WELFARE STATE COMES WITH A HUGE PRICE TAG

August 7, 2008

Much of the justification for the welfare state is to reduce income inequality by making income transfers to the poor, says Walter E. Williams, a professor of economics at George Mason University. 

In his new book, "Stealing From Each Other: How the Welfare State Robs Americans of Money and Spirit," Edgar K. Browning, a professor of economics at Texas A&M University offers data that might help us evaluate the sincerity and accuracy of this claim:

  • In 2005, total federal, state and local government expenditures on 85 welfare programs were $620 billion; that's larger than national defense ($495 billion) or public education ($472 billion).
  • The 2005 official poverty count was 37 million persons; that means welfare expenditures per poor person were $16,750, or $67,000 for a poor family of four.

Those figures understate poverty spending because the poor benefit from non-welfare programs such as Social Security, Medicare, private charity and uncompensated medical care.

The question that naturally arises is, if we're spending enough to lift everyone out of poverty, why is there still poverty?  The obvious answer is that poor people are not receiving all the money being spent in their name.  Non-poor people are getting the bulk of it, explains Williams.

Browning's concluding chapter tells us what the welfare state costs us:

  • The disincentive effects of Social Security have reduced gross domestic product (GDP) by 10 percent, the federal income tax (as opposed to a proportional tax) by 9 percent and past deficits by 3.5 percent for a total of 22.5 percent.
  • Browning guesses that welfare programs have reduced GDP by 2.5 percent.
  • The overall effect of redistributionist policies has created incentives that have reduced GDP by a total of 25 percent.
  • Without those, our GDP would be close to $18 trillion instead of $14 trillion.

Source: Walter E. Williams, "Welfare State Comes With A Huge Price Tag," Investor's Business Daily, August 5, 2008.

 

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