The Welfare Tipping Point

This article from the Wall Street Journal is something to worry about:

Nearly half, 48.5%, of the population lived in a household that received some type of government benefit in the first quarter of 2010, according to Census data. Those numbers have risen since the middle of the recession when 44.4% lived households receiving benefits in the third quarter of 2008.

We are quickly approaching a tipping point where the have not are equal to the haves. That is bad for a democracy where voters can vote themselves benefits from the government. This is something that Mises and Hayek warned us about, rightly so. What we are seeing is the result of Keynesian economics and the welfare state. As the Fed and the government continue to destroy capital and destroy incentive through foolish regulations, we all become poorer, especially those on the bottom quintiles. 

The share of people relying on government benefits has reached a historic high, in large part from the deep recession and meager recovery, but also because of the expansion of government programs over the years. (See a timeline on the history of government benefits programs here.)

Means-tested programs, designed to help the needy, accounted for the largest share of recipients last year. Some 34.2% of Americans lived in a household that received benefits such as food stamps, subsidized housing, cash welfare or Medicaid (the federal-state health care program for the poor).

Another 14.5% lived in homes where someone was on Medicare (the health care program for the elderly). Nearly 16% lived in households receiving Social Security.

High unemployment and increased reliance on government programs has also shrunk the nation’s share of taxpayers. Some 46.4% of households will pay no federal income tax this year, according to the nonpartisan Tax Policy Center. That’s up from 39.9% in 2007, the year the recession began.

What is really happening is a redistribution of wealth brought about the by the poverty inflicted on Americans as the result of bad economic policy. Watch out.

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15 comments to The Welfare Tipping Point

  • dietwald

    That would be the beginning of the end, non? System zugzwang to checkmate.

  • Linus Huber

    Sure, we are on the way to slavery with the only difference that the slaves have a vote too. This complicates matters considerably.
    Last time most people did not pay taxes (but the rich only), probably about 105 years ago, I wonder how their right to vote looked like. That would be interesting to check out.

  • Barry

    First, let me apologize for the tone of my previous posts — I thought this was another GOP forum.

    The irony is that the largest welfare program was instituted in 2008 to benefit a handful of banks and investment banks.

    The direct costs include the payments from the Treasury to debt holders of FNM/FRE, direct payments to MER/BAC to cover losses on mortgage portfolios as well as indirect costs to savers such as low interest rates through FED manipulation.

    The amount taken by the Bush Administration in the last six months of 2008 and the first three weeks of 2009 most likely exceeds $10 trillion.

    • Keith Weiner

      Barry: what’s your point? That one evil compensates for another? This is not a forum where anyone is advocating bailouts for banks!

      By the way, you overstate the Bush looting. It was bad, but not $10T.

      • Barry

        The point is very simple, the main threat to our economy comes not from social welfare programs but from welfare programs for large financial institutions.

        Worrying about social welfare programs while watching the Treasury opened for the benefit of GS/MS/BAC is akin to worrying about the weather on Dec 7, 1941.

        Bush opened the spigots after the fall of BS so the extent of looting will never be known. We know he too $5 trillion in private sector debt/obligations and placed it onto the taxpayer. We know that he gifted C and BAC with nearly $500 billion in free put options.

        • Inquisitor

          It comes from both. Unfunded liabilities range into the hundreds of trillions. Whilst welfare for financial institutions is wrong and disconcerting, it isn’t even comparable right now.

          • Barry

            Welfare for financial institutions stifles innovation and stifles the economy. Letting BAC/GS/FNM/FRE/AIG go bankrupt might have made things a bit dicey at the Hamptons, but it would have shown that investors who deal with firms run by fools and knaves must suffer the consequences.

            Instead, they continue to gorge on capital that would find a home else where. I six months, 75 years of financial infrastructure and the rule of law were destroyed son Hank Paulson’s partners could make profit. That alone sent a message to the world.

            This was a nation that let Penn Central go bankrupt. This was a nation that as late as 1980, allowed First Pennsylvania bank to go bankrupt. Dozens of investment banks were allowed to fail from 1970 to 2008. We stopped in 1984 form letting large banks fail and we stopped in 2008 from letting large investment banks fail.

            The damage to the economy is but literally in the trillions.

  • Sam

    And there wasn’t a welfare for banks. Banks were FORCED to take money that they paid back. The gov’t made a good return on it as well. The auto industry and others who received similar ‘bailouts’ are never quoted when the gov’t lost money on those deals…talk about irony.

    • Barry

      Sam,

      Do you really believe everything you hear from Rush Limbaugh and Erin Burnett? Forced to take money? The ‘government made a good return on it as well’?

      Let me see, you have $100 bill. I grab it from you, toss it front of an oncoming express train. And then say, “look, Sam, old boy, if you get that $100 bill back, I’ll toss you a tenner!”

      You, put down the radio and stop listening to Rush for the moment, make a mad dash in front of the express train and retrieve your own $100 bill. Being impressed, I toss you the $10 bill and say, “look, Sam, you just picked up quick 10% on your $100! You should be grateful.” And like the good GOOPER you are, you say “Wow!”

      And you go around telling people about the fantastic return on your $100.

  • Hans

    Barry, I simply love your theory of social justice for corporation…

    “The irony is that the largest welfare program was instituted in 2008 to benefit a handful of banks and investment banks.”

    My understanding, Barry, is that most of that “welfare” was repaid by the financial industry..

    Can you say the same of those collecting their permanent monthly welfare benefits check, from America’s workers bees?

  • Barry

    Hans,

    FNM and FRE are still feeding off the public dole and that money is being recycled back to Wall Street. Their obligations total $5 trillion and the out of pocket is about $150 billion (this was for debt for which the indenture documents said in big bold letters, “THESE BONDS ARE NOT THE OBLIGATION OF THE UNITED STATES OF AMERICA” — which were are now told was meant as an ‘implicit’ guarantee.

    The reduction of interest rates to zero was by the FED was a direct theft of money from savers to the pockets of banks such as BAC. How much do you think that is?

    GS and MS, by some miracle, became large bank holding companies in 2008. Their derivative obligations are now backed by the taxpayer via the FDIC. Any spread they earn on that guarantee goes to them and not the taxpayer.

    Have you checked the ‘assets’ of the FED? What do you think QE3/Twist are?

    Was Mencken or Barnum who made the comment about not going broke underestimating the intelligence of the public?

  • Everyone is named Hans, it seems :)

    I would like to raise the point that the “Tipping point” may in fact not be so tipping. What it will however most definitely lead to is European-style “broadbased” taxes like VAT, and surcharges on everything. And of course, rationing of welfare. You will soon get very creepy people sitting in the government welfare offices, asking people all sorts of nonsensical question, after which they will make an arbitrary decision of if your “eligeble” for this or that benefit. In addition, benefits will come with a cost, meaning you will be required to run around in a neverending labyrinth of “job-training” programs that are completely useless, and only instituted to make people less likely to want benefits. Also, there will likely be a time-limit for most benefits, after which you will have apply again, and probably miss a period simply due to bureucratic incompetence.

    All in all, the ratio of bureucracy to actual welfare paid out should end up around 1/2 or so when all is said and done. If too many people apply for benefits, the government will remedy this by employing more bureucrats that will make life so hard for people that they will stop applying.

    Welcome to the welfare-state, comerades!! I happen to live in the only welfare state that (so far) has working government finances, because we already crashed. We know a LOT about dis-incentivizing people from applying for benefits. We also know a lot about pointless bureucracy. Finally, we are experts at maximizing government revenue by always being at the tip of the Laffer curve in all ways possible. Quite simply, maximum serfdom without reducing the economic power wielded by government. It will probably take the US 10-20 years to reach this stage, so lets just hope this whole f***ing part of the world collapses first.

    Cheers!

  • Dylan

    Really this stuff is so crack pot. Austrian Laissez faire is impossible, no matter how often you claim it is the way forward. it will always lead to the demolition of society, hence the protections governments consistently revert too.

    • Dylan

      i should add that welfare and handouts isnt the way forward either. That said i am reminded that Marxism and liberalism are two sides of the same coin.

      Rather than strict political action, cultural action is also needed. Leadership from the left will not achieve a new society, nor will he insights of Mises and Hayek.

      What we need is for people to reconstruct, reinvent and produce social institutions and cultural practices that transform society. Just as it is stupid to separate politics and economics into different fields, as each is embedded in the other, we need to see the embeddedness of culture and the social. more group forms of interaction are needed that try to escape the market and state. Capitalism cannot survive without workers. We need to find a way to live where we are no longer the workers of capitalism. We can do that outside of traditional politics. in fact that is the only thing, imho, that will save us.