Welfare state comes with a huge price tag

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 programmes was $620 billion (R4.8 trillion); that's larger than national defence ($495 billion or R3.8 trillion) or public education ($472 billion or R3.6 trillion).

The 2005 official poverty count was 37 million persons; that means welfare expenditures per poor person were $16,750 (R128,800), or $67,000 (R515,000) for a poor family of four.

Those figures understate poverty spending because the poor benefit from non-welfare programmes 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 per cent, the federal income tax (as opposed to a proportional tax) by 9 per cent and past deficits by 3.5 per cent for a total of 22.5 per cent.

Browning guesses that welfare programmes have reduced GDP by 2.5 per cent.

The overall effect of redistributionist policies has created incentives that have reduced GDP by a total of 25 per cent.

Without those, the U.S. GDP would be close to $18 (R138.4) trillion instead of $14 (R107.7) trillion.

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

For text: http://www.ibdeditorials.com/IBDArticles.aspx?id=302827260834584

For more on Welfare Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=44

FMF Policy Bulletin/ 12 August 2008