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While it might be morally offensive that these spendthrift slackers aren’t working as hard as you are, economically it doesn’t matter very much. You can think of your own prosperity in terms of absolute (nominal) numbers, but the real value of your wealth matters a lot more, and the real value of your wealth depends on your relative position in the economy- what fraction of the total economy you own.
If all government aid to these people were switched off overnight and your 27% tax bill were reduced to zero, you would own 27% more of the economy than you do now, but government spending is such a large part of the economy that the total size of the economy would be much less, possibly more than 27% less, which would cancel out your gain. So you wouldn’t be much richer, you might be poorer, and your relative status would be much lower because the median income would skyrocket (because the parasite class would be dead).
I'm not sure how you convinced yourself into believing that. The government spending share of the economy, at least the amount of it spent by the dependent class, is being spent bidding up goods in services against the producing class. In no first order way way would ending welfare reduce the economic power of the productive, it would plausibly increase the per dollar power by draining some of the competing demand. That's before considerations of whether the unproductive might decide/be able to become productive if the money spigot was turned off. Now there are second and third order consequences like possible disruption caused by the dependency class reacting in anger, or the reduced demand reduce the protective's total wage(this is the strongest of a weak set of arguments).
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You are confusing GDP with the real economy. Real economic value is increasing production so that the per unit cost decreases (ie over all wealth has increased). Government spending only helps the real economy to the extent it is increasing productivity. The items OP described are in fact not doing any of that—instead the government borrows and gives money to slackers as you put it.
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Of course it does. The luxury of the spendthrift slackers is paid for by the industrious.
This is basically the Broken Windows theory writ large.
"The luxury of the spendthrift slackers is paid for by the industrious" is not an economic argument, it's a moral one. I don't see the resemblance to Broken Windows- can you clarify?
It's an economic fact. Someone's paying for the spendthrift slackers; it sure as hell ain't them; it's people who are working.
The argument that the transfer payments from the industrious to spendthrift slackers are somehow contributing to the economy such that if they were cut off you would be poorer is the broken windows argument. The core of the fallacy is that forcing people to move money around is somehow resulting in prosperity.
Statistically, it's whoever buys T-bills. The government's budget is mostly debt.
Is it? We run steady deficits that we debt fund, but I’m pretty sure the majority of each annual budget is still paid by taxes.
Yep, for FY2024 outlays were 6.8T on revenues of 4.9T, so while the deficit was enormous, it was not over 50%.
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Figures, I got a bunch in T-bills. (The spendthrift slackers don't)
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A fact is not an argument. "If you don't stay home old people may get COVID" is a medical fact, but it is not obvious from that fact what the best course of societal action is.
But anyway, I thought you meant Broken Window policing. The difference between this and the Broken Window fallacy is that these people aren't actually inflicting any damage. They're spending huge amounts of money on frivolous stuff (which is why OP is offended), and that money is circulating around so that high earners can earn it again. The speed of money through the economy drives economic growth, and while a perfectly laissez-faire system might very well have a higher speed of money, switching to such a system, even if it were phased in over a few years, would cause a huge economic contraction. You might object that, as with broken windows, the 27% tax bill is imposing an opportunity cost, that taking OP's money so someone on "stress leave" can buy Tinkerbell statues prevents him from inventing a better battery or something, but A) not giving the Tinkerbell salesman that money might prevent HIM from inventing the same battery and B)the vast majority of taxes taken collected from the industrious and squandered by the poor on frivolous stuff actually impose the opportunity cost of the industrious not being able to squander the money on frivolous stuff himself. So it all boils down to who "deserves" the money, and all talk of desert is moral disputation. Since no one agrees on morality anymore, there can be no moral disputation on a wide scale and so people need to either make peace with the current system or wield it to their benefit.
The fiscal multiplier is a highly controversial hard to prove theory.
But yes there is no one literally breaking glass. But the question is whether dollars are flowing to their highest and best use. Taking from people who’ve proven themselves to be generally productive and giving the money to people who appear unproductive argues that it is less likely the money is being spent on its highest and best use (and therefore likely regards economic growth). Moreover there is deadweight loss on tax and transfer.
Of course, maybe the distributive effect is worth the economic slowdown but that’s different from saying tax and transfer somehow accelerates economic growth.
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They are costing money for no gain.
Again, this is just the broken window fallacy. If the high earners hadn't had it taken from the in the first place, they could spend it themselves without having to earn it again.
I'll continue this with you if you explain your understanding of the difference between an economic and a moral argument. You keep stating that the situation isn't fair, which is a moral complaint, not an economic one. I don't dispute that it isn't fair, I dispute that if it were abolished everyone currently alive would get richer.
In fact, I have said nothing in this subthread about fairness.
Nobody's claiming that. Obviously the people who are spendthrift slackers would get poorer.
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That relies on the presumption that conservatives seem to have where government spending is nothing but a deadweight loss. You see this in things like "Tax Independence Day", which is the day, usually in late May, where the average American "Stops working for the government and starts working for himself". Except this "working for the government" is really just financing one's own consumption. The idea is as ridiculous as "Mortgage Independence Day", when you "stop working for the bank and start working for yourself". Well, I do pay the bank, but I'm the one living in the house, not the bank manager. By the same token, I spend the first five months of the year driving on highways and sending kids to public school and enjoying police protection and all the other things that are provided by the government. And yes, this includes all the social welfare programs that some assume are for other people, but aren't really; I voluntarily spend a lot of money on insurance that I hope to god I never have to use, and social programs are no different. Are private insurance companies a deadweight economic loss?
No, transfer payments are financing other people's consumption.
Not ridiculous at all; there's a reason there used to be mortgage-burning parties.
Social welfare programs are called "insurance" in order to bolster arguments such as this, but they really aren't. For one thing, if they were like private insurance (other than extremely regulated forms like health insurance), there would be some actual underwriting involved. Premiums would have some relationship to risk. There would likely be policy limits. Incurring a loss deliberately would be fraud; failing to mitigate a loss would also result in loss of benefits. They don't look much like insurance at all, except when insurance is turned through regulation into a social welfare program.
Of course it doesn't resemble private insurance because it only exists to provide coverage that isn't economically feasible for the private market to provide. You listed a number of features that you see in private insurance markets, but none of them are truly essential. You mention premiums based on risk profile and underwriting, but if you found out tomorrow that your car insurance company was charging the same rates to everybody, or charging based on income, you might question their business sense but you wouldn't think that you didn't have insurance. Same with deliberate losses and loss mitigation. Not all policies have loss mitigation requirements (and when they do they're kind of difficult to enforce unless it's something easy and obvious), and the kind of fraud you mention isn't an issue the way the system is currently set up. People aren't intentionally quitting good jobs so they can collect welfare payments, and studies have shown that benefit amounts haven't affected the total number of claims since AFDC was at its peak in 1975.
The whole moral hazard aspect is priced into the system. People intentionally cause losses on auto and homeowners policies because, in many cases, the insurance payout is greater than the amount the asset is worth. If you lose your job and go on public benefits, you aren't getting anywhere near what that job paid, and most of those benefits are going to be restricted to vouchers for specific items. Hard insurance fraud wouldn't be a crime if the maximum you could get was a $3,000 voucher to use at a dealership. This is why I'm not sure what you were getting at with respect to policy limits, since public benefits have pretty clear policy limits, and they're often much lower than the actual cost of the misfortune. At the other end of the spectrum, I would add that making a claim for public benefits is significantly more difficult than making a private insurance claim. Some programs can take months.
Yes you’ve distinguished insurance (ie something that makes economic sense for both the insured and the insurer) with a government subsidy (ie something that on net does not make economic sense).
If the social safety net story actually made people take more risky bets that on balance produced materially higher returns, why couldn’t private insurance cover it?
As Saint Luigi would tell you, it's only supposed to make economic sense for the insurer.
And Luigi would be confusing health insurance (a weird chimera) with real insurance. Take life insurance. Premiums aren’t that expensive. But they help protect a family from an unexpected death. That is, both the insured and insurer are better off. That is, the insured are trading off EV for downside protection (which makes sense giving diminishing marginal returns) while insurer is making the EV positive play and provided there isn’t system bias should come out ahead.
Did you just No True Scotsman the insurance industry?
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Life insurance may be one of the few markets insurance DOES make sense for both sides. Car insurance is required, so car insurers will, after you make a claim, either raise rates enough to recover the entire claim and then some within a few years, or they'll drop you from their regular company and tell you you can only buy from their high risk "indemnity" company, which costs even more than that. Homeowners insurance used to be worth it to the insured but I'm told they have started to do the same thing.
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And we're supposed to believe that the welfare system is insurance, despite about the only aspect that matches is that some people get paid and others get the shaft.
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They're essential to insurance being a good idea to purchase.
People are certainly avoiding getting legal jobs and working under the table so they can continue to collect welfare payments.
In theory, yes, but have you ever questioned an insurance company's underwriting standards before purchase?
And those people are prosecuted for fraud. Here in PA, the OIG has an entire section dedicated to public benefits fraud that prosecuted between 30 and 100 cases per month, most of them felonies, most of them for making these exact kinds of misrepresentations regarding eligibility requirements. The liberal appointees running these agencies don't shy away from this, and they talk in press releases about how fraudsters divert funding from people who actually need it. People complain about welfare queens that they know, but if they have specific knowledge of fraud they should report it, just as they would any other crime, not complain about it on the internet.
This is just an anecdote, but my father happened to work in another state's equivalent department, and he once (three or four years ago, I think) complained to me about how his bosses would regularly fail to prosecute the fraudsters that it was his job to uncover. IIRC, he said that over multiple years he nagged his bosses to prosecute one particular person, and eventually the culprit was diagnosed with cancer and his bosses used that excuse to close down the investigation as bad PR.
But this was in a different state, and he may be biased against the department. But on the third hand it's the same state as @The_Nybbler's.
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I haven't actually purchased any insurance I wasn't required to.
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In the short term that’s true, but we’ve run lots of experiments to see if government can allocate capital more efficiently than the market over the last century, and the answer seems pretty clear. Once things had time to shake out, the economy would almost certainly be larger. There are lots of reasons to support government taxing and spending such as cool jets existing or reducing wealth inequality/pasification of the proles, but greater GDP is not one of them.
Government spending on these sorts of programs is so huge that anyone old enough to be posting here would not live long enough to see things shake out if things ever switched, assuming they survived the violence that such a transition would probably involve. If we were setting up a society from scratch, then the current system would be something to avoid, certainly. Having come as far down this road as we have, though, any benefits from switching would fall mainly on generations to come. That might be a great thing, but "duty to future generations" is a moral, not an economic argument. I'm not defending the morality of the system, just explaining that it's not the simple math problem OP seems to think it is.
Furthermore, all of the experiments (I assume you're talking about free-market vs socialist countries) have converged on wild government spending. Unless you say that REAL capitalism has never been tried, then maybe 90% of the population recirculating the wealth produced by the remaining 10% is just how it works? Maybe that's the true triumph of post-scarcity industrial victory: welfare grift and BS jobs for the lucky majority and productive, morally-pure, toil for the unfortunate few.
It would take a while to switch over, but definitely not on the order of 60 years.
Small states have definitely been tried, such as the American state before income tax, and it went pretty great from a growth perspective. The fact that no one in the modern age runs a tiny state doesn’t mean we can’t analyze it. We can look at the things run privately and the things run by governments and see which ones contribute more to GDP growth. There are basically no profitable government run enterprises. There are vast private industries serving government priorities, but that’s not really positive sum in the same way. All I’m objecting to is the idea that government spending is somehow essential to the economy and that we would all be poorer without it. Obviously switching costs would be significant if it was done suddenly, but it wouldn’t have to be. Besides “what would happen if this went away tomorrow” is the wrong question. We should be thinking about how things would look in steady state.
I’m actually in favor of a tax and spend redistributive state that fields an army. I just think pretending we get gdp growth because of it is silly.
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The argument isn’t even to end everything right away; it’s to slowly reduce benefits. For example, let’s say you put the subsidies back on for Bill and Shelly. Perhaps you do it at 80% of prior benefit with mandated reductions in subsidy of the 1/4 of the remaining amount for the next four years. This is less of a shock to the Bills and Shelly’s of the world while still cutting off non productive spending.
We could start doing things like eliminating benefit cliffs; start raising slowly the age of SS; do more work requirements, etc.
It doesn’t have to change over night. But the goal ought to be within 10-15 years to drastically reduce these programs.
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"We've created such a monstrosity that if you dare take it down, there will be violence. Also it's such a monstrosity that it will come down eventually" isn't the knock-down argument you think it is. The best time to stop this thing was before it started, the second best time is now. And yes, people posting here would see the advantages, because a lot of people posting here have a lot of working life left. The big losers would be the Boomers and some of the older Xers; I expect the Millennials are going to take away Social Security from the younger Xers anyway.
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