Paradox of the Welfare State

This was sent to me by an old friend of mine via Facebook from a website called The Freeman .

Welfare states face an inescapable paradox: The level of production needed to sustain a welfare state cannot be sustained by a welfare state. This paradox is created by policies that encourage the redistribution and consumption of wealth while discouraging its creation. In the face of such perverse incentives, living standards must fall even though, for a time, they may be maintained through borrowing. The paradox is not unique to Greece or California, nor is it a function of who is in charge. It is, rather, inherent in the internal contradictions of the welfare state itself.

The term “welfare state” is defined here as a polity that assumes primary responsibility for the care of a good number of its citizens, providing such benefits as public housing, health care, education, minimum wage rates, unemployment insurance, and financial support for the poor, elderly, disabled, and politically favored institutions, businesses, and industries.

The material well-being of any society’s people rests on the quantity and quality of goods and services they produce. All goods and services consumed by the unproductive members of society must be taken from, or paid for by, the productive. Welfare state policies ensure that the ranks of the unproductive will grow and those of the productive population will shrink, and that the productivity of the dwindling number of producers will fall. As a result, the quantity and quality of goods and services available will drop and poverty will rise. The mechanics of this decline are both straightforward and predictable.

Welfare state policies discourage saving. When government helps pay for its citizens’ big-ticket items, citizens have little need to save for the future. Banks will therefore have less money to lend, leading to lower capital investment and lower economic growth. The taxes needed to pay for public benefits reduce the ability of, and incentives for, businesses to maintain and expand production facilities. To the extent that taxes are paid by consumers, or passed on to them through higher prices, they will have less money to save, further reducing private capital.

This is a great article to show your reasonable liberal or moderate friends on why programs like the Great Society — while sounding humane and compassionate are neither because they are unsustainable. There’s more at the link.

3 comments to Paradox of the Welfare State

  • Well stated, and quite obvious. Now try to convince the libs! Actually, required reading for all libs should be a complete history of the “Financial Successes of the Soviet Union!”

  • Cripes, Floyd, I can’t even get my reasonable lib friends to understand the utterly logical “the more of my own money I get to to keep equals more money I’ll get to spend, almost all of which is taxed, leading to more $$$ in the government’s coffers” concept. I honestly (and sadly) don’t think this will change their minds either. To quote the Rhyme Animal, they’re stuck on stupid and twice on dumb.

  • Mighty Skip

    I’m sorry, this is far too logical and straightforward to be understood by my liberal friends. Throw in some Palin bashing, a few teabagger jokes, European cultural superiority, America as an Evil Empire, flamboyant gay men and that’ll get their attention.

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