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November 12, 2012

The Welfare State, By the Numbers

Whilst the pundit class are busily identifying post election winners and losers and pointing the pointy fingers of opprobrium at all and sundry, Robert Samuelson quietly nails what this election was really all about.

Economic literacy:

If you doubt there’s an American welfare state, you should read the new study by demographer Nicholas Eberstadt, whose blizzard of numbers demonstrates otherwise. A welfare state transfers income from some people to other people to improve the recipients’ well-being. In 1935, these transfers were less than 3 percent of the economy; now they’re almost 20 percent. That’s $7,200 a year for every American, calculates Eberstadt. He says that nearly 40 percent of these transfers aim to relieve poverty (through Medicaid, food stamps, unemployment insurance and the like), while most of the rest goes to the elderly (mainly through Social Security and Medicare).

By all means, let’s avoid the “fiscal cliff”: the $500 billion in tax increases and federal spending cuts scheduled for early 2013 that, if they occurred, might trigger a recession. But let’s recognize that we still need to bring the budget into long-term balance. This can’t be done only by higher taxes on the rich, which seem inevitable. Nor can it be done by deep cuts in defense and domestic “discretionary” programs (from highways to schools), which are already happening. It requires controlling the welfare state. In 2011, “payments for individuals,” including health care, constituted 65 percent of federal spending, up from 21 percent in 1955. That’s the welfare state.

If there are really two Americas, surely the single point of division isn't race, class, sex or culture but rather that so few Americans fully appreciate the extent to which government spending on various welfare programs has grown.

Posted by Cassandra at November 12, 2012 12:41 PM

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Nor can it be done by deep cuts in defense and domestic “discretionary” programs (from highways to schools), which are already happening. It requires controlling the welfare state.

But "deep cuts" (eliding, for the moment, what actually gets cut) and "controlling" the welfare state aren't antithetical to each other. Both can be done. And they'll potentiate each other. Cutting spending will facilitate the private economy by not crowding it out. The resulting more money in private citizens' hands (and in the coffers of private businesses--which are just agencies of the men and women who own them) will reduce the "need" for welfare transfers.

Moreover, government out of our way, which includes out of the way of our doing our own duty toward our fellows, rather than being a willing receptacle for our wishing that off onto government, will facilitate welfare at the local level, further reducing the need for government-mandated wealth transfers.

Government does have a role in welfare, but it's most effective as a last resort, not a first. Look at Staten Island, for instance, where much of the local response was driven by an expectation of government response. After a too-long delay, when that didn't happen, local citizens and local private businesses (and private citizens coming in from outside) have stepped in to fill a major part of the void. That government still isn't responding is a legitimate source of anger, but the truly first responses can only come from the private citizenry physically on the scene. When the bad man comes and seconds count, the police will be only minutes away. This applies to any kind of disaster and immediate response.

As an aside, the concept that any tax reform must be revenue neutral also is a false premise, except for what's politically needed to get reform done.

Eric Hines

Posted by: E Hines at November 12, 2012 01:56 PM

And here I thought Obama hadn't gotten anything out of 'Atlas Shrugged.' Fiscal cliff indeed.

Or the passenger who is talking about how they didn't get there on their own...they were part of the collective.

Posted by: Carolyn at November 12, 2012 02:27 PM

One thing I thought was interesting was his point that not 47% but just over 50% of Americans are now on some form of welfare. Mitt Romney's argument that the percentage who benefited financially would never vote for him wasn't quite right, because (for example) lots of veterans voted for him even though they may in some sense receive payments from the government for retirement or disability.

But the percentage isn't meaningless either, and the move to put everyone making $90K or less on government subsidies for their health care will just make it worse.

Posted by: Grim at November 12, 2012 03:09 PM

I thought a great deal about your comment, Grim.

I think that the major difference between a veteran and a welfare recipient is the degree of the compensation. A retiree with full benefits would still be able to work, which is why the percentages have been cut back since the 1970s.

The irony is that the retiree has to work a second job and the benefits do not decrease because of it. A SS recipient or a welfare recipient will lose benefits either by attrition or wholly if they get a job.

I didn't see Mitt increasing benefits per se, but holding the line at the current level, and weaning people off of welfare.

Just today, the Engineer was reading an online story (I am not sure if it was Fox or MSNBC) that the numbers of people in poverty have increased, and that is in spite of Obama's tinkering.

Go figure.

May I have my beet ration now?

Posted by: Carolyn at November 14, 2012 10:48 PM