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Power to the People

January 1, 2015

Power to the People: The New Road to Freedom and Prosperity for the Poor, Seniors, and Those Most in Need of the World’s Best Health Care

Power to the People

The greatest economic policy failure today is the inability of many experts and government officials to see the vast, pro-growth opportunities offered by fundamental, structural entitlement reform. Today’s entitlement programs broadly discourage capital formation and investment, as well as labor force participation. Structural entitlement reforms that would reverse those effects would pump huge waves of capital and labor into the economy, creating an economic boom.

That creates the opportunity for an entirely new perspective on entitlement reform. Instead of the negative politics of cutting benefits for the poor, seniors, and the sick, the productivity and market incentives of pro-growth entitlement reform create the opportunity for positive, populist reforms that result in better benefits and incomes for the poor and seniors and better health care for the sick, while reducing taxes and government spending by the greatest amounts in world history.

This book presents a comprehensive entitlement reform agenda that would create far better results for the poor, seniors, and the sick, because they rely on modern capital and labor markets and market incentives and competition to achieve the social goals of current entitlement programs. Markets, incentives, and competition naturally work far better at achieving these social goals than government monopoly, tax, and redistribution programs.

Ferrara’s proposed reforms would reduce federal taxes and spending by at least half over a generation from what they would be otherwise. The reforms would all also contribute to greater economic growth and prosperity for all.

As Ferrara also shows in Power to the People, these reforms have the potential to eliminate involuntary poverty entirely, assure universal health care for all, empower middle-class working people to retire as millionaires, and produce decades of booming economic growth - significantly above the historic, world-leading, postwar, American economic growth trend line. The reforms include:

  • Personal savings, investment, and insurance accounts for each family, voluntarily chosen by each worker, which would better perform the functions of Social Security and Medicare. After a lifetime of savings and investment of less than what they and their employers would otherwise be required to pay in Social Security and Medicare taxes, workers of all income levels would retire with higher benefits and better health care than Medicare now offers them, with middle income working families accumulating close to one million dollars or more by retirement. Because all of the benefits of these programs would ultimately be financed through private financial markets, rather than through taxes and redistribution, this reform alone would amount to the greatest reduction in government spending in world history. The reforms would also ultimately produce close to one trillion dollars per year in increased capital investment, promoting significant economic growth.
  • Following the model of the enormously successful 1996 welfare reforms, all federal means-tested welfare programs would be given back to the states, with the continued share of federal financing provided through fixed, finite, block grants to each state. Each state would then be free to redesign new welfare systems with all assistance for the able-bodied contingent on showing up for daily work, as envisioned in the original concept of “workfare” promoted envisioned by President Ronald Reagan. Instead of taxpayers paying the bottom 20 percent of the income ladder, amounting to one trillion dollars per year, not to work, private employers would pay welfare recipients more to work. This would result in a further dramatic reduction in government spending while vastly increasing the labor supply flowing into the economy, further promoting booming economic growth. Full-time work at today’s minimum wage, plus today’s Earned Income Tax Credit and Child Tax Credit, would equal or exceed the poverty line for all family combinations. That alone would eliminate involuntary poverty in America entirely. These reforms would reverse the vastly counterproductive incentives of the current welfare system, which essentially rewards recipients for not working. It would also help to mitigate the erosion of the American family and out-of-wedlock birth rates that make the current welfare system the real root cause of poverty in America today.
  • Repealing and replacing Obamacare with patient power reforms that expand tax benefits for employer-provided health insurance on equal terms to everyone and provide additional assistance to the poor - empowering them with coverage by the private health insurance of their choice - would ensure health care for all without an individual mandate, employer mandate, and with trillions of dollars in reduced taxes, government spending, and regulatory burdens. All working people, all of the poor on Medicaid, and all retirees on Medicare would be empowered to choose health savings accounts - the only proven effective reform for controlling health costs. Those reduced health cost burdens, plus sharply lowered taxes, spending, and regulatory burdens, would further contribute to booming economic growth.


The fundamental problem with America’s current entitlement programs is that they are all based on old-fashioned, tax and redistribution models dating back to late nineteenth century, old-world Europe. Instead of trying to address the entitlement crisis by raising taxes and cutting benefits, we need to think outside the box and advance fundamental, structural reforms that would transform the programs to rely primarily on modern capital and labor markets using positive, pro-growth incentives. This involves an extension of supply-side analysis to the incentives of essential social safety nets in evaluating how to structure entitlement programs in order to maximize effectiveness, economic growth, and national prosperity.

The first lesson here for free-market and Tea Party activists is government spending can be reduced far more through structural reforms than by just trying to slash benefits for the poor, retired working people, and the sick in need of quality health care. The second lesson is safety nets structured on the foundation of markets, incentives, and competition, rather than government monopoly, taxation, and redistribution, would not be an onerous burden on the economy, society, or working people.

Author
Peter Ferrara is the senior fellow for entitlement and budget policy at The Heartland Institute and a senior fellow at the Social Security Institute.
pferrara@heartland.org