Archive for the 'Welfare' Category

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A Plan to Replace the Welfare State

Many people have the false impression that conservatives and libertarians have no real solutions to solving poverty aside from simply turning the poor over to ‘unfettered capitalism’, and allowing what results to result, with no government assistance.

That is certainly not the case, and here to show a perfectly conservative/libertarian replacement of the welfare state is Charles Murray:

A Plan to Replace the Welfare State
March 22, 2006; Page A16

This much is certain: The welfare state as we know it cannot survive. No serious student of entitlements thinks that we can let federal spending on Social Security, Medicare and Medicaid rise from its current 9% of GDP to the 28% of GDP that it will consume in 2050 if past growth rates continue. The problems facing transfer programs for the poor are less dramatic but, in the long term, no less daunting; the falling value of a strong back and the rising value of brains will eventually create a class society making a mockery of America’s ideals unless we come up with something more creative than anything that the current welfare system has to offer.

So major change is inevitable — and Congress seems utterly unwilling to face up to it. Witness the Social Security debate of last year, a case study in political timidity. Like it or not, we have several years to think before Congress can no longer postpone action. Let’s use it to start thinking outside the narrow proposals for benefit cuts and tax increases that will be Congress’s path of least resistance.

The place to start is a blindingly obvious economic reality that no one seems to notice: This country is awash in money. America is so wealthy that enabling everyone to have a decent standard of living is easy. We cannot do it by fiddling with the entitlement and welfare systems — they constitute a Gordian Knot that cannot be untied. But we can cut the knot. We can scrap the structure of the welfare state.

Instead of sending taxes to Washington, straining them through bureaucracies and converting what remains into a muddle of services, subsidies, in-kind support and cash hedged with restrictions and exceptions, just collect the taxes, divide them up, and send the money back in cash grants to all American adults. Make the grant large enough so that the poor won’t be poor, everyone will have enough for a comfortable retirement, and everyone will be able to afford health care. We’re rich enough to do it.

Consider retirement. Let’s say that we have a 21-year-old man before us who, for whatever reasons, will be unable to accumulate his own retirement fund. We accumulate it for him through a yearly contribution for 45 years until he retires at age 66. We can afford to contribute $2,000 a year and invest it in an index-based stock fund. What is the least he can expect to have when he retires? We are ridiculously conservative, so we first identify the worst compound average growth rate, using constant dollars, for any 45-year period in the history of the stock market (4.3% from 1887-1932). We then assume our 21-year-old will be the unluckiest investor in American history and get just a 4.0% average return. At the end of the 45-year period, he will have about $253,000, with which he could purchase an annuity worth about $20,500 a year.

That’s with just a $2,000 annual contribution, equivalent to the Social Security taxes the government gets for a person making only $16,129 per year. The government gets more than twice that amount from someone earning the median income, and more than five times that amount from the millions of people who pay the maximum FICA tax. Giving everyone access to a comfortable retirement income is easy for a country as rich as the U.S. — if we don’t insist on doing it through the structure of the welfare state.

Health care is more complicated in its details, but not in its logic. We do not wait until our 21-year-old is 65 and then start paying for his health care. Instead, we go to a health insurance company and tell it that we’re prepared to start paying a constant premium now for the rest of the 21-year-old’s life. Given that kind of offer, the health insurance company can sell us a health care policy that covers the essentials for somewhere around $3,000. It can be so inexpensive for the same reason that life insurance companies can sell generous life insurance cheaply if people buy it when they’re young — the insurance company makes a lot of money from the annual payments before eventually having to write the big benefit checks. Providing access to basic medical care for everyone is easy for a country as rich as the U.S. — if we don’t insist on doing it through the structure of the welfare state.

There are many ways of turning these economic potentials into a working system. The one I have devised — I call it simply “the Plan” for want of a catchier label — makes a $10,000 annual grant to all American citizens who are not incarcerated, beginning at age 21, of which $3,000 a year must be used for health care. Everyone gets a monthly check, deposited electronically to a bank account. If we implemented the Plan tomorrow, it would cost about $355 billion more than the current system. The projected costs of the Plan cross the projected costs of the current system in 2011. By 2020, the Plan would cost about half a trillion dollars less per year than conservative projections of the cost of the current system. By 2028, that difference would be a trillion dollars per year.

Many questions must be asked of a system that substitutes a direct cash grant for the current welfare state. Work disincentives, the comparative risks of market-based solutions versus government guarantees, transition costs, tradeoffs in health coverage, implications for the tax system, and effects on people too young to qualify for the grant, all require attention in deciding whether the Plan is feasible and desirable. I think all of the questions have answers, but they are not one-liners; I lay them out in my book.
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For now, let me turn to a larger question: Assuming that the technical questions have answers, do we want a system in which the government divests itself of responsibility for the human needs that gave rise to the welfare state in the first place? I think the reasons for answering “yes” go far beyond the Plan’s effects on poverty, retirement and health care. Those issues affect comparatively small minorities of the population. The more profound problem facing the world’s most advanced societies is how their peoples are to live meaningful lives in an age of plenty and security.

Throughout history until a few decades ago, the meaning of life for almost everyone was linked to the challenge of simple survival. Staying alive required being a contributing part of a community. Staying alive required forming a family and having children to care for you in your old age. The knowledge that sudden death could happen at any moment required attention to spiritual issues. Doing all those things provided deep satisfactions that went beyond survival.

Life in an age of plenty and security requires none of those things. For the great majority of people living in advanced societies, it is easily possible to go through life accompanied by social companions and serial sex partners, having a good time, and dying in old age with no reason to think that one has done anything significant.

If you believe that’s all there is — that the purpose of life is to while away the time as pleasantly as possible — then it is reasonable to think that the purpose of government should be to enable people to do so with as little effort as possible. But if you agree with me that to live a human life can have transcendental meaning, then we need to think about how human existence acquires weight and consequence.

For many readers of The Wall Street Journal, the focus of that search for meaning is bound up with vocation — for some, the quest to be rich and famous; for others, the quest to excel in a vocation one loves. But it is an option open to only to a lucky minority. For most people — including many older people who in their youths focused on vocation — life acquires meaning through the stuff of life: the elemental events associated with birth, death, growing up, raising children, paying the rent, dealing with adversity, comforting the bereaved, celebrating success, applauding the good and condemning the bad; coping with life as it exists around us in all its richness. The chief defect of the welfare state from this perspective is not that it is ineffectual in making good on its promises (though it is), nor even that it often exacerbates the very problems it is supposed to solve (though it does). The welfare state is pernicious ultimately because it drains too much of the life from life.

The Plan returns the stuff of life to all of us in many ways, but chiefly through its effects on the core institutions of family and community. One key to thinking about how the Plan does so is the universality of the grant. What matters is not just that a lone individual has $10,000 a year, but that everyone has $10,000 a year and everyone knows that everyone else has that resource. Strategies that are not open to an individual are open to a couple; strategies that are not open to a couple are open to an extended family or, for that matter, to half a dozen friends who pool resources; strategies not open to a small group are open to a neighborhood. The aggregate shift in resources from government to people under the Plan is massive, and possibilities for dealing with human needs through family and community are multiplied exponentially.

The Plan confers personal accountability whether the recipient wants it or not, producing cascading secondary and tertiary effects. A person who asks for help because he has frittered away his monthly check will find people and organizations who will help (America has a history of producing such people and organizations in abundance), but that help can come with expectations and demands that are hard to make of a person who has no income stream. Or contemplate the effects of a known income stream on the young man who impregnates his girlfriend. The first-order effect is that he cannot evade child support — the judge knows where his bank account is. The second-order effect is to create expectations that formerly didn’t exist. I call it the Doolittle Effect, after Alfred Doolittle in “My Fair Lady.” Recall why he had to get to the church on time.

The Plan confers responsibility for dealing with human needs on all of us, whether we want it or not. Some will see this as a step backward, thinking that it is better to pay one’s taxes, give responsibility to the government and be done with it. I think an alternative outlook is wiser: The Plan does not require us all to become part-time social workers. The nation can afford lots of free riders. But Aristotle was right. Virtue is a habit. Virtue does not flourish in the next generation because we tell our children to be honest, compassionate and generous in the abstract. It flourishes because our children practice honesty, compassion and generosity in the same way that they practice a musical instrument or a sport. That happens best when children grow up in a society in which human needs are not consigned to bureaucracies downtown but are part of life around us, met by people around us.

Simply put, the Plan gives us back the action. Institutions and individuals alike thrive to the extent that they have important jobs to do and know that the responsibility to do them is on their heads. For decades, the welfare state has said to us, “We’ll take care of that.” As a result, we have watched some of our sources of life’s most important satisfactions lose vitality. At the same time, we have learned how incompetent — how helpless — government is when “taking care of that” means dealing with complex human needs. The solution is not to tinker with the welfare state. The solution is to put responsibility for our lives back in our hands — ours as individuals, ours as families, and ours as communities.

Mr. Murray, the W.H. Brady Scholar at the American Enterprise Institute, is the author of “In Our Hands: A Plan to Replace the Welfare State,” published this week by AEI Press.

The full article can be found here.

Quote Of The Day

“But a solution to persistent poverty does not lie in providing the poor money; it lies in their learning valuable skills and to make better choices that affect their lives. To its credit, throughout the documentary it is revealed that the poor are of course overwhelmingly high school dropouts and/or single parents (mostly mothers because the men leave). They made poor choices. Welfare simply feeds their tendency to continue making poor choices given that they are subsidized for making them. Lower the cost of making decisions that adversely affect their lives and we shouldn’t be surprised to see people making more of such decisions. Worse still, it perpetuates this behavior through generations”. —-Mark Steckbeck, economics professor at Hillsdale College blogging at The Liberal Order over “The Rhetoric Over Low Wages and Inequality”

The Problem With Using The Government To Solve Social Problems

Professor of economics Walter Williams explains the problems with using the government to fix social problems:

Consider two options for a homeless family. A church or some other non-governmental entity might offer a homeless family shelter in return for the family’s performance of chores such as cleaning the kitchen, mowing the lawn and washing windows. By contrast, a shelter financed by the government might provide that family shelter with no such obligation. The natural tendency for many homeless families would be to opt for the shelter where they have no obligation to give back. The Gresham’s Law feature of this is the displacement of charity from the local and private level to the state, where all too often the state is unwilling or unable to distinguish between deserving and undeserving need.

There’s another devastating feature of growing dependency on government. Professor Olasky says that prior to the 1960s, marriage was a more vital institution than today. It was a “compassionate anti-poverty device that offered adults affiliation and challenge as it provided two parents for each child.” Before the ’60s, the support for marriage was so strong that an unmarried woman who became pregnant usually would get married. Professor Olasky adds that 85 percent of teenage mothers in the 1950s were married by the time their babies were born. That’s before we bought into the vision promoted by “experts” such as Johns Hopkins professor Andrew Cherlin, who said, “It has yet to be shown that the absence of a father was directly responsible for any of the supposed deficiencies of broken homes.” The real issue, according to Professor Cherlin, “is not the lack of male presence but the lack of male income.” That’s a vision that says marriage and fatherhood can be replaced by a welfare check.

Dependency on government also has the effect of reducing economic mobility among the poor. Professor Olasky says that the dramatic progress of Asians and Cubans in recent decades demonstrates the existence of opportunities for those who are willing to conform to the traditional work-hard-and-rise pattern by staying out of the welfare system. Easy access to welfare has made many individuals, who turned down opportunities, believe they were better off so far as income, leisure time and family time than they would have been by accepting a low-paying job. In terms of short-run economics, many were correct. Welfare reform during the 1990s, despite the dire predictions, moved many former welfare recipients into the world of work and upward mobility. Many who never had a job are now working and are self-sufficient. As such, the tens of thousands of former welfare recipients who moved from welfare rolls to payrolls are proof of the inhumanity of dependency. What’s more important is that these former welfare recipients and their families have a greater sense of self-worth.

Benjamin Franklin had it right when he wrote, “[T]he best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it.” Government dependency makes poverty easy.

What Government Can And Cannot Do To Help The Poor

Larry Reed, president of the Mackinac Center for Public Policy, gave a speech at Grove City College on what government can and cannot do to help the poor.

Among other things, he said:

What Reagan instinctively knew, Bill Clinton finally admitted, and FDR had preached but didn’t practice, was that government poverty programs are themselves poverty-stricken. We have paid an awful price in lives and treasure to learn some things that the vast majority of Americans of the 19th century — and the chief executives they elected — could have plainly told us: Government welfare or “relief” programs encouraged idleness, broke up families, produced intergenerational dependency and hopelessness, cost taxpayers a fortune and yielded harmful cultural pathologies that may take generations to undo.

He writes of the vastly different solution to poverty that the 19th century politicians had:

An unabashed, unrepentant welfare statist would probably survey the men who held the highest office in the land during the 19th century and dismiss them as heartless, uncaring and hopelessly medieval. Even during the severe depressions of the 1830s and the 1890s, Presidents Martin Van Buren and Grover Cleveland never proposed that Washington extend its reach to the relief of private distress broadly speaking, and they opposed even the smallest suggestions in that direction.

Welfare statists make a crucial error, however, when they imply that it was left to presidents of a more enlightened 20th century to finally care enough to help the poor. The fact is, our leaders of the 1800s did mount a war on poverty — the most comprehensive and effective ever mounted by any central government in world history. It just didn’t have a gimmicky name like “Great Society,” nor did it have a public relations office and elitist poverty conferences at expensive seaside resorts. If you could have pressed them then for a name for it, most if not all of those early chief executives might well have said their anti-poverty program was, in a word, liberty. And it meant things like self-reliance, work and entrepreneurship, civil society institutions, a strong and free economy, and government confined to its constitutional role as protector of that liberty by keeping the peace….

Indeed, this “art of associating together” in the 19th century produced the most remarkable flowering of private charitable assistance ever seen. It was the era which saw the founding and flourishing of many of America’s most notable and lasting private associations — from the Salvation Army to the Red Cross.

For many reasons, such groups are far more effective in solving social problems — poverty, homelessness, illiteracy, to name a few — than are government programs and bureaucracies. They treat the whole person, which means they get to the root of problems that stem from spiritual, attitudinal and behavioral deficiencies. They demand accountability, which means they don’t simply give the needy a check every two weeks without expecting the needy to do much in return or change destructive patterns of behavior. They work towards self-reliance instead of dependency. And if they don’t produce results, they wither; the parishioners or others who voluntarily support them will put their money elsewhere. When a government program fails to perform, its lobbyists make a case for more funding and they usually get it.

From start to finish, what private charities do is the manifestation of free will. No one is compelled to provide assistance. No one is coerced to pay for it. No one is required to accept it. All parties come together of their own, individual volition. And therein lies the magic of it all! The link between the giver, the provider, and the receiver is strong precisely because each knows he can walk away from it at the slightest hint of insincerity, broken promises or poor performance. Because each party is giving of his own time or resources voluntarily, he tends to focus on the mission at hand and doesn’t get bogged down or diverted by distant or secondary agendas, like filling out the proper paperwork or currying favor with those in political power.

Management expert Peter Drucker summed it up well when he said that private charities both faith-based and secular “spend far less for results than governments spend for failure.” …

t is vital that people understand the preemptive influence of government relief. There is little reason to believe that politicians are more compassionate or caring than the population that elects them. There is little reason to believe that politicians who are not on the scenes of either poverty or disaster and don’t know the families affected will be more knowledgeable about how best to help than those who are present and personally know the victims. There is even less reason to believe that politicians spend other people’s money more effectively than those people to whom it belongs in the first place. Therefore, when government gets involved, there is good reason to believe that much of its effort simply displaces what private people and groups would do better and more cost effectively if government stayed home.

The full speech is worth the read. Thomas Sowell has more.

HatTip: Ludwig Von Mises blog.

Update: A Constrained Vision has more.