The Stunning Expansion of The American Welfare State

These numbers, courtesy of Robert Samuelson, would have been considered beyond belief if they’d have happened in a short period of time. But it’s like that old saw about the frog in the slowly warming pot of water who doesn’t realize he’s in trouble until it starts boiling and he’s cooked. Well, guess what, folks?: Dinner’s served and we’re it.

If you doubt there’s an American welfare state, you should read the new study by demographer Nicholas Eberstadt, whose blizzard of numbers demonstrates otherwise. A welfare state transfers income from some people to other people to improve the recipients’ well-being. In 1935, these transfers were less than 3 percent of the economy; now they’re almost 20 percent. That’s $7,200 a year for every American, calculates Eberstadt. He says that nearly 40 percent of these transfers aim to relieve poverty (through Medicaid, food stamps, unemployment insurance and the like), while most of the rest goes to the elderly (mainly through Social Security and Medicare).

By all means, let’s avoid the “fiscal cliff”: the $500 billion in tax increases and federal spending cuts scheduled for early 2013 that, if they occurred, might trigger a recession. But let’s recognize that we still need to bring the budget into long-term balance. This can’t be done only by higher taxes on the rich, which seem inevitable. Nor can it be done by deep cuts in defense and domestic “discretionary” programs (from highways to schools), which are already happening. It requires controlling the welfare state. In 2011, “payments for individuals,” including health care, constituted 65 percent of federal spending, up from 21 percent in 1955. That’s the welfare state.

…Eberstadt, a scholar at the conservative American Enterprise Institute, sees three dangers in the welfare state’s unchecked growth.

First, it squeezes other government programs. This is already happening. President Obama’s budget assumes that defense spending, as a share of the economy, falls 39 percent from 2011 to 2022. The Army is to drop by 80,000 soldiers, the Marines, 20,000. Domestic “discretionary” spending is cut even more, 45 percent. Research, education, transportation, law enforcement and other programs face pressures.

Second, it undermines work incentives. This, too, is occurring. Social Security’s eligibility ages influence retirement. If eligibility were higher, people would work longer. Eberstadt thinks that relaxed disability requirements have lowered work effort. In 2011, about 4.5 percent of working-age adults (20-64) received Social Security disability benefits, up from 1.3 percent in 1970.

Finally, there’s a moral cost. It encourages “gaming” the system to maximize benefits. It devalues the ethic of “earned success.” There’s tension between helping the truly needy and fostering dependence on government and helplessness.

The welfare state’s great contradiction – the reason its politics are so messy – is that what seems good for the individual is not, when multiplied by thousands or millions of cases, always good for society. Politicians appeal to individuals who vote, but in doing so may shortchange the nation. Most obviously: The welfare state’s costs may depress economic growth.

The really scary thing is that these numbers are getting worse and worse as wave after wave of Baby Boomers retire and live off the shrinking number of remaining productive workers. We’re rapidly approaching a tipping point where the taxes needed to fund these programs will be higher than younger workers will be willing to pay; yet we also won’t be able to afford to borrow the money for these programs. What happens when we have programs that older Americans have come to rely on, but no way to continue to fund those programs? Unfortunately, we’re going to find out the hard way and it’s entirely possible it could be sooner, rather than later.

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