medicare are universal social insurance plans. All people pay taxes for the programs, and at age 65 (sometimes earlier) they all collect benefits, even though most Americans can afford their own pension program and health insurance. Is there any wonder voters are more worriedabout Social Security and Medicare than they are about food stamps?

The following table shows the stark contrast between the food stamp program and Social Security and Medicare.

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U.S. Social Welfare SystemsProgram Total Coverage
(in millions)  Current Recipients
(in millions)  Total Annual Expenditures
Social Security  180.0  44.2  $375 billion
Medicare  180.0  38.4  $215 billion
Food Stamps  19.8  19.8  $17 billion

Source: Statistical Abstract of the United States (Washington D.C.: U.S. Dept. of Commerce, 1999), Tables 173, 614, 616, 636. Figures for Social Security and Food Stamps are for 1998; Medicare for 1997, the latest available.

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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 every one 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 percent 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’t the general public start demanding that they be covered by the government because their costs were rising too fast? Ludwig von Mises was right: “Middle of the road policies lead to socialism.”^[2]

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.^[3] 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 all—should 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 Medicare system where everyone at some point became a ward of the state. I’m convinced that if PresidentRoosevelt had conceived Social Security in 1935 as a retirement plan for only the less fortunate who could not plan ahead financially, it would be a relatively inexpensive welfare program that would require taxpayers to pay at most 2-3 percent of their wages and salaries in FICA “contributions,” not 12.4 percent 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 percent of their wages and salaries to Medicare, not 2.9 percent 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 patiently 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.”

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Notes

1. Vito Tanzi and Ludger Schuknecht, Public Spending in the 20th Century; A Global Perspective (Cambridge: Cambridge University Press, 2000), p. 201.
2. Ludwig von Mises, Planning for Freedom, 4th ed. (South Holland, Ill.: Libertarian Press, 1980), pp. 18-35. This argument applies equally to today’s efforts to include pharmaceutical drugs in Medicare coverage.
3. “Federal Food Stamp Program, 1995 to 1998,” Table 636, Statistical Abstract of the United States (Washington, D.C.: U.S. Department of Commerce, 1999).