Mises Wire

Thinking Properly about Public Welfare

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The debate over publicly funded welfare can be solved very quickly. There is constant demand for more welfare: more money for longer periods of time for those out of work, more money for the handicapped and a more liberal definition of what is considered to be handicapped, more money for the disabled (which assumes that the recipients once were not disabled) and more categories for what is considered to be a disability, and larger increases in Social Security payments in order to keep up with the deterioration in the purchasing power of the dollar.

The list goes on and on, and the demands are never satisfied. In fact, satisfying some new demand seems to open the floodgates to more demands.

The Welfare Debate Cannot Be Answered Empirically

However, the entire debate is unnecessary and could be ended quickly. There is a reason why public welfare advocates are never satisfied and why public welfare skeptics are always skeptical. The definition of what conditions should justify welfare and the proper level of welfare assistance cannot be determined empirically because the issue is not part of the natural sciences. It is a social issue and must be determined by deductive reasoning alone. That deductive reasoning flows from the science of human action, praxeology, and specifically from economic science, catallactics.

There is no objective way to determine the proper level of welfare because the question is a subjective one. The amount of welfare demanded cannot be quantified nor can the amount each taxpayer thinks is appropriate be quantified. Contributions to welfare must compete in the marketplace with all other goods, services, and even psychological satisfactions.

Contributions are part of human action. That means each individual has an almost-infinite string of preferences that are different among all members of society and that are in constant flux. There is no more scientific way to determine objectively how much should be spent on welfare than there is on how much should be spent on food, clothing, shelter, entertainment, etc. These are in constant flux. Like it or not, welfare spending belongs in the marketplace competing with breakfast cereal, sneakers, barista coffee, and restaurant tips.

Like breakfast cereal and sneakers, private welfare will deliver a better product to the market than public welfare. Does anyone really think that the government can and should produce breakfast cereal and sneakers in its own factories and distribute them to those whom it deems to be in need of these goods? Of course not!

Public Welfare Includes Much More than Gratis Payments to Recipients

The category of what we call “public welfare” must include ALL government programs that give benefits to individuals. For example, Medicare tries to maintain the fiction that the recipient is paying in advance for future benefits via payroll savings throughout one’s life. These payments are not real market-driven insurance policy premiums. Like Social Security, they provide a façade, a Potemkin village to convince the public that it has a legal claim upon benefits—benefits that change constantly via the political process and not by legal contract between autonomous actors. In fact, if these were true contractual benefits, one would have the option to participate in the government-run programs—and be taxed accordingly—or forgo the government program for an alternative private one or simply no program at all.

A private life insurance policy is a good example. One may pay for a private life insurance policy in order to protect one’s family in case of the chief breadwinner’s premature death, or one may forgo the coverage entirely. Of course, Social Security has tainted this market by providing coverage through its so-called retirement program. This is just an unfunded benefit that has driven the Social Security Trust Fund (a fiction best left for another day) to insolvency within a few years.

Conclusion

Like other seemingly intractable issues, the public welfare debate can be ended quickly by abolishing it altogether and reverting to pre–Progressive Era free institutions in which one joined voluntarily or not. These private institutions meet real needs, those in which resources are invested voluntarily and not via the political theater of the day.

These private institutions are more cost effective, have fewer fraudulent claims, and target societal ills as defined by investors and not by politically connected big money donors or by self-appointed know-it-all gadflies (Greta Thunberg, are you listening?). This is welfare of the people, by the people, and for the people.

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