Great piece. I did not know that means-tested welfare is rare outside of the US. Is this true? I could spend all day discussing this topic, for I agree that the welfare system is fundamentally broken. I see evidence all around me that means-tested programs are not working; they trap people under an arbitrary line that officials have labeled as “poverty.” And yes, they do breed resentment because they do not properly discern who “needs” help from those who don’t.
If I send my child to daycare, it will cost me $1000s per month, yet there are parents going to the same facility that need to pay less than $25.00 for the same thing…why?
What gives the government the right to reach into my pocket and hand my money (essentially my time on Earth) and give it to someone else who has not been willing to make the same sacrifices that my wife and I make?
To be clear, I think some safety net is a good thing, so long as it doesn’t create a tangled ball of debt that we cannot escape from, and incentivizes people to work hard and better themselves. I don’t see any reason the government cannot, for example, set aside one’s income for them in a retirement account or HSA for their personal benefit as I suggested here: https://www.lianeon.org/p/rethinking-social-security
There are a million little things like your daycare example.
And some can be indirect. Many states have passed school vouchers lately, but a lot of them are income capped. If you want to send your kids to private school that's another marginal tax if your above the cap.
Post-Obamacare the marginal tax rate on all income up until the high five figures is pretty high.
3) They try to buy votes as cheaply as possible to reach 51%.
4) People with low incomes are potentially cheaper votes, because a marginal dollar of welfare is worth more to them.
5) Hence the retired, single women, and the underclass.
6) You can "double dip" on this spending if it takes the form of professional services, because it can be a way of buying off both the receiver of the benefit and the provider (doctors, nurses, social workers, teachers, etc).
7) There is a strong demand for "social insurance", that is insurance that the private market can't perform cost effective underwriting for. But it's easy to mix this in with cross subsidy and welfare. This is very common in health insurance.
8) Social insurance is also easier to implement in societies that are largely equal to start with (Nordics, Asians) and hard to implement if you have a significant underclass (USA).
9) People with more income are easier to sell ideology too. Having fulfilled their basic needs, they want to be told a story, and they are willing to pay taxes to hear it. If you can sell them ideology you can divide the votes of the taxed class.
10) Add to all that common issues of groupish voting, propensity to vote, status quo bias, coalition politics, etc.
Do you have any ideas as to why the Anglophone countries (minus GB?) favored, or at least also employed, Means Tested schemes, vs. the rest of Europe or other civilized semi-wealthy countries?
From you studies, is there any historical or other evidence that the proponents of social insurance schemes took any account of potential changes in demographics? The open door for immigration into the US was closed in 1924 (?) or so, and thus few new people would come in to add to the tax payers vs. the claimants.
If I understand the top level history correctly, in 1939 Congress also made SS a pay-as-you-go program, over the objection and veto of FDR.
To save me from digging for it, do you perhaps have a citation readily at hand that addresses the relative "return on investment" of the various generations receiving SS benefits or projected to receive benefits? From my vague (possibly incorrect) memory: the Greatest generation got maybe 3 or 5%, the Boomers are getting 1 to 3%, and the future generations will see zero or negative returns [in real money]. Or do you have a different understanding or perspective on this?
Thanks for the comment. As for why different nations have different styles of welfare state, I do not know. As for the proponents of social insurance taking into account demographics, I think the answer is almost surely No. Growing populations was taken for granted until very recently.
Yes, Social Security was not originally supposed to be pay-as-you-go, but during the Great Depression it made little sense to have taxpayers paying taxes and no one getting benefits, so Congress authorized paying benefits. This basically made it pay-as-you-go. I have not heard what FDR thought of it. I am skeptical that he vetoed the legislation.
As for return on investment, no I do not know. Since the payments are indexed for inflation, the vast majority of people are coming out way ahead. Unless Congress cuts benefits, which seems very unlikely, that will continue into the future.
Great piece. I did not know that means-tested welfare is rare outside of the US. Is this true? I could spend all day discussing this topic, for I agree that the welfare system is fundamentally broken. I see evidence all around me that means-tested programs are not working; they trap people under an arbitrary line that officials have labeled as “poverty.” And yes, they do breed resentment because they do not properly discern who “needs” help from those who don’t.
If I send my child to daycare, it will cost me $1000s per month, yet there are parents going to the same facility that need to pay less than $25.00 for the same thing…why?
What gives the government the right to reach into my pocket and hand my money (essentially my time on Earth) and give it to someone else who has not been willing to make the same sacrifices that my wife and I make?
A minor quibble though, a VAT tax, as I discussed here, is not as regressive as it appears: https://www.lianeon.org/p/in-defense-of-the-vat
To be clear, I think some safety net is a good thing, so long as it doesn’t create a tangled ball of debt that we cannot escape from, and incentivizes people to work hard and better themselves. I don’t see any reason the government cannot, for example, set aside one’s income for them in a retirement account or HSA for their personal benefit as I suggested here: https://www.lianeon.org/p/rethinking-social-security
There are a million little things like your daycare example.
And some can be indirect. Many states have passed school vouchers lately, but a lot of them are income capped. If you want to send your kids to private school that's another marginal tax if your above the cap.
Post-Obamacare the marginal tax rate on all income up until the high five figures is pretty high.
Food, housing, tax breaks, phones, internet,....you name it. If you get one, you get all of them and the cost is substantial...and often hidden.
My model of welfare spending is thus:
1) Politicians want to win 51% of votes.
2) They have limited resources to spend.
3) They try to buy votes as cheaply as possible to reach 51%.
4) People with low incomes are potentially cheaper votes, because a marginal dollar of welfare is worth more to them.
5) Hence the retired, single women, and the underclass.
6) You can "double dip" on this spending if it takes the form of professional services, because it can be a way of buying off both the receiver of the benefit and the provider (doctors, nurses, social workers, teachers, etc).
7) There is a strong demand for "social insurance", that is insurance that the private market can't perform cost effective underwriting for. But it's easy to mix this in with cross subsidy and welfare. This is very common in health insurance.
8) Social insurance is also easier to implement in societies that are largely equal to start with (Nordics, Asians) and hard to implement if you have a significant underclass (USA).
9) People with more income are easier to sell ideology too. Having fulfilled their basic needs, they want to be told a story, and they are willing to pay taxes to hear it. If you can sell them ideology you can divide the votes of the taxed class.
10) Add to all that common issues of groupish voting, propensity to vote, status quo bias, coalition politics, etc.
Do you have any ideas as to why the Anglophone countries (minus GB?) favored, or at least also employed, Means Tested schemes, vs. the rest of Europe or other civilized semi-wealthy countries?
From you studies, is there any historical or other evidence that the proponents of social insurance schemes took any account of potential changes in demographics? The open door for immigration into the US was closed in 1924 (?) or so, and thus few new people would come in to add to the tax payers vs. the claimants.
If I understand the top level history correctly, in 1939 Congress also made SS a pay-as-you-go program, over the objection and veto of FDR.
To save me from digging for it, do you perhaps have a citation readily at hand that addresses the relative "return on investment" of the various generations receiving SS benefits or projected to receive benefits? From my vague (possibly incorrect) memory: the Greatest generation got maybe 3 or 5%, the Boomers are getting 1 to 3%, and the future generations will see zero or negative returns [in real money]. Or do you have a different understanding or perspective on this?
Thanks for the comment. As for why different nations have different styles of welfare state, I do not know. As for the proponents of social insurance taking into account demographics, I think the answer is almost surely No. Growing populations was taken for granted until very recently.
Yes, Social Security was not originally supposed to be pay-as-you-go, but during the Great Depression it made little sense to have taxpayers paying taxes and no one getting benefits, so Congress authorized paying benefits. This basically made it pay-as-you-go. I have not heard what FDR thought of it. I am skeptical that he vetoed the legislation.
As for return on investment, no I do not know. Since the payments are indexed for inflation, the vast majority of people are coming out way ahead. Unless Congress cuts benefits, which seems very unlikely, that will continue into the future.