There are reasons why we would prefer individuals to pay for their own programs rather than pay for them out of tax money.
However, there is a notion floating around that somehow long term cost expenditures only become real when they are moved on to the government balance sheet.
For example Paul Ryan defended cutting Pell Grants by saying
. . . Pell Grants have become unsustainable. It’s all borrowed money…Look, I worked three jobs to pay off my student loans after college. I didn’t get grants, I got loans, and we need to have a system of viable student loans to be able to do this.
I point this out not to pick on Ryan but for us to examine more closely what he saying because I think he means it and I think it represents the views of a fair number of people.
First, he is saying that cannot – indeed cannot – continue the Pell Grant program because its based on borrowing money the Federal Government doesn’t have.
Instead, he suggests student should borrow money to pay for tuition the same way he did.
In both cases, however, money is being borrowed to fund a student’s education and in both cases that money will be repaid by extracting some amount of consumption in the future.
The idea that the government has to stop its massive borrowing resonates with a lot of people. However, the notion that students could borrow for their education makes a lot sense.
However, in a flow of funds sort of way these are the same thing. We might want to talk about incentives but that’s a slightly different conversation and for now I want to keep it separate. Let me just say that I am not ignoring incentive arguments, I am just separating them from what I think is a real concern people have: that Federal Borrowing is unsustainable.
I think people feel this way at least in part because the analogize the federal government to themselves. They could not keep borrowing money forever and ever.
At the same time it makes a lot of sense to have think that a young person might borrow money to pay for college.
What we don’t see is that the United States is not a single individual or even a household. Its an ever changing group of people. Just as the young student will be able to pay off his future debt as his income grows, so will the United States as a whole.
Moreover, the taxpayer is a changing and – at least for now – ever expanding group of people. More and more tax payers are born every year. More and more tax payers move to the US every year. That means that the US’s fiscal profile is more like that of a young person than of an older one.
Indeed, we could make the US even younger by increasing the rate of legal immigration. I know there are a lot of tense emotions surrounding illegal immigrants and those who broke the law.
Lets set that aside, however, and focus on the advantages of radically increasing legal immigration.
According to Gallup over 150 Million people want to move to the United States. I actually think that’s a dramatic understatement that is influenced by how notoriously hard it is to move to the United States.
Letting those folks in through legal channels would radically expand the number of taxpayers we had in one swoop. That would lower the burden of the debt on everyone.
It would also mean that government spending was less of burden generally. The size of the US military is one of our biggest expenses. We can debate whether the military is the proper size but because we use our troops all over the world adding more residents doesn’t mean we need a bigger military.
The war in Afghanistan is still the war in Afghanistan whether there are 100Million Americans footing the bill or 500Million Americans footing the bill. Yet, its much cheaper per American the more Americans we have.
In addition, many of our costs are for the elderly: Social Security, Medicare and the majority of Medicaid. Immigrants would lower those costs per person in the short term.
Now, eventually those immigrants will age as well. However, the aging of the immigrant population give us an enormous amount of breathing room.
For starters so long as the immigration rate is strongly positive, the number of workers relative to retirees will grow. We could probably sustain large positive immigration for the next 50 years or so.
Even after that ends immigrants tend to have more children than natives. This means we have an extra generation of so, even after then immigration wave stops of a growing population. That may be another 30 – 40 years.
At this point we are talking about a scenario that is 70 – 80 years in the future before costs we start to slide back to where we are.
That presents a huge opportunity for the dynamics of the economy to change. if nothing else we will probably transition even further away from manual labor. That means phasing up the retirement age starting 100 years from now will be much less painful than phasing it up starting 20 years from now.
We also don’t know the direction of medicine but there is good reason to suspect that the excess cost growth will not continue indefinitely. This means in 80 years we may be facing a much different cost dynamic for Medicare and Social Security than we are now.
All of that is to say that the US has available to it policy alternative that not only make it just as easy for the government to manage its debt burden as private citizens but in fact makes it much easier.
We can expand the number of tax payers and lay the burden on a greater number of shoulders. And lest one think that this is exploiting the poor immigrants who come here and are suddenly burden with our legacy costs, remember that they are currently willing to risk their lives to do this.
Having them take on legacy costs but dramatically increasing the number of folks who come in is a win-win for everyone.