Tag: welfare state

Good Point

In his recent book Ill Fares the Land, a passionate defense of the democratic socialist ideal, the historian Tony Judt writes that Hayek would have been (justly) doomed to obscurity if not for the financial difficulty experienced by the welfare state, which was exploited by conservatives like Margaret Thatcher and Ronald Reagan.

Yes, if Hayek had been wrong about the viability of the welfare state, then his warnings would have had less resonance.

This line appears in a generally thoughtful treatment of how The Road to Serfdom has stayed in print for decades and become a bestseller in the past two years. The article by Jennifer Schuessler appeared in the New York Times Book Review last July, but has only just come to my attention.

Overstating Differences Within the Tea Party

In a long essay in this morning’s Wall Street Journal, “What the Tea Partiers Really Want,” University of Virginia psychology professor Jonathan Haidt argues, as the subtitle puts it, that “the passion behind the populist insurgency is less about liberty than a particularly American idea of karma.” Taking his cue from Dick Armey and Matt Kibbe’s claim in their new book, Give Us Liberty: A Tea Party Manifesto, that tea partiers “just want to be free, … so long as we don’t infringe on the same freedom of others,” Haidt notes that his research shows that while self-described libertarians agree most strongly with that view, liberals are not far behind, in contrast with the social conservatives “who make up the bulk of the tea party,” who are more tepid in their endorsement of that idea.

So why are libertarians and conservatives largely teamed up in the tea party? Haidt doesn’t really answer that question. Rather, his main aim, as noted, is to show that the tea party’s moral passion is not so much about liberty as about “an old and very conservative idea” of karma, which “combines the universal human desire that moral accounts should be balanced with a belief that, somehow or other, they will be balanced.” In other words, “kindness, honesty and hard work will (eventually) bring good fortune; cruelty, deceit and laziness will (eventually) bring suffering. No divine intervention is required; it’s just a law of the universe, like gravity.”

Yet in “the last 80 years of American history” the welfare state has undermined that moral balance, Haidt continues, nowhere more clearly, recently, than with the Bush bank bailout, using taxpayer dollars, which Armey and Kibbe claim was the real start of the tea-party movement.

Listen, for example, to Rick Santelli’s “rant heard ‘round the world” on CNBC last year and its most famous lines: “The government is promoting bad behavior,” and “How many of you people want to pay for your neighbors’ mortgage that has an extra bathroom and can’t pay their bills?” It’s a rant about karma, not liberty.

Haidt is certainly on to something here. And he develops and illustrates his thesis in some detail, including how the modern liberals’ focus on equality, and their attraction to government programs securing it, makes them uneasy with this karma, separating them from libertarians and conservatives. But he also argues that research that he and a colleague have done on “the five main psychological ‘foundations’ of morality” shows that “libertarians are morally a bit more similar to liberals than to conservatives,” leading him to conclude that it’s not clear how long the tea party blend of libertarians and conservatives can stay blended.

I won’t go into the details of Haidt’s five main psychological foundations of morality, except to say that, at least as presented in this essay, they raise as many questions as they answer. I will add, however, that lumping people into even self-identified ideological groupings is always problematic, since any such “group” will be constituted by individuals with a range of views and tendencies. Moreover, and more important, the contrast Haidt draws between liberty and what he calls karma is doubtless overdrawn. After all, the “libertarian” focus on liberty and the “conservative” focus on “karma” most often come to the same thing, at bottom. The “conservative” notion of individual responsibility, coupled with positive and negative sanctions, is fully realized only in a regime of liberty of a kind that “libertarians” have long promoted. In fact, to flesh that out more fully, the Journal has another useful essay this morning on the editorial page, Peter Berkowitz’s “Why Liberals Don’t Get the Tea Party Movement.” Much to think about as we cruise to the elections little more than two weeks away.

Should the U.S. Restrict Immigration?

Recent debates about Arizona’s new immigration law have taken as self-evident that immigration restrictions are good policy, with the only question being which level of government should enforce the law, and how. Yet the case for immigration restrictions is far from convincing.

Advocates of these restrictions rely on four possible arguments. First, that immigration dilutes existing languages, religions, family values, cultural norms, and so on. Second, that immigrants flock to countries with generous social welfare programs, leading to urban slums and inundated social networks. Third, that immigration can harm the sending country if the departing immigrants are high-skilled labor. Fourth, that immigration lowers the income of native, low-skill workers.

All of these arguments are wrong, overstated, or misguided. Immigration may change cultural values or norms, but nothing suggests this is a negative. Many societies flourish because they have incorporated new businesses, cultures, foods, and so on. More important, immigrants normally assimilate to the pre-existing culture provided government policy does not segregate them from the rest of society. In the past rich countries have incorporated large immigration flows with modest adjustment costs. Many of these immigrants lived in difficult conditions at first, but within a generation they achieved middle class status or better.

The possibility that immigration puts pressure on the welfare state is a reasonable concern, although existing evidence does not suggest this is a major problem. In any case, the possibility that a generous social safety net might encourage immigration is a reason to moderate this safety net, rather than a reason to restrict immigration. Indeed, expanded immigration might create pressure to keep the welfare state modest.

The risk that immigration drains high-skilled labor from poor countries is real, but this kind of immigration has positive impacts on the sending country that mitigate against any negatives. The possibility of migration to a high-wage country generates an incentive to acquire education, and only some of those educated actually leave. The threat of a brain drain nudges poor countries away from bad policies-such as excessive tax rates-that generate the brain drain in the first place. Many immigrants send remittances to friends or relatives in their country of origin. Plus, if borders were really open, many immigrants would seek education abroad but return to their home country, knowing they could leave if economic factors so dictated. Similarly, with open borders many immigrants would pursue temporary stays in higher wage countries. Temporary migration is common in many countries now, and was common in the U.S. before the tightening of immigration rules in the 1910s and 1920s. Temporary migration raises fewer of the standard concerns than permanent migration, while still helping many people in low-wage countries.

Concern for the poor, assuming this includes the poor in other countries, argues for vastly expanded immigration since many potential immigrants are much poorer than the natives whose wages they might depress. Only a bizarre view of equity favors people earning the minimum wage in rich countries over people near starvation in developing countries.

The conclusion that open borders is the best immigration policy is all the stronger because attempts to restrict immigration have their own negatives. These include the direct costs of border controls, the creation of a violent black market for immigration, and incentives for corruption. Further, immigration may have beneficial effects on productivity by fostering competition and introducing new ideas, approaches, business models, products, and so on. At the same time, many people in receiving countries enjoy the influence of new cultures. Immigrants also work at jobs for which the native supply is small.

Reasonable people can argue that immigration should increase gradually to moderate the transition costs. But any reasonable balancing implies vastly expanded immigration relative to current levels. This would improve the welfare of poor people in other countries far more than foreign aid.

C/P at psychologytoday.com

The G-20 Fiscal Fight: A Pox on Both Their Houses

Barack Obama and Angela Merkel are the two main characters in what is being portrayed as a fight between American “stimulus” and European “austerity” at the G-20 summit meeting in Canada. My immediate instinct is to cheer for the Europeans. After all, “austerity” presumably means cutting back on wasteful government spending. Obama’s definition of “stimulus,” by contrast, is borrowing money from China and distributing it to various Democratic-leaning special-interest groups.
 
But appearances can be deceiving. Austerity, in the European context, means budget balance rather than spending reduction. As such, David Cameron’s proposal to boost the U.K.’s value-added tax from 17.5 percent to 20 percent is supposedly a sign of austerity even though his Chancellor of the Exchequer said a higher tax burden would generate “13 billion pounds we don’t have to find from extra spending cuts.”
 
Raising taxes to finance a bloated government, to be sure, is not the same as Obama’s strategy of borrowing money to finance a bloated government. But proponents of limited government and economic freedom understandably are underwhelmed by the choice of two big-government approaches.
 
What matters most, from a fiscal policy perspective, is shrinking the burden of government spending relative to economic output. Europe needs smaller government, not budget balance. According to OECD data, government spending in eurozone nations consumes nearly 51 percent of gross domestic product, almost 10 percentage points higher than the burden of government spending in the United States.
 
Unfortunately, I suspect that the “austerity” plans of Merkel, Cameron, Sarkozy, et al, will leave the overall burden of government relatively unchanged. That may be good news if the alternative is for government budgets to consume even-larger shares of economic output, but it is far from what is needed.
 
Unfortunately, the United States no longer offers a competing vision to the European welfare state. Under the big-government policies of Bush and Obama, the share of GDP consumed by government spending has jumped by nearly 8-percentage points in the past 10 years. And with Obama proposing and/or implementing higher income taxes, higher death taxes, higher capital gains taxes, higher payroll taxes, higher dividend taxes, and higher business taxes, it appears that American-style big-government “stimulus” will soon be matched by European-style big-government “austerity.”
 
Here’s a blurb from the Christian Science Monitor about the Potemkin Village fiscal fight in Canada:

This weekend’s G-20 summit is shaping up as an economic clash of civilizations – or at least a clash of EU and US economic views. EU officials led by German chancellor Angela Merkel are on a national “austerity” budget cutting offensive as the wisest policy for economic health, ahead of the Toronto summit of 20 large-economy nations. Ms. Merkel Thursday said Germany will continue with $100 billion in cuts that will join similar giant ax strokes in the UK, Italy, France, Spain, and Greece. EU officials say budget austerity promotes the stability and market confidence that are prerequisites for their role in overall recovery. Yet EU pro-austerity statements in the past 48 hours are also defensive – a reaction to public statements from US President Barack Obama and G-20 chairman Lee Myung-bak, South Korea’s president, that the overall effect of national austerity in the EU will harm recovery. They are joined by US Treasury Secretary Tim Geithner, investor George Soros, and Nobel laureate and columnist Paul Krugman, among others, arguing that austerity works against growth, and may lead to a recessionary spiral.

The Welfare State, Taken to Its Logical Conclusion

The economic tragedy unfolding in Greece is the welfare state taken to its logical conclusion.  When groups of people use the state to live at the expense of others, the feedback loop about the costs of those transfers is attenuated – often by design.  The welfare state therefore makes commitments that it cannot honor.  By the time creditors or taxpayers say, “Enough,” the welfare state has created a clash between expectations and means that leads to unrest and hardship – a clash that never had to occur.

Reuters reports that this tragedy is playing itself out in Canada, where the Medicare system is straining the budgets of taxpayers and provincial governments – even as Canada remains infamous for providing inadequate access to care.  According to Reuters, the provincial government in populous Ontario predicts that “health care could eat up 70 percent of its budget in 12 years, if all these costs are left unchecked.”  Toronto-Dominion Bank senior economist at Derek Burleton remarks:

There’s got to be some change to the status quo…We can’t continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services.  At some stage we’re going to hit a breaking point.

The provinces are contemplating measures that would further reduce access, such as ratcheting government price controls downward, “health taxes” on medical services, and (gasp!) charging patients. (Speaking of feedback loops, an economist at Scotia Capital reasons that patients “will use the services more wisely if they know how much it’s costing…If it’s absolutely free with no information on the cost and the information of an alternative that would be have been more practical, then how can we expect the public to wisely use the service?”)

The Greek and Canadian dramas are a preview of what the welfare state, aided by its most recent expansion, will provoke here in the United States.  Again, Reuters:

Canada, fretting over budget strains, wants to prune its system, while the United States, worrying about an army of uninsured, aims to create a state-backed safety net.

Burleton captures the problem nicely:

[F]rom an economist’s standpoint, we point to the fact that sometimes Canadians in the short term may not realize the cost.

Indeed, that’s the very essence of the welfare state, and why its logical outcome is crisis.

Charles Murray in Slovakia

Cato co-sponsored a successful conference in Bratislava, Slovakia last week with Trend business magazine, “Slovakia at the Crossroads of Reform.” At a time when the crisis in the eurozone is exposing the unsustainable nature of the European welfare state – and one month before general elections in the country – the event brought together international experts and political and opinion leaders from a broad ideological spectrum, including from the newly formed classical liberal party, Freedom and Solidarity, which is now polling at 10-11 percent. Here’s a video of Charles Murray’s timely keynote address on “Freedom in the 21st Century.”