Feeds:
Posts
Comments

Posts Tagged ‘Redistribution’

The political left obviously hopes that it can score political points by pitching some Americans against others with a campaign based on income inequality and class warfare taxation.

Is there any merit to this approach? Are the less fortunate suffering because some are succeeding? And would more government alleviate this problem, to the extent it actually exists?

George Will has a must-read column in the Washington Post on the topic of inequality, including a very relevant observation that the rich on Wall Street are the ones who benefit from the easy-money policy embraced by the Washington establishment.

In this sixth year of near-zero interest rates, the government’s monetary policy breeds inequality. Low rates are intended to drive liquidity into the stock market in search of higher yields. The resulting boom in equity markets — up 30 percent last year alone — has primarily benefited the 10 percent who own 80 percent of all directly owned stocks.

But his main point is that the lack of growth in the real economy has been very damaging to ordinary Americans.

And that lack of growth – acknowledged by both the Washington Post and Congressional Budget Office – is because politicians have been increasing the burden of government.

Richard Fisher, president of the Federal Reserve Bank of Dallas, says the total reserves of depository institutions “have ballooned from a pre-crisis level of $43 billion to $2.5  trillion .” And? “The store of bank reserves awaiting discharge into the economy through our banking system is vast, yet it lies fallow.” The result is a scandal of squandered potential: “In fourth quarter 2007, the nation’s gross domestic product (GDP) was $14.7 trillion; at year-end 2013 it was estimated to be $17.1 trillion. Had we continued on the path we were on before the crisis, real GDP would currently be roughly $20 trillion in size. That’s a third larger than it was in 2007. Yet the amount of money lying fallow in the banking system is 60 times greater now than it was at year-end 2007.” …there is abundant money for businesses. But, says Fisher, the federal government’s fiscal and regulatory policies discourage businesses from growing the economy with the mountain of money the Fed has created. This is why “the most vital organ of our nation’s economy — the middle-income worker — is being eviscerated.” And why the loudest complaints about inequality are coming from those whose policies worsen it.

Trillions of dollars sitting on the sidelines because of bad government policy.

Seems like Chuck Asay’s cartoon is right on the mark.

Let’s dig deeper into this topic by looking at what a couple of experts have written on the topic of inequality.

Here are some excerpts from a column by Ronald Bailey for Reason.

Here’s everything you need to know.

Are the poor getting poorer? No. In fact, over the past 35 years most Americans got richer. Has income inequality increased in the United States? Yes. Does it matter? Well, President Barack Obama thinks so.  …Is that true? No. …The real defining economic challenge of our time isn’t to end inequality. It’s persistent joblessness and weak economic growth perpetuated by feckless Obama administration policies.

If you want to know the details (and you should), Bailey explains that what matters is growth because that means all groups can enjoy rising incomes. And that’s exactly what you find in the data.

Using the CBO data, the Brookings Institution economist Gary Burtless has shown that from 1979 to 2010, the last year for which data are available, the bottom fifth’s after-tax income in constant dollars rose by 49 percent. The incomes of households in the second lowest, middle, and fourth quintiles increased by 37 percent, 36 percent, and 45 percent, respectively. The poor and the middle class got richer. …The rich got richer too, and they got richer faster. …So inequality in the U.S. has increased. But if most Americans’ incomes are rising, does it matter if some are getting a larger share?

He also makes the key observation that you shouldn’t just compare income groups over time.

This is because there is mobility. A poor household one year may not be part of the “bottom 20 percent” five years later.

Here’s more of what Bailey wrote.

Those worried about rising income inequality also often make the mistake of assuming that each income quintile contains the same households. They don’t. Between 2009 and 2011, for example, 31.6 percent of Americans fell below the official poverty threshold for at least two months, but only 3.5 percent stayed below it over the entire period. …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. …In January, scholars from Harvard and University of California, Berkeley bolstered the Treasury economists’ conclusions. Parsing data from the 1950s and 1970s, the researchers, who are involved with The Equality of Opportunity Project, reported that “measures of social mobility have remained stable over the second half of the twentieth century in the United States.

Let’s continue with more wonky data.

Writing for National Affairs, Scott Winship delves into the issue, beginning with an explanation of the left’s hypothesis.

To hear many liberals tell it, increasing inequality is holding back growth, crushing the prospects of the poor and middle class, and even undermining American democracy. Such concerns are prominent in President Obama’s rhetoric, and seem also to drive key parts of his policy agenda — especially the relentless pursuit of higher taxes on the wealthy. …Perhaps the most common assertion regarding the ill effects of inequality in our time is that an unequal economy just doesn’t work for most people — that inequality impedes growth and harms standards of living.

He then unloads a bunch of data and evidence to show why the statists are wrong, including reliance on bad methodology.

…does it in fact reduce growth? There is no clear evidence that it does. …one of the most widely cited papers in the inequality debates — a 2011 study by IMF economists Andrew Berg and Jonathan Ostry showing that inequality hurts growth — suffers from this very problem of focusing primarily on developing countries.

But if the research looks at industrialized nations, it becomes apparent that it is not bad for growth when some people become rich.

Recent work by Harvard’s Christopher Jencks (with Dan Andrews and Andrew Leigh) shows that, over the course of the 20th century, within the United States and across developed countries, there was no relationship between changes in inequality and economic growth. In fact, between 1960 and 2000, rising inequality coincided with higher growth across these countries. In forthcoming work, University of Arizona sociologist Lane Kenworthy also finds that, since 1979, higher growth in the share of income held by the top 1% of earners has been associated with stronger economic growth across several countries.

There’s a lot more in the article, but this already is a long post. I encourage you to read both articles in their entirety.

The bottom line is that you don’t help poor people by savaging rich people (though it is very appropriate to target rich people who have undeserved wealth because of crony policies such as TARP and Ex-Im Bank).

Pizza FairnessThe left mistakenly acts as if the economy is a fixed pie and one person’s success necessarily means the rest of us are worse off. So in an effort to increase the relative amounts received by the poor, they pursue policies that cause the pie to shrink.

As Margaret Thatcher famously said, it seems they’re willing to hurt the poor if they can hurt the rich even more.

That’s not the way the economy works when people are liberated from the heavy yoke of statism.

Simply stated, you’re not going to be doing much to help the poor unless you focus on policies that generate faster long-run growth.

P.S. It’s not related to the issue of inequality, but George Will also included this delicious sentence in his column. It’s too good not to share.

We spend $1 trillion annually on federal welfare programs, decades after Daniel Patrick Moynihan said that if one-third of the money for poverty programs was given directly to the poor, there would be no poor. But there also would be no unionized poverty bureaucrats prospering and paying dues that fund the campaigns of Democratic politicians theatrically heartsick about inequality.

P.P.S. I also can’t resist sharing this video showing a European Parliamentarian denouncing the politicians and bureaucrats of the European Commission for hypocritically trying to squeeze more tax from the private sector while simultaneously benefiting from special tax breaks only available to themselves.

Gotta love any politician who is willing to quote Murray Rothbard and also state that government is a racket. And Dan Hannan has made similar points.

I can only wonder, by the way, what Mr. Bloom would say if he knew about the bureaucrats at the Organization for Economic Cooperation. They are totally exempt from income tax, yet they spend a lot of their time trying to impose higher taxes on other nations (including the United States).

You can also see him wax poetic in these two videos. And his better-known fellow MEP, Dan Hannan, also has weighed in on the same topics.

Read Full Post »

The President’s new budget has been unveiled.

There are lots of provisions that deserve detailed attention, but I always look first at the overall trends. Most specifically, I want to see what’s happening with the burden of government spending.

And you probably won’t be surprised to see that Obama isn’t imposing any fiscal restraint. He wants spending to increase more than twice as fast as needed to keep pace with inflation.

Obama 2015 Budget Growth

What makes these numbers so disappointing is that we learned last month that even a modest bit of spending discipline is all that’s needed to balance the budget.

By the way, you probably won’t be surprised to learn that the President also wants a $651 billion tax hike.

That’s in addition to the big fiscal cliff tax hike from early last and the (thankfully smaller) tax increase in the Ryan-Murray budget that was approved late last year.

P.S. Since we’re talking about government spending, I may as well add some more bad news.

I’ve shared some really outrageous examples of government waste, but here’s a new example that has me foaming at the mouth. Government bureaucrats are flying in luxury and sticking taxpayers with big costs. Here are some of the odious details from the Washington Examiner.

What can $4,367 buy? For one NASA employee, it bought a business-class flight from Frankfurt, Germany, to Vienna, Austria. Coach-class fare for the same flight was $39. The federal government spent millions of dollars on thousands of upgraded flights for employees in 2012 and 2013, paying many times more for business and first-class seats than the same flights would have cost in coach or the government-contracted rate. …Agencies report their premium travel expenses to the General Services Administration each year. These reports were obtained by the Washington Examiner through Freedom of Information Act requests. …The most common reasons across agencies for such “premium” flights in 2012 and 2013 were medical necessities and flights with more than 14 hours of travel time.

By the way, “medical necessities” is an easily exploited loophole. All too often, bureaucrats get notes from their doctors saying that they have bad backs (or something similarly dodgy) and that they require extra seating space.

Probably the same doctors who participate in the disability scam.

But I’m digressing. It’s sometimes hard to focus when there are so many examples of foolish government policy.

Let’s look at more examples of taxpayers getting reamed.

One such flight was a trip from Washington, D.C., to Brussels, Belgium, which cost $6,612 instead of $863. Similar mission-required upgrades included several flights to Kuwait for $6,911 instead of $1,471, a flight from D.C. to Tokyo for $7,234 instead of $1,081 and a trip from D.C. to Paris for $6,037 instead of $477. …NASA employees also racked up a long list of flights that cost 26, 72 and even 112 times the cost of coach fares, according to Examiner calculations. Several space agency employees flew from Oslo, Norway, to Tromso, Norway — a trip that should have cost $65. Instead, each flew business class for $4,668. Another NASA employee flew from Frankfurt, Germany, to Cologne, Germany, for $6,851 instead of $133, a flight that cost almost 52 times more than the coach fare. …One flight from D.C. to Hanoi, Vietnam, for an informational meeting cost $15,529 instead of $1,649, according to the agency’s 2012 report.

Frankfurt to Cologne for $6851?!? Did the trip include caviar and a masseuse? A domestic flight in Norway for $4668? Was the plane made of gold?

I do enough international travel to know that these prices are absurd, even if you somehow think bureaucrats should get business class travel (and they shouldn’t).

And as you might suspect, much of the travel was for wasteful boondoggles.

Department of the Interior employees, for example, flew to such exotic locations as Costa Rica, Denmark, Japan and South Africa in 2012. …The Department of Labor sent employees to places like Vietnam and the Philippines for “informational meetings,” conferences and site visits.

The one sliver of good news is that taxpayers didn’t get ripped off to the same extent last year as they did the previous year.

The agencies spent $5.7 million in 2012, almost double the $3 million they paid for premium travel in 2013.

The moral of the story is that lowering overall budgets – as happened in 2013 – is the only effective way of reducing waste.

P.P.S. Want to know why the tax reform plan introduced by Congressman Dave Camp was so uninspiring, as I noted last week?

The answer is that he preemptively acquiesced to the left’s demands that class warfare should guide tax policy. Politico has the details.

Republicans had vowed for more than three years to slash the top individual income tax rate to 25 percent as part of a Tax Code overhaul. …last week Camp abandoned plans for a deep cut in the top marginal tax rate. He settled for 35 percent, which is just 4 percentage points lower than the current one. “It was a distribution issue,” Camp said. Getting all the way down to 25 percent “would have reduced taxes for the top 1 percent” and “I said we would be distributionally neutral.”

In other words, this is the tax code version of the Brezhnev Doctrine. Whenever the left is successful is raising the tax burden on the so-called rich (the top 20 percent already bears two-thirds of the burden), that then supposedly becomes a never-to-be-changed benchmark.

Fortunately, Reagan did not accept the left’s distorted rules and we got the Economic Recovery Tax Act in 1981, which helped trigger the 1980s boom.

And even when Reagan agreed to “distributional neutrality,” as happened as part of the 1986 Tax Reform Act, at least he got something big in exchange.

The Camp plan, by contrast, is thin gruel.

A big rate cut is what powered the last major tax overhaul, in 1986, which delivered tax cuts to every income group while slicing the top rate to 28 percent from a whopping 50 percent. …Lawmakers may look at the proposal and think: “I’m having the world coming down on me” and “all this just to get the rate down 4 points?”

That being said, the Camp plan has plenty of good features, including modest rate reductions and repeal of a few bad loopholes. But it’s accompanied by some really bad provisions, such as increased double taxation and higher taxes on business investment.

P.P.P.S. Long-time readers may remember this amusing Reagan-Obama comparison.

For understandable reasons, that’s what crossed my mind when seeing this example of Obama humor.

I should hasten to add, incidentally, that this is not to suggest I want Obama to do anything about the Ukrainian conflict (other than perhaps encourage decentralized power).

Unless one genuinely thinks that Putin has both the capacity and the desire for global imperialism, it’s hard to see how America’s national security is affected.

But I still appreciate good political humor. I like it when Obama is the target, and I like it even when it’s directed at people like me.

Read Full Post »

One of the many differences between advocates of freedom and supporters of statism is how they view “rights.”

Libertarians, along with many conservatives, believe in the right to be left alone and to not be molested by government. This is sometimes referred to in the literature as “negative liberty,” which is just another way of saying “the absence of coercive constraint on the individual.”

Statists, by contrast, believe in “positive liberty.” This means that you have a “right” to things that the government will give you (as explained here by America’s second-worst President). Which means, of course, that the government has an obligation to take things from somebody else. How else, after all, will the government satisfy your supposed right to a job, education, healthcare, housing, etc.

Sometimes, the statists become very creative in their definition of rights.

You may laugh at these examples, particularly the ones that focus on seemingly trivial issues.

But don’t laugh too hard, because our friends on the left are busy with very grandiose plans for more “positive liberty.”

The EU Observer reports on efforts in Europe to create expanded rights to other people’s money.

Austerity programmes agreed with the troika of international lenders (the European Commission, European Central Bank and International Monetary Fund) are in breach of the EU’s Charter of Fundamental Rights, according to a German legal expert. …under the EU charter of fundamental rights, a legal text which became binding for member states in 2009, several austerity measures enshrined in the MoUs can be fought in courts. …His study highlights that the MoUs “have seriously limited the autonomy of employers and trade unions to negotiate wages.” …Education and health care reforms prescribed in the memorandums are also questionable because they are focusing too much on cutting budgets, he said. …He noted that the concept of “financial stability” was put above all other considerations. “But financial stability cannot be achieved without social stability,” he said.

But it’s not just one oddball academic making these claims.

…the Council of Europe’s social rights committee noted that public policies since 2009 have been unable to stem a generalised increase in poverty on the continent. The committee identified some 180 violations of European Social Charter provisions on access to health and social protection across 38 European countries. In the bailed-out countries, the committee found several breaches – particularly in terms of wages and social benefits. Ireland was found in breach of the social charter for not ensuring the minimum levels of sickness, unemployment, survivor’s, employment injury and invalidity benefits. Greece and Cyprus have “inadequate” minimum unemployment, sickness, maternity and old age benefits, as well as a restrictive social security system. Spain also pays too little to workers on sick leave.

This crazy thinking also exists in the United States. A former Carter Administration official, now a law professor at Georgetown, has written that countries with good policy must change their systems in order to enable more tax revenue in nations with bad policy.

Do states like Switzerland, which provide a tax haven for wealthy citizens of developing countries, violate internationally recognized human rights? …bank secrecy has a significant  human rights impact if governments of developing countries are deprived of resources needed to meet basic economic rights guaranteed by the United Nations Covenant on Economic, Social, and Cultural Rights. …The Covenant explicitly recognizes individual rights to adequate food, clothing, and housing (Article 11); health care, clean water, and sanitation (Article 12); and education (Article 13). The Covenant also imposes obligations on member states to implement these rights.

And the right to redistribution isn’t just part of the U.N. mission.

There’s also a European set of Maastricht Principles which supposedly obligates nations to help each expand the burden of government.

Articles 19 and 20 of The Maastricht Principles call on states to “refrain from conduct which nullifies or impairs the enjoyment and exercise of economic . . . rights of persons outside their territories . . . or which impairs the ability of another State to comply with that State’s . . . obligations as regards economic rights.” …recognizing the fact that secrecy for offshore accounts makes it difficult for developing countries to implement Covenant obligations. It therefore seems indisputable that offshore accounts impede the fulfillment of internationally recognized human rights.

You may be thinking that all this sounds crazy. And you’re right.

You may be thinking that it’s insane to push global schemes for bigger government at the very point when the welfare state is collapsing. And you’re right.

You may be thinking that it’s absurd to trample national sovereignty in pursuit of bad policy. And you’re right.

And you may be thinking this is a complete bastardization of what America’s Founding Fathers had in mind. And you’re right.

But you probably don’t understand that this already is happening. The IRS’s awful FATCA legislation, for instance, is basically designed for exactly the purpose of coercing other nations into enforcing bad American tax policy.

Even more worrisome is the OECD’s Orwellian Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which is best viewed as a poisonous acorn that will grow into a deadly World Tax Organization oak tree.

P.S. And the Obama Administration already is pushing policies to satisfy the OECD’s statist regime. The IRS recently pushed through a regulation that says American banks have to put foreign tax law above U.S. tax law.

P.P.S. Statists may be evil, but they’re not stupid. They understand that tax havens and tax competition are a threat to big government.

Read Full Post »

If you want to know why the left is wrong about income inequality, you need to watch this Margaret Thatcher video. In just a few minutes, the “Iron Lady” explains how some – perhaps most – statists would be willing to reduce income for the poor if they could impose even greater damage on the rich.

This picture is another way of getting across the same point. It was sent to me by Richard Rahn (famous for the Rahn Curve), and it uses two pizzas to show how leftist policies would “solve” inequality.

Leftist Fairness

I like this analogy, and not just because I also used the pizza analogy to make the same argument in this TV interview.

The growing or shrinking pizza is useful because it helps to focus people on the importance of growth.

Nations that follow the right policy recipe can enjoy the kind of strong and sustained growth that enables huge increases in prosperity for all income classes. In other words, everyone can have a bigger slice if the pie is growing.

I even tried to educate a PBS audience that growth is better than redistribution if you really want to help the poor. Talk about Daniel in the Lion’s Den!

I don’t know if I persuaded anyone, but at least the facts are on my side. Consider, for instance, how the world’s two most laissez-faire jurisdictions – Hong Kong and Singapore – have overtaken the United States over the past 50-plus years.

That’s been great news for low-income and middle-income people, not just the rich.

So ask yourself whether you’d rather be a poor person in one of those jurisdiction or in France. The government in France has all sorts of programs to make your life easier, but you have very little hope of escaping a life of dependency.

And now ask yourself whether it’s good that Obama is doing his best to push America in that direction.

P.S. If you want another example of how long-run growth makes a big difference, check out this chart comparing Chile, Argentina, and Venezuela. Not only has Chile overtaken the other nation thanks to pro-market reforms, but the poverty rate has fallen dramatically.

P.P.S. Since this post shares a very good image about income inequality, let’s include a bonus picture on taxation.

It’s a helpful suggestion on how to make kids aware of the cost of big government.

Tax Lesson for Kids

Though let’s be sure to acknowledge that Obama is doing what he can to make kids more skeptical of class warfare.

P.P.P.S. On a separate topic, I’ve explained that the so-called “austerity” vs “growth” argument is grossly misguided because Keynesian spending isn’t pro-growth and also because it’s important to distinguish between good austerity and bad austerity.

Too many governments are choosing the wrong type of austerity, imposing destructive tax hikes on the private sector. What’s really needed in genuine spending restraint so that “austerity” is imposed on the public sector.

But some folks on the left say there’s been too much spending restraint in recent years.

So who’s right? Well, UBS has produced a report containing some very useful data.

Viewing the global economy as a single unit, we see a very  different picture to the post-crisis world of austerity – at least if “austerity” is taken to mean government spending cuts. The two largest components of global GDP, namely private consumption and fixed investment, both hit multi-year peaks in the first quarter of 2008. …Since the start of 2008, government consumption at the  global level has risen by 20% in real terms, whereas private consumption and fixed investment have risen just 8% and 5%, respectively. In other words, despite talk of austerity, government spending continues to run ahead of private-sector spending.

Hmmm…the burden of government has been growing faster than the private sector. That’s the opposite of what the Golden Rule calls for.

And not only has government been growing too fast in the past, it’s likely that fiscal policy will get even worse in the future.

Structurally, government debt, government spending, and the share of government within the economy must be sustainable. Government consumption’s share of global GDP has risen from 11% to 14% over the past 15 years. In 2013, it reached its highest level since 1980. At the same time, government debt-to-GDP ratios have hit record highs in many countries. In the long run, such elevated levels of expenditure (and corresponding levels of debt and deficit) are probably not sustainable, in particular, given other structural changes underway. For instance, demographic trends in many advanced economies pose challenges.

The moral of the story is that America and other nations should be restraining budgets, ideally by enacting the right kind of entitlement reform.

Though I’m worried that Obama is learning the wrong lesson from what’s happening in Europe.

Indeed, this Henry Payne cartoon shows what he has in mind. And if he succeeds, this satirical 2012 campaign slogan may become reality.

P.P.P.P.S. Here’s a final image that captures the essence of Washington.

Read Full Post »

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

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

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

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

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

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

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

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

Here’s part of a report in the Telegraph.

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

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

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

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

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

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

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

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

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

Read Full Post »

I’ve shared many charts over the years, but two of the most compelling ones deal with poverty.

Poverty Rate DataThe numbers in this chart, which are based on Census Bureau data and scholarly studies (see here, here, here, and here), show that the poverty rate was steadily falling in the United States – until the federal government decided to launch a so-called War on Poverty.

Once Washington got more involved and started spending trillions of dollars, we stopped making progress. The poverty rate has changed a bit with shifts in economic conditions, but it’s stayed remarkably steady between 11 percent and 15 percent of the population.

So why have we stopped making progress? This second chart shows how redistribution programs create a dependency trap. The plethora of handouts from government make self-reliance and work comparatively unattractive, particularly since poor people are hit with very high implicit marginal tax rates.

And just as rich people respond logically to incentives, the same is true of poor people.

In a recent debate with a representative of the Center for American Progress, I tried to make these points. I doubt I had any effect on her outlook, but hopefully viewers began to see that the welfare state has been bad news for taxpayers and bad news for poor people.

Our debate was cut short by the host, but I think it was a fair representation of each side’s views.

And if you want more information on this topic, my former colleague from my days at the Heritage Foundation, Robert Rector, assesses the War on Poverty for today’s Wall Street Journal.

He starts with some very sobering numbers.

Fifty years later, we’re losing that war. Fifteen percent of Americans still live in poverty, according to the official census poverty report for 2012, unchanged since the mid-1960s. Liberals argue that we aren’t spending enough money on poverty-fighting programs, but that’s not the problem. …The federal government currently runs more than 80 means-tested welfare programs that provide cash, food, housing, medical care and targeted social services to poor and low-income Americans. Government spent $916 billion on these programs in 2012 alone, and roughly 100 million Americans received aid from at least one of them, at an average cost of $9,000 per recipient. …Federal and state welfare spending, adjusted for inflation, is 16 times greater than it was in 1964. If converted to cash, current means-tested spending is five times the amount needed to eliminate all official poverty in the U.S.

He then explains that poor people don’t suffer from material deprivation (which may explain why the Obama Administration wants to manipulate the numbers to justify more welfare spending).

…the typical American living below the poverty level in 2013 lives in a house or apartment that is in good repair, equipped with air conditioning and cable TV. His home is larger than the home of the average nonpoor French, German or English man. He has a car, multiple color TVs and a DVD player. More than half the poor have computers and a third have wide, flat-screen TVs. The overwhelming majority of poor Americans are not undernourished and did not suffer from hunger for even one day of the previous year.

Robert then gets to the heart of the issue, explaining that the welfare state has expanded dependency and exacerbated social pathologies.

…consider LBJ’s original aim. He sought to give poor Americans “opportunity not doles,” planning to shrink welfare dependence not expand it.  …By that standard, the war on poverty has been a catastrophe. The root “causes” of poverty have not shrunk but expanded as family structure disintegrated and labor-force participation among men dropped. A large segment of the population is now less capable of self-sufficiency than when the war on poverty began. …In 1963, 6% of American children were born out of wedlock. Today the number stands at 41%. As benefits swelled, welfare increasingly served as a substitute for a bread-winning husband in the home. …children raised in the growing number of single-parent homes are four times more likely to be living in poverty than children reared by married parents of the same education level. …Even in good economic times, a parent in the average poor family works just 800 hours a year, roughly 16 hours weekly, according to census data. Low levels of work mean lower earnings and higher levels of dependence.

Mr. Rector also has some specific suggestions in his column, most of which seem sensible, but this is where I think my idea of sweeping decentralization and federalism is very appropriate.

P.S. Thomas Sowell’s indictment of the welfare state is must reading.

P.P.S. Some honest leftists now acknowledge that big government creates worrisome forms of dependency.

P.P.P.S. If you want to know how dependency varies by state, here’s a map showing welfare payments and another map showing food stamp usage.

P.P.P.P.S. Shifting to a bigger stage, my least favorite international bureaucracy has made the preposterous claim that poverty is a bigger problem in America than it is in basket-case nations such as Greece and Portugal. Not that we should be surprised since the OECD actively urges a bigger welfare state in the United States.

P.P.P.P.P.S. And don’t forget our Moocher Hall of Fame if you want examples of the human cost of the welfare state.

Read Full Post »

America desperately needs genuine entitlement reform to avoid a Greek-style fiscal future.

The biggest problems are the health entitlements such as Medicare, Medicaid, and Obamacare, but Social Security also has a huge long-run fiscal shortfall.

That’s why I’m a big fan of the very successful reforms in places such as Chile and Australia, where personal accounts are producing big benefits for workers. These systems also boost national economies since they generate higher savings rather than added unfunded liabilities.

And I’m very happy that we now have more than 30 nations with personal accounts, even tiny little jurisdictions such as the Faroe Islands.

But many statists object to reform, presumably because they don’t want workers to become capitalists. They apparently prefer to make people dependent on government.

Not all leftists take that narrow and cramped approach, however. Some academics at Boston College, for instance, produced some research showing some big benefits from Australia’s private Social Security system.

And new we have some remarkable admissions about how minorities are net losers from Social Security in a study from the left-leaning Urban Institute.

We use historical and projected data from 1970 to 2040 to measure the ratio of old age, survivors, and disability insurance (OASDI) benefits received to taxes paid by members of each race or ethnicity each year. This measure captures the transfers that occur in a given year from current workers to current beneficiaries of each group. We then examine benefit-tax ratios for each race or ethnicity into the future to determine how these redistributions will play out in the coming years. Our conclusion: When considered across many decades—historically, currently, and in the near future—Social Security redistributes from Hispanics, blacks, and other people of color to whites.

Why does the program have this perverse form of redistribution?

On average, blacks are more likely to be low income and short lived and are less likely to marry than whites. …Given this, one would expect forced annuitization and auxiliary benefits related to marriage and divorce to redistribute from blacks to whites.

And that’s exactly what the research found.

…whites have clearly received a disproportionate share of benefits relative to the taxes that they pay in at a point in time. Their benefit-to-tax ratio has been higher than that of blacks, Hispanics, and other ethnic groups for as long as the system has existed, while projections continue that trend at least for decades to come.

Here’s a chart from the study showing how different races have fared in terms of taxes paid and benefits received.

Social Security by Race - Urban Institute

In other words, if folks on the left really cared about minorities, they would be among the biggest advocates of genuine reform.

By the way, it’s also worth noting that Social Security is a bad deal for everyone. The Urban Institute study simply investigates who loses the most.

And the system is getting worse for every new generation.

Recent studies have also documented how different generations are treated within Social Security, with succeeding generations achieving successively lower “returns” on their contributions.

This helps explain why the evidence shows personal retirement accounts are superior – even for folks who would have retired at the peak of the recent financial crisis.

Here’s my video on why we should replace the bankrupt tax-and-transfer Social Security system with personal retirement accounts.

P.S. You can enjoy some Social Security cartoons herehere, and here. And we also have a Social Security joke, though it’s not overly funny when you realize it’s a depiction of reality.

P.P.S. Thanks to Social Security, I made a $16 trillion mistake in a TV debate. Fortunately, it didn’t really change the outcome since I was understating the fiscal shortfall of the current system.

Read Full Post »

The welfare state is a nightmare.

Programs such as Medicaid are fiscal catastrophes. The food stamp program is riddled with waste. The EITC is easily defrauded, even sending checks to prisoners. And housing subsidies are a recipe for the worst forms of social engineering.

The entire system should be tossed in the trash.

But what’s the alternative? Some libertarians argue that we should eliminate the dozens of Washington programs and replace them with a government-guaranteed minimum income. I address this issue in an essay for Libertarianism.org.

Some libertarians argue that the state should provide a minimum basic income, mainly because this approach would be preferable to the costly and bureaucratic amalgamation of redistribution programs that currently exist. It’s hard to disagree with the notion that the current system is a failure. The Cato Institute’s Michael Tanner has produced a searing indictment of the modern welfare state, pointing out that more than $1 trillion is spent every year on redistribution programs for the ostensible purpose of alleviating economic hardship, yet (or more likely as a result) the poverty rate is at an all-time high. Perhaps one reason poverty remains high is that such programs make leisure more attractive than work, as painstakingly illustrated in a study produced by Tanner and Charles Hughes. Moreover, welfare programs create very high implicit marginal tax rates, making it very difficult for poor people to improve their living standards by engaging in additional productive behavior. It’s almost as if the system was designed to create permanent dependency.

In other words, it seems that nothing could be worse than the current system. And if you want more evidence, here’s a very powerful video on the failure of the modern welfare state.

But what about the idea of trashing what we have today and instead offering everyone some sort of basic income? As I noted in my essay, there are “…some very iconic libertarian figures who support at least some version of their approach, including Milton Friedman, Friedrich Hayek, and Charles Murray.”

I agree, but only sort of. I like the idea of radical reform, but I think there’s a better road to Rome. It’s called federalism.

The bottom line for advocates is that anything would be better than the current system, so why not try something new? They’re right, but there’s actually a better way of approaching the issue. Why not take all income-redistribution programs, put them into a single block grant, and then transfer the money – and responsibility – to state governments?

Here’s my argument for decentralization and federalism.

In an ideal world, the block grant would gradually diminish so that states would be responsible for both the collection and disbursement of all monies related to welfare. But that’s a secondary issue. The main benefit of this federalist approach is that you stop the Washington-driven expansion of the welfare state and you trigger the creation of 50 separate experiments on how best to provide a safety net. Some states might choose a basic income. Others might retain something very similar to the current system. Others might try a workfare-based approach, while some could dream up new ideas that wouldn’t stand a chance in a one-size-fits-all system run out of Washington, DC. And as states adopted different systems, they could learn from each other about what works and what doesn’t work. And since it’s easier to influence decisions that are closer to home, taxpayers at the state level almost certainly would have more ability to impact what happens with their money.

And here’s the bottom line on why a federalist approach is the libertarian solution to the welfare state.

It also will satisfy the libertarian desire to get Washington out of the business of income distribution, while presumably producing a system that actually does a better job of helping the less fortunate escape government dependency. In other words, all the advantages of the basic income plan without the potential system-wide downsides.

By the way, I explain in the article that the 1996 welfare reform legislation was a test case for the decentralization model. The analogy isn’t perfect, I admit, but there’s a very strong case to be made that replacing the federal welfare entitlement with a block grant was good for taxpayers and good for the poor…and that it shows why states do a better job of dealing with redistribution than Washington.

Last but not least, I’m just a policy wonk, but I think the federalism strategy also has political appeal. As just noted, it worked with welfare reform. And I suspect a lot of non-libertarians and non-conservatives will intuitively understand that you’ll get better results if you allow diversity and experimentation at the state level.

P.S. There would be some bad news if we decentralized the welfare state. It could mean an end to the Moocher Hall of Fame.

P.P.S. Replacing the welfare state with a (hopefully shrinking) block grant only addresses the problem of “means-tested” programs. If you also want to solve the problem of old-age entitlements, that requires Medicare reform and Social Security reform.

Read Full Post »

Forget the debate over whether Obama is a socialist.

Now we’re discussing whether Jesus is for big government. Or, to be more accurate, the Pope has started a debate about whether free markets are bad, particularly for the poor.

Samuel Gregg of the Acton Institute wrote about the underlying theological issues in an article for National Review, but I hope I also contributed to the secular aspect of the debate in this BBC interview.

The first thing I said was the rather obvious point that there’s a lot more to life than accumulating wealth.

My most important point was that capitalism is the only successful model for creating broadly shared prosperity and I used examples from the Pope’s home region of Latin America to show that nations with more economic liberty are far more successful.

But I emphasized that supporters of freedom have a challenge because many people mistakenly associate capitalism with cronyism and bailouts for big business. In reality, free markets are a system based on voluntary exchange and private property, which means no special favors for any industry or company.

To bolster my point that economic growth is the best way to help the poor, I cited Hong Kong as a role model, both for creating growth and for enabling upward mobility.

My second most important point, which came near the end of the interview, was that genuine compassion is when you give away your own money, not when you vote for politicians who will use coercion to redistribute other people’s money. I should have used the opportunity to cite the data showing that Americans are far more compassionate – in the right sense – than their European counterparts.

I’m sure “Libertarian Jesus” would have agreed.

Now we need to get others to climb on the freedom bandwagon. I suspect the Pope will be more receptive to that message than politicians, though the Vatican sometimes has been very good on these issues and at times very disappointing.

P.S. I was worried I made up a word when I stated that I wanted to make a “theologic” point, but it’s actually in the dictionary, so I got lucky. But even if it turned out it wasn’t a word, it wouldn’t have been nearly as embarrassing as the time in the 1990s when I wanted to say “annals” and pronounced it “anals.”

P.P.S. Thomas Sowell has some insightful analysis on whether Obama is a socialist.

Read Full Post »

Regular readers know I complain about the army of overpaid bureaucrats in Washington, but that’s just the tip of the iceberg.

The larger problem is that Washington also is filled with hundreds of thousands of other people who get rich thanks to big government. And these politicians, lobbyists, crony capitalists, interest groups, contractors, and influence peddlers almost surely are a bigger net drain on the economy’s productive sector.

When you combine the official bureaucracy with these other over-compensated beneficiaries of big government, it’s easy to understand why Washington, DC, is now the richest region of America, with 10 of the nation’s 15 richest counties.

Reuters did an expose last year on how Washington fat cats are living on Easy Street at our expense, and The Economist also has touched on the issue. But you know the problem has reached epidemic levels when even the local left-wing paper covers the story.

And that’s exactly what is happening. The Washington Post reports on how coerced access to other people’s money has meant boom times for the beltway elite. Here are some excerpts on how your money is creating unearned riches for DC insiders.

The avalanche of cash that made Washington rich in the last decade has transformed the culture of a once staid capital and created a new wave of well-heeled insiders.Wash Post Capital Wealth The winners in the new Washington are not just the former senators, party consiglieri and four-star generals who have always profited from their connections. Now they are also the former bureaucrats, accountants and staff officers for whom unimagined riches are suddenly possible. …They are the lawyers, lobbyists and executives who work for companies that barely had a presence in Washington before the boom.

Here are some depressing stats from the story.

During the past decade, the region added 21,000 households in the nation’s top 1 percent. No other metro area came close. …in 2010, companies based in Rep. James P. Moran’s congressional district in Northern Virginia reaped $43 billion in federal contracts — roughly as much as the state of Texas. At the same time, big companies realized that a few million spent shaping legislation could produce windfall profits. They nearly doubled the cash they poured into the capital. …Essentially, Washington has been the beneficiary of a ­decade-long, taxpayer-funded stimulus package.

Unfortunately, all this federal largesse is corrupting the business community, with many companies deciding that lobbying for tax dollars is more lucrative than competing for consumer dollars.

The federal government wasn’t the only one pouring buckets of new money into Washington in the 2000s. Big business did it, too. At a time when promising investments were hard to find, corporate America learned that lobbying was one of the most surefire ways of bolstering its bottom line. …Companies spent about $3.5 billion annually on lobbying at the end of the last decade, a nearly 90 percent increase from 1999 after adjusting for inflation… Legal services also boomed, fueled by the growing complexities of federal business regulations. The number of lawyers in the D.C. metro area increased by a third from 2000 to 2012, nearly twice as fast as the growth rate nationwide. And those lawyers have the highest mean salaries in the country, according to George Mason University’s Center for Regional Analysis.

Lobbying isn’t automatically a bad thing, by the way. Sometimes a company needs representation so that the political vultures in Washington don’t descend upon them.

“You know that if a company stopped lobbying, it would get creamed,” Drutman said. “That’s why companies don’t stop lobbying.”

The real moral of the story is that small government and genuinely free markets are the only effective ways to reduce sordid lobbying and political corruption.

The challenge, needless to say, is convincing the Washington establishment to adopt those policies. That’s not an easy task, particularly when it violates my First Theorem of Government.

P.S. Here’s a great video from Reason about Washington’s parasite economy.

P.P.S. Here’s an example of how Obamacare has lined the pockets of some DC insiders.

P.P.P.S. And here are some grating details about how the President is part of the problem.

P.P.P.P.S. You can enjoy some government corruption humor here, here, here, here, and (my personal creation) here.

Read Full Post »

Switzerland’s left-wing party has instigated a referendum for November 24 that asks voters to limit pay ranges so that a company wouldn’t be able to pay top employees more than 12 times what they’re paying their lowest-level employees.

I talked with Neil Cavuto about this proposal and made several (hopefully) cogent points.

Since Swiss voters already have demonstrated considerable wisdom (rejecting a class-warfare tax proposal in 2010 and imposing a cap on government spending in 2001), I predicted they will reject the plan. And I pointed out that Switzerland’s comparatively successful system is a result of not letting government have too much power over the economy.

But I don’t want to focus today on the Swiss referendum. Instead, I want to expand on my final point, which deals with the misguided belief by some on the left that the economy is a fixed pie and that you have to penalize the rich in order to help the poor.

I’ve covered this issue before, and I even tried to educate a PBS audience that economic growth is key.

But maybe this chart is the most persuasive bit of evidence. It shows per-capita GDP in France and Hong Kong over the past 50 or so years. France is a nation that prides itself of redistribution to “help” the poor while Hong Kong is famous for having the most economic freedom of any jurisdiction.

Now look at this data and ask yourself whether you’d rather be a poor person in France or Hong Kong?

Hong Kong v France Per-Capita GDP

Since Hong Kong is richer and is growing faster, the obvious answer is that poor people in France almost surely face a bleaker outlook.

In other words, the welfare state can give you the basic necessities and allow you to survive (at least until the house of cards collapses), but it comes at a very high cost of lower growth and diminished opportunity.

The moral of the story is that prosperity is best achieved by a policy of free markets and small government.

P.S. If you want more evidence on the superiority of markets over statism, check out the comparison of South Korea and North Korea and the difference between Chile, Argentina, and Venezuela. Heck, even the data comparing America and Europe show similar results.

P.P.S. As you might expect, Margaret Thatcher addressed this issue in a brilliant fashion.

P.P.P.S. There’s a lot to like about Sweden, but click here if you want to see an impossibly absurd example from that nation of the equality-über-alles mentality.

P.P.P.P.S. There is some very interesting academic research that suggests humans are hard-wired by evolution to be statists. Let’s hope that’s not true.

Read Full Post »

One of my missions in life is fundamental tax reform. I would like to replace the corrupt internal revenue code with a simple and fair flat tax.

Though what I really want is a tax system that minimizes the damage of extracting money from the productive sector of the economy, so I’ll take any system with a low rate, no double taxation, and no distortionary loopholes.

The national sales tax, for instance, also would be a good option if we can first repeal the 16th Amendment so there’s no risk that politicians would pull a bait and switch and saddle us with both an income tax and a sales tax (and in my ultimate fantasy world, we would shrink the federal government to the size envisioned by the Founding Fathers, in which case we probably wouldn’t need any broad-based tax at all).

While I normally make the economic case for tax reform, there are many reasons to fix our broken tax code.

Many Americans, for instance, are rightfully upset that the tax code is a 76.000-page monstrosity that enables the politically well connected to benefit from special provisions.

So we don’t know if the rich are paying an appropriate amount. Some of them are paying too much because of high rates and double taxation, while some of them are paying too little because they have clever lawyers, lobbyists, and accountants.

In an ideal world, if someone like Bill Gates earns 10,000 times as much as I do, then he should pay 10,000 times as much in tax. That’s a core principle of the flat tax.

But this post isn’t about why we need tax reform to promote economic growth or fairness. Instead, I want to focus on tax reform as a way of reducing welfare fraud. The Treasury Department just released a report acknowledging that the IRS made more than $100 billion of improper “earned income credit” payments over the past decade and that about one-fourth of all such payments are in error.

This Fox News article is a good summary. Here are the key details.

The Internal Revenue Service paid out more than $110 billion in tax credits over the past decade to people who didn’t qualify for them, according to a Treasury report released Tuesday. …IRS inspector general J. Russell George said more than one-fifth of all credits paid under the program went to people who didn’t qualify. …George said in a statement. “Unfortunately, it is still distributing more than $11 billion in improper EITC payments each year and that is disturbing.” …The agency said it prevents “nearly $4 billion in improper claims each year and is committed to continuing to work to reduce improper claims.” The EITC is one of the nation’s largest anti-poverty programs. In 2011, more than 27 million families received nearly $62 billion in credits.

Now some background. The “earned income credit” or “earned income tax credit” is actually an income redistribution scheme operated by the IRS. It’s basically a wage subsidy. If someone earns money (the “earned income” part), the law says the IRS should augment that money with a payment from the government (the “credit” or “tax credit” part).

The key thing to understand, though, is that the EITC is “refundable,” which is the government’s term for payments to people who don’t earn enough to owe any income tax. That’s why it’s primarily an income redistribution program. Only it’s operated by the IRS rather than the Department of Health and Human Service or some other welfare agency.

And when government is giving away other people’s money, there are those who will try to abuse the program. That’s true for corporate welfare, and it’s true for traditional welfare like food stamps. And, as we see from the Treasury report, it’s true for the EITC.

That’s the bad news.

The good news is that the EITC has a redeeming feature. Some lawmakers realized traditional welfare programs were very destructive because they paid people not to work. The EITC supposedly offsets that perverse incentive because you get the money only because you earn some income.

But now let’s share some additional bad news. The government takes away the EITC once your income reaches a certain level, and this is equivalent to a big increase in the marginal tax rate on earning additional income.

And when you combine the EITC with all the other redistribution programs operated by government, you create a huge dependency trap. Indeed, the chart shows that many of these programs can be larger than the EITC (which is called “negative income tax”).

So let’s adopt a flat tax and get rid of all the bad features of the tax system, including the EITC. Welfare and income redistribution are not proper roles of the federal government.

We’re far more likely to get good results – both for poor people and taxpayers – if we let state and local governments experiment and learn from each other on what actually helps people climb out of poverty.

P.S. I can’t overlook an opportunity to point out that today’s complicated and convoluted tax code is the reason why we have a powerful and intrusive Internal Revenue Service. And never forget that the IRS has a long record of abusive actions.

Read Full Post »

Obamacare was put together by people who don’t understand economics.

This is probably the understatement of the year since I could be referring to many features of the bad law.

The higher tax burden on saving and investment, making an anti-growth tax system even worse.

The exacerbation of the third-party payer problem, which is the nation’s biggest healthcare problem.

The increased burden of government spending, worsening America’s entitlement crisis.

Those are all significant problems, but today I want to focus on how Obamacare encourages people to be less productive. And I’m going to use a rather unexpected source. The left-leaning San Francisco Chronicle has a financial advice column that inadvertently show how Obamacare discourages people from earning income.

The article nonchalantly explains that people may want to reduce their income so they can get more goodies from the government.

People whose 2014 income will be a little too high to get subsidized health insurance from Covered California next year should start thinking now about ways to lower it to increase their odds of getting the valuable tax subsidy. “If they can adjust (their income), they should,” says Karen Pollitz, a senior fellow with the Kaiser Family Foundation. “It’s not cheating, it’s allowed.” Under the Affordable Care Act, if your 2014 income is between 138 and 400 percent of poverty level for your household size, you can purchase health insurance on a state-run exchange (such as Covered California) and receive a federal tax subsidy to offset all or part of your premium. …getting below the 400 percent poverty limit could save many thousands of dollars per year.

You may be thinking that this is just a theoretical problem, but the article cites a very real example.

To get a subsidy, the couple’s modified adjusted gross income for 2014 income would need to fall below $62,040, which is 400 percent of poverty for a family of two. …Proctor estimates that her 2014 household income will be $64,000, about $2,000 over the limit. If she and her husband could reduce their income to $62,000, they could get a tax subsidy of $1,207 per month to offset the purchase of health care on Covered California. That would reduce the price of a Kaiser Permanente bronze-level plan, similar to the replacement policy she was quoted, to $94 per month from $1,302 per month. Instead of paying more than $15,000 per year, the couple would pay about $1,100.

To put it in even simpler terms, this couple has figured out that they can get almost $14,000 of other people’s money by reducing how much they earn by just $2,000.

That, in a nutshell, is the perfect illustration of the welfare state. It tells people that they can get more by producing less. And the system is based on the theory that there will always be some suckers who work hard to provide the subsidies.

But as we’ve seen in Greece, Italy, Spain, and elsewhere, this system eventually breaks down as more and more people learn that it’s easier to ride in the wagon than it is to pull the wagon (as powerfully illustrated by these two cartoons).

And remember that the United States isn’t too far behind Europe’s welfare states.

Thanks to the plethora of welfare programs and income-redistribution schemes that already exist, millions of Americans have an incentive to earn less money and get trapped in government dependency. This graph, for instance, shows that various handouts mean that a single mom with $29,000 of income can be better off than a self-reliant person with $69,000 of income.

And a local CBS station discovered that a low-income household could be eligible for more than $80,000 of goodies from the government. Earning more money, though, would mean fewer handouts.

The same problem exists, by the way, in other nations such as Denmark and the the United Kingdom.

Remember Julia, the mythical moocher created by the Obama campaign to show the joys of government dependency? As illustrated by this Ramirez cartoon, Julia symbolizes the entitlement mentality. But the cartoon doesn’t go far enough. It should show how Julia decides to lead a less productive and less fulfilling life because she gets hooked on the heroin of handouts.

P.S. Some honest liberals recognize that redistribution can trap people in poverty.

P.P.S. Unsurprisingly, Thomas Sowell explains this issue with blunt and powerful logic.

P.P.P.S. To close with some humor, here’s a new Declaration of Dependency put together for our leftist friends. Though they may want to think twice before asking for a divorce from Red State America.

Read Full Post »

We’re making a tiny bit of progress in the battle against the welfare state. No, policy hasn’t changed yet, but at least there’s growing recognition that maybe, just maybe, it’s not a good idea to pay people not to work. Particularly when you trap them in lives of dependency and despair and undermine progress in the fight against poverty.

This chart shows that various handouts discourage low-income people from earning more money, and a recent blockbuster study from a couple of my colleagues at the Cato Institute revealed that welfare pays more than entry-level employment in dozens of states.

And a growing number of people are now aware that there’s been an explosion of food stamp dependency, so one hopes that all this knowledge eventually will translate into a new round of welfare reform.

Why am I optimistic? Well, because awareness already is leading to change in some very unexpected places. Even Scandinavian nations are realizing that there has to be a limit to incentive-killing and taxpayer-sapping redistribution.

Here are some excerpts from a remarkable Bloomberg report about developments in Denmark.

“We live in a world of global competition for jobs,” the 40-year-old minister said in an interview in Copenhagen. “For any finance minister wanting to be taken seriously, it’s something to deal with. That requires a modernization of the welfare state.” The AAA rated nation, whose economy contracted 0.2 percent in the first half, needs to contain welfare spending or risk losing the respect of investors, Corydon said. Danes, who like Swedes and Norwegians, are used to generous jobless pay as well as state-financed education and health care, need to learn that those privileges come at a cost, he said. …Denmark’s challenge now is to ensure its welfare habits don’t leave it unable to compete with populations that work harder at a lower cost, he said.

That’s a noteworthy passage, both because the Danish Finance Minister recognizes jurisdictional competition as a check on the welfare state (something confirmed by a study from German economists) and because Denmark is ruled by Social Democrats.

Yet even these leftists are grasping that it makes no sense to have a system that generates perverse incentives.

…out-of-work Danes in some cases earn even more than those in low-skilled jobs. An Aug. 27 report by the Economy Ministry showed that about 250,000 Danes have no economic incentive to give up their unemployment benefits and take a job. That compares with 2.64 million people in full- and part-time jobs, according to Statistics Danmark. …The Social Democrat-led coalition of Prime Minister Helle Thorning-Schmidt, in office since 2011, has pushed through cuts including limiting unemployment benefits to two years from four years.

It’s hardly radical libertarianism to reduce unemployment benefits from four years to two years, but it is rather significant when even politicians realize that it’s not good – as illustrated by these powerful cartoons – to lure people into the wagon when nations need more people pulling the wagon.

The article even mentions “Lazy Robert,” a famous deadbeat who became the first Danish member of the Moocher Hall of Fame last April. No wonder Danes may be saying that enough is enough.

There’s even a bit of good news on the tax side of the fiscal ledger.

The government has responded to the economic slump by cutting the corporate tax rate, as well as some other taxes.

Sounds like Danish policy makers could give some lessons to their self-destructive American counterparts.

But you won’t be surprised to learn that  there’s still plenty of bad policy in Denmark. The politicians can’t resist, for instance, the siren song of Keynesian economics.

It plans to spend 44 billion kroner ($7.8 billion) next year on building railroads, highways and hospitals. …Corydon,…said he wants to keep public investments close to a 30-year high to create jobs.

By the way, it’s a bit depressing that Denmark actually ranks higher than the United States in the most recent Economic Freedom of the World rankings.

Yes, their welfare state is too big, their tax system is a nightmare, and they are saddled with one of the world’s most expensive bureaucracies, but Denmark has ultra-free market policies in other areas.

But even those laissez-faire policies no longer are apparently enough to compensate for bad fiscal policy.

P.S. Denmark may have Lazy Robert, but the United Kingdom has Natailija, Tracey, Anjem, and Gina and Danny, so if there was a welfare Olympics, the U.K. would have a lot more medals.

P.P.S. Speaking of poverty, you may be surprised that bureaucrats at the OECD assert that America has more poverty than some very poor nations. But that’s only because the Paris-based bureaucracy is trying to advance Obama’s redistribution agenda by redefining poverty to mean differences in income rather than lack of income. Sort of makes you wonder why we’re subsidizing their statist agenda with our tax dollars.

Read Full Post »

About two years ago, I shared a map put together by a pro-statism organization that supposedly showed that welfare benefits were very miserly and not sufficiently generous to lift people out of poverty.

My gut instinct was to reject the findings. As I wrote at the time:

The poverty line is set considerably above a level that would indicate material deprivation…far above the average level of income in most nations of the world. …Welfare checks are just one of many forms of redistribution, and the data used to create the map do not count food stamps, Medicaid, housing subsidies and a plethora of other means-tested programs.

My skepticism was further augmented when I ran across an amazing chart showing that it made more sense to live off the government in Pennsylvania rather than earn more income.

It turns out that I was right to be skeptical. My colleagues at the Cato Institute have just released a detailed study calculating the amount of handouts available in each state. They then investigated whether the level of redistribution was so high that people might decide it didn’t make sense to be productive members of society.

You probably won’t be surprised to learn that it’s better to live off the government in most states.

Welfare benefits continue to outpace the income that most recipients can expect to earn from an entry-level job, and the balance between welfare and work may actually have grown worse in recent years. The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15 per hour.

Here are some of the details from the study, which used the example of a mother and two children.

…the federal government currently funds 126 separate programs targeted toward low-income people, 72 of which provide either cash or in-kind benefits to individuals. …no individual or family receives benefits from all 72 programs, but many recipients do receive aid from a number of the programs at any given time. …this study seeks to determine the approximate level of benefits that a typical welfare family, consisting of a single mother with two children, might receive, and to compare those benefits with the wages that a recipient would need to earn in order to take home an equivalent income.

What shocked me the most were a couple of tables showing how living off the taxpayers is a pretty good deal.

The first table shows how much a household would have to earn – before tax – to have the same lifestyle that is available from the welfare system. The study also looks at median salary in each state and shows that eight states actually provide handouts that are greater than that amount!

Redistribution Nation Worst 24

The study also reveals that handouts give recipients far more than is needed to reach the federal poverty level. Indeed, the panoply of benefits is so excessive in some places that recipients are pushed to more than twice what is needed to get out of poverty.

Redistribution Nation Poverty Rate

Or maybe it would be more accurate to state that handouts are so excessive that recipients are lured into dependency.

I’ll close with a couple of surprises from the study. I was shocked that Illinois and Maine both ranked among the least extravagant states. Maine “earned” third place in the Moocher Index, so I assumed they would be especially profligate. But I guess having a lot of people on welfare doesn’t necessarily mean that they’re getting a lot of money.

And Illinois has veered far to the left on fiscal policy in recent years, so I assumed politicians were giving out lots of goodies. But apparently bureaucrats are first in line for handouts and that reduces the amount of loot available for other groups.

On the other hand, I didn’t expect to find New Hampshire being about as profligate as Vermont.

Most of the other states are where you would expect them to be. Fiscal hell-holes like New York and California redistribute money like crazy, while zero-income tax states such as Texas, Florida, and Tennessee are comparatively frugal.

P.S. Here’s a map showing which states have the most food stamp dependency.

P.P.S. Let’s not forget that the poverty rate was falling steadily before the federal government declared a “War on Poverty.”

P.P.P.S. If you’re thinking about moving, you may want to avoid “death spiral states.”

P.P.P.P.S. The U.K. welfare system also makes work unattractive compared to living off taxpayers.

Read Full Post »

My great fear is that the “social capital” of self reliance in America will slowly disappear and that the United States will turn into a European-style welfare state.

That’s the message in the famous “riding in the wagon” cartoons that went viral and became the most-viewed post on this blog.

Well, this Glenn McCoy cartoon has a similar theme.

Obama Voter Cartoon

The only thing I would change is that the rat would become a “pro-government voter” or “left-wing voter” instead of an “Obama voter.” Just like I wasn’t satisfied with an otherwise very good Chuck Asay cartoon showing the struggle between producers and moochers.

That’s for two reasons. First, I’m not partisan. My goal is to spread a message of liberty, not encourage people to vote for or against any candidate.

Second, I’ve been very critical of Obama, but I was also very critical of Bush. Indeed, Bush was a bigger spender than Obama! And Clinton was quite good, so party labels often don’t matter.

But I’m getting wonky. Enjoy the cartoon and feel free to share it widely.

Read Full Post »

With many European nations already in the midst of a fiscal crisis caused by excessive government, and with most other industrialized nations heading down the same path thanks to aging populations and poorly designed entitlement programs, this would be a good time for supposed experts to propose ways to rein in the welfare state.

But the bureaucrats at the Organization for Economic Cooperation and Development don’t get distracted by trivial details such as real-world events and evidence. The Paris-based bureaucracy is funded by governments and it predictably endeavors to keep its paymasters content by embracing proposals that increase the size and scope of government.

This attitude is quite apparent in the OECD’s new report on Inequality and Poverty in the United States. Here are some of the key recommendations.

1. More education spending and centralization – The report states that “more resources need to be directed towards disadvantaged students” and that a goal should be “upgrading the teaching profession…by raising its low pay.” Education spending-performance chartYet as illustrated by this remarkable chart, education spending in America has skyrocketed without any positive impact. Moreover, the United States already spends more than per capita than almost any other nation and gets very poor results. The OECD report also supports more centralization, urging lawmakers to “replace the local-property tax system of financing schools by state-level financing.”

2. More class-warfare taxation – The report frets about the “effectiveness of the capital income tax as a redistribution instrument” and suggests “raising the corporate income and/or capital income taxes at the personal level.” In addition to those class-warfare policies, it endorses more double taxation of income that is saved and invested, suggesting that “tax breaks to encourage the accumulation of individual private pensions could…be phased out or progressively more tightly capped.” The report even calls for making some features of the death tax more onerous, urging that “capital gains on bequeathed assets…should be taxed to avoid undermining the effectiveness of the gift and estate tax.”

3. More welfare spending – The report complains that “cash transfer programmes…reduce poverty…less than in other OECD countries” and suggests that “government should restore the inequality-reducing power of the transfer system.” Since welfare spending in the United States is at record levels, it’s unclear what the bureaucrats mean by “restore,” but it’s quite clear that they want more spending on programs that have undermined the fight against poverty.

Sounds almost as if the OECD report could have been written by a couple of interns from Obama’s reelection campaign.

Though, to be fair, the analysis in the study at times is sound. The problem is that the OECD’s bureaucrats lean strongly to the left whenever it is time to make policy recommendations.

But at least they’re not as far to the left as some of the crowd in Washington. Can you imagine this analysis being uttered by somebody associated with the Obama Administration?

…an increase in the progressivity of the taxation of capital  income and wealth reduces the incomes of US households across the income distribution. Such a reform can thus, while lowering income inequality, make the majority of the population less well off. …high marginal tax rates create inefficiencies by distorting both the labour-leisure choice (i.e. by discouraging labour supply) and the choice between consuming now or in the future (i.e. by discouraging saving), with harmful effects to economic growth.

That’s a nice endorsement of lower tax rates and less double taxation, at least in theory.

Now that I’ve said something nice about the report, I want to close by pointing out something grotesquely dishonest. The bureaucrats who authored the report assert that “relative poverty” in the United States is “among the highest in the OECD.”

They even included this chart showing that the United States has one of the worst rates of “relative poverty.”

OECD Junk Poverty Data

But if you read the fine print, you may notice one itsy-bitsy detail. The chart isn’t a measure of poverty. Not even close. Indeed, the chart wouldn’t change if all of the people of any nation (or all nations) suddenly had 10 times as much income.

That’s because the OECD is measuring is relative income distribution rather than relative poverty. And the left likes this measure because coerced redistribution automatically leads to the appearance of less poverty.

Even if everybody’s income is lower!

As I explained last year, this crazy approach makes it seem as if there’s more poverty in America than in nations such as Greece, Portugal, Hungary, and Turkey.

The final insult to injury is that American taxpayers are financing the biggest share of the OECD’s budget. Sort of like having tax dollars get diverted to the research staff at the Democratic National Committee.

But with one irritating difference. OECD bureaucrats get tax-free salaries, so they don’t suffer the consequences of the policies they want to impose on the rest of us. Nice work if you can get it.

P.S. If you want other examples of OECD bias, there are plenty.

Read Full Post »

John Geary is not a good person.

He’s been a bureaucrat for about a decade, which almost surely means he’s over-paid and under-worked.

IRS welfareNot only is he a bureaucrat, but his job is to distribute welfare, which means he’s been screwing taxpayers and trapping poor people into government dependency.

But apparently he wasn’t satisfied with screwing taxpayers and poor people, at least in the figurative sense of the word. Here’s some of a report from a local CBS station.

Welfare Bureaucrat CriminalA state welfare worker is facing charges after allegedly offering benefits in exchange for sex. …According to the police criminal complaint, Geary also repeatedly asked the woman to smoke crack with him on the weekends when his wife was working and his children were asleep in their North Versailles home. …Police think there may be more victims as Geary allegedly told the woman that he had done the same thing with women in the past.

Gee, he sounds like a really swell guy and a model husband and father, wouldn’t you agree?

P.S. Perhaps Mr. Geary should be the first non-recipient member of the Moocher Hall of Fame?

P.P.S. Furthermore, we could include this in the Great-Moments-in-Local-Government series. Previous versions can be seen here, here, here, here, here, here, here, here, here, here, here, here, and here.

Read Full Post »

I woke up this morning in Albania, after a string of speeches for the Free Market Road Show. One of my topics was the terrible jobs outlook for young people.

I sought to give audiences some basic understanding of economics, most notably telling them that businesses won’t create jobs unless the total revenue generated by workers is greater than the total cost of employing those workers.

But I also explained that people don’t have much incentive to find jobs unless they can enjoy better lives while working than they can enjoy while not working. In other words, they may not bother accepting jobs if there’s no significant increase in their living standards.

In other words, you can’t give people lots of handouts and then expect them to be aggressive job seekers.

I should have shared this Robert Gorrell cartoon. It makes the point in a much simpler fashion.

Work for food

This cartoon is quite similar to this Chuck Asay gem, and also has the same theme as this excellent Wizard of Id parody (which tied for 5th-place in the political cartoonist contest).

I did share these two amazing charts (here and here), so the audiences did get some powerful data showing that the welfare state is dramatically undermining incentives to provide labor to the market.

P.S. At least one honest liberal has recognized the danger of government-created dependency.

Read Full Post »

When we think of Julia, the mythical moocher created by the Obama campaign, our first instinct is probably to grab our wallets and purses. After all, she symbolizes the entitlement mindset, as illustrated by this Ramirez cartoon.

But let’s think of this from Julia’s perspective and speculate about what it will mean for her life. Shouldn’t we worry whether a life on the dole will destroy her spirit?

Or perhaps that question is too abstract, so let’s make it more personal. Would we ever want any of our children and grandchildren to become wards of the state, living empty and hollow lives of dependency and never achieving anything?

The answer is no, of course, because we want our loved ones to have good and happy lives.

So why, then, would anybody want to impose that fate on a stranger? And this isn’t an abstract question. That’s what the welfare state does, every day, over and over again, subsidizing poverty and sloth.

And not just in the United States. I shared a truly sad video a couple of years ago showing how the British welfare state created multi-generational poverty and misery.

Now we have another video, this one from the folks at The Commentator, showing a news report from London that should anger all taxpayers. But it also should upset all people who care about rescuing people from government-induced emptiness.

I’m almost at a loss for words. At the risk of making sweeping judgments based on a short news clip, it appears that this poor woman’s life has been destroyed by government dependency.

And if you’re wondering how someone could ever allow themselves to be caught in the quicksand of the welfare state, don’t forget the story of Natalija, as well the expose about Danny and Gina. They are all healthy young people who made rational economic decisions to mooch since they could enjoy more comfortable lives.

The same thing happens in America. This story from Pennsylvania also shows that it can be far more lucrative to rely on handouts than to climb the economic ladder.

Just in case you think that’s an isolated example, look at this remarkable chart revealing how life on the dole can be much more remunerative than a life of striving and work (you can see similar charts for the U.K. by clicking here).

Let’s return to the woman in the video. I confess that I’m a bit conflicted. Should I feel sorry for Ms. MacDonald or should I look down on her?

The government has wrecked her life with handouts, yet there are probably people just like her who made the choice to avoid dependency and climb out of poverty. If you believe in free will, then she deserves some scorn.

That being said, I’m much more willing to heap abuse on Natalija, Gina, and Danny. They’re young and they should know better. Then again, in 30 years, how will they be different from the woman in the video?

These questions don’t have any good answers, so let’s close with a few examples of how the welfare state subsidizes some truly odd behavior.

And remember, you’re paying for all this!

Read Full Post »

I’ve spent a lot of time debunking class-warfare tax policy, and I’ve certainly explained ’til I’m blue in the face that big government facilitates a pernicious form of corruption that enriches powerful and well-connected insiders.

But I haven’t spent much time addressing the topic of income inequality, which is connected to those two other issues.

U.S. News & World Report just weighed in on this issue, citing a leftist video designed to build support for redistributionist policies.

Occupy is by now forgotten (if not gone), but the top 1 percent came roaring back into view this week with a viral video that has been seemingly inescapable for anyone on Facebook or Twitter. The slick, graph-heavy animation shows the results of a 2011 study that found not only that Americans vastly underestimate wealth inequality in the U.S. but that current inequality is very far from what most Americans see as ideal.

I contribute to the discussion, making the point that people should focus on the source of inequality.

…some would argue that not all inequality is created equal. According to one expert, the problem is far worse when it’s a function of bad government than when it’s a function of private industry growth. “If you’re a very corrupt, cronyist type economy like Argentina or Mexico, you have a huge degree of income inequality and it’s driven by the fact that the elites control the levers of power,” says Dan Mitchell, a senior fellow at the Cato Institute, a libertarian think tank. Meanwhile, a less-corrupt, high-inequality, but fast-growing economy–Mitchell uses the example of Hong Kong–might be healthier, more stable, and more likely to have a rising tide of growth lifting all boats, even if it’s lifting some boats more than others. In other words, as long as everyone is benefiting, albeit to different degrees, he says, that’s one key test of whether inequality is “good” or “bad.” …As for the question of where U.S. inequality is coming from, Mitchell says he fears that corporate influence in Washington may be creating inequality of what he might call the Mexican or Argentinian type. That is, he believes that big banks and healthcare companies are skewing the system in their own favor via legislation like Dodd-Frank and healthcare reform.

To get an idea of what I’m talking about, check out this chart comparing economic performance in a nation with capitalism, a nation with cronyism, and a nation with statism.

And since I specifically cited Hong Kong, check out this chart. And click here to see how Argentina has fared with a system where government picks winners and losers.

The article then follows with a sentence that may be true as a political prediction, but completely misreads the point I was trying to make.

If that’s true–that those at the top are able to entrench their places at the top, at the expense of others–it is reason to angrily hit the share button.

NO!!! What I’m pointing out is that we should repeal laws such as Obamacare that promote cronyism and corruption.

But that’s not the only argument against the leftist argument for redistribution. My former grad school colleague, Steve Horwitz, makes the key argument that it is shoddy to compare changes over time for income quintiles without also measuring income mobility.

And you can click this link to hear what one of my professors from grad school, Don Boudreaux, had to say about the notion that wages have stagnated.

if you want even more, here’s something I wrote on income inequality and here’s a debate I did on income mobility. Even better, here’s what Margaret Thatcher said about these topics.

Read Full Post »

Remember Julia, the mythical moocher created by the Obama campaign to show the joys of government dependency? As illustrated by this Ramirez cartoon, Julia symbolizes the entitlement mentality.

Unfortunately, there are many real-life Julias.

I wrote a couple of years ago about Olga, a Greek woman who petulantly believed that government was responsible for her empty life.

But we don’t know any details about Olga other than her desire to mooch, so the best real-world examples of Julia may be from England. We have Natalija, a Lithuanian immigrant who has quickly learned bad habits of dependency, and Danny and Gina, two native-born scroungers.

Natalija, Danny, and Gina all decided to get a free ride from taxpayers, largely because overly generous handouts meant that they could enjoy higher living standards by staying at home and watching TV rather than living productive lives.

And if these info-graphics are any indication, there must be lots of people in the United Kingdom who make similar calculations.

No wonder English employers sometime have a hard time filling slots. Why climb the economic ladder when government is providing a comfy hammock?

Unfortunately, the same misguided policies exist in the United States. I shared a remarkable chart last year showing that a household would be better off with $29,000 of income rather than $69,000 of income because of the combined impact of both taxes and redistribution programs.

Now, courtesy of some first-rate journalism by a local television station, we have a powerful example exposing how the system operates. We learn the story of Kristina, who chooses to earn less money in order to keep the taxpayer-funded gravy train rolling.

We’ve all heard the line that America is becoming an entitlement society or welfare state, with half of U.S. households now receiving some type of government benefit. But a CBS 21 News investigation has taken that stat one step further to show you how much people are actually getting for free. A few years ago, reporter Chris Papst worked with a single mom who had two children. She turned down a raise because she said the extra money would decrease her government benefits. It was hard to understand why she did that, until Chris started working on this story. “You do what you have to do as a single mom,” explained Kristina Cogan. “And that’s what I did.” ……she admits living a life off the government can be comfortable. “If you’re going to get something for free, are you going to work for it?” Cogan explained. “It kind of like sucks you in.”

Here are some of the horrific details.

For this story, CBS 21 researched what government programs are available to a single mother of two making $19,000 a year. What we found was incredible. Our family would be eligible for $14,976 in free day care, another $13,400 for Head Start and Early Head Start, $7,148 in housing vouchers, $6,500 for weatherization projects, $400 to pay heating bills, $480 a year for a cell phone, with an extra $230 for a land line, and $182 in free legal advice. The family would get more than $6,028 in food assistance and another $6,045 in medical assistance. The mother is eligible for $5,500 in Pell Grants for school with an additional $12,000 for the Education Opportunity Grant; SMART Grant; and TEACH Grant. Our family would also get $6,800 in tax credits, and $1,900 in withholding would be returned. Add it up and this family can get $81,589 in free assistance.

There’s nothing in the story to suggest that Ms. Cogan is utilizing all these programs, but the plethora of available goodies certainly helps to explain why so many people decide it’s easier to be moochers rather than producers.

Which also explains why the welfare state is a recipe for ever-increasing dependency, as shown by this famous set of cartoons.

Which also causes a sluggish economy, as illustrated by this Chuck Asay cartoon.

No wonder the share of households taking something from the government has been increasing. And no wonder the poverty rate stopped falling once the government’s so-called War on Poverty began.

P.S. Most stories about welfare are pathetic, as we see from this dependency contest featuring the “Connecticut Kid” vs the “English Loafer.” But the welfare state also breeds more bizarre behaviors.

P.P.S. Are you subsidizing bad behavior? Click here to see a map revealing which states offer the most extravagant welfare benefits.

P.P.P.S. Share this video to help others understand the high cost of the welfare state.

Read Full Post »

I posted a horrifying story last week about a Lithuanian immigrant who was mooching off British taxpayers.

She basically had a very comfortable life thanks to beleaguered taxpayers, and I compared her to a Greek woman who thought the state owed her everything.

But there’s no ethnic requirement to be a bum. I’ve also shared stories about American moochers and Austrian moochers.

I’ve even shared stories about terrorists getting welfare handouts in Australia and France!

UK BumsSo I hope my British friends won’t be upset that I’m now going to highlight a couple of English deadbeats.

Here are some odious details from the UK-based Sun.

Danny Creamer, 21, and Gina Allan, 18, spend each day watching their 47in flatscreen TV and smoking 40 cigarettes between them in their comfy two-bedroom flat. It is all funded by the taxpayer, yet the couple say they deserve sympathy because they are “trapped”.

Does this mean they are imprisoned? Is someone holding them at gunpoint?

Hardly. It simply means that these two scroungers get such lavish handouts that their living standards would fall if they actually lived decent and honorable lives and went to work.

The couple, who have a four-month-old daughter Tullulah-Rose, say they can’t go out to work as they could not survive on less than their £1,473-a-month benefits. The pair left school with no qualifications, and say there is no point looking for jobs because they will never be able to earn as much as they get in handouts. Gina admits: “We could easily get a job but why would we want to work — we would be worse off.” Danny’s father, 46, even offered him a job with his bowling alley servicing company — but could not pay him enough.

So how much are these moochers stealing from taxpayers? Quite a lot, particularly if you keep in mind that £1 is equal to $1.57.

The couple, who live in Hants, receive £340 a week, made up of £150 housing benefit, £60 child tax credit, £20 child benefit and £110 in Job Seeker’s Allowance. They pay just £25 towards their spacious £625-a-month home. Their lounge is dominated by the huge TV and a leather sofa. …They spend the same on tobacco as they do on their daughter’s milk and nappies.

Gee, isn’t that nice. Taxpayers are even financing their cigarettes.

I blame Danny and Gina for being a couple of bums, but I also blame British politicians for creating a lavish welfare state that enables this awful behavior.

It’s not that people are trapped in poverty, but they definitely are lured into dependency.

By the way, the same problem exists in the United States. Indeed, this chart shows that the plethora of freebies from taxpayers means a household can be better off with $29,000 of income rather than $69,000 of income.

No wonder the poverty rate stopped falling once the so-called War on Poverty began.

For more information, here’s a short debate I had about the topic, and here’s a video explaining how the welfare state is bad for both poor people and taxpayers.

Read Full Post »

If you don’t want to be depressed, you should stop reading right now.

You probably know that we’ve been suffering because of a rising burden of government spending. And you probably understand that much of the problem is the relentless growth of redistribution and transfer programs.

But you probably don’t realize how far America has traveled in the wrong direction.

In today’s Wall Street Journal, Nicholas Eberstadt of the American Enterprise Institute rips apart President Obama’s empty assertion that the welfare state is desirable.

…the president is tired of listening to critics of America’s entitlement programs, and as far as he is concerned, the discussion is now over. It is not over—and won’t be anytime soon, because the country’s social-welfare spending is generating severe and mounting hazards for the nation. These hazards are not only fiscal but moral.

Eberstadt shares a bunch of bullet points that should worry anybody who cares about the future of the nation, starting with an inverse version of Mitchell’s Golden Rule. Handouts have been growing twice as fast as overall personal income!

• Over the 50-plus years since 1960, according to the Bureau of Economic Analysis, entitlement transfers—government payments of cash, goods and services to citizens—have been growing twice as fast as overall personal income. Government transfers now account for nearly 18% of all personal income in America—up from 6% in 1960.

• According to the BEA, America’s myriad social-welfare programs (the federal bureaucracy apparently cannot determine exactly how many of these there are) currently dispense entitlement benefits of more than $2.3 trillion annually. Since those entitlements must be paid for—either through taxes or borrowing—the burden of entitlement spending now amounts to over $7,400 per American man, woman and child.

The $7400 figure for per-capita redistribution burden is astounding. Others have calculated that this is akin to $60,000 for every poor household.

Dependency Burden 49 percentAnd even though I’ve written about the 49 percent figure, I had no idea that such a small portion was due to the aging population.

• According to the latest data from the U.S. Census Bureau, nearly half (49%) of Americans today live in homes receiving one or more government transfer benefits. That percentage is up almost 20 points from the early 1980s. And contrary to what the Obama White House team suggested during the election campaign, this leap is not due to the aging of the population. In fact, only about one-tenth of the increase is due to upticks in old-age pensions and health-care programs for seniors.

A big problem is that many working-age people have decided not to work.

• As entitlement outlays have risen, there has been flight of men from the work force. According to the Bureau of Labor Statistics, the proportion of adult men 20 and older working or seeking work dropped by 13 percentage points between 1948 and 2008. …In December 2012, more than 8.8 million working-age men and women took such disability payments from the government—nearly three times as many as in December 1990. For every 17 people in the labor force, there is now one recipient of Social Security disability program payments.

The solution, of course, is entitlement reform.

But that’s just part of the answer. We also need to change the culture. If people decide it is okay to live off the government, even leftists have begun to admit that it is very hard to re-create a system of self reliance.

Read Full Post »

The welfare state creates some amazingly pathetic and disgusting individuals.

But I’ve never found a match for Olga, a Greek woman who thinks it is government’s job to take care of her from cradle to grave.

At least not until now. I’m excited to announce that Olga has a soulmate named Natalija. She’s from Lithuania, but she now lives in England, and she doubtlessly will inspire Olga on how to live off the state.

UK Welfare Horror StoryHere’s some of what The Sun reported about this very successful moocher.

Natalija Belova, 33, told The Sun how she spurns full-time work — yet can afford foreign holidays and buys designer clothes. The Lithuanian said: “British benefits give me and my daughter a good life.” She has milked soft-touch Britain for £50,000 in benefits and yesterday said: “I simply take what is given to me.”

And what is given to her? Quite a lot.

The graduate, who became a single mum after she arrived here, rakes in more than £1,000 a month in handouts — £14,508 a year — to fund her love of designer clothes, jaunts to the Spanish sun and nightclubbing. She bragged: “I have a lovely, fully-furnished flat and money to live properly on. …Her handouts total £279 a week — with housing benefit contributing £183, child tax credit adding £56, child benefit £20 and her council tax being paid to the tune of £20.

UK Welfare HandoutsYou might expect Natalija to be grateful, but you’d be wrong.

But she does have one criticism. Natalija moaned: “I think they should help pay for private nannies, rather than just free nursery.” …Natalija vowed: “I am not going to work like a dog on minimum wage.” She added: “I don’t care what anyone thinks. I’m not doing anything wrong. “I know people won’t like to read this, but what would they do? “Would they not take the money that was being handed to them to stay with their child all day?”

I’ve written about the benefits of tax competition between nations. Well, this story shows the perverse impact of welfare competition between countries.

Speaking at her two-bedroom pad that came fully furnished in Watford, Herts, courtesy of the taxpayer, grateful Natalija said: “In Lithuania the benefits system does not pay enough. “I have a friend over there who is a single mother. “She only gets £20 a month in child benefit, plus some discounted help with gas and electricity — and some housing help. “It’s not enough to keep a normal level of life, like here. “If I was on benefits there, I couldn’t afford nice clothes or the holidays abroad.” She went on: “I am sure people will say I should return to Lithuania. But that won’t be happening. Being in Britain offers me far better benefits.”

We also have a remarkable example of labor supply economics. This is the real-world example of these charts showing how the British welfare state destroys incentives.

She is careful to work fewer than 16 hours a week so that the benefits keep rolling in. But her wages boost her income to more than £400 a week. On top of that she gets free childcare, fruit and milk vouchers — and even a clothes allowance for “job interviews”. Natalija said: “It is a strange system in this country. Basically, the fewer hours I work, the more I can earn on benefits. But that’s the way it is and it is not my fault.” …She insisted she would be prepared to get a full-time job — but only if the salary tops £25,000. …”Some people may think I am picky. But I am a realist. I need a full-time job that pays at least £25,000 — that is just enough to cover all my living costs that benefits currently pay for. “Otherwise working full time is not worth my while. “If I worked full time, I’d have to pay for childcare costs as well as rent and all my bills. “The benefits system in this country means that I do not have to do this.”

By the way, here’s a chart showing the same destructive policies in the United States.

Let’s look at one last excerpt about Natalija. British taxpayers can take comfort in the fact that this human tick is living a nice life.

In September she escaped the dreary British summer by jetting off with her daughter for a sun-kissed week in Spain. Last month she enjoyed a second holiday — back in her Lithuanian homeland. Natalija, who has three credit cards and loves to go on sprees at designer clothes stores, crowed: “After our holiday to Malaga, we went to Lithuania over Christmas and spent £1,000.” She continued: “I love to buy clothes on my credit cards and often have a blow-out at stores like Roberto Cavalli and the Armani Exchange. …”I also enjoy going to nightclubs and parties with my friends. It’s important to go out and get dressed up. It’s good for my self-esteem.”

Her self esteem has been boosted? Oh, joy!

And I can just imagine how much self esteem her daughter will have after growing up with a moocher for a mother.

John Hinderaker of Powerline was first on this horrific story and his analysis is very much worth reading as well. But since imitation is the sincerest form of flattery, I figured I would share the story and add some of my thoughts.

By the way, if you want more than just horrifying anecdotes, click here for a video that looks at the dismal impact of the American welfare state and click here to see how Obama has exacerbated the negative effects of such policies in America.

Read Full Post »

What’s more realistic: A unicorn, Bigfoot, the Loch Ness Monster, or a successful government program?

This isn’t a trick question. Even though I’ve presented both theoretical and empirical arguments against government spending, that doesn’t mean every government program is a failure.

I suppose the answer depends on the definition of success.

Government roads do enable me to get from Virginia to Washington every day. And the Post Office usually gets mail from one side of the country to another. By that standard, many government programs and activities yield positive results.

But if the question is whether government achieves anything in a cost-efficient manner, you’re probably better off searching under your bed for unicorns.

If you pose this question to someone on the left, however, don’t be surprised if they point to Head Start. The conventional wisdom in Washington is that this program gives low-income kids a critical leg up before they start school.

I would like this to be true. I may not be fond of big and bloated government, but the best interests of these kids are more important than my desire for a talking point against the welfare state.

So what does the evidence say?

Head Start CartoonHere’s what the Washington Examiner wrote about the program, starting with an explanation of what the program is supposed to accomplish.

There are few institutions more sacrosanct in Washington than President Johnson’s Head Start program. The federal government spent more than $7.9 billion on the program in 2012 alone to provide preschool services for nearly 1 million low-income Americans. The program represents everything that is supposedly great about the liberal welfare state. It redistributes resources from wealthy to poor. It uses the power of the federal government to combat inequality by giving poor and minority students an educational boost before they fall behind their wealthier peers. There’s just one problem: It doesn’t work.

Is that an empty assertion? Nope, it’s the evidence from the government’s own research.

The ongoing randomized study of Head Start was based on a nationally representative sample of 5,000 children who applied for the program in 2002. Approximately half of the subjects received Head Start services, while the other half did not. The students were then tested on their language, literacy, math and school performance skills. …the 2010 Head Start Impact Study report notes, “the benefits of access to Head Start at age four are largely absent by 1st grade for the program population as a whole.” Specifically, the language, literacy, math and school performance skills of the Head Start children all failed to improve. …Now, the HHS has finally published a follow-up to its 2010 study that follows the same children through the end of third grade. And again, the HHS has concluded that Head Start is ineffective, concluding that Heat Start resulted in “very few impacts … in any of the four domains of cognitive, social-emotional, health and parenting practices.” And those impacts that were found “did not show a clear pattern of favorable or unfavorable impacts for children.”

So what’s this costing the nation (above and beyond the failure to improve the lives of children)?

Since 1965, the federal government has spent $180 billion on Head Start. …Does that sound like a program you’d want to spend $8 billion on next year?

Now imagine the good things that would have happened if that money was left in the economy’s productive sector.

Or, if you like government, but at least want good results, imagine the good things that would have happened if state and local governments shifted $180 billion from the failed school monopoly into genuine school choice programs.

But let’s close on an optimistic note. As far as I know, there’s no evidence that Head Start actually damages children. It’s just wasted money.

That’s a much better track record than other welfare state programs.

Read Full Post »

Every so often, I try to appeal to statists by explaining to them that it’s not in their self interest to steal too much.

Why? Because if you kill off the geese that lay the golden eggs, what will you do tomorrow when nobody is left to produce?

Heck, even the former leftist President of Brazil understood that there can’t be any redistribution if there’s no production.

I’ve made this point by sharing a very clever cartoon. I’ve made this point on television. And I’ve tried to explain it using simple analysis.

I’m not sure I’ve been overly successful, but perhaps this Chuck Asay cartoon will help get the point across.

Free Market Extinction Cartoon

The cartoon is akin to the fable of the ant and the grasshopper. But the “modern” version of the story, featuring coerced redistribution that causes the ant to no longer be productive.

Heck, it’s also what we see in the PC version of The Little Red Hen. And the same theme can be found in the amusing anecdote that uses beer to explain the corrosive impact of a “progressive” tax system.

The moral of the story – in every case – is that you shouldn’t be too greedy if you’re living off others.

In my speeches, I often joke that a tick or a flea is in trouble if it’s feasting on a dog that dies. Well, on  a more serious note, this can happen to countries. Greece is in deep trouble because there are too many people riding in the wagon and not enough people pulling the wagon.

We’re not there yet, but I don’t like the trend.

Read Full Post »

Three years ago, I put together a “Moocher Index” that measured the degree to which non-poor people in a state were benefiting from redistribution programs.

As you can see if you click on the nearby table, Vermont was the worst state, followed by Mississippi, Maine, New York, and Massachusetts.

I confessed that my Moocher Index was a crude and imprecise tool, but it was one of my most popular posts in the early days of this blog. Probably because it was a way of measuring the degree to which people were being lured to ride in the wagon of government dependency (a very disturbing trend put in visual form by these two cartoons).

So I was very interested when I found that somebody at Forbes did something vaguely similar and came up with a list of “death spiral” states.

Death Spiral StatesEleven states make our list of danger spots for investors. They can look forward to a rising tax burden, deteriorating state finances and an exodus of employers. The list includes California, New York, Illinois and Ohio, along with some smaller states like New Mexico and Hawaii. …Two factors determine whether a state makes this elite list of fiscal hellholes. The first is whether it has more takers than makers. A taker is someone who draws money from the government, as an employee, pensioner or welfare recipient. A maker is someone gainfully employed in the private sector. …what happens when these needy types outnumber the providers? Taxes get too high. Prosperous citizens decamp. Employers decamp. That just makes matters worse for the taxpayers left behind. Let’s say you are a software entrepreneur with 100 on your payroll. If you stay in San Francisco, your crew will support 139 takers. In Texas, they would support only 82. Austin looks very attractive. Ranked on the taker/maker ratio, our 11 death spiral states range from New Mexico, with 1.53 takers for every maker, down to Ohio, with a 1-to-1 ratio. …The second element in the death spiral list is a scorecard of state credit-worthiness done by Conning & Co., a money manager… Its formula downgrades states for large debts, an uncompetitive business climate, weak home prices and bad trends in employment. …A state qualifies for the Forbes death spiral list if its taker/maker ratio exceeds 1.0 and it resides in the bottom half of Conning’s ranking. It’s easy to see how California got on our list. It has pampered a large army of civil servants while using every imaginable trick to chase private-sector jobs away, the latest being a quixotic scheme to reduce the globe’s atmospheric carbon.

Not surprisingly, there is considerable overlap between the top states in the Moocher Index and the death-spiral states.

So be forewarned. If you live in California, Hawaii, Maine, Mississippi, or New York, it’s quite likely that you are surrounded by people who want you to work harder and pay higher taxes so they can get more handouts.

Heck, that’s true in most states, so you should worry regardless of where you live. Click here to see a very depressing chart about the nationwide increase in dependency.

So what lessons can we learn? Well, if you look at this map, you’ll notice that none of the states without an income tax are death-spiral states.

And if you look at this map, you’ll see that there’s no overlap between death-spiral states and states with the lowest tax burdens.

Hmmm…sort of makes one think that maybe higher taxes aren’t the right way to solve a fiscal mess. Maybe somebody should inform the President.

Last but not least, here’s a map showing the state-by-state generosity of welfare benefits. I don’t detect any correlation with death-spiral states – except for New York and California.

If you live in either of those two states, you may want to escape before it’s too late.

Read Full Post »

I’ve never criticized President Obama for playing a lot of golf. As far as I’m concerned, the nation is in much better shape when politicians spend a lot of time goofing off.

But I’m more than happy to use golf as a humor prop to make a serious points about public policy.

Earlier this year, for instance, I shared this golfing cartoon to help emphasize that Obama has been a big spender.

Let’s build upon that cartoon with a bit of humor sent to me by a friend from the Caribbean.

Here’s some new rules for golf, based on Obama’s soak-the-rich/entrap-the-poor approach to fiscal policy.

===========================================================

President B.H.O. has recently appointed a Golf Czar.

Major rule changes in the game of golf will become effective January, 20 2013.

This is only a preview as the complete rule book (expect 2716 pages) is being rewritten as we speak.

Here are a few of the changes:

Golfers with handicaps:
- Below 10 will have their green fees increased by 35%.
- Between 11 and 18 will see no increase in green fees.
- Above 18 will get a $20 check each time they play.

The term “gimmie” will be changed to “entitlement” and will be used as follows:
- Handicaps below 10, no entitlements.
- Handicaps from 11 to 17, entitlements for putter length putts.
- Handicaps above 18, if your ball is on the green, no need to putt, just pick it up.

These entitlements are intended to bring about fairness and, most importantly, equality in scoring.

In addition, a Player will be limited to a maximum of one birdie or six pars in any given 18-hole round.

Obama GolfAny excess must be given to those fellow players who have not yet scored a birdie or par.

Only after all players have received a birdie or par from the player actually making the birdie or par, can that player begin to count his pars and birdies again.

The current USGA handicap system will be used for the above purposes, but the term “net score” will be available only for scoring those players with handicaps of 18 and above.

This is intended to “re-distribute” the success of winning by making sure that in all competitions every Player above an 18 handicap will post only “net score” against every other player’s “gross score”.

These new Rules are intended to CHANGE the game of golf.

Golf must be about Fairness.

It should have nothing to do with ability, hard work, practice, and responsibility.

This is the “Right thing to do.”

So, please remember; if you shot a round of golf under par, you didn’t shoot it yourself. Someone else built that course, and someone else cut the grass so that you could play on it. Someone else built the clubs and the cart.

You need to share with everyone and anyone who made you a successful golfer.

======================================================

The “Entitleist” photo is a great touch.

Though  it’s very dark humor for someone like me who believes in self reliance and favors entitlement reform.

P.S. Have you ever wondered how America’s Declaration of Independence would look if our friends from the left had been in charge?

Read Full Post »

During previous Christmas seasons, I’ve shared some holiday humor.

This year, let’s enjoy a bunch of good cartoons.

Lisa Benson start our list, with this recognition of Time’s Man of the year. It’s so nice of the President to give away other’s people’s money.

Cartoon Christmas 1

And since Obama’s currently threatening to take the nation over the fiscal cliff unless he gets some class warfare tax policy, this Lisa Benson holiday cartoon from last year is worth sharing as well.

The second cartoon has the same theme.

Cartoon Christmas 2

The magnificent Chuck Asay offers this gem, with a message similar to one he produced earlier this year.

Cartoon Christmas 3

Asay also did a Christmas-themed cartoon last year.

Jerry Holbert provides this funny – but not so funny if you think about it – cartoon.

Cartoon Christmas 4

Here’s a good one from Glenn McCoy. This cartoon is a pretty good summary of how politics really works.

Cartoon Christmas 5

P.S. Here’s a bonus section. I can’t resist being a proud dad and sharing this family photo. It was taken while we had a meal break during some Christmas shopping.

December 2012

Not a bad brood, if I can offer an unbiased assessment.

My kids have made other appearances on the blog – here, here, here, here, and here.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 2,293 other followers

%d bloggers like this: