Feeds:
Posts
Comments

Archive for the ‘Dependency’ Category

One of the more interesting policy debates, both in America and around the world, is whether convoluted and counterproductive welfare states should be scrapped and replaced with a “basic income” payment from the government.

Finland is experimenting with the concept.

Authorities in Finland are considering giving every citizen a tax-free payout of €800 (£576) each month. Under proposals being draw up by the Finnish Social Insurance Institution (Kela), this national basic income would replace all other benefit payments, and would be paid to all adults regardless of whether or not they receive any other income. …the basic income is intended to encourage more people back to work. At present, many unemployed people would be worse off if they took on low-paid temporary jobs due to loss of welfare payments.

This idea has been, or will be, tried in a few places.

…previous experiments where a basic income has been successfully trialed. The Canadian town of Dauphin experimented with a basic income guarantee in the 1970s and the results – both social and economic – were largely positive. …The Dutch city of Utrecht is also planning to introduce a basic income, albeit solely for welfare recipients. From next month more than 250 unemployed residents of the city will be given a monthly sum to live on, with researchers monitoring the outcome to determine what effect it has on employment.

In a column for City Journal, Guy Sorman has a positive assessment of the Finnish plan.

…each citizen will be free to use the money as he or she sees fit. The idea is that people are responsible for their actions. If someone decides to spend their €800 on vodka, that is their decision, and has nothing to do with the government. In return for the UBI, however, the public accepts the elimination of most welfare services. Currently, the Finnish government offers a variety of income-based assistance programs for everything from housing to children’s education to property insulation. Axing these programs should free up enough public resources to finance the UBI. The bureaucracy that currently governs welfare payments will disappear. …The Left is cheered by the socialistic idea of government-assistance-for-all. The Right looks forward to the unprecedented drop in bureaucratic control over citizens… The Finnish government is expecting the negative income tax to have a beneficial effect on employment and growth.

Though apparently the scheme will have a limited rollout.

Finland’s trial of a basic income model is set to start in 2017 and will involve a payment of 550 euros to those selected to participate.

And those selected will be a limited group.

…the full, unconditional basic income proposal would be too expensive. Instead the trial will target people already in receipt of benefits and offer a basic income at the same level to replace them. …People would then be able to take on new work without losing their social security payments, which could remove one of the disincentives to employment. People with income-linked unemployment benefits, which are higher than the state-provided basic unemployment benefit, would continue to receive them. …The trial will focus on individuals aged 25 to 63 with low incomes as that group will provide the best data on whether or not the basic income increases employment.

Here’s more reporting about the potential Dutch experiment.

…in Utrecht, one of the largest cities in the Netherlands, and 19 other Dutch municipalities, a tentative step… “We don’t call it a basic income in Utrecht because people have an idea about it – that it is just free money and people will sit at home and watch TV,” said Heleen de Boer, a Green councillor in that city, which is half an hour south of Amsterdam. Nevertheless, the municipalities are, in the words of de Boer, taking a “small step” towards a basic income for all by allowing small groups of benefit claimants to be paid £660 a month – and keep any earnings they make from work on top of that. Their monthly pay will not be means-tested. They will instead have the security of that cash every month, and the option to decide whether they want to add to that by finding work. …The motivation behind the experiment in Utrecht, according to Nienke Horst, a senior policy adviser to the municipality’s Liberal Democrat leadership, is for claimants to avoid the “poverty trap” – the fact that if they earn, they will lose benefits, and potentially be worse off.

The concept is also gaining traction in New Zealand.

Leader of the opposition Andrew Little said his Labour party was considering the idea as part of proposals to combat the “possibility of higher structural unemployment”. …Mr Little confirmed his party would debate the idea at its conference on employment at the end of March. He said significant changes to way people worked were “unavoidable” and “we expect that in the future world of work there will be at least a portion of the workforce that will rapidly move in and out of work”.

You’ll have noticed that some of the arguments for basic income seem very reasonable. Improve incentives to work and reduce bureaucracy.

Indeed, this is why the idea has support among some sensible people. I cited some of them in my article back in 2013, but there are several more.

Sam Bowman explains his support for the concept in a column for the London-based Adam Smith Institute.

For me, it’s about improving the capitalism we already have. …it would be an improvement, for three main reasons.

His first reason is that some people would benefit from more money, though I’m not sure this has anything to do with “improving capitalism.”

Our existing welfare system is designed for a world where finding a job would be enough to give most people a tolerable standard of living. But in-work poverty is an increasing problem…a basic income would reorient the whole system towards helping people who don’t have enough money, irrespective of why that is.

His second reason is that it would be good to streamline the welfare state.

Our existing welfare system has built up a large amount of unnecessary complexity that could be streamlined. …benefits are fundamentally about giving money to people who do not have enough of it. Housing benefit, the pension credit, jobseeker’s allowance, income support and tax credits all do this. …Reducing complexity is valuable but not the only, or indeed the main, appeal of the basic income.

And his third reason is that a basic income could be matched with other reforms that would boost economic performance.

Many other policies that would increase total wealth are not very progressive…doing these things ends up making lower earners pay more tax than we would like. …An easy way to correct that would be to redistribute the overall wealth gain to those poor natives so that they too are made better off in the short run as well as the long run.

Writing for National Review, Iain Murray adds his sympathetic analysis.

Anyone who wants some creature comforts, which most of poor do…would be encouraged to work rather than the reverse. …Most people will use money to make their lives better. Indeed, there is some evidence that most poor people suddenly presented with what amounts to capital will become capitalists. This is surely a good thing. …The lack of a welfare bureaucracy will also encourage charity and mutual aid for the really hard cases.

Though he does recognize that there are “two big, and possibly irresolvable, caveats.”

…unless we were to find some way of exempting this from the political process, politicians would…turn it into a UBI plus extra, targeted, welfare system.  …it still relies on robbing Peter to pay Paul, even if Peter gets some of the money back.

Now let’s shift back from theory to the real world. Switzerland is poised to vote early next month on a referendum that would provide a rather generous government-guaranteed income every month.

Switzerland will become the first country in the world to vote on the introduction of unconditional income at the national level. But it has not won much support from traditional politicians, even those on the left. …The federal government estimates the cost of the proposal at 208 billion francs a year. Around 153 billion taxes would have to be levied from taxes, while 55 billion francs would be transferred from social insurance and social assistance spending.

Why is the cost so expensive? Because, as explained in another article, the referendum would provide “a basic income of about 2,500 francs ($2,600) a month.”

Which may explain why it appears the traditionally sensible Swiss voters almost certainly will vote against the scheme by an overwhelming margin.

Seventy-two percent were against establishing the unconditional stipend, which the initiators say would “enable the entire population have a decent existence and participate in public life,” the survey found. Just 24 percent support it, while 4 percent were still undecided, had voting been conducted this month. “Support for the ‘no’-camp is expected to increase as the campaign progresses,” pollster gfs.bern said in its survey for broadcaster SRG published on Friday. “This indicates a clear rejection on the day of the ballot.” The basic income vote will take place on June 5.

For what it’s worth, I’m at a conference in Switzerland, where I spoke earlier today on this topic as part of a panel that included my colleague Michael Tanner, along with former Labor Secretary Robert Reich and Swiss Professor Reiner Eichenberger.

I urged the audience to oppose the referendum because of what I called a nope-hope-dope argument.

  1. The “nope” part is my rejection of the belief on the left that technology will destroy jobs. We’ve had major changes in the economy, leading first to big losses in agricultural jobs and then significant losses in manufacturing jobs. But those changes didn’t lead to less employment. Instead, those jobs were lost as part of changes that made all of us much wealthier. So while I have no idea what will happen in the future, I have considerable faith that market forces will create productive options for people.
  2. The “hope” part is my admiration of the private initiatives that are taking place and my semi-support for the local experiments that are taking place. I want poor people to have more money and I want them to have hope. And these experiments by private charities and local governments may teach us useful things that help us reform the very inefficient welfare states operated by central governments.
  3. And the “dope” part of my presentation was my description of the people who think that we would get good results with a basic income scheme operated by central governments. Simply stated, I fear that such a proposal would be too generous, thus reducing over time incentives to work (perfectly captured by this Wizard-of-Id parody). I also fear it would require economically destructive tax rates, either explicitly to fund a basic income for everyone, or implicitly because it would be phased out like the EITC and therefore drive a larger wedge between pre-tax income and post-tax consumption for a huge number of taxpayers.

Here, for posterity, is a photo of the panelists.

I did mention, by the way, that it would be very interesting to see an individual Swiss canton conduct an experiment, replacing all current redistribution schemes with a basic income.

And since the supporters of the referendum tweeted that statement, I’ll interpret that as a sign that I’m a consensus builder!

But I have to confess that the organizers of the conference probably should have cast me aside and instead invited Professor David Henderson of the Naval Postgraduate School.

In a new article for the Independent Institute, he looks the real-world numbers for the United States and throws very cold water on the idea of the basic income guarantee. Here’s an excerpt of his calculation of the fiscal cost of such a scheme.

The annual BIG expenditure for U.S. citizens, then, would be approximately $2.068 trillion. This expenditure estimate does not include any expenditure for administering the program or for monitoring for fraud. In other words, it is a minimum estimate. …Assume, as Zwolinski advocates, that such a program would displace all 126 federal antipoverty programs and all state and local government antipoverty programs. …Notice what would happen. A $2.068 trillion program would replace programs whose total expenditures in 2012 were $952 billion. Even rounding up the $952 billion to $1 trillion, the program that Zwolinski advocates is more than twice as costly in budgetary terms as current antipoverty programs. …How would Zwolinski fund this major increase in federal spending? …he would need to have the federal government increase taxes from their estimated $2.993 trillion to $4.361 trillion, an increase of 45.7 percent.

Those fiscal costs could be reduced with a clawback mechanism (i.e., means testing the basic income grant), but that would require very high implicit marginal tax rates.

Zwolinski suggests a way around the huge tax increases that I have laid out: the way proposed by Charles Murray in his book In Our Hands: A Plan to Replace the Welfare State (2006). That method is to tax $5,000 of the $10,000 grant with a 20-percentage-point increase in the marginal tax rate on people who make $25,000 or more. At the $50,000 income level, $5,000 of the grant would be paid back. This method does reduce the amount of other taxation required, but, of course, it increases marginal tax rates over a range of incomes by 20 percentage points. …This increase would be a substantial disincentive to work and a substantial incentive to make money in the underground economy.

And he also cites what I fear would be an enormous problem, which is that we couldn’t trust politicians to keep the basic income grant at a modest level, and we also couldn’t trust them to permanently eliminate other redistribution problems.

…there is another major problem: the “public-choice” problem. …those who advocate further government programs…must show that there is a high probability that such government programs will not grow further. …in the case of a BIG, they must show that there is a high probability that a scaled-down BIG really would replace all of the existing programs for the poor and near poor. This is hard to do because the various interest groups that favor the existing programs will not sit back: they will fight to keep some or all of those programs. Zwolinski…writes that if the BIG “were implemented via a constitutional amendment, many of the public choice considerations could be reduced, I think, to an acceptable level.”11 Yet, as Randy Barnett (2004) and Robert Levy and William Mellor (2008) show, even strict constitutional limits on federal government power have yielded to the U.S. president, Congress, and the courts.

Think of this as presenting the same challenge presented by a national sales tax or value-added tax. There are good arguments for those proposals, but the most powerful objection is that politicians can’t be trusted to permanently eliminate or reduce existing income taxes.

So if a basic income isn’t the answer, what should we do?

I agree with the scholars from the Austrian School that decentralization is the right approach. We already did that for basic welfare payments during the Clinton years, and we should do it for all other forms of income redistribution, perhaps starting with food stamps and Medicaid.

Read Full Post »

The welfare state is bad news. It’s bad for taxpayers and it’s bad for recipients.

It’s also bad for the economy since prosperity is in part a function of the quantity of labor that is productively employed. As such, government programs that lure people into dependency obviously reduce national economic output.

We can get a sense of how the nation is being hurt by reviewing some of the scholarly literature.

Writing for the Cato Journal, Lowell Gallaway and Daniel Garrett explore the relationship between redistribution spending and poverty reduction.

They start by pointing out that more welfare spending used to be associated with reductions in poverty. But when President Johnson launched his so-called War on Poverty and dramatically increased the level of redistribution, the link between welfare spending and poverty reduction substantially weakened.

…the real per capita cost in the United States of federal public aid rose 70 percent in the 11 years between 1953—the first year the federal government reported an official poverty rate—and Johnson’s 1964 remarks. In the 11 years that followed, however, that same real per capita cost increased by an astonishing 434 percent—that is, more than six times faster than in 1953–64. …in 1953–64, every 10 percentage point increase in public aid was associated with a 1 percentage point drop in the official poverty rate. Compare that with the experience of the 11 years following the outbreak of hostilities in the War on Poverty. During that interval, every 1 percentage point fall in the poverty rate was accompanied by a 50 percentage point increase in real public aid. …the relationship between public aid and the poverty rate is subject to the principle of diminishing returns.

Not just a diminishing return. There’s a point at which more redistribution actually leads to an increase in poverty.

Just like there’s a point at which higher tax rates lead to less revenue. And the authors recognize this link.

This is a Laffer Curve type relationship, which is to say that while public aid initially decreases poverty, there eventually comes a point at which additional increases in public aid increase poverty. …the effectiveness of additional real public aid expenditures, as a policy instrument designed to reduce the poverty rate, had been exhausted by the mid-1970s. Indeed, any additional public aid beyond the mid-1970s levels would result in an increase, not a decrease, in the poverty rate.

Gallaway and Garrett crunch the numbers.

…to calculate the impact of public aid expenditures on the incidence of poverty in the United States. The greatest poverty-reducing effect occurs at $1,291 of per capita expenditures on public aid, which produces a 6.07 percentage point reduction in the overall poverty rate. However, as the level of real per capita public aid rises beyond $1,291, the poverty reducing effect is eroded. …at $2,407 of per capita public aid, all of the initial reductions in the poverty rate have disappeared. …By 2010, real per capita aid stood at $2,697—a level that produces a 2.52 percentage point increase in the poverty rate. Thus, the impact of per capita public aid in 2010 being $1,406 greater than the optimal, poverty-reducing level was to increase the poverty rate by 8.59 percentage points, according to our analysis.

Here’s the relevant table from their article.

Unfortunately, they didn’t create a hypothetical curve to show these numbers, so we don’t have the welfare/poverty version of the Laffer Curve.

But they do estimate the negative human impact of excessive redistribution spending.

Since the official poverty rate in 2010 was 15.1 percent, this implies that in the absence of that extra $1,406 of per capita public aid, the official poverty rate in 2010 would have been 6.5 percent. …Taking dynamic factors into consideration would probably lower the figure to less than 6 percent. This implies that the actual poverty rate in 2010 was more than two and-one-half times higher than it could have been were it not for the excessive use of public aid income transfers as an instrument of policy. In other words, it may be argued that public aid overreach was responsible for approximately 30 million extra people living in poverty in 2010.

And children are among the biggest victims.

…one in every eight American children is living below the poverty line because public aid payments exceed the level that would minimize the poverty rate.

Ugh, this is terrible news. Children raised in government-dependent households are significantly more likely to suffer adverse life outcomes, in large part because of very poor social capital.

Last but not least, the authors also speculate that excessive redistribution may be one of the reasons why the distribution of income has shifted.

…up to the mid- 1970s, government cash income transfers (public aid) were increasing the incomes of those in the bottom quintile of the income distribution by more than work-disincentive effects were reducing them. The result was a reduction in the official poverty rate. …However, as the volume of public aid payments continued to increase, the work-disincentive effect more than offset the income enhancements generated by the flow of public aid. As this happened, the poverty rate began to drift upward and the percentage share of all income received by those in the bottom quintile of the income distribution began what would turn out to be a long and steady decline.

By the way, I don’t think that there’s a “correct” or “proper” level of income distribution. That should be a function of what people contribute to economic output. I’m concerned instead with boosting growth so everyone has a chance to rise.

Which is why it is especially tragic that redistribution spending is trapping less-fortunate people in long-term government dependency by undermining their incentives to earn income.

The bottom line is that it’s time to reduce – and ideally eliminate – the Washington welfare state.

Though that involves a major challenge since the real beneficiaries of the current system are the “poverty pimps” in Washington.

P.S. This Wizard-of-Id parody contains a lot of insight about labor supply and government-distorted incentives. As does this Chuck Asay cartoon and this Robert Gorrell cartoon.

P.P.S. If you want to see sloppy and biased analysis (paid for with your tax dollars), take a look at efforts to rationalize that redistribution is good for growth from the International Monetary Fund and Organization for Economic Cooperation and Development.

Read Full Post »

For a wide range of reasons, the federal government should get out of the redistribution racket.

Welfare programs are costly, but they’re also not among the enumerated powers granted to the federal government by the Constitution.

But for those who don’t care whether the nation abides by its legal rule book, there’s also a very compelling argument that better policy can be achieved by ceding responsibility for anti-poverty initiatives to state and local governments.

As shown by the 1996 welfare reform, you’re likely to get changes that are good for both taxpayers and poor people.

We even see some glimmers of progress now that states have more ability to police the fraud-riddled food stamp program.

The Heritage Foundation recently published a report on what happened in Maine when the state started to impose a modest work requirement on childless beneficiaries.

Food stamps is one of the government’s largest means-tested welfare programs, with roughly 46 million participants and costing $80 billion a year. Since 2009, the fastest growth in participation has occurred among able-bodied adults without dependents (ABAWDs). …Maine implemented a work requirement for ABAWDs. As a result, their ABAWD caseload dropped by 80 percent within a few months, declining from 13,332 recipients in December 2014 to 2,678 in March 2015.

And here’s a very powerful chart from the study.

Wow, more than 4 out of 5 recipients decided to drop off the rolls rather than get a job.

Which shows that they never needed the handouts in the first place, already had a job in the shadow economy, or got a new job.

Investor’s Business Daily summarizes the situation with characteristic clarity.

The number of childless, able-bodied adult food stamp recipients in a New England state fell by 80% over the course of a few months. This didn’t require magic, just common sense. …This is a remarkable change and needs to be repeated in government programs across the country. How Maine achieved this is no mystery. Gov. Paul LePage simply established work requirements for food stamp recipients who have no dependents and are able enough to be employed.

This type of reform should be replicated, with big savings for taxpayers and even bigger benefits for those who shake off the emotionally crippling burden of dependency and become self sufficient.

The Heritage report says that if the Maine policy were repeated nationally, and the caseload dropped “at the same rate it did in Maine (which is very likely), taxpayer savings would be over $8.4 billion per year.” “Further reforms could bring the savings to $9.7 billion per year: around $100 per year for every individual currently paying federal income tax.” On top of the savings, there would be the added benefit of increasing the number of productive members of the economy, and cutting the cycle of government dependence that is ruinous to a society. …putting the able-bodied in position to be self-sufficient is a service to them, helping them shake their soul-strangling dependency on the state.

By the way, Maine isn’t the only state that is trying to be responsible and proactive.

Wisconsin also is taking some modest steps to curtail dependency. Here are some blurbs from a story in the Wisconsin State Journal.

The 2013-15 state budget created a rule for some recipients of the state’s food stamp program known as FoodShare: If you’re an able-bodied adult without children living at home, you must work at least 80 hours a month or look for work to stay in the program. That rule went into effect in April, and between July and September, about 25 percent of the 60,000 recipients eligible to work were dropped from the program when the penalty took effect, according to DHS data.

That’s good news for taxpayers.

But there’s also even better news for some of the recipients.

…about 4,500 recipients found work.

Yup, sometimes a bit of tough love is what’s needed to save people from life-destroying dependency.

That’s the good news.

The bad news is that these reforms in Maine and Wisconsin are just drops in the bucket. The federal government mostly has been a destructive force in recent years, working to expand the welfare state (in some cases using utterly dishonest means).

And even when Washington hasn’t been trying to make things worse, many state and local governments are perfectly content to watch federal money flow into the their state, even if the net result is to trap people in poverty.

Which bring us back to the main policy lesson. We need to get Washington out of the business of redistributing income. To the extent government involvement is necessary, state and local governments should be responsible for both raising and spending the money.

Read Full Post »

Let’s dig into the issue of whether the United States should become more like France.

In a 2014 study for the National Bureau of Economic Research, Stanford University’s Robert Hall wrote about America’s sub-par economic performance. His opening line was basically a preemptive refutation of Obama’s claim – made during the State-of-the-Union Address – that the economy is strong.

The years since 2007 have been a macroeconomic disaster for the United States of a magnitude unprecedented since the Great Depression.

I don’t know that I would use “disaster” to describe the economy. That word would be much more appropriate for failed welfare states such as Italy and Greece.

But Professor Hall was definitely correct that the U.S. economy has been sputtering, as illustrated by comparative business-cycle data from the Minneapolis Federal Reserve.

So what accounts for America’s anemic economy? Hall has about 50 pages of analysis, but since brevity is a virtue, let’s look at some of what he wrote in his final paragraph.

Labor-force participation fell substantially after the crisis, contributing 2.5 percentage points to the shortfall in output. The decline showed no sign of reverting as of 2013. …an important part may be related to the large growth in beneficiaries of disability and food-stamp programs. Bulges in their enrollments appear to be highly persistent. Both programs place high taxes on earnings and so discourage labor-force participation among beneficiaries. The bulge in program dependence…may impede output and employment growth for some years into the future.

In other words, he pointed out that a large number of people have left the labor force, which obviously isn’t good since our economy’s ability to generate output (and boost living standards) is a function of the degree to which labor and capital are being productively utilized.

And his work suggests that redistribution programs are a big reason for this drop in labor-force participation.

Now let’s look at another study from NBER, this one from 2015 that was authored by economists from the University of Pennsylvania, University of Oslo, and Stockholm University.

They examine the specific impact of unemployment insurance.

We measure the effect of unemployment benefit duration on employment. …Federal benefit extensions that ranged from 0 to 47 weeks across U.S. states at the beginning of December 2013 were abruptly cut to zero. …we use the fact that this policy change was exogenous to cross-sectional differences across U.S. states and we exploit a policy discontinuity at state borders. We find that a 1% drop in benefit duration leads to a statistically significant increase of employment by 0.0161 log points. In levels, 1.8 million additional jobs were created in 2014 due to the benefit cut. Almost 1 million of these jobs were filled by workers from out of the labor force who would not have participated in the labor market had benefit extensions been reauthorized.

Wow, that’s a huge impact.

To be sure, I’ll be the first to admit that empirical work is imprecise. Ask five economists for an estimate and you’ll get nine answers, as the old joke goes.

Professor Hall, for instance, found a smaller impact of unemployment insurance on joblessness in his study.

But even if the actual number of people cajoled back into employment is only 500,000 rather than 1 million, that would still be profound.

Though at some point we have to ask whether it really matters whether people are being lured out of the labor force by food stamps, disability payments, unemployment insurance, Obamacare, or any of the many other redistribution programs in Washington.

What does matter is that we have a malignant welfare state that is eroding the social capital of the country. The entire apparatus should be dismantled and turned over to the states.

But not everyone agrees. You probably won’t be surprised to learn that the White House is impervious to data and evidence. Indeed, notwithstanding the evidence that the left was wildly wrong about the impact of ending extended unemployment benefits, the White House is proposing to expand the program.

Here’s some of what’s being reported by The Hill.

The president’s three-pronged plan includes wage insurance of up to $10,000 over two years, expanded unemployment insurance coverage… The plan comes on the heels of Obama’s final State of the Union address on Tuesday, in which he committed to fighting for expanded out-of-work benefits during his last year in office. …The plan would also extend benefits to part-time, low-income and intermittent workers who can’t already take advantage of the out-of-work programs. And it would mandate states provide at least 26 weeks of coverage for those looking for work.

The part about mandating that all states provide extended coverage is particularly galling.

It’s almost as if he wants to make sure that no states are allowed to adopt good policy since that would show why the President’s overall approach is wrong.

I joked in 2012 about a potential Obama campaign slogan, and I suggested an official motto for Washington back in 2014.

Perhaps we should augment those examples of satire with a version of the Gospel according to Obama: Always wrong, never in doubt.

Read Full Post »

When I wrote earlier this year about “Europe’s suicidal welfare state,” it wasn’t so that I could make points about excessive spending and demographic decline.

Yes, those are very important issues. But I was focusing instead on the fact that Europe’s welfare states have a masochistic habit of giving handouts to terrorists.

So I wasn’t surprised to learn that some of the dirtbags who launched the recent terror attacks in Paris have been sponging off taxpayers.

Here are some excerpts from a story in the U.K.-based Daily Mail.

The former wife of Paris bomber Ibrahim Abdeslam has broken her silence to say he was a jobless layabout… Speaking from her home in Moleenbeek, Brussels, Niama, 36, said: ‘…He often slept during the day...Despite his diploma as an electrician, he found no job,’… Money was tight for the couple. ‘We lived on unemployment benefit which was only €1,000 a month between us so we worried a lot about money.’

By the way, money wasn’t “tight for the couple.” The handouts they got from the Belgian taxpayers gave them an income higher than the world average. And I’m guessing that the unemployment benefit wasn’t the only bit of mooching they did given the destructive lavishness of European welfare systems.

Ibrahim wasn’t the only terrorist with a snout in the public trough.

Here are some details from a story in the American Spectator.

Before he blew himself up outside a French soccer stadium, Bilal Hadfi lived in state-subsidized housing. …Open wallets as much as open borders doom Europe. Harboring shiftless populations alienated from the surrounding culture by religion asks for trouble. Give them blank checks and watch them fill up the blank spaces of indolence with destruction. …They pay back the dole with gunfire.

These are just two of the terrorists, but I’m guessing we’ll soon learn that others also were mooching off taxpayers.

And I can’t help but wonder whether the self-loathing that presumably occurs among some welfare recipients actually contributes to radicalism.

By the way, the Moocher Hall of Fame has a special section for deadbeats who want to kill taxpayers. Members of this Terror Section of the MHoF include:

* Abdul from Australia is an esteemed member of the Hall of Fame’s terror wing, having received 19 years of welfare while plotting to kill the people who were paying for his life of leisure.

* Keeping with that theme, let’s also recognize Anjem, who got elected to the Hall of Fame for collecting about $40,000-per year in handouts while spewing hate and recruiting other “fanatics to copy him by going on benefits.”

* The Tsarnaev brothers are most infamous for the Boston Marathon bombing, but let’s also revile them for being scroungers who thought it was okay to live off the work of others.

* Jihadi John, the ISIS dirtbag who is infamous for beheading innocent people, grew up with a family that sponged off British taxpayers for two decades.

P.S. In a truly spectacular example of government incompetence, a British jihadist actually was employed in law enforcement, ostensibly to fight against Islamic extremism!

P.P.S. American readers shouldn’t get too smug about the stupidity of our terrorism-subsidizing cousins on the other side of the Atlantic. We also have self-destructive policies that subsidize terrorism.

Read Full Post »

Three years ago, I shared a chart about the fiscal burden of the welfare state, calling it the picture that says a thousand word.

It’s astounding, after all, that taxpayers spend so much money on means-tested programs and get such miserable results.

Indeed, if we took all the money spent on various welfare programs and added it up, it would amount to $60,000 for every poor household.

Yet the handouts for poor people generally (but not always) are way below that level, so where does all the money go?

Well, this eye-popping flowchart (click to enlarge) from the House Ways & Means Committee is one way of answering that question. As you can see, there are dozens of programs spread across several agencies and departments.

In other words, a huge chunk of anti-poverty spending gets absorbed by a bloated, jumbled, and overlapping bureaucracy (and this doesn’t even count the various bureaucracies in each state that also administer all these welfare programs).

This is akin to a spider web of dependency. No wonder people get trapped in poverty.

Fortunately, we have a very simple solution to this mess. Just get the federal government out of the business of redistributing income. We already got very good results by reforming one welfare program in the 1990s. So let’s build on that success.

P.S. Leftists generally will oppose good reforms, both because of their ideological belief in redistribution and also because overpaid bureaucrats (who would have to find honest work if we had real change) are a major part of their coalition. But there are some honest statists who admit the current system hurts poor people.

Read Full Post »

In my speeches, I routinely argue that an aging population is one of the reasons why we need genuine entitlement reform.

A modest-sized welfare state may be feasible if a country has a “population pyramid,” I explain, Welfare State Wagon Cartoonsbut it’s a recipe for fiscal chaos when changing demographics result in fewer and fewer people pulling the wagon and more and more people riding in the wagon.

And if you somehow doubt that’s what is happening in America, check out this very sobering image showing that America’s population pyramid is turning into a population cylinder.

The bottom line is that demographics and entitlements will mean a Greek fiscal future for America and other nations.

To bolster my case (particularly for folks who might be skeptical of a libertarian message), I frequently cite pessimistic long-run fiscal data from international bureaucracies such as the IMF, BIS, and OECD.

I’m not a big fan of these organizations because they routinely endorse statist policies, but I figure skeptics will be more likely to listen to me if I point out that even left-leaning international bureaucracies agree the public sector is getting too large.

And now I have more evidence to cite. A new report from the International Monetary Fund explores “The Fiscal Consequences of Shrinking Populations.” Here’s what you need to know.

Declining fertility and increasing longevity will lead to a slower-growing, older world population. …For the world, the share of the population older than age 65 could increase from 12 percent today to 38 percent by 2100. …These developments would place public finances of countries under pressure, through two channels. First, spending on age-related programs (pensions and health) would rise. Without further reforms, these outlays would increase by 9 percentage points of GDP and 11 percentage points of GDP in more and less developed countries, respectively, between now and 2100. The fiscal consequences are potentially dire…large tax increases that could stymie economic growth.

Let’s now look at a couple of charts from the study.

The one of the left shows that one-third of developed nations already have negative population growth, and that number will jump to about 60 percent by 2050. And because that means fewer workers to support more old people, the chart on the right shows how the dependency ratio will worsen over time.

So what do these demographic changes mean for fiscal policy?

Well, if you live in a sensible jurisdiction such as Hong Kong or Singapore, there’s not much impact, even though birthrates are very low, because government is small and people basically are responsible for setting aside income for their retirement years.

And if live in a semi-sensible jurisdiction such as Australia or Chile, the impact is modest because personal retirement accounts preclude Social Security-type fiscal challenges.

But if you live just about anywhere else, in places where government somehow is supposed to provide pensions and health care, the situation is very grim.

Here’s another chart from the new IMF report. If you look at developed nations, you can see a big increase in the projected burden of government spending, mostly because of rising expenditures for health care.

At this stage, I can’t resist pointing out that this is one reason why the enactment of Obamacare was a spectacularly irresponsible decision.

But let’s not get sidetracked.

Returning to the IMF report, the authors contemplate possible policy responses.

They look at increased migration, but at best that’s a beggar-thy-neighbor approach. They look at increased labor force participation, which would be a very good development, but it’s hard to see that happening when nations have redistribution policies that discourage people from being in the workforce.

And the report is very skeptical about the prospects of government-induced increases in birthrates.

Boosting birth rates could slow down population aging and gradually reduce fiscal pressures. …However, a “birth rate” solution to aging is unlikely to work for most countries. The pronatalist policies seem to have only modest effects on the number of births, although they might affect the timing of births.

So that means the problem will need to be addressed through fiscal policy.

The IMF’s proposed solutions include some misguided policies, but I was surprisingly pleased by the recognition that steps were needed to limit the growth of government.

Regarding pensions, the IMF suggested higher retirement ages, which is a second-best option, while also suggesting private retirement savings, which is the ideal solution.

Reforming public pension systems can help offset the effects of aging. Raising retirement ages is an especially attractive option… For example, raising retirement ages over 2015–2100 by an additional five years (about 7 months per decade) beyond what is already legislated would reduce pension spending by about 2 percentage points of GDP by 2100 (relative to the baseline) in both the more and less developed countries. …increasing the role of private retirement saving schemes could be helpful in offsetting the potential decline in lifetime retirement income.

But if you recall from above, the biggest problem is rising health care costs.

And kudos to the IMF for supporting market-driven competition. Even more important, though, the international bureaucracy recognizes that the key is to limit the government’s health care spending to the growth of the private economy (sort of a a healthcare version of Mitchell’s Golden Rule).

…health care reform can be effective in containing the growth of public health spending. …There is past success in improving health outcomes without raising costs through promoting some degree of competition among insurers and service providers. …Containing the growing costs of health care would help reduce long-term fiscal risks. On average, health care costs are projected to increase faster than economic growth. …Assuming policies are able to keep the growth of health care costs per capita in line with GDP per capita, health care spending will increase at a slower rate, reflecting only demographics. Under this scenario, public health care spending pressures would be greatly subdued: by 2100, health spending would be reduced by 4½ percentage points of GDP in the more developed countries.

Interestingly, of all the options examined by the IMF, capping the growth of health care spending had the biggest positive impact on long-run government spending.

So what lessons can we learn?

Most important, the IMF study underscores the importance of the Medicaid reform and Medicare reform proposals that have been included in recent budgets on Capitol Hill.

In addition to making necessary structural changes, both of these reforms cap the annual growth of health care spending, which is precisely what the IMF report says will generate the largest savings.

So we’re actually in a very unusual situation. Some lawmakers want to do the right thing for the right reason at the right time.

But not all of them. Some politicians, either because of malice or ignorance, think we should do nothing, even though that will mean a very unpleasant future.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 3,148 other followers

%d bloggers like this: