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Posts Tagged ‘welfare state’

In my last post, I said “total net social spending” included net public spending and mandatory private social spending. In fact, it includes voluntary private social expenditures as well. The U.S. has by far the highest voluntary social expenditures in the OECD, so if you subtract those out, the U.S. net public and mandatory private social spending figure is no longer second in the OECD (and thus almost certainly the world, as poorer countries have smaller welfare states), only just about average.

But what does voluntary private social spending include? One big component is employer-provided health insurance. It seems to me that should be included in the size of the U.S. welfare state, even if it is not directly provided by the government, because the government subsidizes it (through the tax code), and because that spending is a substitute for government spending in other countries. If we exclude it for the U.S., we are not comparing like with like, since several other countries provide health insurance mainly or exclusively through the state. Put another way, if the U.S. provides so much social welfare privately, the need for the government to provide it is less. The U.S. welfare state is average-sized in spite of the fact that the private welfare system is enormous.

Now, does that mean the U.S. spends vastly more on the poor than most other OECD countries? Not necessarily. The majority of social spending in the U.S. does not go to the poor – but neither does it anywhere else. The elderly soak up a huge portion of social spending in almost all advanced industrial societies. Indeed, one way to measure how redistributive the U.S. welfare state is is to subtract the “post tax and transfer” Gini ratio from the “pre tax and transfer” Gini ratio. Of course, this is a static measure that does not take into account possibilities for mobility from one income level to another, and the extent to which “poverty traps” can contribute to lost mobility. Still, it’s a suggestive measure.

Using data from World Development Indicators Standardized World Income Inequality Database, I find that the tax and transfer system in the U.S. shaves only 0.08 points off the Gini ratio, a standard measure of income inequality (“1” means most unequal, “0” perfectly equal). In most other countries, the number is much higher. In Sweden, it is 0.20. In Italy and Germany, is 0.21. Only Switzerland showed (slightly) less progressive redistribution.

So while the U.S. has one of the very largest welfare states in the rich world, it also has one of the least progressive welfare states in the rich world. By the standards of anti-inequality preferences, that’s a terrible record of inefficiency.

Updated with correct source for my data.

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The United States has long had a larger welfare state than most other Western democracies. Surprised? You may not be aware of the new research on “net social spending.”

Net social spending includes not just government expenditures on social programs, but also tax credits for social purposes and, as a debit, government taxation of social benefits. It turns out that many of the so-called “generous” European welfare states tax social benefits at a high rate. Meanwhile, the United States uses the tax code to help the poor, through the Earned Income Tax Credit. We should also include mandatory private social payments, which are not directly paid by the government.

Using the OECD data, I have plotted total net social expenditure over time for 26 rich countries (click the image to zoom in).

the united states has a bigger welfare state than most other democracies

As of 2009, the United States had the second largest welfare state in the world, at 28.8% of GDP. Only France, at 32.1%, had a bigger one. Moreover, while all advanced industrial societies show a growth in the welfare state from 2005 to 2009, due to economic conditions, the U.S. also had a big runup in welfare spending between 1999 and 2007. In 1995, U.S. net social spending stood at just 22.7% of GDP, although even that figure was higher than those for Denmark, Canada, Italy, Norway, Australia, Ireland, and South Korea. So far as we have data, the U.S. has always had a larger-than-average welfare state.

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At Bleeding Heart Libertarians, Jason Brennan takes up the question of which country is most libertarian and lodges a complaint against global “economic freedom” indices:

This index may understate how anti-libertarian the United States is. After all, the index penalizes countries if their governments spend large amounts on social insurance. Yet classical liberals and neoclassical liberals are not in principle opposed to government social insurance. [That is, they will accept it under certain conditions.]

Thus, suppose we separate the idea of the administrative state—which tries to control, regulate, manipulate, and manage the economy—from the social insurance state—which provides tax-financed education, healthcare, or unemployment insurance. On the Index of Economic Freedom, many countries that rank lower than the US have far less extensive administrative states than the US. For instance, Denmark ranks much higher than the United States on property rights, freedom from corruption, business freedom, monetary freedom, trade freedom, investment freedom, and financial freedom. Luxembourg, the Netherlands, the United Kingdom, and many other countries beat the US on these measures as well. Thus, many other European countries might reasonably be considered more economically libertarian than the US.

Jason makes a legitimate point here: a dollar transferred to a social security recipient is less violative of freedom than a dollar spent hiring a drug enforcement agent or antitrust litigator. This is so even for those declassé Rothbardian absolutists, for whom the immorality of taxation is compounded when it is used to fund further violations of people’s rights.

However, even a bleeding-heart libertarian should see really existing welfare states as problematic for two basic reasons. First, (more…)

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I agreed with the first half of Jessica Flanigan’s essay on “A Feminist Libertarian Dilemma,” but then nearly choked on my invisible coffee when I read this:

Bleeding heart libertarianism doesn’t rule out public policies that help women with families succeed in the workforce, like affordable public childcare, subsidized family leave, elder care, or a universal basic income.

So how exactly does bleeding-heart libertarianism differ from mushy-pated, Swedish-style social democracy?

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There’s been a great deal of debate about the “root causes” of the recent violence in England. Unfortunately, some British and American commentators have tried to score partisan political points by arguing that government cuts to things like “youth programs” are ultimately responsible for the violence. Never mind that the thugs doing the looting and random killings have never expressed an articulate political agenda.

Now there is survey evidence showing that the vast majority of British voters blame either “criminal behaviour” or “gang culture” as the causes of the violence (68% of all voters). Only 8% blame “government cuts.” The other explanations on offer – unemployment, poor policing, and racial tensions – garner even less support. Even 50% of Labour voters agree that either criminal behaviour or gang culture is the main cause of the violence, while only 16% of Labour voters blame Conservative-Liberal Democratic spending cuts.

Of course, saying that “criminal behaviour” is the cause of the riots is a bit like saying that bribery is the cause of corruption. By definition, what is going on is criminal behavior. Nevertheless, what most respondents who picked this option are probably thinking is that the criminals participating in the violence are doing it for self-interested motives, either loot or the fun they get out of vandalism and murder. So then the question becomes: why have people with this mentality been able to rampage for so long? The political science literature on how temporal signals solve coordination games may help us here. The shooting of Mark Duggan six days ago triggered protests and sent a signal to would-be troublemakers that police would have their hands full. As police stood back and appeared to allow the violence to rage, it quickly spread. Individual criminals apparently counted on low risk of being caught. Last night’s surge of police onto the streets seems to have changed that calculus and begun to quell the violence.

But the coordination explanation only tells us why the violence happened now, not why it was possible to begin with. For my money, one of the best explanations comes from Brendan O’Neill, who argues that “welfare-state mobs” have been created by public policies that encourage irresponsibility and social atomization. As Guido Fawkes points out, in Tottenham, the neighborhood where the violence started, as many as 80% of families are fatherless. Welfare policies that reward women for having more children, regardless of whether a father is around, surely deserve some of the blame for that situation, as do lax welfare eligibility rules that allow able-bodied but idle young men to live off the taxpayer.

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Fellow Pilei James Otteson recently wrote a great op-ed in Forbes on the unintended consequences of the welfare state.  He was too humble to advertise it here, but I have no shame about recommending the work of my esteemed co-bloggers.  Here is a key section:

The welfare state encourages people to ignore, to violate–even to pretend does not exist–the moral principle that it is wrong to live at other people’s expense.  That is a fundamental pillar of an enlightened moral life–indeed what distinguishes a barbaric social order from a civilized one. The fact that most human societies have historically disregarded it, and many still do, does not change the fact that it is morally wrong to live off of the fruits of others’ labor.

So wonderful to see the moral case against the welfare state in print!  I recommend you read the entire piece.  Keep up the great work Jim.

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Let’s suppose there are no natural rights, no right or wrong but what the law says – and the basic purpose of law is to preserve your own life. Let’s further suppose that chaos and constant warfare necessarily mark the absence of government, and that the more government there is, the less private crime there will be. In fact, some of these assumptions are probably wrong, but let’s stipulate them for the moment, for one could hardly come up with premises more likely to yield antilibertarian conclusions. After all, Thomas Hobbes built his entire justification of an absolute, authoritarian state on these assumptions.

Does an unlimited state protect the average person’s life better than a limited state? This is an empirical question that we need to refer to the evidence. (more…)

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