Chapter Eleven

          Just Say No           

            All critiques of social policy end with the author’s prescription to solve the identified problems, and this book is no different.  However, I will not argue for implementation or reform of specific government policies, but rather that we adopt a general principle to guide us in our evaluations of all federal policies. The principle is simple: it is that the federal government shall not adopt any policies that transfer income (resources) from some Americans to other Americans.  Put more concisely, the federal government shall not redistribute income.

            In a sense, the last chapter has already made the case for adherence to this principle by pointing out all the costs resulting from having no such rule constraining the government.  In this chapter I will make the argument more specifically, but in doing so I will tend to emphasize primarily the economic costs of redistributive policies.  Although there is no doubt that the injustices produced by redistributive policies, the infringements on individual freedom, and the strains on the political process are all important costs of the welfare state, they are difficult to quantify.  Without intending to downplay the importance of these issues, here I will focus on the potentially measurable effects on people’s real incomes since this is what the economics literature has attempted to evaluate.

The Economic Cost of the Welfare State 

            What have the welfare state policies of the federal government done to the incomes of Americans, that is, roughly, to GDP?  I have presented quantitative estimates of the effects of three important components of the welfare state in previous chapters: Social Security, federal income taxation, and deficit finance.  As you may recall, these estimates suggest that Social Security has reduced GDP by about 10 percent, the federal income tax by 9 percent, and past deficits by 3.5 percent.  Taken together, these three policies have reduced thus GDP by perhaps 22.5 percent.

            How to account for other welfare state policies is less clear.  These other policies include all welfare programs, the policies discussed in Chapter Eight, and a number of other policies not discussed in this volume at all, like farm subsidies.  Although I have seen a few scattered estimates in the economics literature dealing with some of these policies individually, there is little firm basis for an evaluation of their overall effect.  There is no doubt, as should be clear from our analyses of some of these programs, that their overall effect is to reduce economic productivity and the incomes of Americans.  Some account should clearly be taken of these policies, so I will bite the bullet and conjecture that their combined effect is to reduce GDP by 2.5 percent.  I believe this is a pretty conservative estimate.

            Therefore, I conclude that the federal welfare state policies in the aggregate have reduced GDP by around 25 percent.  Needless to say, this is not presented as a definitive estimate; it might be better to say that the available evidence suggests that GDP has been reduced by 25 percent plus or minus 10 percentage points.  But the figure of 25 percent is certainly in the right ballpark, and it is the one I will refer to, with the previous caveat noted.

            This is a huge cost borne by the American people.  Unfortunately, it is also largely what I have referred to as a “hidden” cost, which is not so easy to explain or document.  After all, it is composed of effects cumulated over the past 50 or 75 years including economic growth not achieved, saving and investment not undertaken, innovations not realized, medical progress not achieved, and labor effort not supplied.  That these costs are not easy to “see” and associate with their ultimate cause is a major reason why Americans (and others) have acquiesced in so many unwise welfare state policies.  And it doesn’t help that the evangelical egalitarians who dominate academia and the news media ignore or dismiss the evidence confirming these large costs.

            If we are truly concerned about the well-being of the American people, reform of our dysfunctional welfare state should be a top priority.