A Serious Policy Analysis of House of Cards’ “America Works” Program
by Benjamin Studebaker
I am a huge fan of Netflix’s House of Cards, which stars Kevin Spacey as Frank Underwood, a ruthless political anti-hero. Here’s the trailer, if you haven’t seen it. It’s really good:
I launched into the 3rd season yesterday and was fascinated by Underwood’s “America Works” proposal. Very minor spoilers here–Underwood plans to eliminate or restructure America’s entitlement programs, using the money saved to create 10 million jobs, which will apparently cost $500 billion. Now, this is a television show. There are no CBO reports to look at, no detailed policy analyses or public policy research, but I want to dig into this and take the opportunity to explore some of the issues with entitlement programs.
Underwood argues that entitlement programs, particularly Social Security and Medicare, redistribute resources from the young to the old and thereby cripple the young in their pursuit of the American dream. On his view, the elderly are parasites and entitlement programs facilitate parasitism.
Now, this isn’t how these programs were sold to voters when they were enacted by FDR and LBJ. Originally, the idea was that there was something of an inter-generational understanding. Young, healthy people paid into the programs and old, unhealthy people consumed the benefits, but the premise was that one day, the young and healthy people would become old and unhealthy and switch from being contributors to recipients.
Initially, the population of young and healthy people was much larger than the population of old and unhealthy people. The baby boom ensured a strong worker population that was more than capable of supporting the needs of the elderly. As a result, Social Security and Medicare ran large surpluses and created trust funds. These trust funds are meant to allow the entitlement programs to survive without further funding when the demographics turn against them and the old, sick population grows larger. And indeed, in recent decades, America has gotten older and sicker:
Consequently, expenditures on Social Security and Medicare are increasing:
The trust funds are still growing and will continue to grow until 2022, but after that they will start draining. Once the trust funds start draining, it’s estimated that they will empty fairly quickly. The Social Security Administration thinks the funds will last until some time in the early 2030’s, depending on how the economy performs and the demographics shift. At that point, the government would need to either increase taxes to supplement the revenue, borrow the money, reduce benefits, or some combination thereof. It is by no means obvious that it would have to cut the programs–it could very well choose to find the funding elsewhere, and there have even been proposals to expand the programs alongside a funding increase.
But back to House of Cards. Underwood wants $500 billion for a jobs program, and he wants it from entitlements. Could the government do that if it wanted to? Absolutely. Social Security and Medicare cost a combined 8.4% of GDP in 2013, which means their combined cost is somewhere in the neighborhood of $1.4 trillion, enough to do Underwood’s jobs program nearly three times over. Social Security alone accounted for 4.9% of GDP, more than $800 billion. So let’s say Underwood cuts $500 billion from entitlements and leaves them otherwise intact. There are two key problems:
- What happens to the old people? Old people would have $500 billion less to spend, and most of them are by definition too old to take advantage of Underwood’s jobs program. Even now, 10% of America’s 0ver-65’s are under the poverty line. We’d get a humanitarian crisis.
- Jobs are increasingly old-think. The internet and robots are continually raising productivity. As the economy grows and our society continues to technologically develop, it will require fewer workers, not more. What we will need is a stronger consumer base to provide the demand necessary to keep our automated economy thriving. As time goes on, attempting to create jobs for each and every consumer will increasingly be sailing against the wind. Consumers will need money, but they won’t necessarily need jobs.
And this is why Underwood’s claim that “you are entitled to nothing” is so out of date. We are building a world in which we can be entitled to quite a bit. As the economy automates, more and more wealth will be generated with less and less labor. Instead of having everyone work, pay into a retirement scheme, and retire off of that money, it will increasingly make sense to just pay people to consume the goods and services the robots provide from the very start.
So what does 21st century entitlement reform really look like? Increasingly, we’re hearing whispers from both the left and the right about the possibility of creating a universal basic income. A universal basic income is exactly what it sounds like–it entitles every citizen to a subsistence income. Unlike traditional welfare, you don’t lose your benefits when you get a job. Any work you do just supplements your basic income. It creates strong incentives for businesses to innovate and automate the jobs people don’t want to do or pay high enough wages to persuade people to do them. Instead of working to live, people would freely choose for themselves how to spend their time. That kind of freedom has only been possible for a small minority throughout history. A universal basic income would make that freedom universal.
The cost of this program would depend on how big we think the basic income needs to be. If we gave every adult in America $20,000 (roughly double the poverty line), the cost would run about $4.8 trillion. That’s quite a bit, but when we consider how much welfare spending the state already does, quite a bit of it could be redistributed to the basic income program with no further revenue needs. Non-medical old age spending accounts for $1 trillion at the federal, state, and local levels. Welfare spending adds another half a trillion. So there’s about $1.5 trillion that could be transitioned over to this program, enough to get everyone to $6,000, which is a little more than halfway to the poverty line. That’s right now, with no further revenue, without the robots or automation we know we’re going to see over the next few decades. So it’s certainly possible to imagine a distant future in which we transition from a retirement system to a basic income system. We’re not there yet, but we will be there soon, possibly within our lifetimes.
As much as I like House of Cards, “America Works” doesn’t work. But it does provide us with a fun and interesting opportunity to talk about where our economy and our welfare state might be going. The irony is that we’re probably headed in the opposite direction from the one Underwood illustrates. Instead of fewer entitlements and more jobs, the future probably holds fewer jobs and more entitlements. The age of working to make a living ought to be slowly consigned to the past by robots and computers, as Bertrand Russell and John Maynard Keynes once anticipated, albeit prematurely.