General Motors and the Entitlement Culture

May 3, 2005

Do the current troubles of General Motors have any lessons to teach those in Congress and the government? The answer is a resounding yes. George Will in his editorial column May 1, 2005 describes the current situation at GM:

Speculation about which welfare state will be the first to buckle under the strain of the pension and medical costs of an aging population usually focuses on European nations with declining birth rates and aging populations. Who knew the first to buckle would be General Motors? GM says health expenditures- $1,525 per car produced- are one of the main reasons it lost $1.1 billion in the first quarter of 2005.

The current expansion of government entitlement spending is unsustainable if the United States desires to remain a world-financial superpower. More specifically, the era of defined benefit (DB) retirement programs is over. The realities of an aging population, increased costs of medial care and increased costs of living in general mean that the defined benefit programs enjoyed by our parents and grandparents can no longer serve as a social safety-net.

Currently three workers pay into the Social Security system for every one person who receives benefits; this ratio was sixteen to one when the program began. Simply stated, the program cannot continue as currently constituted unless changes are made. Moving toward defined contribution (DC) retirement programs is a logical step in order to fix the problem.

Many retirement funds have already made the switch from DB to DC systems, and the government needs to adjust as well. A Fiscal Fact by Tax Foundation President Scott Hodge addresses this topic specifically, and also points out some interesting facts about those who adamantly oppose personal accounts

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