The social safety net

Several times each year, John Allison President and CEO of the Cato Institute circulates a memorandum to the Directors, Sponsors, and Friends of the Institute.  In his July/August 2013 Report John makes the following statements:

A trend that disturbs me is the effort by some of those who want to change political results to try to appeal to egalitarianism for the purpose of electing "compassionate" conservatives to Congress. On several occasions, I have heard the leaders of conservative policy organizations lead with the comment "We all agree about the need for a social safety net" (of course, government financed and controlled). Well, not me. In fact, once we agree the government has the right to use force to redistribute wealth (which is mandatory to create a government-based safety net) the fight is over. The only logical stopping point for this argument is equal outcomes. Equal, that is, except for the elitists in the government and power positions who control the redistribution of wealth.

As libertarians, we believe the sole role of government is to protect individual rights. Our position is logically defendable across all political activities and demands a limited government.

In addition, we are the true advocates of human flourishing. In fact, as libertarians we are the defenders of the pursuit of happiness in the Aristotelian concept of happiness. Happiness earned by a life well lived. Hard work, blood, sweat, and tears happiness. The type of happiness we advocate is only possible in a free society where each individual has the personal responsibility for his life and has the right to live that life consistent with his beliefs and values as a free and independent person.

I believe the welfare state creates very destructive incentives in multiple ways. Mike Tanner's recent study, The Work versus Welfare Tradeoff: 2013, outlines the significant economic incentives that the welfare state provides.

On the noneconomic front, many (most) long-term welfare recipients are not happy as evidenced by high rates of alcohol consumption, drug use, domestic violence, etc. They are numbed into a destructive state of dependency that destroys personal responsibility, undermines a sense of purpose, and makes the true pursuit of happiness impossible.

What if the welfare state had not been created? Would markets have solved the welfare problem better than governments, based on private contributions? I believe the answer is unequivocally yes. In fact, there were many private mutual-support societies that provided voluntary assistance to the poor before the government welfare state was created.

A current example is Goodwill Industries, which relies primarily on donations of used goods (clothing, etc.). Their philosophy is to teach people how to be personally responsible, to teach them work skills, and to help them understand the healing power of work. Goodwill has many inspiring success stories. Compare this outcome to the results of government-based welfare. Unfortunately, organizations like Goodwill have a difficult challenge competing against a free lunch from the government.

If the welfare state had not been created, I am confident the pre-welfare private charitable organizations would have experimented and learned radically different solutions to many social issues. The market-discipline process would have supported innovation that would have led to significantly better outcomes for many beneficiaries (victims) of the current welfare system.

So, I do not agree that a government-financed and controlled safety net is a morally defendable idea. When government expands beyond its important but very limited role, it crowds out private institutions that are far more effective. History teaches us that when force is used to achieve so-called "positive" goals, instead of in the proper role of defending individual rights, the "good intentions" practically always produce bad results.

Which way for the west?

In his latest book, "Civilization, The West and the Rest", economic and financial historian Niall Ferguson argues that Western civilization's rise to global dominance over the past 500 years was due mainly to six killer apps, (as he calls them): competition, science, rule of law, modern medicine, consumerism, and the work ethic.

The following link will take you to an interview of Niall Ferguson  By Vito J. Racanelli published in the 4/30/12 issue of Barron's:

Is America Becoming an Anti-Risk Welfare State?

 Niall Ferguson makes several comments that you should read:

In terms of institutional policy, the U.S. is a relatively less attractive destination for investment than it used to be. A large body of literature shows a strong relationship between the quality of institutions and the growth rate. When countries improve rule of law, property rights, and investor protections, and when regulation becomes more transparent and corruption reduced, there are major payoffs. The World Justice Project says the U.S. has been deteriorating for close to 10 years by all these measures, which contrasts with improvements in some emerging markets, like Hong Kong.
The rule of law has become more expensive in the U.S. without becoming more efficient. Any business, particularly small to medium-size, that has had encounters with litigation in the past 10 years will know what I'm talking about. The rule of law in the U.S. has become, at some level, dysfunctional. One reason for that is the way Congress works. It is a honey pot for lobbyists. The result is that complex legislation is riddled with ambiguities that—guess what?—only lawyers can resolve. Dodd-Frank is designed to improve regulation, but what it actually does is institute a massive job-creation scheme for lawyers. There isn't a financial institution in this country that doesn't now require its compliance department to retain a whole bunch of lawyers to explain to them what this 2,000-plus-page monster means for their business. That concerns me.

For anyone wondering why you have the feeling that the USA is less prosperous and dynamic today than  in the past you should reread the 2 paragraphs above.  The natural state of mankind is to live in poverty.  Prosperity is only attained by respect for property rights, enforcement of contracts, and free markets.  These 3 principles allow the division of labor to lift us out of a state of squalor.  Unfortunately the USA has been moving backwards on all three of these principles of prosperity.

Continuing with the highlights of the interview:

What made the West unusual was that risk takers were not only rewarded but honored, whether in science, exploration, or in trade. Spreading across the Atlantic from Europe is an anti-risk culture that manifests itself in two ways. One is the welfare state, designed to remove risk from your life by guaranteeing you an income from the cradle to the grave. That's great because it means that nobody is starving in the streets for want of work. But it isn't great if you create poverty traps and disincentives, so that people in the bottom quintile never work, which is the case in much of Europe.
The other way in which the anti-risk culture manifests itself is with the manic regulatory mentality that tries to prescribe rules for every eventuality, including the tiny, tiny risk that an asteroid will hit this building. Regulations that protect from every eventuality end up being paralyzing because the more things are proscribed, the more the ordinary entrepreneur has to be afraid that if he doesn't comply, he will get sued.
If you locate a new plant in the U.S., you encounter this increasingly unfriendly regulatory and tax environment. You don't know what the taxes are going to be, because Congress is playing a game of chicken about the deficit. It ought to be solvable. However, there are vested interests in the political system that have no interest in solving this problem because they profit from it. It is a classic problem of rent-seeking behavior triumphing over profit-maximizing innovation and entrepreneurship. If you only look at monetary and fiscal policy, it is incredible that the economy isn't growing faster [since] it has had more stimulus than at any time since World War II.

 The anti-risk culture is the single greatest threat to our future well being.

Back on Uncle Sam's Plantation

One of my freinds emailed me the following article by Star Parker:

http://www.urbancure.org/article.asp?id=3141

This is a brilliant quote:

"I said in that book that indeed there are two Americas. A poor America on socialism and a wealthy America on capitalism."