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Posts Tagged ‘Welfare State’

I’ve written many times about America’s looming fiscal collapse, and I’ve also pontificated about America’s costly and failed welfare state.

I even have speculated about when America reaches a tipping point, with too many people riding in the wagon of government dependency (as illustrated by these famous cartoons, which even have a Danish equivalent).

If you read all my posts on these issues, I like to think you’d be very well informed on these topics. But if you want to save time, my colleague Tom Palmer put all these issues together in a recent speech in Australia.

Best of all, he includes lots of great material on the moral and historical aspects of this discussion.

The good news is that there are signs of progress, at least outside the United States. Denmark, for instance, has cut back on its welfare state.

And now, even the United Kingdom has engaged in some serious welfare reform.

Here are some excerpts from a column in the UK-based Telegraph.

 Why should there have been this improvement in the labour market? …The most convincing explanation is surely the Government’s welfare reforms. They have made it more difficult and less attractive to live off benefits, thereby increasing the supply of workers. In economists’ jargon, the natural rate of unemployment has fallen.

Another Telegraph column digs into the details.

…more jobs are being created in Britain than in the rest of Europe put together. …There has clearly been a game-changer… What confounded the eggheads was that the number of workers is growing four times faster than the number of working-age people: in other words, Britons have become far more likely than pretty much anyone else to look for –and find – work. Why?

The answer is simple economics and incentives.

Fewer people now claim the three main out-of-work benefits than at any time during the Labour years. This, of course, is perfectly explained by IDS’s reforms, which make it a lot harder to live on welfare. Those who have been on incapacity benefit for years have been summoned to assessment centres to see what work they’re fit to do. Far more of the unemployed are being penalised for missing job interviews. A benefits cap has been imposed; housing benefit is being reformed; and the so-called “spare room subsidy” has been abolished, making life more expensive for those on benefits with unused rooms. …this is not about punishing “shirkers”, but helping good people trapped in a bad system. Fixing that system means making life harder for people who have it pretty tough already, at least for a short while. But under the Labour regime, such people were being led down the path to dependency and poverty. A new road had to be built, leading to work. And only now is it becoming clear quite how many people are taking it.

Here’s a chart showing how actual job creation is beating the forecasts.

These are remarkable numbers, particularly when you compare them to the job forecast put forth by the Obama White House, which grossly over-stated the number of jobs that would exist under the so-called stimulus.

The key takeaway is that incentives matter. When you give people unemployment insurance, you reduce incentives to find work. When you give people Obamacare, you reduce incentives to earn income. When you give people welfare and food stamps, you reduce incentives for self-reliance.

And when you add together the panoply of redistribution programs operated by government, it’s easy to see why far too many people are being trapped in government dependency.

If you like charts, here’s a very sobering image of how the welfare state destroys incentives for upward mobility. And if you like anecdotes, here’s a dismal story about government making leisure more attractive than productivity.

P.S. At least one honest leftist acknowledges that there’s a problem.

P.P.S. On a lighter note, here’s a satirical Declaration of Dependency from the left.

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I periodically (some would say over and over and over again, though occasionally made more palatable by using humor and cartoons) warn that the United States should not become a European-style welfare state.

But I wonder whether I spend enough time explaining why this would be a bad idea.

After all, some people may think that you get more security and benefits with the European approach, so why not head in that direction. And these folks aren’t just pointing with approval to the Nordic nations. A writer for the New York Times actually thinks we should copy Italy.

So it is fortuitous that I’m currently in Poland as part of the Free Market Road Show and got to hear a speech by Prof. Leszek Balcerowicz of the Warsaw School of Economics (and former Deputy Prime Minister and head of Poland’s central bank).

Prof. Balcerowicz specifically compared economic performance in Western Europe and the United States, and the results are not very favorable to the welfare state.

Standard economic theory suggests that poor nations should catch up with rich nations. This “convergence theory” actually worked for the first few decades after World War II.

But as you can see from Prof. Balcerowicz’s chart, the convergence process slowed down after the welfare state began to expand in the 1960s. And after the pro-growth reforms of the Reagan years and Clinton years, the United States actually has opened up a bigger lead.

Convergence Balcerowicz

But maybe this chart doesn’t make things sufficiently clear. So I went to the OECD website and found the most recently available data on “average individual consumption,” which is a measure of actual living standards.

OECD AIC

The United States is way ahead of Europe. The only three nations close to us include Norway, which has the good fortune of major oil fields, and Luxembourg and Switzerland, which have the advantage of being tax havens.

By the way, I also shared that data series last year, and you can also see some older AIC data in this 2010 post. But it doesn’t matter how you slice the numbers or when you look at the numbers, the United States has a big lead.

And that lead is now getting larger over time. Heck, the Europeans apparently think any growth – even anemic growth of less than 1 percent – is worth celebrating. Talk about low expectations!

This is why we don’t want to copy Europe. If higher living standards are a good idea (and they are!), then we should copy Hong Kong and Singapore, not France and Italy.

P.S. I’ve always thought that this comparison of the per-capita income of Swedes in Sweden and the per-capita income of folks of Swedish ancestry in the United States is very persuasive.

P.P.S. Leszek Balcerowicz has the honor of being named this year’s winner of the Cato Institute’s Milton Friedman Prize for Advancing Liberty. He’ll receive his award at a very nice black-tie dinner in New York City on May 21.

P.P.P.S. Speaking of swanky black-tie events, the PotL and I got dressed up last Thursday for the annual CIFA dinner in Monaco.

CIFA0941

She’s a lucky girl, huh?

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About one year ago, I decided to create a “Moocher Hall of Fame” to highlight how certain people went above and beyond the call of indolence in their efforts to sponge off taxpayers.

This award isn’t for ordinary deadbeats. You have to do something really special (the bad kind of special) to get recognized.

* Like convincing a government to give you “disability” benefits so you can satisfy your diaper-wearing fetish.

* Such as cutting off your own foot to maintain handouts from the state.

* Or trying to impregnate 12-year old girls to increase household welfare payments.

* And how about plotting to kill the people who are subsidizing your laziness.

We have a new candidate for the MHoF.

Or perhaps I should say candidates. Our contestants are a husband and wife who enjoyed a first class lifestyle at taxpayer expense. Here are some passages from a Fox News report.

A Minnesota couple who allegedly lived in expensive homes and owned a yacht while taking more than $160,000 in state welfare benefits has been arrested. …Court documents allege the pair illegally obtained food stamps and other benefits from 2005 to 2012. According to the criminal complaints, over the years, the Chisholms received medical assistance, welfare payments and food stamp benefits. …When they first applied for welfare benefits, the couple allegedly listed their residence as Andrea Chisholm’s mother’s home in Minneapolis. Shortly after getting approved, they moved to Florida, according to court documents. They remained in that state for at least 28 months, first on their $1.2 million yacht, and then moving to a house, officials said. They collected welfare from Florida, as well as Minnesota during that time, which is prohibited, according to court documents.

So why should the Chisholms win an award?

Well, I thought it was supposed to be difficult for married adults to sponge off taxpayers, particularly if there was an able-bodied male in the household, yet that didn’t stop the Chisholms from raking in the cash.

I guess you could consider them to be the older – and American – version of Danny and Gina (though I don’t know if that deadbeat couple is/was married).

But that’s not why the Chisholms deserve to be in the MHoF. What caught my attention is that they financed a yacht with welfare payments. That’s going above and beyond the call of indolence.

P.S. I have to confess that Mr. Chisholm reminded me of Rand Paul, at least at first glance.

Separated at birth?

Though I feel like apologizing for implying any connection. After all, Senator Paul has been kind enough to give me credit for jokes I steal from other people. More important, he defends taxpayers.

Whereas Mr. Chisholm likes to steal from taxpayers.

That’s a big difference.

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Back in 2010, I shared a video that predicted a catastrophic end to the welfare state.

I said it was an example of “Libertarian Porn” because:

…it is designed for the dark enjoyment of people who think the government is destroying the nation. If you don’t like bloated government and statist intervention and you think that the policies being imposed by Washington are going to lead to hyperinflation and societal collapse, then you will get a certain level of grim satisfaction by watching the video.

While I also stated in that post that I thought the video was far too dour and pessimistic, I don’t automatically reject the hypothesis that the welfare state will lead to societal chaos.

UK RiotsIndeed, I’ve specifically warned that America might experience European-type disarray because of big government and I even wrote about which nations that might be good escape options if the welfare state causes our country to unravel.

Moreover, I’ve speculated about the possible loss of democracy in Europe and specifically said that people should have the right to be well armed just in case society goes you-know-where in a handbasket.

So I’m definitely not a Pollyanna.

I’ve given this background because here’s another video for those of you who revel in the glass being nine-tenths empty. It’s about the United Kingdom, but these numbers from the BIS, OECD, and IMF show that the long-term spending problem is equally severe in the United States.

Be warned, though, that it’s depressing as well as long. And I gather it’s also designed to sell a magazine, so you can ignore that (particularly if you’re not British).

Now that I’ve shared the video, I’ll add a couple of my own observations.

First and foremost, no country is past the point of no return, at least based on the numbers. It doesn’t matter whether we’re talking about the United Kingdom, the United States, Greece, or France. Politicians always have the option of reforming entitlements and restraining the burden of government spending. So long as they follow Mitchell’s Golden Rule over an extended period of time, they can dig out of the mess.

That’s why I’m a big fan of Switzerland’s spending cap, That policy, technically known as the debt brake, imposes a rolling cap on budgetary growth and has been very effective. Colorado also has a spending cap that has been somewhat effective in restraining the cost of the public sector.

My second observation, however, is that some nations may be past the psychological point of return. This is not easy to measure, but it basically means that there’s good reason to be pessimistic when the majority of citizens in a country think it’s morally acceptable to have their snouts in the public trough and to live off the labor of others. When you have too many people riding in the wagon (or riding in the party ship), then it’s difficult to envision how good policy is implemented.

Indeed, the video includes some discussion of how a growing number of people in the United Kingdom now live off the state. And if you add together the votes of people like NatailijaTraceyAnjem, Gina, and Danny, perhaps the United Kingdom has reached a grim tipping point. Especially since welfare spending has dramatically increased in recent years!

A third and final point about the video. I think it focuses too much on deficits and debt. Red ink is a serious issue, to be sure, but it’s very important to understand that too much borrowing is merely a symptom of too much spending.

P.S. On a totally separate matter, everyone should read the USA Today column by Glenn Reynolds. He explains how government is perverting our criminal justice system.

Here are some of the most important passages, but you should read the whole thing.

Here’s how things all-too-often work today: Law enforcement decides that a person is suspicious (or, possibly, just a political enemy). Upon investigation into every aspect of his/her life, they find possible violations of the law, often involving obscure, technical statutes that no one really knows. They then file a “kitchen-sink” indictment involving dozens, or even hundreds of charges, which the grand jury rubber stamps. The accused then must choose between a plea bargain, or the risk of a trial in which a jury might convict on one or two felony counts simply on a “where there’s smoke there must be fire” theory even if the evidence seems less than compelling.

This is why, Glenn explains, there are very few trials. Almost everything gets settled as part of plea bargains.

But that’s not a good thing, particularly when there are no checks and balances to restrain bad behavior by the state.

…although there’s lots of due process at trial — right to cross-examine, right to counsel, rules of evidence, and, of course, the jury itself, which the Framers of our Constitution thought the most important protection in criminal cases — there’s basically no due process at the stage when prosecutors decide to bring charges. Prosecutors who are out to “get” people have a free hand; prosecutors who want to give favored groups or individuals a pass have a free hand, too.When juries decide not to convict because doing so would be unjust, it’s called “jury nullification,” and although everyone admits that it’s a power juries have, many disapprove of it. But when prosecutors decide not to bring charges, it’s called “prosecutorial discretion,” and it’s subject to far less criticism, if it’s even noticed.

Here’s the bottom line.

…with today’s broad and vague criminal statutes at both the state and federal level, everyone is guilty of some sort of crime, a point that Harvey Silverglate underscores with the title of his recent book, Three Felonies A Day: How The Feds Target The Innocent, that being the number of felonies that the average American, usually unknowingly, commits. …The combination of vague and pervasive criminal laws — the federal government literally doesn’t know how many federal criminal laws there are — and prosecutorial discretion, plus easy overcharging and coercive plea-bargaining, means that where criminal law is concerned we don’t really have a judicial system as most people imagine it. Instead, we have a criminal justice bureaucracy that assesses guilt and imposes penalties with only modest supervision from the judiciary, and with very little actual accountability.

Glenn offers some possible answers.

…prosecutors should have “skin in the game” — if someone’s charged with 100 crimes but convicted of only one, the state should have to pay 99% of his legal fees. This would discourage overcharging. (So would judicial oversight, but we’ve seen little enough of that.) Second, plea-bargain offers should be disclosed at trial, so that judges and juries can understand just how serious the state really thinks the offense is. …And finally, I think that prosecutors should be stripped of their absolute immunity to suit — an immunity created by judicial activism, not by statute — and should be subject to civil damages for misconduct such as withholding evidence. If our criminal justice system is to be a true justice system, then due process must attach at all stages. Right now, prosecutors run riot. That needs to change.

Amen to all that. And you can read more on this topic by clicking here.

The Obama years have taught us that dishonest people can twist and abuse the law for ideological purposes.

Obamacare rule of law cartoonWhether we’re talking about the corruption of the IRS, the deliberate disregard of the law for Obamacare, or the NSA spying scandal, the White House has shown that it’s naive to assume that folks in government have ethical standards.

And that’s also true for the law enforcement bureaucracy, as Glenn explained. Simply stated, people in government abuse power. And jury nullification, while a helpful check on misbehavior, only works when there is a trial.

Indeed, I’m now much more skeptical about the death penalty for many of the reasons Glenn discusses in his column. To be blunt, I don’t trust that politically ambitious prosecutors will behave honorably.

That’s why, regardless of the issue, you rarely will go wrong if you’re advocating fewer laws and less government power.

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My all-time most-viewed blog post wasn’t the parable about beer and the tax system.

Nor was it the joke about California, Texas, and the Coyote.

Those won the silver and bronze trophies. Welfare State Wagon CartoonsThe gold medal belongs to the two pictures that explain how the welfare state begins and how it ends.

Those images make a very serious point that the social capital of a nation gets eroded and the economy gets overburdened when there are too many people riding in the wagon and not enough people pulling the wagon.

And I’ve been especially fond of the wagon cartoons because they were my idea.

Unfortunately, I can no longer claim to be the first one to explain this relationship using humor.

I’m currently in Copenhagen, where I just gave a speech on the collapse of the welfare state at the Center for Politiske Studier (CEPOS). While at the CEPOS offices, I noticed a big print hanging on the wall and it was eerily familiar.

One of Denmark’s main newspapers put together this cartoon, based on CEPOS research, about the growing share of the population living off the state. It shows a boat of galley slaves (i.e., taxpayers) towing a party boat filled with people (like the infamous Lazy Robert) who live off the state.

Denmark Party Boat

Since Denmark has a very large burden of government spending, you won’t be surprised to learn that the dependency class is a huge chunk of the population.

Here’s a table from the CEPOS study.

You don’t to be fluent in Danish to get the message. The first line is the number of government bureaucrats (and they’re really expensive in Denmark). The second line is the number of people getting transfers.

Those categories are then added together on line 3 and compared to the adult population on line 4.

The key takeaway is that two-thirds of the population is riding in the wagon!

Denmark 67 percent Dependency

No wonder the burden of government spending is enormous and tax rates are so high.

It’s so bad that I even joked that birthers should accuse Obama of being born in Denmark.

But at least the Danes have a sense of humor. Here’s Mads Lundby Hansen, one my friends at CEPOS, holding the “trophy” they received from the Swedish Taxpayers Association.

Denmark Tax Prize

Not exactly the prize a nation should want to win.

Though it’s worth noting that Denmark actually does better than the United States in the Economic Freedom of the World rankings.

Their welfare state is bigger than ours, so they get a bad score on fiscal policy. But they are more pro-capitalism in other areas and their overall grade is higher.

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When I posted a video about “libertarian porn” back in 2010, readers presumably were either relieved or disappointed that there was no nudity.

Heck, even my libertarian sex jokes don’t involve sex, so I doubt I’ll be in much demand at comedy clubs.

I may get the same reaction today, because we’re going to have a discussion – but only G-rated – about what our British friends are referring to as “poverty porn.”

More specifically, that’s the term that’s being used for television reality shows in the United Kingdom that expose welfare fraud. Here are some excerpts from a story in U.S. News & World Report.

A shoplifter, a recovering drug addict and a young couple barely able to feed their kids are among the stars of “Benefits Street” — a smash hit reality show featuring welfare recipients that has stirred up a storm of controversy in Britain. The program zooms in on a rough Birmingham street where 9 out of 10 people are said to live off state payouts, chronicling over five episodes the lives of jobless neighbors as they struggle with their daily problems. …Britain’s welfare state has long been a subject of pride among many Britons, but these days attitudes toward benefits have hardened — and polls suggest that support for pouring taxpayer money into welfare, especially for the young, is at a record low. British tabloids are replete with hysteria stories about unemployed people buying flat-screen TVs and designer goods using welfare funds. And “Benefits Street” is the hottest in a growing genre of reality shows about the poor that has been dubbed “poverty porn” because of its sensationalist nature. Even the sober BBC has jumped on the bandwagon with a documentary called “Britain on the Fiddle,” which set out to catch benefits fraudsters in the act on camera. …The “poverty porn” trend comes as Prime Minister David Cameron’s government tries to overhaul the benefits system.

By the way, if you want examples of the “hysteria stories” in the “tabloids,” check out NatailijaTraceyAnjem, and Gina and Danny.

You’ll understand why I wrote that, “if there was a welfare Olympics, the U.K. would have a lot more medals.”

Anyhow, the good news is that politicians in the United Kingdom are finally taking some measures to rein in the welfare state. I don’t know if it’s because television programs are exposing waste and fraud, but it’s clearly good news since welfare spending has exploded over the past 10-plus years in the UK.

Here’s part of a report in the Telegraph.

In a speech that seeks to build on “extraordinary” jobless figures, the Work and Pensions Secretary will promise to end the “twilight world” of entire communities that are reliant on benefits. …Mr Duncan Smith will warn that there are still benefits-dependent areas that “for the most part remain out of sight”. Sources suggested that this is a reference to communities such as the one seen on Benefits Street, a Channel 4 documentary, and said that he was on “a crusade to rescue Benefits Street Britain”. “I have long believed there is no kindness in a benefits system that traps people, leaving them in a twilight world where life is dependent on what is given to you, rather than what you are able to create,” Mr Duncan Smith will say. …A Conservative government wants to ensure that welfare is “a journey that people are on, rather than a destination where they stay”, he will add.

I’ll withhold judgement on whether the squishy Cameron government actually is doing something good in this area, but I’m glad that there’s at least pressure for positive change.

Which is why we need some “poverty porn” in America.

Maybe that would be a wake-up call for our politicians on how the welfare state creates a poverty trap and erodes social capital (something that a few honest liberals have acknowledged).

P.S. In an example of sloppy/biased journalism, the U.S. News article states that “The show has struck a strong chord in a nation…still reeling from its most brutal austerity measures in a generation, with basic public services trimmed drastically.” Why is that passage biased and/or sloppy? Well, because as I had to explain to Paul Krugman, there hasn’t been any genuine austerity in the United Kingdom.

P.P.S. The story in the Telegraph also contains this passage.

The number of people in work rose by 280,000 in the past three months to a record 30.15 million, the biggest quarterly increase in employment on record. Minutes released by the Bank of England’s Monetary Policy Committee said that the “tightening in the eligibility requirements for some state benefits might have led to an intensification of job search”. Mr Duncan Smith claimed that the comments were a tacit endorsement of his welfare reform programme. He said the Bank of England, led by Mark Carney, now believed that the welfare reforms had contributed to the dramatic fall in unemployment.

In other words, this Michael Ramirez cartoon is correct. The numbers from the UK are evidence – in addition to all this evidence – that people are more likely to find jobs when they can’t rely on taxpayer handouts.

P.P.P.S. If “poverty porn” changes the political environment, it could mean the end of the Moocher Hall of Fame.

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There’s an old joke about two guys camping in the woods, when suddenly they see a hungry bear charging over a hill in their direction. One of the guys starts lacing up his sneakers and his friend says, “What are you doing? You can’t outrun a bear.” The other guys says, I don’t have to outrun the bear, I just need to outrun you.”

That’s reasonably amusing, but it also provides some insight into national competitiveness. In the battle for jobs and investments, nations can change policy to impact their attractiveness, but they also can gain ground or lose ground because of what happens in other nations.

The corporate tax rate in the United States hasn’t been changed in decades, for instance, but the United States has fallen further and further behind the rest of the world because other nations have lowered their rates.

Courtesy of a report in the UK-based Telegraph, here’s another example of how relative policy changes can impact growth and competitiveness.

The paper looks at changes in the burden of welfare spending over the past 14 years. The story understandably focuses on how the United Kingdom is faring compared to other European nations.

Welfare spending in Britain has increased faster than almost any other country in Europe since 2000, new figures show.  The cost of unemployment benefits, housing support and pensions as share of the economy has increased by more than a quarter over the past thirteen years – growing at a faster rate than in most of the developed world. Spending has gone up from 18.6 per cent of GDP to 23.7 per cent of GDP – an increase of 27 per cent, according to figures from the OECD, the club of most developed nations. By contrast, the average increase in welfare spending in the OECD was 16 per cent.

This map from the story shows how welfare spending has changed in various nations, with darker colors indicating a bigger expansion in the welfare state.

Welfare Spending - Europe

American readers, however, may be more interested in this excerpt.

In the developed world, only the United States and the stricken eurozone states of Ireland, Portugal and Spain – which are blighted by high unemployment – have increased spending quicker than Britain.

Yes, you read correctly. The United States expanded the welfare state faster than almost every European nation.

Here’s another map, but I’ve included North America and pulled out the figures for the countries that suffered the biggest increases in welfare spending. As you can see, only Ireland and Portugal were more profligate than the United States.

Welfare Spending - NA + WE

Needless to say, this is not a good sign for the United States.

But the situation is not hopeless. The aforementioned numbers simply tell us the rate of change in welfare spending. But that doesn’t tell us whether countries have big welfare states or small welfare states.

That’s why I also pulled out the numbers showing the current burden of welfare spending – measured as a share of economic output – for countries in North America and Western Europe.

This data is more favorable to the United States. As you can see, America still has one of the lowest overall levels of welfare spending among developed nations.

Welfare Spending - NA + WE -Share GDP

Ireland also is in a decent position, so the real lesson of the data is that the United States and Ireland must have been in relatively strong shape back in 2000, but the trend over the past 14 years has been very bad.

It’s also no surprise that France is the most profligate of all developed countries.

Let’s close by seeing if any nations have been good performers. The Telegraph does note that Germany has done a good job of restraining spending. The story even gives a version of Mitchell’s Golden Rule by noting that good policy happens when spending grows slower than private output.

Over the thirteen years from 2000, Germany has cut welfare spending as a share of GDP by 1.5 per cent… Such reductions are possible by increasing welfare bills at a lower rate than growth in the economy.

But the more important question is whether there are nations that get good scores in both categories. In other words, have they controlled spending since 2000 while also having a comparatively low burden of welfare outlays?

Welfare Spending - The Frugal FiveHere are the five nations with the smallest increases in welfare spending since 2000. You can see that Germany had the best relative performance, but you’ll notice from the previous table that Germany is not on the list of five nations with the smallest overall welfare burdens. Indeed, German welfare spending consumes 26.2 percent of GDP, so Germany still has a long way to go.

The nation that does show up on both lists for frugality is Switzerland. Spending has grown relatively slowly since 2000 and the Swiss also have the third-lowest overall burdens of welfare spending.

Hmmm…makes you wonder if this is another sign that Switzerland’s “debt brake” spending cap is a policy to emulate.

By the way, Canada deserves honorable mention. It has the second-lowest overall burden of welfare spending, and it had the sixth-best performance in controlling spending since 2000. Welfare outlays in our northern neighbor grew by 10 percent since 2000, barely one-fourth as fast as the American increase during the reckless Bush-Obama years.

No wonder Canada is now much higher than the United States in measures of economic freedom.

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