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Archive for the ‘Poverty’ Category

For almost all of human history, the norm for 99 percent of the population was poverty and deprivation.

Then, starting a few hundred years ago, something amazing happened. There was a sudden explosion of prosperity. In past years, I’ve shared two videos explaining this remarkable phenomenon, which is linked to the unleashing of free markets, the rule of law, and property rights.

Now let’s look at some similar data, but for a different purpose. Here are some fascinating charts put together by Professor Max Roser of Oxford. As you can see at the top, almost everybody used to be poor. But as you look below, you’ll notice that an increasing share of the world’s population is middle class or above.

There are three takeaways from this data.

The first conclusion, as noted above, is that the world is getting richer. Hundreds of millions of people have been lifted out of extreme poverty. That’s wonderful news.

The second conclusion, as seen by the red section of the chart, is that a modest bit of reform in India and China has paid big dividends (and, given the success of Indian-Americans and Chinese-Americans, I imagine those nations could become much richer with additional market-friendly reform).

But I want to focus today on a third conclusion, which is that pro-growth policies are the best way to help the poor, not redistribution driven by a fixation on inequality.

More specifically, notice how there was a lot of inequality in the chart for 1975, particularly compared to the chart for 1800. My leftist friends, with their flawed belief that the economy is a fixed pie, would instinctively assume that Europe and the Americas somehow became comparatively rich because Asia and Africa stayed comparatively poor.

In reality, the real story is that the economies of the western world expanded because they found the recipe for growth and prosperity.

And the 2015 chart shows that the rest of the world is finally moving in that direction as well (as confirmed by long-run data from Economic Freedom of the world).

What would have happened, however, if our friends on the left had control of global policy in 1975 and imposed high tax rates in order to redistribute lots of income from rich nations to poor nations? In other words, what would have happened if they imposed on the world the policies that they try to impose in various nations?

If that had happened, the world economy would have underperformed. As Thomas Sowell has explained, such policies penalize productive behavior and subsidize unproductive behavior.

It’s possible that such policies would have reduced inequality, to be sure, but global income would have been far lower.

Fortunately, we avoided that outcome and instead enjoyed a reduction in inequality caused by better policy and growth-driven convergence.

Which is exactly the lesson for helping the less fortunate in individual nations.

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As I peruse the news, I periodically see headlines that are misleading in some fashion.

And if the headline is sufficiently off-key or bizarre, I feel compelled to grouse.

Now I have a new example, though I’m not sure whether to call it dishonest or clueless.

The EU Observer has a brief report that poverty has reached record levels in Germany.

Despite a booming economy, 12.9 million people in Germany were living below the poverty line in 2015, the Equal Welfare Association reported on Thursday. Based on figures from the Federal Statistical Office the alliance found a record high poverty rate of 15.7 percent in 2015.

By the way, I can’t resist pointing out that there is no “booming economy” in Germany. Growth in 2016 was only 1.9 percent.

Yes, that’s decent by European standards of stagnation and decline, but it’s far from impressive in any other context.

But I’m digressing. Let’s get back to the main point of today’s column.

As you can see from the story’s headline, the implication is that lots of people are left behind and mired in deprivation even though the economy is moving forward.

But there’s a problem with both the story and the headline.

If you read carefully, it turns out that both the story (and the study that triggered the story) have nothing to do with poverty.

No link at all. None. Zero. Nada. Zilch.

I’m not joking. There’s no estimate of the number of people below some measure of a German poverty line. There’s no calculation of any sort about living standards. Instead, this story (and the underlying report) are about the distribution of income.

…people [are] defined as poor when living on an income less than 60 percent of that of the median German household.

One might be tempted at this point to dismiss this as a bit of journalistic sloppiness. Indeed, one might even conclude that this is a story about nothing.

After all, noting that some people are below 60 percent of the median income level is about as newsworthy as a report saying that half of people are above average and half are below average.

But there actually is a story here. Though it’s not about poverty. Instead, it’s about an ongoing statist campaign to redefine poverty to mean unequal distribution of income.

I’m not joking. For instance, the bureaucrats at the Paris-based Organization for Economic Cooperation and Development actually put out a study claiming that there was more poverty in the United States than in nations such as Greece, Portugal, and Turkey.

How could they make such a preposterous claim? Easy, the OECD bureaucrats didn’t measure poverty. Instead, they concocted a measure of the degree to which various countries are close to the left-wing dream of equal incomes.

And the Obama Administration also tried to manipulate poverty statistics in the United States in hopes of pushing this statist agenda of coerced equality.

Robert Rector of the Heritage Foundation wrote about what Obama tried to do.

…the Obama administration…measure, which has little or nothing to do with actual poverty, will serve as the propaganda tool in Obama’s endless quest to “spread the wealth.” …The current poverty measure counts absolute purchasing power — how much steak and potatoes you can buy. The new measure will count comparative purchasing power — how much steak and potatoes you can buy relative to other people. …In other words, Obama will employ a statistical trick to ensure that “the poor will always be with you,” no matter how much better off they get in absolute terms. …The weird new poverty measure will produce very odd results. For example, if the real income of every single American were to magically triple over night, the new poverty measure would show there had been no drop in “poverty,” because the poverty income threshold would also triple. …Another paradox of the new poverty measure is that countries such as Bangladesh and Albania will have lower poverty rates than the United States, even though the actual living conditions in those countries are extremely bad.

Even moderates such as Robert Samuelson recognized that Obama’s agenda was absurd. Here is some of what he wrote.

…the new definition has strange consequences. Suppose that all Americans doubled their incomes tomorrow, and suppose that their spending on food, clothing, housing and utilities also doubled. That would seem to signify less poverty — but not by the new poverty measure. It wouldn’t decline, because the poverty threshold would go up as spending went up. Many Americans would find this weird: People get richer but “poverty” stays stuck.

To put this all in context, the left isn’t merely motivated by a desire to exaggerate and misstate poverty. That simply the means to an end.

What they want is more redistribution and higher tax rates. The OECD openly admitted that was the goal in another report. Much as all the fixation about inequality in America is simply a tool to advocate bigger government.

P.S. Germany is an example of a rational welfare state. While the public sector is far too large, the country has enjoyed occasional periods of genuine spending restraint and German politicians wisely avoided a Keynesian spending binge during the last recession.

P.P.S. Though Germany also has its share of crazy government activity, including a big green-energy boondoggle. And lots of goofy actions, such as ticketing a one-armed man for have a bicycle with only one handlebar brake, taxing homeowners today for a street that was built beginning in the 1930s, making streetwalkers pay a tax by using parking meters, and spending 30 times as much to enforce a tax as is collected.

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If there was an award for the most dramatic political development of 2016, it would presumably be the election of Donald Trump.

If there was an award for the best policy reform of 2016, my vote would be the constitutional spending cap in Brazil.

If there was an award for the greatest outburst of sensibility in 2016, it would be the landslide vote in Switzerland against a government-guaranteed income.

But what about an award for the most compelling article of 2016? Well, we still have a few days left in the year, so it’s theoretically possible that I’ll change my mind, but as of today the award would go to my friend Deirdre McCloskey for her December 23 column in the New York Times.

She addresses the fundamental issue of whether policy should be designed to reduce poverty or increase equality. Here’s some of what she wrote.

Eliminating poverty is obviously good. And, happily, it is already happening on a global scale. …We need to finish the job. But will we really help the poor by focusing on inequality? …The Princeton philosopher Harry Frankfurt put it this way: “Economic equality is not, as such, of particular moral importance.” Instead we should lift up the poor… Another eminent philosopher, John Rawls of Harvard, articulated what he called the Difference Principle: If the entrepreneurship of a rich person made the poorest better off, then the higher income of the entrepreneur was justified.

But Deirdre doesn’t limit herself to philosophical arguments.

She looks at the practical issues, such as whether governments have the ability (or motives!) to correctly re-slice the economic pie.

A practical objection to focusing on economic equality is that we cannot actually achieve it, not in a big society, not in a just and sensible way. …Cutting down the tall poppies uses violence for the cut. And you need to know exactly which poppies to cut. Trusting a government of self-interested people to know how to redistribute ethically is naïve. Another problem is that the cutting reduces the size of the crop. We need to allow for rewards that tell the economy to increase the activity earning them. …An all-wise central plan could force the right people into the right jobs. But such a solution, like much of the case for a compelled equality, is violent and magical. The magic has been tried, in Stalin’s Russia and Mao’s China. So has the violence.

Deirdre notes that people sometimes are drawn to socialism, in part because of how we interact with family and friends.

But you can’t extrapolate those experiences to broader society.

Many of us share socialism in sentiment, if only because we grew up in loving families with Mom as the central planner. Sharing works just fine in a loving household. But it is not how grown-ups get stuff.

When redistributionist principles are imposed on broader society, bad things happen.

As a matter of arithmetic, expropriating the rich to give to the poor does not uplift the poor very much. …And redistribution works only once. You can’t expect the expropriated rich to show up for a second cutting. In a free society, they can move to Ireland or the Cayman Islands. And the wretched millionaires can hardly re-earn their millions next year if the state has taken most of the money.

In other words, you get a shrinking pie rather than a growing pie. As Tom Sowell also has observed, people don’t produce as much when the government seizes the fruits of their labor.

And in that kind of world, it’s theoretically possible that poor people will have a greater share, but they still wind up a smaller amount (moreover, in practice the government elite wind up with all the wealth).

So what’s the bottom line?

Deirdre cites South Korea as an example of a nation where poor people now enjoy much better lives thanks to growth, and she then asks readers the key question: Will the poor benefit more from the classical liberal principles of rule of law and free markets, or will they benefit more from coercive redistribution?

Her explanation is magnificent.

It is growth from exchange-tested betterment, not compelled or voluntary charity, that solves the problem of poverty. …Which do we want, a small one-time (though envy-and-anger-satisfying) extraction from the rich, or a free society of betterment, one that lifts up the poor by gigantic amounts? We had better focus directly on the equality that we actually want and can achieve, which is equality of social dignity and equality before the law. Liberal equality, as against the socialist equality of enforced redistribution, eliminates the worst of poverty. …To borrow from the heroes of my youth, Marx and Engels: Working people of all countries unite! You have nothing to lose but stagnation! Demand exchange-tested betterment in a liberal society. Some dare call it capitalism.

Glorious!

I’ve also addressed this issue, on multiple occasions, and I think the resolution of this growth-vs-redistribution debate may very well determine the future of our nation. So I don’t think it’s an exaggeration to say Deirdre’s column is the most important article of 2016.

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Because of my disdain for the two statists that were nominated by the Republicans and Democrats, I’m trying to ignore the election. But every so often, something gets said or written that cries out for analysis.

Today is one of those days. Hillary Clinton has an editorial in the New York Times entitled “My Plan for Helping America’s Poor” and it is so filled with errors and mistakes that it requires a full fisking (i.e., a “point-by-point debunking of lies and/or idiocies”).

We’ll start with her very first sentence.

The true measure of any society is how we take care of our children.

I realize she (or the staffers who actually wrote the column) were probably trying to launch the piece with a fuzzy, feel-good line, but let’s think about what’s implied by “how we take care of our children.” It echoes one of the messages in her vapid 1996 book, It Takes a Village, in that it implies that child rearing somehow is a collective responsibility.

Hardly. This is one of those areas where social conservatives and libertarians are fully in sync. Children are raised by parents, as part of families.

To be fair, Hillary’s column then immediately refers to poor children who go to bed hungry, so presumably she is referring to the thorny challenge of how best to respond when parents (or, in these cases, there’s almost always just a mother involved) don’t do a good job of providing for kids.

…no child should ever have to grow up in poverty.

A laudable sentiment, for sure, but it’s important at this point to ask what is meant by “poverty.” If we’re talking about wretched material deprivation, what’s known as “absolute poverty,” then we have good news. Virtually nobody in the United States is in that tragic category (indeed, one of great success stories in recent decades is that fewer and fewer people around the world endure this status).

But if we’re talking about the left’s new definition of poverty (promoted by the statists at the OECD), which is measured relative to a nation’s median level of income, then you can have “poverty” even if nobody is poor.

For the sake of argument, though, let’s assume we’re using the conventional definition of poverty. Let’s look at how Mrs. Clinton intends to address this issue.

She starts by sharing some good news.

…we’re making progress, thanks to the hard work of the American people and President Obama. The global poverty rate has been cut in half in recent decades.

So far, so good. This is a cheerful development, though it has nothing to do with the American people or President Obama. Global poverty has fallen because nations such as China and India have abandoned collectivist autarky and joined the global economy.

And what about poverty in the United States?

In the United States, a new report from the Census Bureau found that there were 3.5 million fewer people living in poverty in 2015 than just a year before. Median incomes rose by 5.2 percent, the fastest growth on record. Households at all income levels saw gains, with the largest going to those struggling the most.

This is accurate, but a grossly selective use of statistics.

If Obama gets credit for the good numbers of 2015, then shouldn’t he be blamed for the bad numbers between 2009-2014? Shouldn’t it matter that there are still more people in poverty in 2015 than there were in 2008? And is it really good news that it’s taken Obama so long to finally get median income above the 2008 level, particularly when you see how fast income grew during the Reagan boom?

We then get a sentence in Hillary’s column that actually debunks her message.

Nearly 40 percent of Americans between the ages of 25 and 60 will experience a year in poverty at some point.

I don’t know if her specific numbers are accurate, but it is true that that there is a lot of mobility in the United States and that poverty doesn’t have to be a way of life.

Hillary then embraces economic growth as the best way of fighting poverty, which is clearly a true statement based on hundreds of years of evidence and experience.

…one of my top priorities will be increasing economic growth.

But then she goes off the rails by asserting that you get growth by spending (oops, I mean “investing”) lots of other people’s money.

I will…make a historic investment in good-paying jobs — jobs in infrastructure and manufacturing, technology and innovation, small businesses and clean energy.

Great, more Solyndras and cronyism.

And fewer jobs for low-skilled workers, if she gets here way, along with less opportunity for women (even according to the New York Times).

And we need to…rais[e] the minimum wage and finally guarantee… equal pay for women.

The comment about equal pay sounds noble, though I strongly suspect it is based on dodgy data and that she really favors the very dangerous idea of “comparable worth” legislation, which would lead to bureaucrats deciding the value of jobs.

Then Hillary embraces a big expansion of the worst government department.

…we also need a national commitment to create more affordable housing.

And she echoes Donald Trump’s idea of more subsidies and intervention in family life.

We need to expand access to high-quality child care and guarantee paid leave.

And, last but not least, she wants to throw good money after bad into the failed Head Start program.

…we will work to double investments in Early Head Start and make preschool available to every 4-year-old.

Wow, what a list. Now perhaps you’ll understand why I felt the need to provide a translation of her big economic speech last month.

The moral of the story, based on loads of evidence, is that making America more like Europe is not a way to help reduce poverty.

P.S. The only other time I’ve felt the need to fisk an entire article occurred in 2012 when I responded to a direct attack to my defense of low-tax jurisdictions.

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Over the years, I’ve shared some clever images, jokes, and cartoons to expose the flawed mindset of those who hope to achieve coerced equality of outcomes with redistribution and high tax rates.

The size of a pizza vs the share of a slice.

The modern version of the Little Red Hen.

Washington’s Byzantine welfare state.

Chuck Asay’s overburdened tractor.

A left-wing nursery rhyme.

The Wizard-of-Id parody.

Two pictures showing how the welfare state begins and ends.

A socialist classroom experiment (including a video version).

The economics of redistribution in one image.

As you can see, this is a common-sense issue. When you give people money on the condition that they don’t earn much money, you create a perverse incentive for them to be unproductive.

Especially since, when people work more and earn more, they get hit by a combination of fewer handouts and more taxes. The net result is very high implicit marginal tax rates, in some cases rising above 100 percent.

Needless to say, it’s very foolish to have a welfare state that puts people in this untenable situation where the welfare state becomes a form of economic quicksand.

And it’s also foolish to punish the people who are pulling the wagon with high tax rates and pervasive double taxation of income that is saved and invested.

Russell Jaffe, one of our Cato interns, helpfully cranked out a clever little image showing how redistribution is bad for both those who receive and those who pay.

No wonder the welfare state and War on Poverty have been bad news for both taxpayers and poor people.

And the problem is getting worse, not better.

Let’s begin to wrap up. I shared a Thomas Sowell quote at the beginning to today’s column.

Now let’s read some of his analysis.

He aptly and succinctly summarized why redistribution is a no-win proposition (h/t: Mark Perry).

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. …It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. …Those who are targeted for confiscation can see the handwriting on the wall, and act accordingly. …We have all heard the old saying that giving a man a fish feeds him only for a day, while teaching him to fish feeds him for a lifetime. Redistributionists give him a fish and leave him dependent on the government for more fish in the future.

So what’s the bottom line?

The simple (and correct) answer is to dismantle the welfare state. State and local governments should be in charge of “means-tested” programs, ideally with much less overall redistribution (a goal even some Scandinavian nations are trying to achieve).

In effect, the goal should be to replicate the success of the Clinton-era welfare reform, but extending the principle to all redistribution programs (Medicaid, food stamps, EITC, etc).

P.S. Some honest leftists admit that the welfare state cripples independence and self reliance.

P.P.S. For those who like comparisons, you can peruse which states provide the biggest handouts and also which nations have the most dependency.

P.P.P.S. To end on a sour note, our tax dollars are being used by the Paris-based OECD to produce junk research that argues more tax-financed redistribution somehow is good for growth.

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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.

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Whenever I pontificate about the health of the American economy, I feel like Goldilocks. Instead of arguing that the economic porridge is too hot or too cold, or that the economic bed is too hard or too soft, I conclude that we’re stuck in the middle.

We generally outperform Europe’s high-tax welfare states, but we usually lag behind the small-government tiger economies of Asia.

But while Goldilocks always liked the middle option, I obviously think we should be more like Hong Kong and Singapore.

With this bit a background, let’s look at some supposedly really bad news that actually is modestly good news.

The folks at the Pew Research Center just issued a major report on income trends over the past 40-plus years. Based on their headline, you would think it’s filled with horrible news. Sort of like saying the economic porridge is way too cold.

So is it true that the middle class is “losing ground” and “falling behind”?

Michael Fletcher, writing for the Washington Post, seems to accept that spin. He opened his column by portraying the report’s findings as a sign of dystopian inequality.

After more than four decades of economic realignment and creeping inequality, the U.S. middle class is no longer the nation’s majority.

Yet even he was forced to acknowledge that this supposed “tipping point” is primarily the result of more households earning more money.

The nation has arrived at this tipping point in part because more Americans are moving up the income ladder. In 1971, just 14 percent of Americans were in the upper income tier, which Pew defined as more than double the nation’s median income. Now, 21 percent of American households are in that upper earning category — at least $126,000 a year for a three-person household.

Though he does his best to find a dark lining to this silver cloud, using loaded language to imply that those with modest incomes are disadvantaged because income is being “captured” by the rich.

…at the same time, many Americans are falling behind…. In 1971, a quarter of American households fell into the bottom earning tier, which Pew defined as less than two-thirds of the nation’s median income. By 2015, 29 percent of American households fell into that category. …The decline of the middle class has been accompanied by growing inequality, as a growing share of the nation’s income has been captured by those at the top.

But the Pew Report confirmed that the economy is not a fixed pie. Yes, the rich have become richer, but even Mr. Fletcher concedes that their income gains are not at the expense of the less fortunate. This is because the rest of us are becoming richer as well.

…Americans of all income levels have grown more prosperous, Pew found. Middle class families have seen their income grow by 34 percent in inflation-adjusted dollars since 1970, while lower-income Americans have experienced income growth of 28 percent.

He also reports that African-Americans have enjoyed above-average income growth.

…black Americans have made more economic gains than others in recent decades. Between 1971 and 2015, for example, the share of black Americans in the upper income tier more than doubled to 12 percent.

Here’s a chart from the Pew report. Note that these numbers are not based on changes in actual income, but instead measure how each group is faring relative to other slices of the population.

Maybe I’m just a naive Pollyanna, but the numbers in the Pew Report, even as characterized by the Washington Post, don’t seem like a damning indictment of American society.

Indeed, they sort of validate my view that things are getting better over time, albeit not as quickly as they would be improving if we followed the right recipe and had smaller government and less intervention.

In other words, we may not have hot, Hong Kong-style porridge, but it’s at least room temperature.

But Scott Winship of the Manhattan Institute is the real expert on these issues, so I was happy to see that he wrote an article on the Pew study for National Review.

Here are some of his key observations, starting with the essential insight that it’s much better to focus on income trends rather than income distribution.

Pew’s definition of “middle income” isn’t anchored to any fixed standard of living. In fact, it represents a rising standard of living over time. Imagine that the incomes of the poor, middle, and rich all increase by 50 percent over time. The Pew measure would indicate that the share of adults who are “middle income” would be no higher than it was initially. It is not obvious why we should care that the middle class, in this example, is no larger over time.

Amen. This is the same point I make when criticizing dishonest poverty analysis.

We should care about whether living standards for ordinary people are increasing, not whether rich people are getting richer.

Scott then looks at those income trends and finds good news.

…between 1969 and 2007, the household income of the median adult rose by 52 percent. …the 25th percentile (the income of the person poorer than 75 percent of adults) rose by 40 percent from 1969 to 2007. …While middle-income adults, by Pew’s definition, have shrunk by 11 percentage points as a share of the population since 1970, 7 points of that decline is due to more Americans’ being in the upper-income group. …Using the Pew measure of household income, the middle fifth grew richer by 53 percent from 1969 to 2007. My preferred measures showed a rise between 54 percent and 64 percent, depending on whether one adjusts for declining household size. …poor and middle-class Americans are both substantially better off than 45 years ago.

Now let’s shift to what really matters.

The left very much wants to focus on the distribution of income as part of their “inequality” campaign.

If they can convince people that the economy is a fixed pie, and combine that falsehood with rhetoric about higher incomes earned by the rich, that bolsters their case for ostensibly saving the middle class with soak-the-rich tax policies and greater levels of redistribution.

And that probably explains why the folks at Pew (along with certain journalists) decided to imply that the glass is 90 percent empty when it’s actually 60 percent full.

Winship hits the nail on the head in his conclusion.

A policy agenda designed with a crumbling middle class in mind is not only inappropriate, but it could actually hurt the living standards of the middle class in the process.

He’s exactly right.

Nations such as Greece and France have pursued the policies favored by American leftists and the net result – at best – is anemic growth and stagnant living standards.

To conclude, here’s a video that I saw on Ted Frank’s Twitter feed. I couldn’t figure out how to embed it, but was able to download it and put it on YouTube.

You’ll notice a big jump over time in the amount of households earning above $200,000 per year. Call me crazy, but I want there to be more rich people, so this is a good development.

But if you play close attention, the other big takeaway from this data (and the one that merits some celebration) is that more and more people are earning higher and higher levels of income over time. And remember, these are inflation-adjusted dollars.

So let’s be happy that ordinary people in America are climbing the economic ladder. But let’s recommit ourselves to fight harder for pro-growth policies such as tax reform and entitlement reform so their ascent up the ladder will be faster.

P.S. Here are some examples of how statist policies increase inequality.

P.P.S. The comparative data on income trends and inequality in the United States and Scandinavia is worth perusing.

P.P.P.S. And I never get tired of sharing this Margaret Thatcher video because she succinctly explains that many leftists would rather hurt the rich than help the poor.

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In conversations with statists, I’ve learned that many of them actually believe the economy is a fixed pie. This misconception leads them to think that rich people get rich only by somehow making others poor.

In this simplistic worldview, a bigger slice for one person means less for everyone else.

In reality, though, their fixation on the distribution of income leads them to support policies that hinder growth.

And here’s the ironic part. When you have statist policies such as high taxes and lots of redistribution, the economy weakens and the result is a stagnant pie.

In other words, the zero-sum society they fear only occurs when their policies are in effect!

To improve their understanding (and hopefully to make my leftist friends more amenable to good policy ideas), I oftentimes share two incontestable facts based on very hard data.

1. Per-capita economic output has increased in the world (and in the United States), which obviously means that the vast majority of people are far better off than their ancestors.

2. There are many real-world examples of how nations with sensible public policy enjoy very strong growth, leading to huge increases in living standards in relatively short periods of time.

I think this is all the evidence one needs to conclude that free markets and small government are the right recipe for a just and prosperous society.

But lots of statists are still reluctant to change their minds, even if you get them to admit that it’s possible to make the economic pie bigger.

I suspect in many cases their resistance is because (at least subconsciously) they resent the rich more than they want to help the poor. That’s certainly the conclusion that Margaret Thatcher reached after her years in public life.

So, in hopes of dealing with this mindset, let’s augment the two points listed above.

3. There is considerable income mobility in the United States, which means today’s rich and today’s poor won’t necessarily be tomorrow’s rich and tomorrow’s poor.

Let’s look at some evidence for this assertion.

And we’ll start with businesses. Here’s what Mark Perry of the American Enterprise Institute found when he investigated changes in the Fortune 500.

Comparing the 1955 Fortune 500 companies to the 2015 Fortune 500, there are only 61 companies that appear in both lists… In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 60 years later in 2015… The fact that nearly 9 of every ten Fortune 500 companies in 1955 are gone, merged, or contracted demonstrates that there’s been a lot of market disruption, churning, and Schumpeterian creative destruction… The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy.

Here’s the list of the companies that have managed to stay at the top over the past six decades.

Now let’s shift from companies to people.

The most famous ranking of personal wealth is put together by Forbes.

Is this a closed club, with the same people dominating the list year after year?

Well, there’s considerable turnover in the short run, as noted by Professor Don Boudreaux.

…21 of the still-living 100 richest Americans of only five years ago are no longer in that group today.  That’s a greater than 20 percent turnover in a mere half-decade.

There’s a lot of turnover – more than 50 percent – in the medium run, as revealed by Mark Sperry.

Of the 400 people in the 2001 Forbes list of the wealthiest Americans, 230 were not in the 1989 list.

And there’s almost wholesale turnover in the long run, as discovered by Will McBride of the Tax Foundation.

Of the original Forbes 400 from the first edition in 1982, only 35 remain on the list. …Of those on the 1987 Forbes 400 list, only 73 remain there in 2013.

In other words, it’s not easy to stay at the top. New entrepreneurs and investors constantly take the place of those who don’t manage to grow their wealth.

So far, we’ve focused on the biggest companies and the richest people.

But what about ordinary people? Is there also churning for the rest of us?

The answer is yes.

Here are some remarkable findings from a New York Times column by Professor Mark Rank of Washington University.

I looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking. It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution. …This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60…this information casts serious doubt on the notion of a rigid class structure in the United States based upon income.

A thoroughly footnoted study from the National Center for Policy Analysis has more evidence.

…83 percent of adults born into the lowest income bracket exceed their parents’ income as adults. About 40 percent of people in the lowest fifth of income earners in 1986 moved to a higher income bracket by 1996, and roughly half of the people in the lowest income quintile in 1996 moved to a higher income bracket by 2005. …In both the 1970s and 1980s, 8 percent of children born in the bottom fifth of the income distribution rose to the top fifth. About 20 percent of children born in the middle fifth of the income distribution later rose to the top fifth.

And here’s some of Ronald Bailey’s analysis, which I cited last year.

Those worried about rising income inequality also often make the mistake of assuming that each income quintile contains the same households. They don’t. …In 2009, two economists from the Office of Tax Analysis in the U.S. Treasury compared income mobility in two periods, 1987 to 1996 and 1996 to 2005. The results, published in the National Tax Journal, revealed that “over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period.” …The Treasury researchers updated their analysis of income mobility trends in a May 2013 study for the American Economic Review, finding that about 75 percent of taxpayers between 35 and 40 years of age in the second, middle and fourth income quintiles in 1987 had moved to a different quintile by 2007.

Last but not least, let’s look at some of Scott Winship’s recent work.

…for today’s forty-somethings who grew up in the middle fifth around 1970…19 percent ended up in the top fifth, 23 percent in the middle fifth, and 14 percent in the bottom fifth… Among those raised in the bottom fifth, 43 percent remain there as adults. …30 percent made it to the top three-fifths… Mobility among today’s adults raised in the top fifth displays the mirror image: 40 percent remain at the top, 37 percent fall to the bottom three-fifths.

The bottom line is that there is considerable income mobility in the United States.

To be sure, different people can look at these numbers and decide that there needs to be even more churning.

My view, for what it’s worth, is that the correct distribution of income is whatever naturally results from voluntary exchange in an unfettered market economy.

I’m far more concerned with another economic variable. Indeed, it’s so important that we’ll close by adding to the three points above.

4. For those who genuinely care about the living standards of the less fortunate, the only factor that really matters in the long run is economic growth.

This is why, like Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they will realize that good results are more important than good intentions.

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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.

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Some issues never seem to get resolved. One would think, for instance, that leftists would be more cautious about pushing for a bigger welfare state given the fiscal crisis in Europe.

But we have folks like Bernie Sanders openly arguing we should be more like nations such as Denmark and Sweden.

To give some credit to the Vermont Senator, he’s at least smart enough to pick Scandinavian nations that compensate for the damaging impact of high taxes and excessive spending by being very market-oriented in all other respects.

Though I suspect he’d be horrified to know that he’s basically endorsing a laissez-faire approach to policies such as trade and regulation.

But let’s set aside the quirky candidacy of Bernie Sanders and focus on whether the United States, as a general rule, should be more like Europe.

To be sure, this is a very imprecise way to look at the issue since “Europe” includes very market-oriented countries such as Switzerland and the United Kingdom (both of which rank above the United States for overall economic freedom) as well as very statist nations such as Italy, France, and Greece.

But if you take the average of European nations, there’s no question that the continent would be further to the left than America on the statism spectrum.

So we should be able to learn some lessons by making general comparisons.

Let’s go to the other side of the world to get some insight on this issue. Oliver Hartwich is an economist with the New Zealand Initiative, and he looks at the negative consequences of the welfare state in his new publication, Why Europe Failed. He starts by sharing the grim data on how the burden of government spending has increased.

Government spending as a percentage of GDP increased dramatically across Europe all through the 20th century (Table 1). …Since the immediate post-World War II and reconstruction era, government spending has increased to unprecedented levels. The most extreme case is France where the state now accounts for well over half of the economy. …These spending rises have not been driven by the core areas of government spending of law and order, defence and certain public goods. …these European countries spent almost 30% of GDP on welfare alone, which is more than the total of government spending before World War II.

And here’s the Table he referenced.

Very similar to the data I shared back in 2013 for the simple reason that we’re both citing the superb work of Vito Tanzi.

Oliver adds some analysis, noting that Europe’s voters have sold themselves into dependency.

Bread and circuses – or panem et circenses in the Latin original – were the means of bribing the masses in ancient Rome. Modern Europe is witnessing a similar phenomenon. …Unfortunately, it is often overlooked that government can only bribe the people with their own money. …Buying European citizens’ loyalty for their mixed economy welfare states has effectively enslaved them.

He then shares lessons for New Zealand, but they’re also lessons for the United States.

…we have to make sure we do not repeat Europe’s mistakes. …be watchful of the rise of the welfare state. In Europe, the welfare state was a means of buying political power. Of course, the bribed electorate always paid for its own bribes. However, the arrangement worked for as long as new spending commitments could be financed through higher taxes, more debt, or indeed a combination of both. As government spending has now reached around 50% of GDP, and as the debt load stands at worrying levels, the European welfare state model has reached its limits. … we have the luxury of being three or four decades behind Europe’s demography curve. But this does not have to mean that we will be experiencing Europe’s problems 30 or 40 years later. It should mean that we have 30 or 40 years of finding ways to prevent a European replay by finding different answers to the challenges facing Europe today.

Here’s a short video of Hartwich discussing his work and its implications.

Now let’s look at another source of information. And we’ll actually deal with an argument being peddled by Bernie Sanders.

In an article for the Mises Institute, Ryan McMaken looks at the assertion that the United States has the highest poverty rate in the developed world.

Bernie Sanders claimed that the United States has the highest rate of childhood poverty. …UNICEF…is probably the source of Sanders’s factoid… Sanders probably doesn’t even know what he means by “major country”.

Though maybe the OECD is the source of Senator Sanders’ data. After all, as Ryan explains, some organizations are completely dishonest in that their supposed poverty data actually measures income distribution rather than poverty.

We get much more insight, though, once we have a look at what UNICEF means by “poverty rate.” In this case, UNICEF (and many other organizations) measure the poverty rate as a percentage of the national median household income. …The problem here, of course, is that…the median income in the US is much higher than the median income in much of Europe. So, even someone who earns under 60% of the median income in the US will, in many cases, have higher income than someone who earns the median income in, say, Portugal.

McMaken then crunches the data to see what actually happens if you compare the poverty level of income in the United States to overall income in other industrialized nations.

So what’s the bottom line from this data?

The answer is that it’s better to be a “poor” person in the United States than an average person in many European nations.

…a person at 60% of median  income in the US still has a larger income than the median household in Chile, Czech Rep., Greece, Hungary, Portugal, and several others. And the poverty income in the US is very close to matching the median income in Italy, Japan, Spain, and the UK.

In other words, Bernie Sanders is wrong, UNICEF is wrong, and the OECD is wrong.

Poverty in the United States is not high.

Indeed, experts who have looked at actual measures of deprivation have concluded that the real poverty rate in the United States is relatively low. Even when compared with the more market-oriented countries in Northern Europe.

Last but not least, let’s look at one more Europe-America comparison, just in case the aforementioned data wasn’t sufficiently compelling. Check out this map showing how many young adults still live with their parents (h/t: Paul Kirby).

As pointed out above, Europe is not monolithic. The Northern European economies lean more toward free markets than the Southern European economies, so this map presumably captures some of that difference (though I imagine culture plays a role as well).

But for purposes of today’s analysis, our message is more basic. Simply stated, the United States should not be more like Europe. Instead, we should seek to be more like Hong Kong and Singapore.

Assuming, of course, that the goal is to have policies that promote prosperity.

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It’s no exaggeration to say that a nation’s long-run vitality and prosperity are correlated with the spirit of independence and self-reliance among its people.

Simply stated, if too many people thinks it’s okay to ride in the wagon of government dependency, that a troubling sign that social or cultural capital has eroded.

Government policy obviously plays a role, both because politicians create various redistribution programs and also because they can set rules that help determine whether there is any stigma for relying on taxpayers.

Some lawmakers even think recipients should be publicly identified, in part to weed out fraudsters and also to discourage dependency. Here are some passages from a story in the Washington Post.

If you receive government assistance in the state of Maine, Lewiston Mayor Robert Macdonald thinks the public has a right to know about it. …Macdonald said a bill will be submitted during Maine’s next legislative session “asking that a Web site be created containing the names, addresses, length of time on assistance and the benefits being collected by every individual on the dole.” He added: “After all, the public has a right to know how its money is being spent.” …Macdonald told the Portland Press Herald that …“I hope this makes people think twice about applying for welfare.” …Publicly posting personal information, he said, could encourage people to go after those “gaming the system.”

Needless to say, this approach causes great consternation for some folks on the left.

Here’s some of what Dana Milbank wrote in his Washington Post column.

Rick Brattin, a young Republican state representative in Missouri, has…introduced House Bill 813, making it illegal for food-stamp recipients to use their benefits “to purchase cookies, chips, energy drinks, soft drinks, seafood, or steak.” …This is less about public policy than about demeaning public-benefit recipients. The surf-and-turf bill is one of a flurry of new legislative proposals at the state and local level to dehumanize and even criminalize the poor.

I admit it’s paternalistic, but if taxpayers are paying for someone else’s food, then shouldn’t they have the right to insist that recipients don’t buy junk food?

My view, of course, is that the federal government shouldn’t be in the business of redistributing income, but that’s an issue we discussed a few days ago.

Milbank also is upset that some lawmakers don’t want welfare benefits spent on frivolous things.

…the Kansas legislature passed House Bill 2258, punishing the poor by limiting their cash withdrawals of welfare benefits to $25 per day and forbidding them to use their benefits “in any retail liquor store, casino, gaming establishment, jewelry store, tattoo parlor, massage parlor, body piercing parlor, spa, nail salon, lingerie shop, tobacco paraphernalia store, vapor cigarette store, psychic or fortune telling business, bail bond company, video arcade, movie theater, swimming pool, cruise ship, theme park, dog or horse racing facility, pari-mutuel facility, or sexually oriented business . . . or in any business or retail establishment where minors under age 18 are not permitted.” …another state that prohibits welfare funds for cruise ships is true-blue Massachusetts.

Again, I have to ask why it’s unreasonable for taxpayers to put limits on how welfare funds are spent?

Setting aside my desire to get Washington out of the business of maintaining a welfare state, shouldn’t the people paying the bills have some right to decide whether they want recipients going to massage parlors and casinos?

Let’s now look at a very real-world example of how our friends on the left are trying to make dependency easier and more respectable.

They now want to make it easier and less discomforting for folks to get food stamps. Here are some excerpts from a story in the Daily Caller.

A report from the U.S. Department of Agriculture (USDA) looked at whether it should get rid of in-person interviews for those who apply to receive benefits under the Supplemental Nutrition Assistance Program (SNAP), which is commonly known as food stamps. …the USDA with the Food and Nutrition Service (FNS) conducted a limited real-world test to see if the in-person interviews are needed.

The report looks at test cases in Utah and Oregon to gauge the impact on “client and worker outcomes,” but obviously didn’t consider the impact on taxpayers.

The report says that the increase of participants from 17 million in 2000 to nearly 47 million recipients in 2014 is one reason why the application process should be made easier and less costly, but others have argued that more relaxed entry requirements into the program are the very reason it has expanded so much.

The latter group is correct. If people can sign up for freebies over the phone, with very weak verification procedures, then it should go without saying that the burden on taxpayers will grow even faster.

And for purposes of our discussion today, this proposal would make it even easier for people to become dependents. The government already has turned food stamps into a welfare-state version of a debit card, which means that recipients feel less conspicuous about relying on taxpayers. Now they wouldn’t even have to visit a food stamp office when first signing up for the system!

The bottom line is that it will be very healthy for our nation if most people feel reluctant and/or embarrassed to become wards of the state.

Fortunately, there are some folks who already have this self-reliant streak. Here’s a blurb from some analysis by Angela Rachidi for the American Enterprise Institute.

…research shows that a sizeable number of eligible people do not participate in SNAP because they do not want government assistance. According to a 2003 USDA report on the subject, 27% of eligible non-participants indicated that they would not enroll in the program even if they were assured they were eligible. The report cited the desire to feel independent as the primary driver in not wanting benefits.

Thank goodness there are still a non-trivial number of Americans who don’t want to mooch off taxpayers.

By the way, you may be shocked to learn that the people of California are the least likely to sign up for food stamps.

Too bad the folks in Maine, Oregon, Vermont, and Washington don’t have the same spirit of self reliance.

Heck, Vermont’s already famous for having the top spot in the Moocher Index.

P.S. While Dana Milbank apparently thinks there shouldn’t be any restrictions on food stamps, most taxpayers probably won’t be pleased to see these examples of their money being misspent.

Then Mr. Milbank can start investigating other examples of fraud, starting with Medicaid and the disability program.

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Two days ago, I contrasted the views of Pope Francis and Walter Williams about capitalism and morality.

I explained that Walter had the upper hand because free markets are a positive-sum game based on voluntary exchange while redistribution (at best) is a zero-sum game based on coercion.

That’s the theoretical argument. Now let’s look at the empirical data, specifically focusing on which approach is best for the less fortunate.

Thomas Sowell, the great economist at Stanford University’s Hoover Institution, is not impressed by the Pope’s analysis. Here some of what Prof. Sowell wrote for Investor’s Business Daily.

Pope Francis has created political controversy…by blaming capitalism for many of the problems of the poor. …putting aside religious or philosophical questions, we have more than two centuries of historical evidence… Any serious look at the history of human beings over the millennia shows that the species began in poverty. It is not poverty, but prosperity, that needs explaining. …which has a better track record of helping the less fortunate — fighting for a bigger slice of the economic pie, or producing a bigger pie? …the official poverty level in the U.S. is the upper middle class in Mexico. The much criticized market economy of the U.S. has done far more for the poor than the ideology of the left. Pope Francis’ own native Argentina was once among the leading economies of the world, before it was ruined by the kind of ideological notions he is now promoting around the world.

I briefly discussed the failure of the Peronist Argentinian model last month, but let’s take a closer look at Professor Sowell’s assertions about the U.S. and Argentina.

My colleague at the Cato Institute, Marian Tupy, has put together a great fact-filled website called Human Progress, and it allows users to access all sorts of databases to produce their own charts and tables.

And here’s what the data shows about per-capita economic output in Argentina and the United States.

Not exactly a ringing endorsement of the supposedly more compassionate system in Argentina.

As you can see from this table, Argentina actually was slightly richer than the U.S. back in 1896. But that nation’s shift to statism, particularly after World War II, hindered Argentina’s growth rates.

And seemingly modest differences in growth, compounded over decades, have a huge impact on living standards for ordinary people (i.e., inflation-adjusted GDP per person climbing nearly $27,000 in the U.S. vs an increase of less than $6,700 in Argentina).

By the way, this is not an endorsement of America’s economic policy. We have far too much statism in the United States.

But compared to Argentina, which generally has ranked in the bottom quartile for economic freedom, the United States has a more market-friendly track record.

To help make the bigger point about the importance of economic liberty, let’s now compare the United States with a jurisdiction that consistently has been ranked as the world’s freest economy.

Look at changes in economic output in America and Hong Kong from 1950 to the present. As you can see, Hong Kong started the period as a very poor jurisdiction, with per-capita output only about one-fourth of American levels.

But thanks to better policy, which led to faster growth compounding over several decades, Hong Kong has now caught up to the United States.

What’s most remarkable, if you look at the table, is that per-capita output over the past 65 years has soared by more than 1,275 percent in Hong Kong.

Needless to say, if the U.S. is out-performing Argentina and Hong Kong is out-performing the U.S., then a comparison of Hong Kong and Argentina would yield ever starker results.

I actually did something like that back in 2011 and the results further underscore that there’s a very powerful relationship between economic policy and economic performance.

Which brings us back to the fundamental issue of what system is best for the less fortunate in society?

I suppose that’s a judgement call, but poor people obviously have higher incomes and more opportunity when there’s strong economic growth.

But as Margaret Thatcher famously explained, some people are so consumed by disdain for success that they’re willing to accept more suffering for poor people if they can simultaneously lower the incomes of rich people.

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As we get deeper into an election season, many politicians feel compelled to discuss how to deal with poverty.  And some of them may even be serious about trying to improve the system.

This hopefully will lead to big-picture discussions of key issues, such as why the poverty rate stopped falling in the mid-1960s.

If so, it helps to look past the headline numbers and actually understand the scope of the problem.

Nicholas Eberstadt of the American Enterprise Institute explains that the official poverty data from the Census Bureau overstates the number of poor people.

…the official poverty rate is a positive embarrassment today. The poverty rate manifestly cannot do the single thing it was intended for: to count the number of people in our country subsisting below a fixed and absolute “poverty line.” Among its many other shortcomings, this index implicitly assumes that a family’s annual reported income is identical to its spending power… But income and spending patterns no longer track for the lowest income strata in modern America. …the bottom quintile of US households spent 130% more than their reported pretax income. The disparity between spending and income levels for poorer Americans has been gradually widening over time.

Though the shortcomings of the Census Bureau sometimes largely don’t matter because advocates of bigger government arbitrarily choose different numbers that further exaggerate the degree of poverty in the United States.

In a column for National Review, the Heritage Foundation’s Robert Rector exposes the dishonest tactic (promoted by the Obama Administration and used by the OECD) of measuring income differences instead of actual poverty.

The Left often claims that the U.S has a far higher poverty rate than other developed nations have. These claims are based on a “relative poverty” standard, in which being “poor” is defined as having an income below 50 percent of the national median. Since the median income in the United States is substantially higher than the median income in most European countries, these comparisons establish a higher hurdle for escaping from “poverty” in the U.S. than is found elsewhere.

Based on honest apples-to-apples numbers, the United States is just as capable as other developed nations of minimizing material deprivation.

A more meaningful analysis would compare countries against a uniform standard. …Garfinkel and his co-authors do exactly that. They measure the percentage of people in each country who fall below the poverty-income threshold in the U.S. ($24,008 per year for a family of four in 2014). The authors reasonably broaden the measure of income to include “non-cash” benefits such as food stamps, the earned-income tax credit, and equivalent programs in other nations. They also subtract taxes paid by low-income families, which are heavy in Europe. …the differences in poverty according to this uniform standard were very small. For example, the poverty rate in the U.S. was 8.7 percent, while the average among other affluent countries was around 7.6 percent. The rate in Germany was 7.3 percent, and in Sweden, it was 7.5 percent. Using a slightly higher uniform standard set at 125 percent of the U.S. poverty-income thresholds, the authors find that the U.S. actually has a slightly lower poverty rate than other affluent countries.

These numbers probably disappoint leftists who want to believe that European nations are somehow more generous and more effective in dealing with poverty.

But Robert explains that advocates of smaller government and individual responsibility should not be happy because the federal government’s profligacy isn’t helping poor people become self sufficient.

It is, of course, a good thing that left-wing claims of widespread deprivation in the U.S. are inaccurate. But government welfare policy should be about more than shoveling out a trillion dollars per year in “free” benefits. When President Lyndon Johnson launched the War on Poverty, he sought to decrease welfare dependence and increase self-sufficiency: the ability of family to support itself above poverty without the need for government handouts. By that score, the War on Poverty has been a $24 trillion flop. While self-sufficiency improved dramatically in the decades before the War on Poverty started, for the last 45 years, it has been at a standstill.

Robert Doar and Angela Rachidi of the American Enterprise Institute make a very similar point about the welfare state failing to promote self sufficiency.

Recently released data show that the official poverty rate was 14.8% in 2014, only slightly below the 15% in poverty in 1970. And this is despite large increases in federal spending on anti-poverty programs.  Spending on these programs has increased almost tenfold in constant dollars since the early 1970s and increased from 1.0% of GDP in 1972 to 3.8% in 2012… Where does this leave us? If helping people achieve self-sufficiency and be free of government assistance is the goal, the safety net has largely failed. But if reducing material hardship is the goal, it performs well.

I would make a very important change to the above passage. Doar and Rachidi write that the poverty rate hasn’t declined “despite large increases” in supposed anti-poverty spending. Based on the evidence, it would be more accurate to say that poverty has stayed high “because of large increases.”

Simply stated, when you subsidize something, you get more of it.

Anyhow, all this matters for three reasons.

  • First, dependency is bad news for poor people, particularly when government subsidizes multi-generational poverty and unwed motherhood.
  • Second, the current welfare state is bad news for taxpayers, who are financing a $1 trillion income-redistribution system that fails in its most important task.
  • Third, the current system is bad news for the economy because millions of people are bribed to be out of the labor force, thus lowering potential output.

Let’s summarize what we know. The official poverty rate exaggerates the actual number of poor people by failing to properly measure income, but that may not matter much since proponents of more redistribution prefer to use dishonest numbers that are even more distorted.

And we also know that the welfare state is capable of redistributing lots of money, but also that it does a terrible job of promoting self sufficiency. Indeed, it’s almost certainly the case that massive levels of redistribution have had a negative effect.

So what’s the solution to this mess?

Folks on the left want even more of the same. But why should we expect that to have any positive effect? Indeed, it’s more likely that an expansion of the welfare state will simply lure more people into lives of sloth and dependency.

Some people on the right want to replace the welfare state with a guaranteed or basic income. This has some theoretical appeal, but it is based on the very shaky assumption that politicians could be convinced to completely repeal all existing redistribution programs.

Which is why the most prudent and effective step is to simply get the federal government out of the business of redistributing income and let state and local governments decide how best to deal with the issue.

This federalism-based approach has several advantages.

  1. Since redistributing income is not listed as an enumerated power, ending Washington’s role would be consistent with the Constitution.
  2. This federalism model already has been successfully tested with welfare reform in the 1990s and it also is the core feature of proposals to block grant Medicaid.
  3. A state-based model is far more likely to result in the degree of experimentation, diversity, and innovation needed to discover how best to actually promote self sufficiency.

By the way, this federalist system may begin with block grants from the federal government (i.e., transfers of cash to state and local governments), but the ultimate goal should be to phase out such subsidies so that state and local governments are responsible for choosing how to raise funds and how to allocate them.

And once welfare is truly a responsibility of state and local governments, we have good evidence that this will lead to better policy.

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The biggest mistake of well-meaning leftists is that they place too much value on good intentions and don’t seem to care nearly as much about good results.

Pope Francis is an example of this unfortunate tendency. His concern for the poor presumably is genuine, but he puts ideology above evidence when he argues against capitalism and in favor of coercive government.

Here are some passages from a CNN report on the Pope’s bias.

Pope Francis makes his first official visit to the United States this week. There’s a lot of angst about what he might say, especially when he addresses Congress Thursday morning. …He’ll probably discuss American capitalism’s flaws, a theme he has hit on since the 1990s. Pope Francis wrote a book in 1998 with an entire chapter focused on “the limits of capitalism.” …Francis argued that…capitalism lacks morals and promotes selfish behavior. …He has been especially critical of how capitalism has increased inequality… He’s tweeted: “inequality is the root of all evil.” …he’s a major critic of greed and excessive wealth. …”Capitalism has been the cause of many sufferings…”

Wow, I almost don’t know how to respond. So many bad ideas crammed in so few words.

If you want to know why Pope Francis is wrong about capitalism and human well-being, these videos narrated by Don Boudreaux and Deirdre McCloskey will explain how free markets have generated unimaginable prosperity for ordinary people.

But the Pope isn’t just wrong on facts. He’s also wrong on morality. This video by Walter Williams explains why voluntary exchange in a free-market system is far more ethical than a regime based on government coercion.

Very well stated. And I especially like how Walter explains that markets are a positive-sum game, whereas government-coerced redistribution is (at best) a zero-sum game.

Professor Williams wasn’t specifically seeking to counter the muddled economic views of Pope Francis, but others have taken up that challenge.

Writing for the Washington Post, George Will specifically addresses the Pope’s moral preening.

Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert’s indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak… Francis deplores “compulsive consumerism,” a sin to which the 1.3 billion persons without even electricity can only aspire.

He specifically explains that people with genuine concern for the poor should celebrate industrialization and utilization of natural resources.

Poverty has probably decreased more in the past two centuries than in the preceding three millennia because of industrialization powered by fossil fuels. Only economic growth has ever produced broad amelioration of poverty, and since growth began in the late 18th century, it has depended on such fuels. …The capitalist commerce that Francis disdains is the reason the portion of the planet’s population living in “absolute poverty” ($1.25 a day) declined from 53 percent to 17 percent in three decades after 1981.

So why doesn’t Pope Francis understand economics?

Perhaps because he learned the wrong lesson from his nation’s disastrous experiment with an especially corrupt and cronyist version of statism.

Francis grew up around the rancid political culture of Peronist populism, the sterile redistributionism that has reduced his Argentina from the world’s 14th highest per-capita gross domestic product in 1900 to 63rd today. Francis’s agenda for the planet — “global regulatory norms” — would globalize Argentina’s downward mobility.

Amen (no pun intended).

George Will is right that Argentina is not a good role model.

And he’s even more right about the dangers of “global norms” that inevitably would pressure all nations to impose equally bad levels of taxation and regulation.

Returning to the economic views of Pope Francis, the BBC asked for my thoughts back in 2013 and everything I said still applies today.

P.S. Let’s close by taking a look at a few examples of how the world is getting better thanks to capitalism.

We’ll start with an example of how China’s modest shift toward markets has generated huge reductions in poverty (h/t: Cato Institute).

Now let’s look at how a wealthier society is also a safer society (h/t: David Frum).

Or how about this remarkable measure of higher living standards (h/t: Mark Perry).

Here’s an amazing chart showing how something as basic as light used to be a luxury good but now is astoundingly inexpensive for the masses (h/t: Max Roser).

These are just a few random examples of how free markets, when not overly stifled by government, can produce amazing things for ordinary people.

We may not notice the results from one year to the next, but the results are remarkable when we examine data over longer periods of time.

And if our specific goal is to help the poor, there’s no question that economic growth is far more effective than government dependency.

Which is why I’ve explained that it’s better to be a poor person in a capitalist jurisdiction.

I’d much rather be a poor person in a jurisdiction such as Hong Kong or Singapore rather than in a “compassionate” country such as France. France might give me lots of handouts, but I’d remain poor. In a free-market society, by contrast, I could climb out of poverty.

P.P.S. Methinks Pope Francis would benefit from a discussion with Libertarian Jesus.

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As a libertarian, I sometimes make the moral argument for small government. If it’s wrong to steal other people’s income or property, then shouldn’t it also be wrong to use the coercive power of government to take their income or property?

Defenders of the welfare state respond by saying it’s “the will of the people,” but the libertarian counter-response is to point out that 51 percent of the people shouldn’t be allowed to pillage 49 percent of the people.

Indeed, as Walter Williams has cogently explained, that’s why America’s Founding Fathers were such strong opponents of what they viewed as “untrammeled majoritarianism.”

But since I realize that some people aren’t persuaded by philosophical arguments, much of my work focuses on the practical or utilitarian case for small government.

That’s why I repeatedly show how market-oriented jurisdictions out-perform statist nations.

I’ve even challenged my left-wing friends to come up with a single example of a successful big-government economy.

Needless to say, the only response is the sound of chirping crickets.

Now let’s add one more piece of evidence to our arsenal. I’ve already shared lots of data and information when making the case that Obama’s big-government policies have not worked, but, in the spirit of Mae West, there’s no such thing as too much proof that statism doesn’t work.

Especially when the evidence comes from the Obama Administration!

Here are two damning charts from a just-released Census Bureau report on income and poverty in the United States.

The first chart shows that median household income, adjusted for inflation, is nearly $1300 lower today than it was when Obama took office.

That’s a horrible outcome, particularly since the recession ended back in the summer of 2009.

By the way, I agree with critics who say that the household income data is a less-than-ideal measure of prosperity. That being said, it’s still a benchmark that allows us to see how well the economy does in some periods compared to others.

And if you look at the above chart, you clearly can see that households obviously did comparatively well during the market-oriented Reagan and Clinton eras.

Now let’s look at some data that should be very compelling for leftists who claim to be especially concerned about the less fortunate. Here are the latest Census Bureau numbers on the number of people living in poverty as well as the overall poverty rate.

As you can see, there’s been no progress during the Obama years, even if you absolve him of any blame for the deteriorating numbers caused by the recession.

By the way, I can’t resist pointing out that this chart shows how the poverty rate was declining until the so-called War on Poverty started in the mid-1960s.

And if you can click here to learn more about how bad government policies have trapped people in poverty. And if you’re interested in several hundred years of data on poverty and government policy, click here.

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Back in 2013, my colleagues at the Cato Institute, Michael Tanner and Charles Hughes, released a study looking at the value of welfare programs in various states.

The most shocking finding was that the overall package of welfare benefits was greater than the median salary in eight states!

And more than 80 percent of the median salary in half the states.

That sounds like a hammock, not a safety net. No wonder taxpayers feel like they’re getting ripped off.

This system has been bad for taxpayers and bad for poor people.

Now Mike and Charles have a new study that looks at excessive welfare handouts in Europe. They start with an elementary observation about how people can be trapped in dependency when government benefits are too high.

If welfare benefits become too generous, they can create a significant incentive that encourages recipients to remain “on the dole” rather than to seek employment. Benefits in European Union (EU) countries vary widely, but in many of them, benefits are high relative to what an individual could expect to earn from a low-wage or entry-level job.

And he highlights some of his main finding.

■ Welfare benefits in nine EU countries exceeded €15,000 ($18,200) per year. In six countries, benefits exceeded €20,000 ($24,300). Denmark offers the most generous benefit package, valued at €31,709 ($38,558).

■ In nine countries, welfare benefits exceeded the minimum wage in that country.

■ Benefits in 11 countries exceeded half of the net income for someone earning the average wage in that country, and in 6 countries it exceeded 60 percent of the net average wage income

Since poor people can be just as rational as rich people, think about the perverse incentive structure this creates. If you work, you give up leisure time and expose yourself to all sorts of additional costs, such as transportation, childcare, and taxes.

So why endure those headaches when you can relax on the dole?

Let’s look at some charts from the study. We’ll start with one on the overall fiscal burden of the welfare state.

As you can see, nations in Northern Europe generally have greater levels of income redistribution, measured as a share of GDP.

Very depressing numbers, particularly when you consider that European nations used to have small governments with very little redistribution.

But this data only tells us about the overall burden on taxpayers. It doesn’t give us much information about the incentives of poor people.

So now let’s look at a chart showing potential welfare benefits for a single parent with two children.

Wow, Denmark must be a paradise for slackers. No wonder “Lazy Robert” is so happy.

Though you have to wonder how long the system can survive. The number of people producing wealth has been stagnant while the number of people riding in the “party boat” has been climbing.

Sooner or alter, those trend lines will cause big problems.

You’ll notice that the United States also is included in the above chart and that handouts in America are not that different than they are on the other side of the Atlantic Ocean.

Indeed, the value of redistribution programs in the United States is greater than what’s provided in France and only slightly behind the value of such programs in Sweden.

The numbers are even more remarkable when you look at American states compared to European nations.

Wow, Lazy Robert should move to Hawaii!

But it’s not just Hawaii. Many other states, mostly from the northeast (and California of course), also provide excessive benefits.

No wonder a record number of Americans are trapped in poverty.

Let’s now shift gears and look at a very interesting finding from the Cato study. Mike and Charles uncovered an inverse relationship between handouts and labor regulations.

In looking at the relationship between welfare and work, one additional factor should be considered. There appears to be an inverse relationship between the generosity of welfare benefits and the rigidity of labor-market regulations. That is, those countries with high benefits tend to have more flexible labor markets, and vice versa. …Nordic countries, in addition to Germany, the Netherlands, and a few others, have chosen to pursue what is often referred to as the “Nordic,” “Danish,” or “flexicurity” model. That version of the welfare state combines a largely deregulated labor market, one that makes it easier to hire and fire workers, with a generous safety net to cushion workers from the consequences of those policies. …In contrast, in much of southern Europe, countries such as Italy, Portugal, and Spain have smaller safety nets but much more tightly regulated labor markets. They effectively shift much of the social cost to employers.

While these nations obviously have different approaches, the bottom line is still similar.

…in southern Europe, the welfare benefits may not deter work to the same extent, but finding a job may be more difficult. Then again, in countries with flexicurity, it might be easier to find a job, but benefits and effective marginal tax rates are high enough to discourage workers from doing so. The result in both models is that workers are more likely to remain on welfare and out of work for longer than they otherwise would.

P.S. I’m actually in Hawaii as I’m writing this, so the results from the last chart got me thinking. Hawaii is one of the worst states in the Moocher Index and it does have relatively high welfare benefits, so you won’t be shocked to learn there’s a very high tax burden. But a surprisingly small share of the population utilizes food stamps, and the number of welfare bureaucrats is amazingly low.

P.P.S. Left-wing international bureaucracies such as the Paris-based Organization for Economic Cooperation and Development fabricate deliberately dishonest numbers when advocating more welfare spending in the United States. But we’d be much better off if we learned from the success of welfare reform in the 1990s and got the federal government out of the business of income redistribution.

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Like Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they will realize that good results are more important than good intentions.

In a triumph of hope over experience, let’s see once again if we can get the boulder to the top of the hill.

James Piereson of the Manhattan Institute has a superb article in Commentary about “The Redistribution Fallacy.” Here are some passages, starting with an observation that American voters are very skeptical about using government coercion to equalize incomes.

Public-opinion polls over the years have consistently shown that voters overwhelmingly reject programs of redistribution in favor of policies designed to promote overall economic growth and job creation. …While voters are worried about inequality, they are far more skeptical of the capacity of governments to do anything about it without making matters worse for everyone. …Leaving aside the morality of redistribution, the progressive case is based upon a significant fallacy. It assumes that the U.S. government is actually capable of redistributing income from the wealthy to the poor. …Whatever one may think of inequality, redistributive fiscal policies are unlikely to do much to reduce it, a point that the voters seem instinctively to understand.

Piereson points out that big changes in tax policy don’t have much impact, presumably because upper-income taxpayers take sensible and easy steps to protect themselves when they’re targeted by government, but they’re willing to earn and report a lot more income when they’re not being persecuted.

…there are perfectly obvious reasons on both the tax and the spending side as to why redistribution does not succeed in the American system—and probably cannot be made to succeed. …The highest marginal income-tax rate oscillated up and down throughout the 1979–2011 period. It began in 1979 at 70 percent during the Carter presidency. It fell first to 50 and then to 28 percent in the Reagan and Bush years. It rose to 39.6 percent in the 1990s under the Clinton presidency, and went down again to 35 percent from 2003 to 2010. It is now back up to 39.6 percent. The highest rate on capital gains moved within a narrower band, beginning at 28 percent in 1979 and falling as low as 15 percent from 2005 to 2011. The highest rate is currently 23.8 percent. Over this period, regardless of the tax rates, the top 1 percent of the income distribution lost between 1 and 2 percent of the income share after taxes were levied. …At the other end, the poorest quintiles gained almost nothing (about 1 percent on average) in income shares due to cash and in-kind transfers from government. In 2011, for example, the poorest 20 percent of households received 5 percent of (pre-tax) national income, and 6 percent of the after-tax income.

Moreover, it’s laughably inaccurate to claim that the United States doesn’t have a progressive tax system.

Many in the redistribution camp attribute this pattern to a lack of progressivity in the U.S. income-tax system; a higher rate of taxation on the wealthy should solve it, they think. …A 2008 study published by the Organization for Economic Cooperation and Development found that the United States had the most progressive income-tax system among all 24 OECD countries measured in terms of the share of the tax burden paid by the wealthiest households. …The top 20 percent of earners paid 93 percent of the federal income taxes in 2010 even though they claimed 52 percent of before-tax income. Meanwhile, the bottom 40 percent paid zero net income taxes—zero. For all practical purposes, those in the highest brackets already bear the overwhelming burden of federal income tax, while those below the median income have been taken out of the income-tax system altogether.

Indeed, it’s worth noting that the reason that government is much bigger in Europe is not because they tax the rich more, but rather because they have higher burdens on low- and moderate-income taxpayers (largely because of the value-added tax).

Simply stated, there aren’t enough rich people to finance a giant welfare state, particularly when they can easily choose to avoid confiscatory tax levels.

And this explains why honest American leftists occasionally will admit that they’re real goal is higher taxes on the middle class. That’s where the money is.

But I’m digressing. Let’s get back to Piereson’s article.

He also explains that redistribution doesn’t work on the spending side of the fiscal ledger.

Turning to the spending side of fiscal policy, we encounter a murkier situation because of the sheer number and complexity of federal spending programs. The House of Representatives Budget Committee estimated in 2012 that the federal government spent nearly $800 billion on 92 separate anti-poverty programs that provided cash assistance, medical care, housing assistance, food stamps, and tax credits to the poor and near-poor. …most of the money goes not to poor or near-poor households but to providers of services. The late Daniel Patrick Moynihan once tartly described this as “feeding the horses to feed the sparrows.” This country pays exorbitant fees to middle-class and upper-middle-class providers to deliver services to the poor. …This is one reason that five of the seven wealthiest counties in the nation are on the outskirts of Washington D.C. and that the average income for the District of Columbia’s top 5 percent of households exceeds $500,000, the highest among major American cities.

Gee, I’m shocked to learn that big government is a racket that lines the pockets of Washington insiders.

So what’s the bottom line?

The federal government is an effective engine for dispensing patronage, encouraging rent-seeking, and circulating money to important voting blocs and well-connected constituencies. It is not an effective engine for the redistribution of income. …those worried about inequality should abandon the failed cause of redistribution and turn their attention instead to broad-based economic growth as the only practical remedy for the sagging incomes of too many Americans.

Amen.

If you want an example of how statism hurts the less fortunate, look at what’s happened to Venezuela.

It used to be one of the richest nations in Latin America, but bad policies in recent decades have resulted in stagnation and deprivation.

Now, Venezuela is a basket case.

It’s so bad that even establishment media outlets can’t help but notice, as illustrated by this passage from an article in The Economist.

Though the poor initially benefited from “Bolivarian socialism”, economic mismanagement has made them poorer.

In other words, Venezuela is a real-world example of the famous parables about socialism in the classroom and buying beer with class-warfare taxation. Demagogic politicians don’t understand (or don’t care) that when you punish production and reward sloth, you get less of the former and more of the latter.

Which brings me back to Piereson’s concluding points. If you care about the poor, strive for more economic growth with policies based on free markets and small government.

Nations that follow that approach vastly out-perform the countries that choose statism.

That’s looking at the big picture. Now let’s look at an example that confirms Piereson’s point about redistribution programs mostly benefiting interest groups rather than poor people.

John Graham of the Independent Institute has a very sobering column about Medicaid in the Providence Journal. It turns out that record amounts of spending for the program doesn’t yield much benefit for poor people.

Medicaid is the largest means-tested welfare program in the United States.  …new research suggests that only 20 to 40 cents of each Medicaid dollar improves recipients’ welfare. …How much does Medicaid increase recipients’ actual welfare? In other words: Does $100 of Medicaid spending increase the dependent’s well-being by $100? More? Less? …recipients’ behavior indicates they only valued their benefits at one-fifth to two-fifths of the money spent is a serious indictment of the program.

So who does benefit from the program’s ever-growing fiscal burden?

Medicaid spending is driven by providers, especially hospitals, which have relentless lobbying operations. …The study group found that 60 percent of Medicaid spending comprises transfers to such providers

But here’s the most amazing conclusion from this new research.

Medicaid enrollment did not improve mortality or any physical health measure.

The only logical conclusion is that we need to reform Medicaid. Heck, let’s fix the entire mess created by the Washington-created welfare state.

It’s been bad for taxpayers and bad for poor people.

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.

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At the risk of oversimplifying, there are two types of statists.

The first type is generally insincere and simply views bigger government and increased dependency as a strategy to obtain and preserve political power. Most inside-the-beltway leftists in Washington are in this category.

The second type genuinely cares about the less fortunate but makes the mistake of thinking that good intentions somehow lead to good results. You could call these people the Pope Francis leftists.

As you might imagine, there’s very little hope of persuading the first category of statists. You could show them all the data and evidence in the world, for instance, that a flat tax would boost prosperity, and they’ll simply shrug and tell you to jump in a lake because genuine tax reform would reduce the power and influence of Washington’s political elite.

But the second group of statists should be persuadable. That’s why I share so many comparisons of nations with smaller government and freer markets versus countries with bigger government and more intervention. I want open-minded folks on the other side to see how good policy leads to better economic performance, particularly since the poor will be big beneficiaries. That should be compelling, especially when combined with the data on how the welfare state simply traps poor people in government dependency.

I then try to augment that macro data with specific micro examples of how policies that seem compassionate actually backfire.

Is it compassionate, for instance, to increase the minimum wage if that means low-skilled workers can’t get jobs?

Alternatively, is it compassionate to extend unemployment benefits if that means people are less likely to get jobs?

Anyhow, all this discussion is simply to provide some context for a very good piece on the pitfalls of John Kasich and so-called compassionate conservatism.

In her Wall Street Journal column, Kimberly Strassel takes aim at Governor Kasich and other folks who think big government is somehow good for the poor.

…here’s one way to divide the arena: small-government reformers and big-government surrenderists. That debate is at the center of a bigger GOP meditation on how to better appeal to the poor and minorities. Mr. Kasich has emerged as the most eloquent and compelling spokesperson for the go-big camp. …his theme: that it’s OK to be “conservative” and have a “big heart.” It’s his way of excusing his decision to embrace ObamaCare’s expansion of Medicaid, putting that welfare program on track to consume 50% of Ohio’s operating budget in 2016.

Needless to say, Ms. Strassel doesn’t think Kasich’s embrace of Obamacare demonstrates a big heart.

Instead, it’s just the latest manifestation of the big-government conservatism that failed so badly last decade.

This is “compassionate conservatism”—or at least a bastardized version of it. George W. Bush first used that phrase to explain how conservative policies made everyone better off. But it would later turn into a license for Republicans to embrace government for their own conservative ends. Giant new education spending was needed to create school “accountability”; a new Medicare drug entitlement would create health-care “competition;” green-energy subsidies bolstered “national security.” …The philosophy got a revamp in the past year in the self-styled “reformicon” movement. …it’s Compassionate Conservatism 2.0.

And what happens when you cede the moral high ground and agree with the statists that bigger government somehow benefits people?

…underpinning the entire compassionate-conservative movement is a glum surrender to the entitlement state. The left has won; all that remains is to argue that conservative big-government is better managed than liberal big-government.

Ms. Strassel is much more impressed with what she calls the “small-government reformers.”

…there is another approach to compassion. It’s the version made popular by Jack Kemp, and embraced by House Ways and Means Chairman Paul Ryan—and a growing list of converts. It holds that there is nothing whatsoever compassionate about consigning low-income Americans to a government health-care system that delivers second-class outcomes. There’s nothing compassionate about making today’s working poor pay into a bleeding Social Security system… There’s nothing compassionate about propping up a federally run poverty industrial-complex that spends most of its money on itself. The Kemp-Ryan view knows that government is the problem, not the answer—not in any form. The answer is to devolve the money and power back to states and communities…spreading the gospel of smaller government, in the name of helping those most vulnerable.

Amen. Kemp was a hero in the battle to lower confiscatory tax rates, leading to a victory that was enormously successful in the 1980s. And Ryan deserves endless praise for his efforts to reform entitlement programs such as Medicare and Medicaid.

This is the approach that offers the most hope to the less fortunate because it enables growth and job creation.

Big-government conservatism, by contrast, undermines economic dynamism by acquiescing to the idea of an ever-growing state.

By the way, none of this suggests that John Kasich is universally bad on policy or that Paul Ryan is universally good. Kasich, after all, was Chairman of the House Budget Committee in the 1990s when genuine spending restraint led to a balanced budget. And Paul Ryan’s otherwise good ideas on tax reform have been marred by occasional flirtation with a value-added tax.

What ultimately matters is whether a politician is – on balance – pushing to shrink the size and power of the federal government. So ultimately it’s an imperfect process of deciding which lawmaker is 75 percent good and which one is 65 percent good (or, in too many cases, comparing one who is 10 percent good with one who is 5 percent good).

P.S. If “Libertarian Jesus” is correct and genuine compassion is defined as helping others with your own money, then Americans have much bigger hearts than their European counterparts.

P.P.S. Speaking of compassion, here’s an anti-Obama joke featuring some Pennsylvania cops.

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I’ve written over and over again that the federal government’s so-called War on Poverty has been a disaster.

It’s been bad news for taxpayers, of course, but it’s also been bad news for poor people since they get trapped in dependency.

So what’s the alternative? Well, we actually can learn a lot from history.

Let’s start on the other side of the Atlantic. Professor Tyler Cowen of George Mason University has a fascinating video (which is part of a must-watch series) looking at the English debate in the 1830s on how best to deal with poverty.

Now let’s cross the ocean and look at the American experience.

Professor Thomas West of Hillsdale College has researched welfare policies in the early days of the United States.

Here are some of his key findings.

…government-funded welfare, not to mention generous private charity, has existed throughout American history. …The real difference between the Founders’ welfare policies and today’s is over how, not whether, government should help those in need.

Government was involved, but only at the local level, and assistance was a two-way street.

From the earliest colonial days, local governments took responsibility for their poor. However, able-bodied men and women generally were not supported by the taxpayers unless they worked. They would sometimes be placed in group homes that provided them with food and shelter in exchange for labor. Only those who were too young, old, weak, or sick and who had no friends or family to help them were taken care of in idleness.

Here’s more.

Welfare is kept local so that the administrators of the program will know the actual situations of the persons who ask for help. This will prevent abuses and freeloading. …A distinction between the deserving and undeserving poor is carefully observed. Able-bodied vagabonds get help, but they are required to work in institutions where they will be disciplined. Children and the disabled, on the other hand, are provided for, not lavishly but without public shame. …Poor laws to support individual cases of urgent need were not intended to go beyond a minimal safety net. Benefit levels were low.

Interestingly, Professor West writes about Benjamin Franklin’s low opinion of England’s welfare system (as it existed before the 1830s, obviously), which was much more generous.

Here’s some of what Franklin wrote, as cited by West.

I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it. In my youth I travelled much, and I observed in different countries, that the more public provisions were made for the poor, the less they provided for themselves, and of course became poorer. And, on the contrary, the less was done for them, the more they did for themselves, and became richer.

This was not an unusual perspective.

Franklin’s understanding of the welfare paradox—that aid to the poor must be managed carefully lest it promote indolence and therefore poverty—was shared by most Americans who wrote about and administered poverty programs until the end of the 19th century. …policies were intended to help the poor in ways that did not violate the rights of taxpayers or promote irresponsible behavior.

Thomas Jefferson definitely agreed, as seen in this quote included in Professor West’s analysis.

To take from one, because it is thought his own industry and that of his fathers has acquired too much, in order to spare to others, who, or whose fathers, have not exercised equal industry and skill, is to violate arbitrarily the first principle of association, the guarantee to everyone the free exercise of his industry and the fruits acquired by it.

If you remember the discussion of “indoor” and “outdoor” relief from the video about the English welfare system, you won’t be surprised to learn similar issues were present in the United States.

As the poor population grew, many concluded that “outdoor relief” was leading people to look on welfare as an entitlement and creating a class of permanent dependents. Consequently, the emphasis soon shifted to “indoor relief”—almshouses and workhouses.

Professor West also cites the strong role of private charity, which also was based on tough-love compassion.

After the Revolution and throughout the 19th century, hospitals for the poor, educational institutions, YMCAs, and Salvation Army branches were established in growing numbers all over America by public-spirited citizens. Like the public workhouses, these private charities distinguished between deserving and undeserving poor. Good character, it was thought, would enable most people to become self-sufficient. These agencies tried to build the character of their recipients through education, moral suasion, religious instruction, and work.

Now let’s see what West says about the effectiveness of the tough-love approach from America’s past with the entitlement approach used today.

If we rank poverty and welfare policies in terms of quantity of money and material goods given to people who are poor, then today’s policies are far more effective than the Founders’. Benefit levels are much higher, and far more people are eligible for support. …However, if poverty and welfare policies are judged by their effectiveness in providing for the minimal needs of the poor while dramatically reducing poverty in a society over time, then America before 1965 could be said to have had the most successful welfare policy in world history. By the same benchmark, post-1965 poverty programs have failed.

In other words, if the goal is to make people comfortable in dependency, the current system is a big success.

But if the goal is self reliance and reduced poverty, then the current system is a terrible failure.

Professor West has some great data on how a combination of long-run growth and a sensible welfare system combined to dramatically reduce destitution between the nation’s founding and the 1960s.

Two centuries ago, most Americans—at least 90 percent—were desperately poor by today’s standards. Most houses were small, ill-constructed, and poorly heated and insulated. Based on federal family income estimates, 59 percent of Americans lived in poverty as late as 1929, before the Great Depression. In 1947, the government reported that 32 percent of Americans were poor. 

This is fascinating and valuable information. At least for those of us with a wonky interest in public policy.

Back in 2010, I shared a chart based on far more limited data to show the poverty rate consistently falling after World War II.

But only up to a point. Once the federal government declared War on Poverty in the mid-1960s, we stopped making progress.

Now, based on Professor West’s data, I can create a chart going back to 1815.

I arbitrarily connected the data points with straight lines for lack of any other obvious alternative, but that’s not important. The key point of the graph is to see that the level of poverty declined dramatically before Washington got involved.

Professor West puts 2 and 2 together and gets 4.

…before the huge growth in government spending on poverty programs, poverty was declining rapidly in America. After the new programs were fully implemented, the poverty rate stopped declining.

Let’s begin to wrap up our discussion.

West points out that Benjamin Franklin’s criticisms of the English welfare system apply even more so to the mess we have in America today.

And this is a very costly mistake.

The incentive structure of the modern welfare state is similar to the one that Franklin condemned in old England, except that ours is more generous and more tolerant of single motherhood. Since 1965, when President Lyndon Johnson inaugurated the modern War on Poverty, total annual government welfare spending has grown from less than $9 billion (1.3 percent of gross domestic product) to $324 billion (5 percent of GDP) in 1993 to $927 billion (6 percent of GDP) in 2011. Between 1965 and 2013, the government spent $22 trillion (adjusted for inflation) on means-tested welfare programs—more than three times the costs of all military wars in the history of the United States. …These figures do not take into account state, county, and municipal benefits. Nor do they take into account the massive use of Social Security Disability as a de facto welfare program (as of 2005, 4.1 percent of Americans between the ages of 25 and 64 were enrolled).

We had successful welfare reform in the 1990s, to be sure, but it dealt with just one program.

The overall trend, as discussed two days ago, is ever-growing levels of dependency.

The basic problem—that government makes it affordable for women to bear and raise children without husbands while living independently in households of their own—is still there. …High benefit levels and irresponsible attitudes toward sex and marriage create a world in which many children have few or no ties to their fathers; in which mothers, increasingly unmarried, are more often abused and exploited; and in which many men join gangs and take up crime as a way of life. …The contemporary outlook on welfare has both propelled the family’s disintegration and promoted vast dependence. …antipoverty programs can easily have a corrupting effect if they are not set up in a way that promotes rather than breaks down the morality of self-restraint and self-assertion that is a necessary foundation of what Jefferson called “temperate liberty.”

I guess what we have now in America is intemperate dependence.

Hmmm, maybe the solution is to go back to the system that worked. And that means getting Washington out of the business of income redistribution.

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Back during the 2012 presidential campaign, I criticized the view that America was divided between “makers” and “takers.”

But not because I disagreed with the notion that people trapped in government dependency have an unfortunate self-interest in supporting politicians who want a bigger welfare state. Indeed, I’ve explicitly warned that some statist politicians explicitly want to create more dependency to advance their power.

That being said, it’s important to understand the depth of the problem. It’s not accurate, as I’ve written, to assume that people who don’t pay tax are part of the moocher class.

…those people are not necessarily looking for freebies from government. Far from it. Many of them have private sector jobs and believe in self reliance and individual responsibility. Or they’re students, retirees, or others who don’t happen to have enough income to pay taxes, but definitely don’t see themselves as wards of the state.

Moreover, it’s not even accurate to say that households receiving benefits from the government are part of the dependency class.

…the share of households receiving goodies from the government...is approaching 50 percent and it probably is much more correlated with the group of people in the country who see the state as a means of living off their fellow citizens. But even that correlation is likely to be very imprecise since some government beneficiaries – such as Social Security recipients – spent their lives in the private sector and are taking benefits simply because they had no choice but to participate in the system.

If we really want to understand the depth of America’s dependency problem, it’s much better to look at the share of the population that gets money from anti-poverty programs.

The Census Bureau has just released a report looking at the share of the population receiving “means-tested” benefits, which is the term for programs targeting low-income recipients. Here are some of the highlights (or lowlights) from the accompanying release.

Approximately 52.2 million (or 21.3 percent) people in the U.S. participated in major means-tested government assistance programs each month in 2012, according to a U.S. Census Bureau report released today. Participation rates were highest for Medicaid (15.3 percent) and the Supplemental Nutrition Assistance Program, formerly known as the food stamp program (13.4 percent). The average monthly participation rate in major means-tested programs increased from 18.6 percent in 2009 to 20.9 percent in 2011. …The largest share of participants (43.0 percent) in any of the public assistance programs stayed in the programs between 37 and 48 months.

Perhaps more worrisome are the details on how some segments of the population are more likely to be trapped in government dependency.

In an average month, 39.2 percent of children received some type of means-tested benefit, compared with 16.6 percent of people age 18 to 64 and 12.6 percent of people 65 and older. …At 41.6 percent, blacks were more likely to participate in government assistance programs in an average month. …At 50 percent, people in female-householder families had the highest rates of participation in major means-tested programs.

Though perhaps “trapped” is too strong a word. As you can see from this table, less than 50 percent of recipients appear to be long-term dependents.

Looking at all this data, my conclusion is that we’re not in any immediate danger of hitting a “tipping point” of too much dependency. To be sure, the trends are not favorable, thanks to politicians like Obama, but 21 percent of the population receiving means-tested benefits is not nearly as bad as 47 percent.

Though it appears that the Census Bureau doesn’t count the “earned income credit” in its calculations. That’s an odd omission since it is a means-tested spending program (operated through the tax code). So the problem presumably is worse than what is stated in the report, but I’m assuming that there’s a big overlap between EIC recipients and those already counted by the Census Bureau. which means that the share of households getting money from Uncle Sam is still significantly less than 30 percent.

But that doesn’t mean we shouldn’t be worried. Indeed, the welfare state should be radically changed because we care about both taxpayers and poor people.

Writing for The Federalist, Robert Tracinski explores specific policies that would restrain and reduce the welfare state.

He lists seven ideas, which I’ve shared below (in very abbreviated form) followed by my two cents.

1) Repeal ObamaCare – If we want to roll back the welfare state, we will never have any better opportunity to start than by repealing ObamaCare—a program that is relatively new, has never been popular, and is in a slow process of imploding.

My response: Fully agree.

2) Health Savings Accounts – Scrapping ObamaCare would be a natural opportunity for Republicans to propose their own free-market health-care reforms. The centerpiece of that alternative should be Health Savings Accounts, which make it easier for individuals to save money in tax-free accounts which they can use for medical expenses.

My response: Not my preferred option. HSAs are a big improvement over the current system and presumably would help with the third-party payer problem, but fixing healthcare requires far bigger changes to Medicare, Medicaid, and the tax code’s fringe benefit loophole. And if you make those changes, HSAs wouldn’t really matter.

3) Means-test Social Security – Social Security is already a bad deal for the middle class, since the benefits are already skewed in such a way that they are equivalent to a tiny return, between 1 and 2 percent annually, on what might have been a private investment. By contrast, long-term returns on the stock market are about 7 percent annually. And in order to make Social Security sustainable, it will have to become a much worse deal.

My response: Also not my preferred option. Too many otherwise sensible people are giving up on personal retirement accounts.

4) Restart economic growth – the United States has slipped into the Obama rate of growth, a permanent state of semi-stagnation. We’ve been through market crashes and recessions before, but usually after a year or two of pain, we get a strong burst of growth to make up for it. …This low rate of growth makes the burden of the welfare state greater, because we can no longer grow our way out from under its expenses. …If we’re going to expect people to be more self-reliant, they must also have a sense of economic hope.

My response: Hard to argue with this suggestion, or the description of the problem.

5) Re-reform welfare – …the Obama administration has used the recession to gut the welfare reform of the 1990s, extending unemployment benefits and loosening work requirements. …the administration has used the state for the opposite purpose: to push people from self-reliance into dependence.

My response: Also hard to argue with this suggestion. It’s very worrisome how leftists are operating behind the scenes to push more dependency.

6) Save the cities – …the centers of economic inequality and racial conflict—the key issues on which Democrats always campaign—are places that are the sole property of Democrats, owned and run by them for about as long as anyone can remember. …If we want less class and racial conflict, if we want more people moving up into the middle class and no longer feeling the need for government support, if we want to compete for the vote in what are now deep centers of political support for the left—then we need to start targeting the cities for basic reforms that will improve the quality of life there and bring back the middle class.

My response: A very accurate description of the problem, but I suspect advocates of limited government won’t gain control of policy in big cities, so it might be better to first focus on rhetorical efforts to explain how statism leads to bad results.

7) Federalism – This is not a foolproof solution, because we’ll still occasionally get local handouts… But the general idea is that we can let New York and California set up more generous welfare states—if they want to pay for them. And they should let the hinterland scale back welfare. Then the states can compete to see whose approach is more successful and how many people vote with their feet for the small government model.

My response: Bingo!! This is far and away the right answer and it’s got plenty of intellectual firepower behind it.

America isn’t Europe, either in terms of policy or attitudes. But I worry that we’re heading that direction.

The Census Bureau gives us the data and Robert Tracinski has given us some good answers.

But will the solutions be implemented before too many people are riding in the wagon of government dependency? Because once you reach that point, there’s probably little hope.

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President Obama recently took part in a poverty panel at Georgetown University. By D.C. standards, it was ideologically balanced since there were three statists against one conservative (I’ve dealt with that kind of “balance” when dealing with the media, as you can see here and here).

You won’t be surprised to learn that the President basically regurgitated the standard inside-the-beltway argument that caring for the poor means you have to support bigger government and more redistribution.

Many observers were unimpressed. Here’s some of what Bill McGurn wrote for the Wall Street Journal.

The unifying progressive contention here is the assertion that America isn’t “investing” enough in the poor—by which is meant the government isn’t spending enough. …President Obama…went on to declare it will be next to impossible to find “common ground” on poverty until his critics accept his spending argument.

I think this argument is nonsense. We’re spending record amounts of money on means-tested, anti-poverty programs, yet the poverty rate hasn’t come down since the “War on Poverty” started.

Indeed, you can make a very persuasive case that government intervention has backfired since the poverty rate was falling before the federal government got involved. Yet now that Washington is paying people to be poor, progress has ground to a halt.

In his column, though, McGurn pointed out that it’s also important to look at how money is spent.

…it’s simply false to say that Republicans won’t make the public “investments” needed to help the poor. In New York in the 1990s, for example, Republican Mayor Rudy Giuliani not only invested in the police but sent them into the areas where they were most needed—primarily poor and minority neighborhoods. In too many other Democratic cities, by contrast, mayors in effect cede whole neighborhoods to the thugs and gangs. Republicans are also willing to spend on education. What they are not willing to do is dump ever more dollars down the same rathole of big-city public school systems that function more as jobs programs for city bureaucrats and members of the teachers unions.

And he challenged the view of some GOPers that government spending will promote stable families.

…it would similarly be good for Republicans to address the hard implications of their own message. If, for example, broken families are indeed driving modern American poverty, is the only answer despair—or praying for some miracle? And if you believe the government can’t help but bungle something as basic as food stamps, shouldn’t you bring this same skepticism to a “conservative” program that enlists the government to, say, discourage divorce or promote chastity?

I certainly agree with that point. President Bush’s program to encourage marriage certainly wasn’t a success.

But let’s focus on the present. Here’s some of what Thomas Sowell said about Obama’s performance. As you can see, he was not impressed with the President’s abuse of the English language.

One of the ways of fighting poverty, [the President] proposed, was to “ask from society’s lottery winners” that they make a “modest investment” in government programs to help the poor. …But the federal government does not just “ask” for money. It takes the money it wants in taxes, usually before the people who have earned it see their paychecks. …It seizes what it wants by force. If you don’t pay up, it can take not only your paycheck, it can seize your bank account, put a lien on your home and/or put you in federal prison. So please don’t insult our intelligence by talking piously about “asking.”

And Sowell closes his column by raising the fundamental question of whether it makes sense to let government consume a greater share of economic output.

The fact that most of the rhetorical ploys used by Barack Obama and other redistributionists will not stand up under scrutiny means very little politically. After all, how many people who come out of our schools and colleges today are capable of critical scrutiny? When all else fails, redistributionists can say, as Obama did at Georgetown University, that “coldhearted, free-market capitalist types” are people who “pretty much have more than you’ll ever be able to use and your family will ever be able to use,” so they should let the government take that extra money to help the poor. …The real question is whether the investment of wealth is likely to be done better by those who created that wealth in the first place or by politicians. The track record of politicians hardly suggests that turning ever more of a nation’s wealth over to them is likely to turn out well.

Amen. The academic evidence is very strong that nations with large public sectors suffer from economic anemia.

And since the poor are most dependent on growth to get a good foothold on the economic ladder, Prof. Sowell surely is right when he states that it’s better to leave resources in the productive sector of the economy. Moreover, he’s explained in the past that the welfare state certainly doesn’t help the poor.

P.S. Since today’s column ended with a discussion about whether government should be bigger or smaller, it’s appropriate to share this bit of humor concocted by the Princess of the Levant.

If you’re a new reader and don’t get the joke, Richard is famous for the Rahn Curve, though I think he overstates the growth-maximizing size of government. As such, I argue that we need to impose my (not nearly as famous) Golden Rule of spending restraint.

P.P.S. Shifting back to the topic of poverty and redistribution, we should all be very concerned that the Obama White is trying to manipulate the definition of poverty in order to justify ever-larger amounts of redistribution and dependency. And you won’t be surprised to learn that the OECD supports this dishonest and misleading initiative.

P.P.P.S. Here’s an image that accurately summarizes the left’s misguided view of redistribution.

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Let’s revisit the issue of urban unrest, with special attention to the challenges for both entrepreneurs and ordinary citizens.

While potential police misconduct may serve as a trigger for riots, the powder keg is already in place because of decades of bad government policy.

Jay Steinmetz, who runs a supply-chain management company in Baltimore, provides a real-world perspective on what it’s like to be an entrepreneur in a city run by kleptocrats. Here are some excerpts from his Wall Street Journal column.

When the building alarm goes off, the police charge us a fee. If the graffiti isn’t removed in a certain amount of time, we are fined. This penalize-first approach is of a piece with Baltimore’s legendary tax and regulatory burden.  …Maryland still lags most states in its appeal to companies, according to well-documented business-climate comparisons put out by think tanks, financial-services firms, site-selection consultants and financial media. Baltimore fares even worse than other Maryland jurisdictions, having the highest individual income and property taxes at 3.2% and $2.25 for every $100 of assessed property value, respectively.

Here’s what it means, in terms of lost revenue, to Mr. Steinmetz’s company.

The bottom line is that our modest 14,000-square-foot building is hit with $50,000 in annual property taxes. And when we refinanced our building loan in 2006, Maryland and Baltimore real-estate taxes drove up the cost of this routine financial transaction by $36,000. State and city regulations overlap in a number of areas, most notably employment and hiring practices, where litigious employees can game the system and easily find an attorney to represent them in court. Building-permit requirements, sales-tax collection procedures for our multistate clients, workers’ compensation and unemployment trust-fund hearings add to the expensive distractions that impede hiring.

So it’s no surprise to learn that the geese with the golden eggs (as well as the silver and bronze eggs) are flying away.

Our employees reduce their tax burden and receive better public services in the suburbs.  …The financial problem Baltimore does face is a declining tax base, the most pronounced in the state. According to the Internal Revenue Service, $125 million in taxable annual income in Baltimore vanished between 2009 and 2010.

I’m not sure why Mr. Steinmetz hasn’t left as well. I guess it’s both admirable and foolish for him to persevere is such a hostile environment.

Thomas Sowell, in an article published by National Review, demolishes the argument that criminal behavior can be blamed on racism or poverty.

He starts by drawing attention to the 1960s as a key turning point.

The “legacy of slavery” argument is not just an excuse for inexcusable behavior in the ghettos. …Anyone who is serious about evidence need only compare black communities as they evolved in the first 100 years after slavery with black communities as they evolved in the first 50 years after the explosive growth of the welfare state, beginning in the 1960s.

Prof. Sowell then makes the obvious point that blacks faced much harsher conditions before the 1960s, yet crime was much lower.

And the black family was much more stable before the so-called war on poverty in the 1960s.

We are told that such riots are a result of black poverty and white racism. But in fact — for those who still have some respect for facts — black poverty was far worse, and white racism was far worse, prior to 1960. But violent crime within black ghettos was far less. Murder rates among black males were going down — repeat, down — during the much-lamented 1950s, while it went up after the much celebrated 1960s, reaching levels more than double what they had been before. Most black children were raised in two-parent families prior to the 1960s. But today the great majority of black children are raised in one-parent families.

Sowell’s point is that the welfare state created incentives for dysfunctional behavior.

And he stresses that this isn’t a racial issue.

Such trends are not unique to blacks, nor even to the United States. The welfare state has led to remarkably similar trends among the white underclass in England over the same period. …You cannot take any people, of any color, and exempt them from the requirements of civilization — including work, behavioral standards, personal responsibility, and all the other basic things that the clever intelligentsia disdain — without ruinous consequences to them and to society at large. Non-judgmental subsidies of counterproductive lifestyles are treating people as if they were livestock.

I particularly appreciate his point about the importance of social capital, what he calls the requirements of civilization.

But this doesn’t mean black citizens don’t have some legitimate grievances. Radley Balko of the Washington Post explains that African-Americans are getting abused by greedy governments, just like Mr. Steinmetz.

He starts his article by sharing some good news on falling crime rates and big reductions in police deaths. But for our purposes today, the most powerful and relevant part of his story deals with one citizen’s interaction with government.

Antonio Morgan [is] a 29-year-old resident of Hazelwood, Missouri. He owns his own small business, a car repair and body shop he’d been saving up to buy since he was a teenager. He has also been arrested more than 20 times. All but two of those arrests were for misdemeanors. Morgan saved up for his business by fixing cars in his mother’s driveway. That required him to occasionally park cars on the street. That earned him parking tickets. He paid them when he could, but he occasionally missed deadlines. And that would lead to an arrest warrant. All of this also put Morgan on the radar of local police.

As you continue reading, keep in mind he was “on the radar” even though he did nothing to infringe on the life, liberty, and property of other citizens.

His unpaid parking tickets led not just to arrest warrants, but to the occasional suspension of his license. That led to more citations, although like many in the area, Morgan was sometimes pulled over and issued only a ticket for driving on a suspended license, or driving a car that wasn’t registered to him. (Morgan sometimes drove his clients’ cars to test them.) But there was no underlying traffic violation — which raises the question of why the officer pulled Morgan over in the first place, if it wasn’t to profile him. Those citations then led to more arrests.

It certainly seems as if St. Louis County in Missouri has been treating Mr. Morgan as a revenue-generating milk cow, much as Baltimore has been squeezing Mr. Steinmetz.

Different approach, but same result.

Cops would show up at his garage and cite his employees for operating without a business license. Morgan has a license; his employees didn’t need one. But to get the citations dismissed, Morgan and his employees would have to go to court, which was held once a month, at night. If they missed their court date, they too would be hit with an arrest warrant. Wealthy people can hire an attorney to go in their stead, and to negotiate their way out of a citation. But neither Morgan nor his employees were wealthy.

Some of you may be wondering about the two ostensibly more serious arrests on his record.

Radley’s column discusses both, and it certainly looks like Mr. Morgan has been mistreated by the justice system.

Here’s the first arrest. And remember it only occurred because he had to be in court to deal with ridiculous fines and petty harassment.

As Morgan walked toward the courthouse a police officer asked him the kids in the truck were his. He replied that they were. The officer asked him why he had left them alone. Morgan replied that he hadn’t, and that the woman parked next to him had agreed to watch them. ..Morgan pleaded with the police officer to flag down his friends, who he said would vouch for him. He says the officer then threatened to Taser him. Morgan put up his hands. The officer then arrested him for child endangerment. …The incident still upsets Morgan — not even the arrest so much as that his children had to see it. “I’m a good father,” he says. “I own my own business. I provide for my kids. Do you know what it’s like for your own children to see you get arrested? For a cop to say, right in front of them, that he’s arresting you because you’re a bad parent?”

I’m not someone who sees racism under every bed and behind every tree, but you can’t help but wonder whether this incident would have even happened if he was a white guy in a business suit.

The second arrest is equally dubious.

…the officer confronted Morgan because he was “trespassing” on a neighbor’s lawn. Morgan responded that he wasn’t trespassing, because the neighbors didn’t mind. Morgan says the cop moved to arrest him, and he lost his cool. He claims he never struck the police officer, but he does admit that he screamed at him. Once he did, he was hit with a Taser and arrested for assaulting a police officer. That charge was later dropped. (The neighbors back Morgan’s account of the entire incident, including his assertion that he never touched the cop.)

It’s always a smart idea to act servile and obsequious when dealing with cops, so Mr. Morgan obviously didn’t play his cards right.

But imagine if you had been endlessly harassed. Wouldn’t you be angry? Radley sure would have been.

I was stunned. But not because Morgan lost his cool with the cop. I was stunned that it had taken him so long to do so. And that even then, he’d manage to restrain himself from physical violence. I’m not sure I’d have been able to say the same.

Here’s the bottom line. Or, to be more accurate, two bottom lines.

First, we should sympathize with Mr. Morgan just as we should sympathize with Mr. Steinmetz. Actually, we should sympathize more with Morgan.

Morgan is no one’s definition of a “thug.” He’s a guy who breaks his back to keep up the business that supports his family, despite obstacles that, frankly, most white business owners don’t have to endure. For all he’s been through, he is remarkably composed. He deals with the daily harassment in a remarkably manner-of-fact way. …Morgan isn’t a drug pusher. He isn’t an absentee father. He isn’t in a gang. He’s a guy trying to do right by his family.

Second, we should recognize that one “root cause” of the problem is greedy government.

The primary source of revenue for the local towns is sales tax. But the poorer (which means blacker) towns don’t generate enough income from sales taxes. So they turn to municipal fines to keep themselves from going under. The poorer the town and its residents, the more likely the town relies on fines for a greater percentage of its annual revenue. Which means that the blacker the town, the more likely its residents are getting treated like ATMs for the local government.

None of this justifies rioting. And I have to imagine that Mr. Morgan would be one of the good guys during any unrest (much like Stretch and his friends in Ferguson).

But stories like this should make all of us appreciate how some communities may have a very sour impression of the police.

Let’s close with some economic analysis of riots (hey, I’m a policy wonk, so bear with me).

Here’s some of what Professor Edward Glaeser of Harvard wrote a few years ago for Bloomberg.

…public disturbances are a classic example of tipping-point phenomena, which occur when there is some positive feedback mechanism that makes an activity more attractive, or less costly, as more people do it. …There is a tipping point in rioting because the cost of participating — the risk of going to jail — gets lower as the number of people involved increases. …riots occur when the shear mass of rioters overwhelms law enforcement.

He then looks at the more challenging issue.

But how do these mass events get started? In some cases, …such as the 1965 Watts Riot, a peaceful crowd provides cover for initial lawlessness. Sporting events, such as Game 7 of the Stanley Cup Finals in Vancouver this year, can easily produce the crowds that allow a riot to start. Most strangely, riots can follow an event that creates a combination of anger and the shared perception that others will be rioting. The acquittal of police officers in the Rodney King case seems to have created these conditions in Los Angeles in 1992.

The left-wing excuse for rioting doesn’t seem to have much merit.

…across U.S. cities, there has never been much of a link between unrest and either inequality or poverty. In fact, the riots of the 1960s were actually slightly more common in cities that had more government spending.

But economic analysis gives us good clues, both about how to deter riots and who is most victimized when they occur.

Light penalties widely applied and serious penalties applied to a few can both deter unlawful behavior. This is a central conclusion of Gary Becker’s path-breaking economic analysis of crime and punishment. …Even when they are connected to understandable grievances, they do great harm, particularly to the poorest residents.

The moral of the story is that we should be tough on crime, but that doesn’t mean mistreating people like Antonio Morgan.

Instead, the legal system should focus on trying to deter bad behavior, which is when genuinely bad people infringe on the life, liberty, and property of others.

But how do we get politicians and bureaucrats to properly focus?

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As shown by this graphic, why are so many people in Maine taking advantage of the food stamp program? As shown by this map, why does Oregon have such a high level of food stamp dependency?

These are just rhetorical questions since I don’t have the answers. But if we can come up with good answers, that could lead to better public policy.

After all, if we want a self-reliant citizenry, it would be better if people were more like those in Nevada and less like the folks in Vermont, at least based on the infamous Moocher Index.

But one thing we can say with certainty is that the food stamp program has morphed into a very expensive form of dependency.

Jason Riley of the Wall Street Journal opines on the importance of reforming this costly entitlement.

Officially known as the Supplemental Nutrition Assistance Program, or SNAP, the food-stamp program has become the country’s fastest-growing means-tested social-welfare program. …Between 2000 and 2013, SNAP caseloads grew to 47.6 million from 17.2 million, and spending grew to $80 billion from $20.6 billion… SNAP participation fell slightly last year, to 46.5 million individuals, as the economy improved, but that still leaves a population the size of Spain’s living in the U.S. on food stamps. …The unprecedented jump in food-stamp use over the past six years has mostly been driven by manufactured demand. The Obama administration has attempted to turn SNAP into a middle-class entitlement by easing eligibility rules and recruiting new food-stamp recipients. …Democrats tend to consider greater government dependence an achievement and use handouts to increase voter support. The president considers European-style welfare states a model for America.

Making America more like Greece, however, is not good news for taxpayers.

But the program also has negative effects on recipients. Contrary to the left’s narrative, we don’t have millions of starving people in America.

…it now operates more like an open-ended income-supplement program that discourages work. Some 56% of SNAP users are in the program for longer than five years, which suggests that the assistance is being used by most recipients as a permanent source of income, not as a temporary safety net. …“Today, instead of hunger, the central nutritional problem facing the poor, indeed all Americans, is not too little food but rather too much—or at least too many calories,” Douglas Besharov, who teaches courses on poverty alleviation at the University of Maryland, told the House Agriculture Committee last month. “Despite this massive increase in overweight and obesity among the poor, federal feeding programs still operate under their nearly half-century-old objective of increasing food consumption.

So why don’t we try to help both taxpayers and low-income Americans by reforming the program, specifically by “block-granting” it to the states?

Uncle Sam picks up almost all of the bill. That means states have little incentive to control costs. Republicans argue that shifting to block grants would not only save money but also encourage states to increase the labor-participation rate of low-income populations. A state that has only so much money to work with is more likely to promote self-sufficiency in the form of employment, job-search and job-training requirements for able-bodied adults on the dole.

Decentralization, Riley explains, worked very well in the 1990s with welfare reform.

…1996 reforms…imposed more stringent time limits and work requirements on welfare recipients enrolled in programs like Temporary Assistance for Needy Families, or TANF. Welfare rolls subsequently plunged. By 2004, caseloads had fallen by 60% overall and by at least 30% in nearly every state. Child poverty, black child poverty and child hunger also decreased, while employment among single mothers rose. This was a welcome outcome for taxpayers, poor people and everyone else—except those politicians with a vested interest in putting government dependence ahead of self-sufficiency to get elected and re-elected.

So kudos to Republicans on Capitol Hill for proposing to put the states in charge of food stamps.

Just like they also deserve applause for working to block-grant the Medicaid program.

This is something that should happen to all mean-tested programs. Once they’re all back at the state level, we’ll get innovation, experimentation, and diversity, all of which will help teach policy makers which approaches are genuinely in the best interests of both taxpayers and poor people (at least the ones seeking to escape dependency).

Though I can’t resist adding one caveat. The ultimate goal should be to phase out the block grants so that states are responsible for both raising and spending the money.

Let’s close with a few real-world horror stories of what we’re getting in exchange for the tens of billions of dollars that are being spent each year for food stamps.

With stories like this, I’m surprised my head didn’t explode during this debate I did on Larry Kudlow’s show.

P.S. Shifting to another example of government waste, let’s look at the latest example of overspending and mismanagement by the Department of Veterans Affairs.

Nothing, of course, can compare with the horrible outrage of bureaucrats awarding themselves bonuses after putting veterans on secret waiting lists and denying them care.

But having taxpayers pay nearly $300,000 just so a bureaucrat can move from one highly paid job in DC to another highly paid job in Philadelphia should get every American upset. Here are some of the sordid details from a local news report.

Rep. Jeff Miller (R., Fla.), who chairs the House Veterans Affairs Committee, has also raised questions about the salary and “relocation payments” to the new director of the Philadelphia office, Diana Rubens. Rubens, who was a senior executive in the D.C. office when she was tapped in June to take over the troubled Philadelphia branch, received more than $288,000 in relocation expenses. “The government shouldn’t be in the business of doling out hundreds of thousands in cash to extremely well-compensated executives just to move less than three hours down the road,” Miller said. …Under federal regulations, an agency can pay a variety of costs associated with reassigning an employee, including moving, closing costs, and a per-diem allowance for meals and temporary lodging for the employee’s household.

I’m baffled at how somebody could run up such a big bill. Did she use the space shuttle as a moving van?

Did she have to stay six months at a 5-star resort while waiting for her new house to be ready?

Does a per-diem allowance allow three meals a day at the most expensive restaurant in town?

This is either a case of fraud, which is outrageous, or it’s legal, which means it’s an outrageous example of government run amok.

Regardless, it underscores what I wrote back in 2011.

I will never relent in my opposition to tax increases so long as the crowd in Washington is spending money on things that are not appropriate functions of the federal government. …I will also be dogmatic in my fight against higher taxes so long as there is massive waste, fraud, and abuse in federal programs.

Not to mention that we should never allow tax hikes when it’s so simple to balance the budget with modest spending restraint.

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Sweden is an odd country, at least from the perspective of public policy.

On the positive side, it has private Social Security accounts. It has an admirable school choice system. And it was a good role model of spending restraint back in the 1990s.

But on the negative side, Sweden has one of the world’s biggest welfare states. Even after the spending restraint of the 1990s, the public sector consumes about 50 percent of economic output. And that necessitates a punitive tax code.

There’s also a truly perverse fixation on equality. And you won’t be surprised to learn that the government-run healthcare system produces some unpleasant outcomes.

Today, let’s build on our understanding of Sweden by looking at how the country’s welfare state interacts with the immigration system.

Writing for CapX, Nima Sanandaji discusses these issues in his adopted country of Sweden.

Sweden has had an unusually open policy towards refugee and family immigrants. The Swedish Migration Agency estimates that around 105,000 individuals will apply for asylum only this year, corresponding to over one percent of Sweden’s entire population.

This openness is admirable, but is it successful? Are immigrants assimilating and contributing to Sweden’s economy?

Unfortunately, the answer in many cases is no.

…the open attitude towards granting immigrants asylum is not matched by good opportunities on the labor market. An in-depth study by the daily paper Dagens Nyheter shows that many migrants struggle to find decent work even ten years after entering the country. …The median income for the refugees in the group was found to be as low as £880 a month. The family immigrants of refugees earned even less. Ten years after arriving in the country, their median income was merely £360 a month. These very low figures suggest that a large segment of the group is still relying on welfare payments. Dagens Nyheter can show that at least four out of ten refugees ten years after arrival are supported by welfare. The paper acknowledges that this is likely an underestimation.

So what’s the problem? Why are immigrants failing to prosper?

Nima suggests that government policies are the problem, creating perverse incentives for long-term dependency.

To be more specific, the country’s extravagant welfare state acts as flypaper, preventing people from climbing in the ladder of opportunity.

The combination of generous benefits, high taxes and rigid labour regulations reduce the incentives and possibilities to find work. Entrapment in welfare dependency is therefore extensive, in particular amongst immigrants. Studies have previously shown that even highly educated groups of foreign descent struggle to become self-dependent in countries such as Norway and Sweden. …The high-spending model is simply not fit to cope with the challenges of integration.

The part about “highly educated groups” is particularly important since it shows that the welfare trap doesn’t just affect low-skilled immigrants (particularly when high tax rates make productive activity relatively unattractive).

So what’s the moral of the story? Well, the one obvious lesson is that a welfare state is harmful to human progress. It hurts taxpayers, of course, but it also has a harmful impact on recipients.

And when the recipients are immigrants, redistribution is especially perverse since it makes it far less likely that newcomers will be net contributors to a nation.

And that then causes native populations to be less sympathetic to immigration, which in unfortunate since new blood – in the absence of bad government policy – can help boost national prosperity.

Though let’s at least give Sweden credit. I’m not aware that its welfare programs are subsidizing terrorism, which can’t be said for the United Kingdom, Australia, France, or the United States.

P.S. Here’s my favorite factoid about Sweden.

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My Cato Institute colleague Michael Tanner has produced some first-rate substantive research on issues.

He produced a study showing that personal retirement accounts would have been a better deal than Social Security even for people who retired at the depth of the financial crisis and stock-market collapse.

He authored another study showing that overly generous welfare systems in most states make productive work relatively unattractive compared to government dependency.

And I’ve also cited his analysis and commentary on issues such as Obamacare and obesity.

Today, I want to cite him for the simple reason that I admire his cleverness.

For those of us who suffered through President Obama’s State of the Union address, you may recall that the President proposed a thawing of America’s relationship with Cuba on the basis that if something “doesn’t work for 50 years, it’s time to try something new.”

Since I’m not a foreign policy person, I didn’t pay close attention to that passage.

But perhaps I should have been more attentive. It turns out that Obama created a big opening.

Writing for National Review, Tanner decided to hoist Obama on his own petard.

During his State of the Union address last week, President Obama defended his Cuba policy by pointing out, “When what you’re doing doesn’t work for 50 years, it’s time to try something new.” As it happens, I agree with the president on Cuba. But it seems to me that his advice should be applied to a number of other issues as well

Mike starts with the ill-fated War on Poverty.

Lyndon Johnson declared war on poverty in January 1964, just three years after the start of the Cuban embargo. Since then we’ve spent more than $20 trillion fighting poverty. Last year alone, federal and state governments spent just under $1 trillion to fund 126 separate anti-poverty programs. Yet, using the conventional Census Bureau poverty measure, we’ve done nothing to reduce the poverty rate. …And, whatever success we’ve achieved in making material poverty less uncomfortable, we’ve done little to help the poor become independent and self-supporting.

He then points out the utter failure of the War on Drugs.

The War on Drugs has been going on even longer than the War on Poverty, with a similar lack of success. …in the last ten years alone we have spent some $500 billion fighting this “war,” and arrested more than 16 million Americans for drug offenses. The vast majority of arrests have been for simple possession, not sale or other drug crimes. While filling our prisons with nonviolent offenders, destabilizing countries like Mexico and Colombia, wrecking our own inner cities, and making the cartels rich, the drug war has failed to reduce either violence or drug use.

Mike also reminds us that we’ve had five decades-plus of government-run healthcare.

…we’ve suffered from government-run health care in this country for more than 50 years as well. Medicare and Medicaid started in 1965. Others would point out that we are still suffering the consequences of the IRS decision in 1953 to make employer-provided insurance tax-free, while individually purchased insurance has to be paid for with after-tax dollars. No matter how you want to measure the starting point, the government now pays for roughly 52 percent of U.S. health-care spending, and indirectly subsidizes another 37 percent. The result has been steadily rising health-care costs, a dysfunctional insurance market, and a growing shortage of physicians. …a study out of Oregon suggests that being on Medicaid provides no better health outcomes than being uninsured. Meanwhile, Medicare is running up more than $47.6 trillion in unfunded liabilities. And let us not forget the VA system and its problems.

And his article merely scratches the surface.

One could go on and on. Fannie and Freddie? Social Security and its almost $25 trillion in unfunded liabilities? Stimulus spending? Green energy? We won’t even mention the National Weather Service’s apparent inability to accurately predict snowstorms. If we are looking for lessons to learn from the last 50 years, here is one: Bigger government has not brought us more security, more freedom, or more prosperity. Yet, President Obama still sees the answer to every problem, no matter how small, as more government, no matter how big. …President Obama not only seems unable to learn from history, but apparently doesn’t even listen to his own speeches. If big government hasn’t worked for 50 years, 100 years, or for that matter pretty much the whole of human history, maybe it’s time to try something else.

The final sentence in that passage is not just a throw-away line.

I have my own two-question challenge for leftists, which is basically a request that they identify a nation – of any size and at any time – that has prospered with big government.

Mike does something similar. He basically points out that big government has an unbroken track record of failure, and not just for the past 50 years.

I suppose the question to ask is whether any big-government program can be considered a success? In other words, what has any government done well, once it goes beyond the provision of core public goods such as enforcing contracts, protecting property rights, and upholding the rule of law?

To be fair, there are some nations, such as Switzerland, that have enjoyed very long periods of monetary stability and peace. And jurisdictions such as Hong Kong and Singapore have experienced decades of prosperity and tranquility.

In all of those jurisdictions, I think government is too big, but they are considered small-government by modern-world standards.

In any event, the point I’m making is that some governments seem semi-competent, but there also seems to be a relationship between the size and scope of government and the failure of government.

It will be interesting to read the comments.

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If nothing else, our leftist friends deserve credit for chutzpah.

All around the world, we see concrete evidence that big government leads to stagnation and decay, yet statists repeatedly argue that further expansions in taxes and spending will be good for growth.

During Obama’s recent state-of-the-union address, he pushed for class warfare policies to finance bigger government, claiming such policies would be an “investment” in the future.

But it’s not just Obama. Hillary Clinton, on several occasions (see here, here, here, and here), has explicitly argued that higher tax rates and bigger government are good for growth.

The statists at the Paris-based Organization for Economic Cooperation and Development (financed with our tax dollars) actually argue that higher taxes and more spending will somehow enable more prosperity, both in the developing world and in the industrialized world.

And some left-wing “charities” are getting in on this scam. Oxfam, for instance, now argues that higher tax rates and bigger government are necessary for growth and development in poor nations. And Christian Aid makes the same dodgy argument.

The Oxfam/Christian Aid argument is especially perverse.

If they actually think that bloated public sectors are the key to faster growth in the developing world, shouldn’t they provide at least one example of a jurisdiction that has become rich following that approach?

Let’s examine this issue more closely.

Here are some excerpts from a column in the most recent issue of Cayman Financial Review. Written by the Cato Institute’s Marian Tupy, it looks at the challenge of boosting prosperity in sub-Saharan Africa.

Marian starts with some good news. The 21st Century, at least so far, has seen genuine progress.

Real gross domestic product has been ticking along at an average annual rate of 4.8 percent, while per capita income has grown by roughly 40 percent. …The benefits to ordinary people have been impressive. The share of Africans living on less than $1.25 per day fell from 56 percent in 1990 to 48 percent in 2010. …If the current trend continues, Africa’s poverty rate will fall to 24 percent by 2030. In addition, per-capita caloric intake has increased from 2,150 kcal in 1990 to 2,430 kcal in 2013. …Moreover, between 1990 and 2012, the percentage of the population with access to clean drinking water increased from 48 percent to 64 percent. Many African countries have also seen dramatic falls in infant and child mortality. Over the last decade, for example, child mortality in Senegal, Rwanda, Uganda, Ghana, and Kenya declined at a rate exceeding 6 percent per year.

This is very good news.

And foreign investment deserves some of the credit. When western multinationals enter a nation, they play a vital role in creating (relatively) high-paying and building a nation’s capital stock.

Particularly since the overall economic and policy climate in many sub-Saharan nations is very dismal.

As you can see from the accompanying map, based on the Fraser Institute’s Economic Freedom of the World, most nations in the region are either in the most economically repressed category (red) or the next-t0-last category (yellow).

In either case, these countries obviously have far too much taxes, spending, regulation, and intervention.

Needless to say, these policies make it difficult for local businesses and entrepreneurs to succeed, which means the jobs and prosperity made possible by foreign investment are absolutely vital.

But Marian warns that this progress could come to a halt if African nations fall victim to class-warfare proposals that seek to demonize multinational firms as part of a push to expand tax collections.

…future growth could be at risk if economic conditions on the continent deteriorate.  And that may happen if policy makers decide to adopt a more hostile approach to entrepreneurs and investors. Specifically, African governments are urged to take a stance against so-called tax havens, which are alleged to deprive the former of significant chunks of tax revenue. …Oxfam, a British charity, has argued that…tax maneuvering by multinational companies is entrenching poverty and weakening developing countries’ economies. According to Oxfam, “Developing countries lose an estimated $100 billion to $160 billion annually to corporate tax dodging.” As such, Oxfam has urged the G20 to rewrite international tax laws so that “developing countries are not taken advantage of by the rich.”

The problem with this ideology, as Marian explains, is that foreign companies won’t have nearly as much incentive to create jobs and growth in Africa if tax policy becomes more onerous.

Africa has one of the world’s riskiest business environments. Government accountability and transparency are low. The rule of law and protection of property rights are weak. Corruption is high. In a sense, low taxes compensate domestic and foreign investors for shortcomings of the business environment that are more difficult to address: a low tax rate can be legislated overnight, but corruption-free bureaucracy takes generations to accomplish. What’s true for corporations is also true for individuals. Many wealthy Africans continue to work and create wealth in the difficult African business environment in part because they know that at least a portion of their wealth is safe from inflation and predation.

But the most important part of Marian’s article is the section where he debunks the notion that bigger government somehow leads to more prosperity.

…the argument in favor of higher tax revenues assumes that government spending is an efficient driver of economic growth. This is a common misperception in the West, which is now being applied, with potentially disastrous consequences, to the developing world. In America, for example, Hillary Clinton has argued that more revenue improves economic development and the “rich people … [who] do not contribute [jeopardize]… the growth of their own countries.” She has urged “the wealthy across the Americas to pay their ‘fair share’ of taxes in order to eliminate poverty and promote economic opportunity for all.” Is the former Secretary of State correct? Are developing nations suffering from inadequate levels of public spending? Is there a need for more revenue to finance bigger government so that national economies can grow faster?

Marian looks at the actual data.

And he makes the absolutely essential point that western nations became rich when government was very small and there was virtually no redistribution.

According to the International Monetary Fund, government outlays consume, on average, about 27 percent of economic output in sub-Saharan nations….the burden of government spending averaged only about 10 percent of economic output in North America and Western Europe through the late 1800s and early 1900s – the period when the nations in these regions enjoyed huge increases in living standards and evolved from agricultural poverty to middle-class prosperity. If the goal is to have African nations copy the successful growth spurts of western nations (keeping in mind that per-capita economic output today in sub-Saharan Africa is roughly equal to per-capita GDP levels in Western nations in the late 1800s), then the latter’s experience implies that high levels of government spending are not necessary. Indeed, too much spending presumably hinders growth by leading to the misallocation of labor and capital. Moreover, it should be pointed out that the United States and other currently rich countries also had no income taxes when they made their big improvements in economic status.

In other words, the best recipe for African prosperity is the one that worked for the western world.

Sub-Saharan Africa needs small government and free markets.

And, yes, there is a role for government in providing the rule of law and other core public goods, but African nations already collect more than enough revenue to finance these legitimate roles.

Here’s the bottom line.

Of course, not all government spending is bad for growth. Upholding the rule of law and protecting property rights costs money, but helps growth. Historically, African governments have been at their weakest when providing for these “night watchman” functions of the state. And their economies suffered as a result. Were African governments to focus on a set of narrow, clearly defined goals, they would find plenty of revenue to finance their accomplishment – without having to resort to punitive tax policies that are likely to undermine Africa’s long term economic prospects.

P.S. Since today’s topic dealt with tax havens, that’s my excuse to share this interview with the folks at the Mises Institute. I wax poetic about why tax havens are a liberalizing force in the global economy, while also touching on issues such as double taxation, corporate inversions, financial privacy, and FATCA.

For more information, here’s my video series on tax competition and tax havens.

P.P.S. On a completely separate topic, I’ve often made the point that the “Obama recovery” is very anemic.

Well, here’s some new evidence from the Wall Street Journal.

Wow, less than half the growth we got under Reaganomics.

Seems like a good opportunity for me to reissue my two-part challenge to the left. To date, not a single statist has successfully responded.

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There’s a famous quote, commonly  attributed to Alexis de Tocqueville, about the American character.

America is great because America is good. If America ever stops being good, it will stop being great.

What makes this quote so popular (even though Wikipedia says it’s not actually from de Tocqueville) is the instinctive understanding that a society’s success is at least in part driven by the moral character of its people.

And even if the quote is incorrectly attributed, it clearly is something that could have come from de Tocqueville. In his writings, he openly acknowledged that good laws were only part of what’s needed for a successful society.

The best laws cannot make a constitution work in spite of morals; morals can turn the worst laws to advantage.

This is spot on. A nation is far more likely to be successful if people have the right attitudes, what’s variously referred to as social capital, national character, cultural capital, civics, or tradition.

Here’s what I wrote about the topic last year.

…social capital…refers to the attitudes of a country’s people….Do the people of a nation believe in the work ethic? Or would they be comfortable as wards of the state, living off others? Are they motivated by the spirit of self-reliance? Would they be ashamed to go on welfare? Do they think the government is obligated to give them things? The answers to these questions matter a lot because a nation can’t prosper once you reach a tipping point of too many people riding in the wagon and too few people producing.

I fear that many nations, such as France and Greece, have already reached the point of no return. And I’m worried America is on the same path.

That’s the main reason I created the Moocher Hall of Fame. Yes, taxpayers should get outraged how their money is being wasted, but the far bigger problem is the mentality, present is an ever-growing number of people, that there’s nothing wrong with living off the government.

Sort of as depicted by this Lisa Benson cartoon.

Though it would be more accurate to say that too many people are opting to live off the work of others. After all, the government doesn’t have money to redistribute unless it is taxed or borrowed from those who earned it.

But enough of my amateur commentary, which only scratches the surface of this issue. For those who want deep expertise and knowledge on the topic, I’m delighted (in a very pessimistic and dour sense of the word) to share some excerpts from a superb article in National Affairs by Nicholas Eberstadt, who is a scholar at the American Enterprise Institute.

He starts by explaining that an ever-growing share of the population is receiving handouts and that this pattern is a threat to American exceptionalism.

Asking for, and accepting, purportedly need-based government welfare benefits has become a fact of life for a significant and still growing minority of our population: Every decade, a higher proportion of Americans appear to be habituated to the practice. If the trajectory continues, the coming generation could see the emergence in the United States of means-tested beneficiaries becoming the majority of the population. …nearly half of all children under 18 years of age received means-tested benefits (or lived in homes that did). For this rising cohort of young Americans, reliance on public, need-based entitlement programs is already the norm — here and now. It risks belaboring the obvious to observe that today’s real existing American entitlement state, and the habits — including habits of mind — that it engenders, do not coexist easily with the values and principles, or with the traditions, culture, and styles of life, subsumed under the shorthand of “American exceptionalism.” Especially subversive of that ethos, we might argue, are essentially unconditional and indefinite guarantees of means-tested public largesse.

For those who prefer hard numbers, here is a chart from his article.

There’s so much interested data and analysis in the article, that it’s difficult to choose only a few things to highlight. But these passages are particularly depressing.

The corrosive nature of mass dependence on entitlements is evident from the nature of the pathologies so closely associated with its spread. Two of the most pernicious of them are so tightly intertwined as to be inseparable: the breakdown of the pre-existing American family structure and the dramatic decrease in participation in work among working-age men. When the “War on Poverty” was launched in 1964, 7% of children were born outside of marriage; by 2012, that number had grown to an astounding 41%, and nearly a quarter of all American children under the age of 18 were living with a single mother. …As for men of parenting age, a steadily rising share has been opting out of the labor force altogether. Between 1964 and early 2014, the fraction of civilian men between the ages of 25 and 34 who were neither working nor looking for work roughly quadrupled, from less than 3% to more than 11%. In 1965, fewer than 5% of American men between 45 and 54 years of age were totally out of the work force; by early 2014, the fraction was almost 15%. …mass gaming of the welfare system appears to be a fact of modern American life. The country’s ballooning “disability” claims attest to this. Disability awards are a key source of financial support for non-working men now, and disability judgments also serve as a gateway to qualifying for a whole assortment of subsidiary welfare benefits. Successful claims by working-age adults against the Social Security Disability Insurance (SSDI) program rose almost six-fold between 1970 and 2012 — and that number does not include claims against other major government disability programs, such as SSI.

Ugh. It’s almost as if this Chip Bok cartoon is becoming a depiction of American reality.

To close, here are some excerpts that put the issue of dependency in broader context.

The burning personal ambition and hunger for success that both domestic and foreign observers have long taken to be distinctively American traits are being undermined and supplanted by the character challenges posed by the entitlement state. The incentive structure of our means-based welfare state invites citizens to accept benefits by showing need, making the criterion for receiving grants demonstrated personal or familial financial failure, which used to be a source of shame. …The entitlement state appears to be degrading standards of citizenship in other ways as well. For example, …The late senator Daniel Patrick Moynihan once wrote, “It cannot too often be stated that the issue of welfare is not what it costs those who provide it, but what it costs those who receive it.” The full tally of those costs must now include the loss of public honesty occasioned by chronic deception to extract unwarranted entitlement benefits from our government…collusive bipartisan support for an ever-larger welfare state is the central fact of politics in our nation’s capital today, as it has been for decades. Until and unless America undergoes some sort of awakening that turns the public against its blandishments, or some sort of forcing financial crisis that suddenly restricts the resources available to it, continued growth of the entitlement state looks very likely in the years immediately ahead.

So what’s the answer to this mess?

Without question, the first step is to get Washington out of the business of imposing a one-size-fits-all system on the country.

Simply stated, take the money in Washington that is spent on all redistribution programs, lump those funds into a block grant, and then turn the money over to the states and give them free rein to decide how best to alleviate poverty without creating discomfort.

Republicans, to their credit, already have proposed that solution for Medicaid. But they need to expand that legislation to other means-tested programs.

The real key to success, though, is slowly but surely phasing out the block grant. It’s good to give states flexibility in spending money, but you won’t get responsible decisions unless states – at some point – are also responsible for raising the money.

In other words, the answer is federalism. And because this means jurisdictional competition, we’re quite likely to get better policy. After all, if crazy states such as California, New York, and Illinois want to impose high tax rates to fund overly generous handout, they’ll quickly learn why that’s a bad idea since productive people will emigrate and welfare recipients will immigrate.

Ideally, state lawmakers will decide that welfare programs should focus on people with genuine material deprivation and not ….

Writing about Eberstadt’s article, George Will highlights the fact that you no longer have to be poor to get freebies from federal anti-poverty programs.

Between 1983 and 2012, the population increased by almost 83 million — and people accepting means-tested benefits increased by 67 million. So, for every 100-person increase in the population there was an 80-person increase in the recipients of means-tested payments. Food stamp recipients increased from 19 million to 51 million — more than the combined populations of 24 states. What has changed? Not the portion of the estimated population below the poverty line (15.2 percent in 1983; 15 percent in 2012). Rather, poverty programs have become untethered from the official designation of poverty: In 2012, more than half the recipients were not classified as poor but accepted being treated as needy.

And as you read that passage, keep in mind that the poverty line in America is well above the average level of income in most parts of the world.

But the left wants to redefine poverty in ways that enable redistribution to people who aren’t poor.

P.S. Here’s a great video on differences between the United State and Europe. And here’s a video that is best described as the result of an affair between Dr. Seuss and a think tanker.

P.P.S. Here’s a superb Chuck Asay cartoon on how government undermines social capital. And here’s a Michael Ramirez cartoon making the same point.

P.P.P.S. If you enjoy satire, here’s a book of left-wing nursery rhymes.

P.P.P.P.S. And if you want to know one of my fantasies (which deals with the entitlement mindset), click here.

P.P.P.P.P.S. Last but not least, here’s the famous set of cartoons showing the rise and (inevitable) fall of the welfare state.

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If the Moocher Hall of Fame ever moves from the virtual world to brick-and-mortar reality, it’s going to need a lot of space.

That’s because, to use a politically correct term, many of the featured freeloaders are plus-sized.

Stanley looks like a rather robust eater, which is somewhat disturbing on more than one level since he gets disability checks that allow him to fulfill his fantasy of wearing diapers and being an “adult baby.”

Lazy Robert doesn’t look like he misses many meals, and he obviously has plenty of time to enjoy fine dining in Copenhagen since he proudly brags that he’s been living off Danish taxpayers for about 15 years.

Christina’s handouts are so generous that she’s had enough money to eat her way into a size-26 dress, yet she has the gall to complain that taxpayers won’t subsidize a gym membership.

 Now we have another plus-sized honoree. Or, in this case, honorees.

That’s because the U.K.-based Telegraph is reporting on a mother-daughter team that is living large at taxpayer expense.

A mother and daughter who get £34,000 a year in handouts because they are too fat to work say they’d rather be happy and on benefits than depressed and thin. Janice and Amber Manzur weigh a total of 43 stone and are so overweight they have to use mobility scooters to get around.But both women refuse to diet… Ms Manzur lives in a three-bedroom house that has been customised by the council to accommodate her disability and drives a Fiat Quibo disability car worth around £15,000. …The two women, from Kirkcaldy, Fife, jointly receive close to £33,600 benefits a year. That’s the equivalent of a £46,000 salary before tax. …She gets £400 Employment and Support Allowance a month and £430 to cover the rent on her flat. Miss Manzur also gets disability allowance because she is obese and has recurring problems with her leg.

The entitlement mentality is what makes this pair special.

She said: “People shouldn’t judge me or my mum for how big we are because it’s in our genes. “I’ve never been on a diet or to a gym and I don’t even eat that much junk food. It’s my natural build to be this big and I’m happy to not work anymore. We can’t help it, so why bother fighting it?” …Ms Manzur started claiming benefits in 2006 when she left her job as a manager in a call centre because of weight-related health problems. She was forced to argue her case for disability pay after a tribunal claimed if she wanted to work she could lose weight. Ms Manzur won and now gets £620 Employment and Support Allowance and £320 Disability Living Allowance a month. …Miss Manzur’s council-paid flat has been modified to cater for her disability. It has no stairs, a low front door so she can drive her disability scooter inside and a bath with a seat for easy access. The two women are able to spend much of their free time together. Janice said: “We live less than a mile apart. I have the car, so I drive round to her or pick her up. We spend a lot of time together and often go out on our matching mobility scooters. “I watch telly a lot and I also like reading and I recently brought a Kindle with my benefits.”

I’m sure British taxpayers are happy that they’re subsidizing matching scooters, kindles, special cars, redesigned flats, and other goodies that enable the Manzurs to live an unhealthy lifestyle.

By the way, my concern isn’t that the Manzurs eat a lot. As far as I’m concerned, people should eat as much or as little as they like and be whatever size floats their boat. Moreover, I’m in no position to throw stones since I should drop at least 15 pounds.

But I do get very agitated when bad government policies subsidize bad behavior. And the bad behavior I’m referring to is indolence, not over-eating.

Though it’s easy to see why the Manzurs got sucked into a welfare lifestyle. They’re getting the equivalent of more than $50,000 per year to “watch telly” and eat.

But if they chose productive behavior, they would get hit with punitive taxes and have less disposable income (we have the same self-destructive policy in America, and it’s getting worse thanks to Obamacare).

In other words, the Manzurs are responding to bad incentives. You get to live a better lifestyle if you goof off all day.

P.S. The Brits actually have a reality-TV program called Benefits Street, which shows how redistribution ruins lives and creates inter-generational dependency.

P.P.S. British taxpayers at least can be thankful that the U.S. government wasn’t in charge of procuring the kindle for Ms. Manzur.

P.P.P.S. And British taxpayers can also be thankful that the government has recently implemented some welfare reforms that are encouraging work over dependency.

P.P.P.P.S. Though to end on a grim note, the government-run healthcare system in the United Kingdom remains unchanged and is the source of numerous horror stories.

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The modern welfare state is a disaster. But rather than go into lengthy details, let’s simply look at some very powerful images (click for enlarged view).

Probably the most damning evidence is that the poverty rate in America was steadily falling after World War II. But then Lyndon Johnson declared a “war on poverty” and got Washington more involved in the business of income redistribution. So what happened? The poverty rate stopped falling.

But it’s also sobering to see how much money is being spent on income-redistribution programs. Taxpayers at the federal, state, and local level are coughing up more than $1 trillion every year to subsidize poverty. To give an idea of how much inefficiency and waste permeates the system, this is enough to give every poor household $60,000.

Poor people are among the biggest victims of the welfare state. Redistribution programs create a dependency trap because of very high implicit tax rates on productive behavior. Simply stated, handouts are so generous that poor people who enter the labor force generally will have lower living standards than those who remain wards of the state.

 So what’s the solution to this mess?

Fortunately, we have a case study that points us in a productive direction.

The Bill Clinton-era welfare reforms, pushed through by Republicans in Congress, were a big success. Here are some excerpts from an article written by an expert at the Brooking Institution.

Between 1994 and 2004, the caseload declined about 60 percent, a decline that is without precedent. The percentage of U.S. children on welfare is now lower than it has been since at least 1970. …More than 40 studies conducted by states since 1996 show that about 60 percent of the adults leaving welfare are employed at any given moment and that, over a period of several months, about 80 percent hold at least one job. …Again, these sweeping changes are unprecedented. …Equally important, with earnings leading the way, the total income of these low-income families increased by more than 25 percent over the period (in constant dollars). Not surprisingly, between 1994 and 2000, child poverty fell every year and reached levels not seen since 1978. In addition, by 2000, the poverty rate of black children was the lowest it had ever been.

This is an older article from 2006, so there was obviously some movement in the wrong direction after the recent recession.

Nonetheless, the big message from welfare reform in the 1990s is that blank-check welfare entitlements are greatly inferior to a federalism-based approach that allows states to innovate and experiment to see what works best.

That’s the good news.

The bad news is that the Clinton welfare reforms only addressed a minor part of the welfare state. Moreover, the Obama Administration has undermined some of the modest progress that was achieved in the 1990s.

So we need a new offensive to deal with the broader deficiencies of the current system, which is a disaster for both taxpayers and poor people.

But if we use Clinton’s welfare reforms as a model, there is considerable progress that can be achieved. Diana Furchtgott-Roth of Economics 21 has a new study on precisely this topic.

She identifies some of the major redistribution programs in Washington.

This paper examines the evolution of major U.S. welfare programs since 1998—shortly after the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), the 1996 federal welfare reform signed into law by President Clinton, went into effect. The paper chronicles the average amount of aid provided, as well as length of time on public assistance, focusing on the following programs: SNAP; Temporary Aid to Needy Families, or TANF (established by PRWORA); Medicaid; and Section 8 Housing Choice Vouchers (HCV).

And she points out these programs are an expensive failure, but proposes a way to address the problem.

…while the U.S. economy has since improved, participation in such programs has generally not declined. This paper concludes that there is ample scope for states to reform welfare, and it proposes two substantial changes: (1) cap welfare spending at the rate of inflation and the number of Americans in poverty; and (2) allow states to direct savings from welfare programs to other budget functions. …this paper finds that federal savings through 2013 would, after accounting for inflation and the number of Americans in poverty, total $1.3 trillion had welfare funding remained at 1998 levels.

The key is federalism.

States should have the freedom to experiment to see what policies are most effective. Under such conditions, successful states would serve as models for other states—and, possibly, models for further federal welfare reform. Indeed, successful welfare reforms have already been observed in North Carolina, New York, Indiana, and Rhode Island. …Providing states increased flexibility to adjust resource levels between welfare programs offers numerous advantages. For instance, states with low food prices but high housing costs might shift resources from SNAP to housing programs. In addition, states could divert funding from existing programs to new ones, such as community-based programs that prove successful.

Her bottom line is that the status quo is a failure.

Antipoverty programs should be judged by how successfully they help lift people out of poverty. By this measure, the country’s welfare programs performed poorly during the Great Recession and its aftermath: welfare costs and eligibility have, as this paper has documented, largely expanded, with few gains in poverty reduction. …The status quo is plainly unacceptable. New solutions, not more funding, are the answer. …empower states to choose welfare policies that best serve their most vulnerable families, as well as those that best fit their political demands.

An excellent study and a very sound proposal.

Though I would make one very important modification.

It’s clearly a step in the right direction if the federal government turns all income-redistribution programs into a block grant so that states can decide how to allocate the money and address poverty.

But the long-run goal should be to eliminate any role for Washington, even as a provider of block grants.

In an ideal world, the block grant should be immediately capped and then gradually phased out. Let state and local governments decide how to tax and spend in this arena.

P.S. Some folks on the right want to replace the current welfare state with a government-guaranteed minimum income. But that approach is very inferior to genuine federalism.

P.P.S. The bureaucrats at the OECD (subsidized by our tax dollars) are pushing a new definition of poverty that is really a stalking horse for more income redistribution.

P.P.P.S. In the spirit of political correctness, here’s the modern version of the Little Red Hen and the modern version of the fable about the ant and the grasshopper.

P.P.P.P.S. For American readers, click here to see the extent to which your state makes welfare more attractive than work.

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I wrote the other day about the importance of “social capital,” which is a catch-all phrase for a society’s attitudes about things such as the work ethic, a sense of self-reliance, and the spirit of independence.

Today we’re going to look at the flip side of social capital. I’m not sure whether this is an example of “anti-social capital” or “social anti-capital,” but our newest entrant in the Moocher Hall of Fame is symbolic of what’s wrong with the mental attitude of too many people in today’s welfare states.

Here are some details from a story about Christina in the U.K.-based Daily Mail. As you read the story, keep in mind that a “stone” is 14 pounds and £20,000 equals more than $31,000.

An obese mother-of-two who lives on benefits says she needs more of taxpayers’ money to overhaul her unhealthy lifestyle. Christina Briggs, 26, from Wigan, says she hates being 25 stone but she can’t do anything about it because she can only afford junk food. Meanwhile, exercise is out of the question because she doesn’t have the funds to join a gym. …’I tried swimming but it cost £22 a month and it meant I had to cut back on my favourite pizza and Chinese takeaways.’ Unemployed Christina gets £20,000 in benefits a year and lives in a council house with her two children by different fathers, Helena, 10, and Robert, two. …The family feast everyday on takeaways, chocolate and crisps as Christina says they can’t afford low fat foods. As a result, the mother is currently a dress size 26. …But she insists ‘it’s not my fault – healthy food is too expensive’. She feels her only hope is for the government to give her more money so she can afford to buy fruit and vegetables and join a gym. …She told the magazine: ‘I need more benefits to eat healthily and exercise. It would be good if the government offered a cash incentive for me to lose weight. I’d like to get £1 for every pound I lose, or healthy food vouchers…” She added that she can’t get a job to gain more money because she’s needed at home to care for her children… She explained: ‘There’s no way I could get a job. I don’t feel bad about the taxpayer funding my life…because I don’t treat myself or buy anything excessive.

Wow. Maybe we should add gym memberships to our satirical list of government-manufactured “human rights.”

But the bigger issue is that this story shows the destructive impact of the welfare state. From the perspective of taxpayers, redistribution programs are a rip-off.

However, even from the perspective of recipients, the welfare state is bad news. Christina is not a sympathetic character, to be sure, but one can’t help but think that she would have become a much better person if she hadn’t been seduced into a life of government dependency.

In other words, big government is causing an erosion of social capital.

Just as it has for other British members of the Moocher Hall of Fame, such as  NatailijaTraceyAnjem, Gina, and Danny.

Heck, there’s even a TV show called “Benefits Street” on British TV. Though “poverty porn” would be a better description.

P.S. The Princess of the Levant gets credit for today’s blog post since she sent me the story about Christina.

And she also sent me this cartoon, which is a very good advertisement for the libertarian philosophy.

Sort of like this cartoon, but even better since it accurately identifies the hypocrisy that is found with some left wingers and some right wingers.

By the way, you may recognize the woman on the left. She’s already appeared in one of my posts mocking the statist mentality on gun control.

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