Tag: welfare state

Dramatic Increase in Poverty Rate: One Small Step for Obama, One Giant Step for the So-Called War on Poverty

The Census Bureau has just released the 2010 poverty numbers, and the new data is terrible.

There are now a record number of poor people in America, and the poverty rate has jumped to 15.1 percent.

But I don’t really blame President Obama for these grim numbers. Yes, he’s increased the burden of government, which doubtlessly has hindered the economy’s performance and made things worse, but the White House crowd legitimately can argue that they inherited a crummy situation.

What’s really striking, if we look at the chart, is that the poverty rate in America was steadily declining. But then, once President Lyndon Johnson started a “War on Poverty,” that progress came to a halt.

As I’ve explained before, the so-called War on Poverty has undermined economic progress by trapping people in lives of dependency. And this certainly is consistent with the data in the chart, which show that the poverty rate no longer is falling and instead bumps around between 12 percent and 15 percent.

This is bad news for poor people, of course, but it’s also bad news for taxpayers. The federal government, which shouldn’t have any role in the field of income redistribution, has squandered trillions of dollars on dozens of means-tested programs. And they’ve arguably made matters worse.

By the way, just in case you think I’m being too easy on Obama, read this post about how the Administration is considering a terrible plan to re-define poverty in order to justify ever-larger amounts of redistribution.

I fully agree that the president’s policies definitely have made—and will continue to make—matters worse. But the fundamental problem is 40-plus years of a misguided “War on Poverty” by the federal government.

Why Congressional Budget Office Estimates and Policy Options Are Taken Much Too Seriously

Coercive redistribution and diversity in the interests of its constituent groups are essential features of the modern welfare state.  Disagreement over perceived consequences of social policy creates the demand for publicly justified “objective” evaluations. If there were no coercion, redistribution and intervention would be voluntary activities and there would be no need for public justification for voluntary trades.

James J. Heckman (winner of the 2000 Nobel Prize in Economics), “Accounting for Heterogeneity, Diversity and General Equilibrium in Evaluating Social Programs,” National Bureau of Economic Research Working Paper No. 7230, July 1999.

English Riots, Moral Relativism, Gun Control, and the Welfare State

I wrote earlier this year about the connection between a morally corrupt welfare state and the riots in the United Kingdom.

But what’s happening now is not just some left-wing punks engaging in political street theater. Instead, the UK is dealing with a bigger problem of societal decay caused in part by a government’s failure to fulfill one of its few legitimate functions: protection of property.

To make matters worse, the political class has disarmed law-abiding people, thus exacerbating the risks. These two photos are a pretty good summary of what this means. On the left, we have Korean entrepreneurs using guns to defend themselves from murdering thugs during the 1992 LA riots. On the right, we have Turkish entrepreneurs reduced to using their fists (and some hidden knives, I hope) to protect themselves in London.

Which group do you think has a better chance of surviving when things spiral out of control? When the welfare state collapses, will the Koreans or the Turks be in a better position to protect themselves? And what does it say about the morality of a political class that wants innocent people to be vulnerable when bad government policies lead to chaos?

Speaking of chaos, let’s look at the “root causes” of the riots and looting in the United Kingdom.

Allister Heath is the editor of City A.M. in London, and normally I follow his economic insights, but his analysis of the turmoil is superb as well. Here’s an excerpt. But as Instapundit likes to say, read the whole article.

Debilitating, widespread fear. The country held to ransom by feckless youths. Thousands of shocked Londoners cowering in their homes, with many shops, banks and offices shutting early. …It no longer feels as if we live in a civilised country. The cause of the riots is the looters; opportunistic, greedy, arrogant and amoral young criminals who believe that they have the right to steal, burn and destroy other people’s property. There were no extenuating circumstances, no excuses. …decades of failed social, educational, family and microeconomic policies, which means that a large chunk of the UK has become alienated from mainstream society, culturally impoverished, bereft of role models, permanently workless and trapped and dependent on welfare or the shadow economy. For this the establishment and the dominant politically correct ideology are to blame: they deemed it acceptable to permanently chuck welfare money… Criminals need to fear the possibility and consequence of arrest; if they do not, they suddenly realise that the emperor has no clothes. At some point, something was bound to happen to trigger both these forces and for consumerist thugs to let themselves loose on innocent bystanders. …the argument made by some that the riots were “caused” or “provoked” by cuts, university fees or unemployment is wrong-headed. …the state will spend 50.1 per cent of GDP this year; state spending has still been rising by 2 per cent year on year in cash terms. It has never been as high as it is today – in fact, it is squeezing out private sector growth and hence reducing opportunities and jobs. …This wasn’t a political protest, it was thievery. …We need to see New York style zero tolerance policing, with all offences, however minor, prosecuted. But what matters right now is to regain control, to stamp out the violence and to arrest, prosecute and jail as many thugs as possible. The law-abiding mainstream majority feels that it has been abandoned and betrayed by the establishment and is very, very angry.

Two Pictures that Perfectly Capture the Rise and Fall of the Welfare State

In my speeches, especially when talking about the fiscal crisis in Europe (or the future fiscal crisis in America), I often warn that the welfare state reaches a point of no return when the people riding in the welfare wagon begins to outnumber the people pulling the wagon.

To be more specific, if more than 50 percent of the population is dependent on government (employed in the bureaucracy, living off welfare, receiving public pensions, etc.), it becomes difficult for taxpayers to form a majority coalition to fix the mess. This may explain why Greek politicians have resisted significant reforms, even though the nation faces a fiscal death spiral.

But you don’t need me to explain this relationship. One of our Cato interns, Silvia Morandotti, used her artistic skills to create two images (click pictures for better resolution) that show what a welfare state looks like when it first begins and what it eventually becomes.

The welfare state starts with small programs targeted at a handful of genuinely needy people. But as  politicians figure out the electoral benefits of expanding programs and people figure out that they can let others work on their behalf, the ratio of producers to consumers begins to worsen.

Eventually, even though the questionable beneficiaries should realize that it’s not in their interest to over-burden the people pulling the wagon, the entire system breaks down.

Then things get really interesting. Small nations like Greece can rely on bailouts from bigger countries and the IMF, but sooner or later, as larger nations begin to go bankrupt, that approach won’t be feasible.

I often conclude my speeches by joking with the audience that it’s time to stock up on canned goods and bottled water. Many people, I’m finding, don’t think that line is very funny.

Nobel Prize Winner Analyzes the Obama Growth Gap

I’ve explained before that one of the most damning pieces of evidence against Obamanomics is that the economy is suffering from sub-par growth, something that is particularly damning since normally one expects to see faster-than-average growth following an economic downturn.

In a recent presentation, Robert Lucas of the University of Chicago included a couple of graphs that illustrate this phenomenon. This first chart shows the history of U.S. economic growth over the past 140 years. As you can see, the growth rate was remarkably constant over time, and there were always periods of rapid growth following economic downturns.

Lucas, who won the Nobel Prize in economics in 1995, then looks at the data for the recent downturn and recovery. As you can see, we have been struggling to get back to average growth rates and we have not enjoyed any of the above-average growth that normally follows a recession.

The key question, of course, is why growth has been anemic, resulting in (what seems to be) a permanent loss of output. In his presentation, Lucas warns that bad government policy is playing a big role. He says that “the problem is government is doing too much,” and he specifically highlights the “likelihood of much higher taxes, focused on ‘the rich’” and a “large increase in the role of government” in the healthcare sector.

In his conclusion, Professor Lucas is not overly optimistic about recovering lost output. He doesn’t make any flamboyant claims, but he does note that “European economies have larger government role and 20-30% lower income level than US.”

The obvious connection, as I’ve pointed out on many occasions, is that America is becoming a European-style welfare state and it is unavoidable that we will suffer from European-style economic malaise.

P.S. It should be noted that America’s anemic economic performance in recent years is not solely Obama’s fault. As the White House repeatedly points out, he inherited a downturn. That is completely accurate. My complaint, however, is that Obama promised hope and change but instead has exacerbated the big government policies of his predecessor.

Support for the Eternal Federal Welfare State Is Bipartisan

George Will makes a good point in his latest column: Democrats maintain a peculiar “conviction that whatever government programs exist should forever exist because they always have existed.” Will’s observation centers around the shameless Democratic attacks on Rep. Paul Ryan’s (R-WI) proposal to reform Medicare and Medicaid.

According to Will, “Ryan’s plan would alter Medicare. But Medicare has existed in its current configuration for only 46 of the nation’s 235 years.” Actually, “current configuration” isn’t quite accurate. For example, Medicare’s prescription drug component added by Republicans, which Ryan voted for, went into effect only five years ago.

Regardless, I agree with Will that so-called “progressives” have a “constricted notion of the possibilities of progress”:

The hysteria and hyperbole about Ryan’s plan arise, in part, from a poverty of today’s liberal imagination, an inability to think beyond the straight-line continuation of programs from the second and third quarters of the last century. It is odd that “progressives,” as liberals now wish to be called, have such a constricted notion of the possibilities of progress.

Yes, Ryan’s plan displays “imagination” and I would add that it took political guts to suggest the reforms knowing that the left would nail him to the cross. However, let’s not forget that Ryan’s plan would also further cement these twin pillars of the federal welfare state. For all the silly accusations that Ryan is proposing to “privatize” Medicare, his plan repeatedly states that his aim is to “save” it:

Letting government break its promises to current seniors and to future generations is unacceptable. The reforms outlined in this budget protect and preserve Medicare for those in and near retirement, while saving and strengthening this critical program so that future generations can count on it to be there when they retire.

I wasn’t born yesterday, so I understand Ryan’s assurance to “those in and near retirement” that Medicare as they know it won’t be touched. However, I can’t square Ryan’s reference at the outset of his plan to the “timeless principles of American government enshrined in the U.S. Constitution – liberty, limited government, and equality under the rule of law” with his intention to strengthen “this critical program so that future generations can count on it be there when they retire.”

Now that Ryan’s plan has taken its inevitable beating from demagoguing Democrats, the GOP appears to be upping the “save Medicare for future generations” rhetoric.

Here’s tea party favorite Sen. Marco Rubio (R-FL) as reported by Politico:

‘I understand the benefits that Medicare brings to America. It should be a part of our country,’ Rubio added. ‘I want Medicare to exist in a way that is unchanged for people that are in Medicare now. I want Medicare to exist when I retire. I want Medicare to exist when my children retire. And I don’t want Medicare to bankrupt itself for our country. And Medicare, as it’s currently structured, will go bankrupt.’

If that’s what Rubio, Ryan, and the rest of the congressional Republicans desire, then thank you for being honest. But please stop wrapping the intention to maintain for eternity a gigantic federal welfare state in the mantle of individual liberty, limited government, and the Constitution.

Thursday Links

  • DON’T FORGET: Our fiscal policy conference, “The Economic Impact of Government Spending,” featuring Senators Bob Corker (R-Tenn.) and Mike Lee (R-Utah), former Senator Phil Gramm (R-Tex.), Representative Kevin Brady (R-Tex.), and other distinguished guests, begins at 2:00 p.m. Eastern today. Please join us on the web–you can watch the conference LIVE here.
  • Atlas Shrugged Motors presents the Chevy Volt.
  • The parable of the Good Samaritan teaches us about the moral value of voluntary charity toward the needy–it says nothing about using coercive government programs of the modern welfare state.
  • It is not the role of the Court to rewrite laws for Congress.
  • The failed “war on drugs” has reshaped our budgets, politics, laws, and society–and for what?