A couple weeks ago, I came across an article written about the effects of the American welfare state.1 Its provocative title immediately caught my attention since it seemed related to previous posts.2
The article is a review of Edgar K. Browning’s Stealing from Each Other: How the Welfare State Robs Americans of Money and Spirit. Mr. Browning is a Research Fellow at the Independent Institute and Professor of Economics at Texas A&M University. His analysis of the welfare state is based on the economic concept of opportunity cost. First developed by John Stuart Mill, the economic opportunity cost is the value of the next best alternative foregone as the result of making a decision. Accordingly,
What do we give up by the choice to have the federal government engage in widespread income redistribution?
Browning’s answer is: a great deal of output. He estimates that U.S. GDP would be at least 25 percent larger if it weren’t for the host of programs and taxes constituting the welfare system. He regards it as a bad tradeoff and makes a powerful case for abolishing federal income transfers and adopting a “just say no” policy toward any suggestions for more of them in the future. (Browning is fine with states’ running whatever welfare programs they want; he respects the Constitution’s federalist plan.) “A non-redistributive federal government,” he writes, “would permit more of the productive potential of the American people to be realized.”
Based on this premise, the welfare system causes the economy to lose output in a number of socially destructive ways. Some of these include:
- Welfare recipients are strongly deterred from working by the high implicit tax rates they face on income they earn.
- Social Security has reduced GDP by 5 to 10 percent when hidden costs are taken into consideration.
- Unemployment-insurance taxes lower the paychecks of all workers to provide the funds that cover unemployment benefits for workers who lose their jobs.
One of the outcomes of “America’s 75-year dalliance with federal income redistribution” is that it “has made it a poorer country than it would otherwise be. It has also made America a far more politicized and contentious one.” For example,
By their nature, transfer programs ensure that people have diametrically opposed interests, and opposing interests are often divisive. Social Security pits the young against the old, the federal income tax positions the wealthy against the middle class, affirmative action sets whites against minorities, and so on. . . .
In summary, the reviewer concluded:
I must also commend Browning for not making his book exclusively about the economics of redistribution. He also questions its morality. He contends that when the state taxes Person A in order to transfer the money to Person B, it is stealing. The fact that it’s accomplished through democratic politics doesn’t change the morality at all. And to those who are inclined to view wealth accumulation by free-market activity as morally suspect, Browning replies that in the market, rewards correspond to a person’s contribution to the betterment of other people’s lives. Come up with a product that millions want very much and you earn a lot. If you do nothing, you earn nothing. Overall, that’s pretty fair.
It may be politically impossible to escape from the quicksand of the redistributive state, but Edgar Browning has made it clear that everyone would benefit if we could do so — everyone except for the interest groups that have an interest in maintaining the status quo. There’s the real problem.
Quicksand indeed, especially since America’s welfare state is based on redistributive programs which foster an environment of getting something for nothing and taking from those who have, under a supposedly democratic and legal system of plunder.