The recent deliberations in Washington about the fiscal cliff have triggered a national debate in the United States about the nature, extent and future sustainability of key elements of the U.S. social safety net: Social Security, Medicare, Medicaid, support for education, the unemployed and the poor. In the effort to tame the federal debt, cuts in spending on these social services have been a major part of the discussion – calling into question the social contract established with the American people during the Great Depression through the creation of public pensions and in the 1960s with the launching of limited government-provided health insurance.
America was a latecomer to the provision of many such social services. Germany put in place health and old age insurance in the 1880s. The United Kingdom instituted national health insurance after World War II. The benefits provided by the U.S. government cover a far smaller portion of the American population and are far less generous than those afforded to the citizens of other high-income nations.
In 2012 the United States spent an estimated 19.4% of GDP on such social expenditures, according to the Organization for Economic Cooperation and Development, the Paris-based industrial country think tank. Denmark spent 30.5%, Sweden 28.2% and Germany 26.3%. All of these nations have a lower central government debt to GDP ratio than that of the United States.
Why the United States invests relatively less in its social safety net than many other countries and why those expenditures are even at risk in the current debate over debt reduction reflect Americans’ conflicted, partisan and often contradictory views on fairness, inequality, the role and responsibility of government and individuals in society and the efficacy of government action.
Rooted in value differences, not just policy differences, the debate over the U.S. social contract is likely to go on long after the fiscal cliff issue has been resolved.
This paper is part of the series "Renewing the American Social Contract." To view the full list of papers in this series, click here.