Government social insurance creates some of the most serious problems in western style democracies. At best, these government insurance programs place tremendous strain on the economy and reduce work incentives. At worst, they may result in the bankrupting of the society. In the United States, Social Security pensions and Medicare are the worst culprits.
There are, moreover, alternative arrangements that would avoid these problems. Some people may favor a fully voluntary system. Others may favor more government involvement, such as a compulsory private system in which individuals are required to save certain amounts for their retirement or are required to purchase health insurance of some kind. (For a discussion in the context of unemployment insurance, see here. For a book comparing private and government insurance more generally, see here.)
While there are arguments for each of these systems, the important point is that they would not involve redistributions. In particular, they would not require the massive redistributions that these existing systems make from one generation to another – redistributions that are unfair, inefficient, and cause serious political problems.
While these private alternatives to government insurance are relatively well known, what is less clearly recognized is that the Constitution’s original meaning would have prevented the existing redistributive Social Security and Medicare systems from being established. These programs are enacted under Congress’s so-called spending power. Under this power, Congress is said to have the power to spend for the general welfare.
But I don’t believe there is a spending power. The constitutional provision states that “Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States.” In my view, this Clause merely confers on Congress the power to tax. The money is then to be used to further the other enumerated powers, which are briefly characterized as “for the common defense and general welfare.” If this reading, which was held by James Madison is correct, Social Security and Medicare would be unconstitutional. (I should note that some originalists disagree with this reading of the Constitution, but I think they are mistaken. For my defense of this reading, see here and here.)
Of course, government old-age pensions and medical insurance could have been enacted at the state level. But these programs could not have been established in the form that they took at the federal level. If young people were taxed 12.4 percent for old-age insurance (6.2 percent on the employee and the same amount on the employer) which conferred the poor returns that the federal program provides, they would have left the state that imposed the tax in droves. Massive redistributions could not occur at the state level. The states could impose less redistributive systems, but those systems would thereby avoid the significant problems caused by these government programs.
Now that we have had Social Security and Medicare for generations and people have relied upon them, I don’t think that the original meaning can be enforced to hold them unconstitutional. Precedent should allow them to continue. But it is worth remembering that these programs would have never taken their pernicious form if the Constitution’s original meaning had been followed in the first place.