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Economist Galbraith on Why Public Welfare Programs Are Sustainable

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Posted on Jan 18, 2013
cnbc.com

James Galbraith.

Is there ever a good time to cut “entitlements”—the code word used by austerity hawks to refer to and demean publicly funded social welfare programs—host Andrew Ross Sorkin asked University of Texas economist James K. Galbraith on CNBC’s “Squawk Box” on Friday.

“I don’t think it’s a good idea from the standpoint of the future of the American economy, to reduce the security that people expect in their old age,” Galbraith responded. “We’re talking about Social Security here, we’re talking about Medicare, we’re talking about Medicaid. These are foundations for the future life of most of the working population of the country at the moment. If you cut them, people will draw back in their current activity, at least to some degree. So you’re basically saying ‘We’re gonna do something which will squeeze people’s living standards out in the future.’ It will not have any direct effect today on economic activity except to the extent that people will react to that by deleveraging more and saving more.”

But can this arrangement be maintained?

“If the average American is putting into the system, let’s say $100,000 to $130,000 in their lifetime,” Sorkin said, “and yet through Medicare, Medicaid and other entitlements is taking out something on the order of $300,000 to $400,000—that’s clearly an unsustainable model, right?

“No it’s not unsustainable,” Galbraith answered. “Because when they take that out in the future, they will be taking it out from a much more productive economy that we expect to have at that time. So there’s really no reason to be scared by that kind of comparison, in fact.”

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