The Only Way to Cut Entitlements

Mark Twain didn’t say “everybody talks about entitlements but nobody does anything about them,” but he may as well have.  He was a keen observer of human peculiarities, an ability which turned out to be essential for fathoming people and their entitlements. 

Entitlements -- benefits to which a person has rights by custom or law -- are either the salvation of the common man or the root of all fiscal evil, depending on whom you ask.  Debates surrounding entitlements range from cerebral economists dueling with sharpened pencils to entrenched Congressmen reenacting the feud of the Hatfields and McCoys. 

The entitlements that dominate our consciousness are big ticket items such as Social Security, Medicare and Medicaid, unfunded sinkholes ranging from 50 to 200 trillion, depending on who’s counting.  These staggering obligations may threaten to wreck national budgets and lay waste to society, but they have little to teach us about the fundamental, and very scary, nature of entitlements.  Life’s little lessons are far more instructive.  Lesser entitlements that resonate with our everyday experience are more human-size: a pay raise, an inflated school grade or a free drink at Moe’s Tavern on your birthday.  We rarely think of these examples as entitlements, but once awarded, just try to get them back. 

Economists wielding cost-benefit analyses have been leaders in defining what entitlements are, but it took meddling social scientists encroaching on economic turf to add the how and why entitlements arise and behave as they do.  Where traditional economists relied on a robotic view of people acting as cost–benefit calculators, social scientists recognized that people are blessed or cursed with millennia of ingrained behavioral quirks.  In a powerful example of the relatively recent splinter sect known as behavioral economics, psychologists Daniel Kahneman and Amos Tversky discovered a profound asymmetry in human behavior they dubbed loss aversion.  Through a gamut of social experiments, they demonstrated that people strongly prefer avoiding loss to acquiring gain, a human imbalance that initiated the rewrite of traditional cost–benefit models. 

Applying the principle of loss aversion to cases of simple entitlements, a second pay raise, a plus on an inflated grade or another free drink at Moe’s is universally accepted as good; but a pay cut, a crummier grade or Moe turning tightwad is often perceived as near catastrophe.   Once any benefit of any kind is granted, it quickly cements its position as an entitlement; there’s no way back without an exaggerated pain of loss.  The principle of loss aversion describes how a benefit – any benefit – becomes an entitlement. 

To explain why loss aversion is so deeply embedded in our psyches, we turn to the mix of the social and natural sciences plied by anthropologists and evolutionary biologists.  Life, for our forebears, was at least precarious and challenging, if not truly “solitary, nasty, brutish and short,” as opined by Thomas Hobbes.  Resources were precious.  An extra caribou in the larder, a few more fur skins to guard against the elements or a roomier cave were certainly causes for celebration, but the loss of any amount of food, clothing or shelter was dangerous.  Gain was valuable, but loss could be lethal; loss aversion makes evolutionary sense.  Whether loss aversion remains beneficial or simply vestigial, it appears to be deeply embedded in our genes. 

The critical lesson from the likes of Moe’s Tavern is that anything and everything can effortlessly attain the status of an entitlement, not just highly visible big ticket items.  The corollary is that the social, scientific and economic principles underlying entitlements are universal to both Moe and Medicare.  The political wishful thinking that we can cut, manage or even tame big ticket entitlements, if and when we so choose, belies eons of human history. 

The time to plan for the control of entitlements is at their inception.  For example, an employer can award a bonus instead of a raise, a teacher could define the grading curve at the first class, Moe might hang the infamous bar sign promising “Free Beer Tomorrow” and the Social Security Administration could open all new accounts as IRAs. 

Every legislator setting out to buy votes by shoveling out benefits from a soapbox perch should be required first to talk to a CEO with a crushing payroll, a teacher under fire for appending a minus to a grade or Moe on a slow weekend.  Fortunately for Moe, he is the beneficiary of another special peculiarity of human nature: in good times, everyone drinks; in hard times, no one stops. 

Mark Twain didn’t say “everybody talks about entitlements but nobody does anything about them,” but he may as well have.  He was a keen observer of human peculiarities, an ability which turned out to be essential for fathoming people and their entitlements. 

Entitlements -- benefits to which a person has rights by custom or law -- are either the salvation of the common man or the root of all fiscal evil, depending on whom you ask.  Debates surrounding entitlements range from cerebral economists dueling with sharpened pencils to entrenched Congressmen reenacting the feud of the Hatfields and McCoys. 

The entitlements that dominate our consciousness are big ticket items such as Social Security, Medicare and Medicaid, unfunded sinkholes ranging from 50 to 200 trillion, depending on who’s counting.  These staggering obligations may threaten to wreck national budgets and lay waste to society, but they have little to teach us about the fundamental, and very scary, nature of entitlements.  Life’s little lessons are far more instructive.  Lesser entitlements that resonate with our everyday experience are more human-size: a pay raise, an inflated school grade or a free drink at Moe’s Tavern on your birthday.  We rarely think of these examples as entitlements, but once awarded, just try to get them back. 

Economists wielding cost-benefit analyses have been leaders in defining what entitlements are, but it took meddling social scientists encroaching on economic turf to add the how and why entitlements arise and behave as they do.  Where traditional economists relied on a robotic view of people acting as cost–benefit calculators, social scientists recognized that people are blessed or cursed with millennia of ingrained behavioral quirks.  In a powerful example of the relatively recent splinter sect known as behavioral economics, psychologists Daniel Kahneman and Amos Tversky discovered a profound asymmetry in human behavior they dubbed loss aversion.  Through a gamut of social experiments, they demonstrated that people strongly prefer avoiding loss to acquiring gain, a human imbalance that initiated the rewrite of traditional cost–benefit models. 

Applying the principle of loss aversion to cases of simple entitlements, a second pay raise, a plus on an inflated grade or another free drink at Moe’s is universally accepted as good; but a pay cut, a crummier grade or Moe turning tightwad is often perceived as near catastrophe.   Once any benefit of any kind is granted, it quickly cements its position as an entitlement; there’s no way back without an exaggerated pain of loss.  The principle of loss aversion describes how a benefit – any benefit – becomes an entitlement. 

To explain why loss aversion is so deeply embedded in our psyches, we turn to the mix of the social and natural sciences plied by anthropologists and evolutionary biologists.  Life, for our forebears, was at least precarious and challenging, if not truly “solitary, nasty, brutish and short,” as opined by Thomas Hobbes.  Resources were precious.  An extra caribou in the larder, a few more fur skins to guard against the elements or a roomier cave were certainly causes for celebration, but the loss of any amount of food, clothing or shelter was dangerous.  Gain was valuable, but loss could be lethal; loss aversion makes evolutionary sense.  Whether loss aversion remains beneficial or simply vestigial, it appears to be deeply embedded in our genes. 

The critical lesson from the likes of Moe’s Tavern is that anything and everything can effortlessly attain the status of an entitlement, not just highly visible big ticket items.  The corollary is that the social, scientific and economic principles underlying entitlements are universal to both Moe and Medicare.  The political wishful thinking that we can cut, manage or even tame big ticket entitlements, if and when we so choose, belies eons of human history. 

The time to plan for the control of entitlements is at their inception.  For example, an employer can award a bonus instead of a raise, a teacher could define the grading curve at the first class, Moe might hang the infamous bar sign promising “Free Beer Tomorrow” and the Social Security Administration could open all new accounts as IRAs. 

Every legislator setting out to buy votes by shoveling out benefits from a soapbox perch should be required first to talk to a CEO with a crushing payroll, a teacher under fire for appending a minus to a grade or Moe on a slow weekend.  Fortunately for Moe, he is the beneficiary of another special peculiarity of human nature: in good times, everyone drinks; in hard times, no one stops.