When it Comes to Spending, the US Is a Typical Western Welfare State
Tags HealthTaxes and SpendingInterventionismPolitical Theory
Most Americans have heard the common refrain: The US spends almost nothing at all on social benefits compared to other Western welfare states. And even worse, what little the US does spend on social benefits is mostly in the form of non-cash benefits such as food stamps. By spending so little on social benefits, and by cutting back on cash benefits, the poor suffer not only deprivations, but indignity as well.
While there is no doubt that poverty generally involves both deprivation and indignity, it is not the case that the US is different from all other welfare states, nor is it true that the US is especially miserly with cash benefits. Indeed, in both respects, the US is not especially noteworthy in any way.
Comparing Across States
Contrary to the enduring myth that the United States is spends next to nothing on social benefits, the US is hardly an outlier when it comes to the amount of public spending devoted to social benefits.1
In fact, as of 2012, the most recent year available for international comparisons, government spending on social benefits is equal to 18.7 percent of GDP in the United States which places it between Australia and Switzerland:
The average for all countries in the OECD lies between Switzerland and Norway at 21.4 percent.
The US spends more on social benefits than Canada and Australia, although those two countries have international reputations for being "humane" and "generous" with their social benefit while the US is supposedly the equivalent of a Mad-Max-style system of social Darwinism.
Moreover, in this respect, the US is similar to two countries that function under the much-touted "Nordic Model" (i.e., Iceland and Norway) with Iceland's social spending coming in below the US at 17.5 percent. Norway, meanwhile, sits a mere three percentage points above US spending at 21.7 percent.
Nor does any of this take into account the many tax deductions and tax credits intended to augment social benefits. When those are included, the US ranks second-highest in the world in terms of "social expenditure."
Looking at these numbers, one is left asking, "at what point does a welfare state become 'generous'?" If we are to assume that the Nordic states of Iceland and Norway spend the "correct" amount of taxpayer funds on social benefits, by what standard does the US spend the "incorrect" amount of funds? Perhaps a welfare state becomes "humane" at 20 percent, and the US's 18 percent is "inhumane." Does that mean Switzerland's 19 percent spent on social benefits is the incorrect amount?
Critics of US welfare policy, of course, may claim that how the money is spent makes all the difference. That may or may not be so, but it should be apparent at this point that even for those in favor of expanded welfare programs, what is not necessary is more tax revenue and more spending. If policymakers wish to tinker with the nature of government interventions in the name of decreasing poverty, they can clearly do so without the need to claim that additional government revenue is necessary. The volume of social spending in the US places it well within the fold of numerous other Western welfare states. (Many of us would like to see this spending reduced or eliminated, of course, but for the purposes of this article, it can suffice to simply point out that the US already spends immense amounts of resources on social benefits.)
But perhaps some of these misperceptions about comparisons between the US and other states stems from outdated information. Perhaps, in the past, the US was notably different from other welfare states?
To a certain extent, this would be correct. In 1980, there was a larger spread in spending than what we see now. That is, in 1980, the US spent less than half of the biggest-spending state (i.e., Sweden). In 2012, though, the US's spending level was more than half the biggest spender in 2012, which was France. There has indeed been a bit of a convergence between the US and other welfare states in recent decades. However, it would be wrong to say there has been a major change over this time.
Data from Iceland and Israel are unavailable for 1980, but we see little change in the US's relative position over that time. The US has now surpassed Canada by this measure, but while the US has increased its social spending over time, so have other nations. Notably, Japan's spending in relation to its GDP has soared from around 10 percent to over 23 percent. France has also experienced ballooning social spending, as its spending has increased from 20 percent to 31 percent.
These increases have likely been driven — as is the case in the US — by an aging population which brings more pensioners and more health care costs.
The Growth of Social Spending in the United States
In any case, there is no doubt that social spending has been sizable in the US. When measured in constant 2005 dollars per capita, we find that social spending has increased by 151 percent from 1980 to 2012. The graph also measures social spending as a percentage of GDP:
From 1980, per capita spending in 2005 dollars rose from $3,300 to $8,400.
Cash Benefits vs. In-Kind Benefits
US welfare policy is also sometimes criticized for being too stingy in terms of cash benefits. It is believed that the a truly proper welfare policy relies primarily on cash benefits. We see this increasingly today in the debate over the so-called "basic income."
The US is not different in this regard, either. The only significant difference here can be seen in Spain, Italy, and Ireland where cash benefits clearly are more of a factor than in-kind benefits:
For the most part, benefits tend to be about equally divided.
It is true, however, that over the past 35 years in the US, social programs have become more reliant on non-cash benefits than was previously the case. Here we can see that in 1980, in-kind benefits such as subsidized housing and food stamps made up a far smaller proportion of benefits than cash benefits. By 2012, in-kind benefits had become a slightly larger component than cash benefits:
It is not true, however, that cash benefits have declined. They have simply not grown at as fast a pace as non-cash benefits. But make no mistake: non-cash benefits are an important factor in being realistic about poverty and poverty rates. In the US at least, looking at poverty in terms of income alone can be misleading because of the widespread use of non-cash benefits. As Will Marshall at The Hill recently observed:
The official poverty rate is just above 15 percent, about a point larger than it was in 1996. But that measure is misleading, because it doesn't take into account non-cash benefits and tax subsidies. According to Harvard University's Christopher Jencks, the absolute poverty rate falls to under 5 percent when adjusted for food and housing, the earned income and children's tax credit, and a more accurate measure of inflation.
Certainly, the expansion in SNAP benefits (more commonly known as food stamps) has been a significant factor in increasing benefits. As noted here, 1 in 7 Americans were on food stamps in 2015 following many years of expansions in eligibility over the past 15 years.
So, why do these claims about the alleged paucity of US social spending seem to endure? For one, it may come simply out of ignorance and the willingness to believe nice things about political and economic systems with which one is very unfamiliar. Knowing virtually nothing about poverty in Western Europe, many Americans appear willing to believe that it doesn't exist at all, and that this must be due to a government program.
But perhaps conservatives and other right wingers may bear the greatest responsibility for this false image by perpetuating claims that the United States is a "free-market" society while the European welfare states are "socialist." Neither claim is true. The United States, Western Europe, Australia, and Canada are all third-way mixed economies to varying degrees, and all have been so for several decades.
- 1. The OECD Social Benefits database: http://stats.oecd.org/Index.aspx?datasetcode=SOCX_AGG
Ryan McMaken (@ryanmcmaken) is executive editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor's degree in economics and a master's degree in public policy, finance, and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.