Moneybeat: Entitlement playbook

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MARY REICHARD, HOST: Coming up next on The World and Everything in It: The Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

DAVID BAHNSEN: Good morning, Nick, Good to be with you.

EICHER: Nice piece of writing in your latest Dividend Café, David, or should I say “Your royal highness, David, king for a day”? You’re obviously responding from readers saying, what would you do if you had the power to set policy—and a lot of great ideas.

But in brief … and the whole thing is worth the read … but you noted debt-to-GDP has exploded … and what’s driving is is spending and not taxes … you say entitlements are the elephant in the room … that pro-growth policies matter, but they must be lasting—and your hypothetical Dave-Land reforms illustrate the hard choices we face economically.

So let me start on entitlements … and for this we return from Dave-Land to present-day USA … is there a single entitlement change that you believe has a chance of gaining bipartisan support?

BAHNSEN: I’ll do you one better. I think one of the biggest things isn't just that it has a chance. It’s inevitable. It’s a question of whether it happens proactively and preemptively—or for some people against their will—and that is changing the age of eligibility for Social Security.

Anybody receiving benefits, nothing changes, and anyone in their 60s and getting closer to that date, nothing changes. But imagine some sort of modest adjustment in eligibility age for benefits, higher for people in let’s say their mid 50s, and higher still for people in their 40s and younger. My suggestion was age 68 if you’re between 50 and 55, and then age 70 if you’re under the age of 50. I not only think it has a chance, Nick, I think it’s just so absolutely, fundamentally obvious that they’re going to have to do it.

Just a few years of eligibility change, multiplied by that population, multiplied by that benefit. We’re not talking about one of these typical small fixes. This is massive.

So, ironically, as much as we have all talked about Social Security forever—and so many people have gone through, “oh, I’m never going to get it”—because we always talk about how hard the thing is going to be. There’s so many criticisms of the program, how inferior it would be to people just being able to have invested on their own. Yet, there’s societal acceptance of a need for some social safety net.

Social Security is by far the easiest of the three between Medicare and Medicaid—Medicaid because of the political toxicity and the severity around the people it impacts, and Medicare because of the complexity and the size. You’re talking about a basically universal program for seniors, those two are going to be much harder than Social Security.

There are a couple others that I included, the cost-of-living adjustment, means-testing the COLA adjustment. I really do think that has a very good chance, because a person by the name of Barack Obama once suggested it. His opponents suggested it, both John McCain and Mitt Romney. So, you had bipartisan support for it back then, and they couldn’t get it done, even with a popular president.

But the other idea I had, I’ll throw it out there, was one I think is just a really good idea, and yet I don’t know that it has the ability to happen, which is just offering a significant number of people of the right means a buyout, but at a big discount. And I mean a discount from the discount. In other words, it would be something people would be sacrificing to take, but they would be taking an upfront amount of money versus an ongoing stream. That cuts out that liability for the government, for the taxpayers forever.

So many companies have done this with their pension fund, without a severe discount and had a very, very high participation rate. I’ve seen enough data to convince me that you’d have a lot of people that don’t really rely on their Social Security at all that would be happy just to take an upfront check and be done. I think it would save $2- or $3-trillion.

EICHER: On a different note, Elon Musk’s stint leading the Department of Government Efficiency—DOGE—has ended after the statutory limit. He poked fun at the “big, beautiful bill” on his way out.

But in real-world terms, politicians do respond to voters. How do you convince the public it’s time to accept painful cuts? What’s the most effective way to build that consensus?

BAHNSEN: Nick, one of the most influential books in my life was a book by a man named Thomas Sowell, A Conflict of Visions. He laid out what he called the “constrained vision,” and basically identified it as the fundamental difference between conservatives and non-conservatives. The idea is that we accept the imperfectability of things and want to make the best of situations. He has a very famous line that is important in economics: that there are no “solutions,” only trade-offs.

When it comes to DOGE, you’re not going to get things perfect. There’s going to be pain and messiness around any attempt to make things more efficient, or to purge out fraud, waste and corruption.

That said, your question is, how do we persuade the public? While we can’t do it perfectly because of the constrained vision, we certainly don’t need to agitate. We don’t need to make the task of persuasion even harder than it already is. We’re not going to make all the people happy all the time, as another wise man once said.

But I think to go about doing something that’s already going to be unpopular, already going to be messy, already subject to constraints, there needs to be a conscious effort to do it diligently and with precision. Not to be putting wrong information on a website and taking it back every single day. Not to announce that you saved $8 billion and then say, “I meant $8 million.” Not to bring the chainsaw out.

I think that we had talented people who are used to in Silicon Valley blowing things up. You can’t blow things up when you’re trying to persuade the people. You have to go about things with a bit more, I guess, technique. That’s what I would say.

I don’t think the stuff that they want to do in DOGE is undoable. It just can’t be done perfectly. None of it can be done without collateral damage, constrained vision.

But it can be done without purposeful agitation, and regrettably, I think they got off on the wrong foot with this, and the public turned against it.

EICHER: Let’s talk about one more thing you’ve said you’d like to see: a rules-based Fed. So I’ll point out the Fed now has very specific targets, using specific data points the government publishes—seeking 2% inflation, full employment. What exactly would a “rules-based” Fed look like compared to the current system?

BAHNSEN: Yeah, no, what I mean by rules is rules in terms of how they administer monetary policy.

They can say we have a target to get to 2% inflation, or we can say we have a target to get to full employment, but that’s not a rule as to how to get there. That’s a goal for where you want to go. So yes, wanting stable prices and wanting full employment are both goals, but the rules are not in place for how to get there.

The way monetary policy is administered, consciously, legally, purposely, explicitly, is at the discretion of the Federal Open Market Committee. They are to go use their own open-market transactions at their discretion to decide what they think the interest rate should be. They have other policy tools as well, but the setting of the federal funds rate has become the primary policy tool available. That isn’t subject to a rule - it’s subject to discretion. And so my view is that a rules-based Fed further constrains but also limits the temptation of intervention, using discretion to intervene.

This is, by the way, why so many people are against it, because they view the discretion and the intervention as a feature, not a bug.

EICHER: All right, David Bahnsen is founder, managing partner, and chief investment officer at The Bahnsen Group. He writes regularly for WORLD Opinions, and at dividend-cafe.com. David, thank you so much. We’ll see you next week.

BAHNSEN: Thanks so much, Nick.

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