The Myth Of America’s “Stingy” Welfare State

in Economics/Politics by

According to the usual news sources, Donald Trump’s new budget proposal “envisions steep cuts to America’s social safety net” and will “gut social programs.” Most of the cuts were proposed to pave the way for more Pentagon spending. 

In truth, Trump’s proposal doesn’t matter, and Congress will set to work piling on more deficit spending for both social programs and for the Pentagon. 

But, the debate of “gutting” social programs will no doubt be used to perpetuate, yet again, the myth that the United States is ruled by libertarian social Darwinists who ensure that no more than a few pennies are spent via social programs for the poor. 

Now setting aside the question of whether or not social programs are the best way to address poverty, the fact is that the United States spending on social programs is on a par with Australia and Switzerland, and can hardly be described as “laissez-faire.” 

Moreover, government spending on healthcare per capita in the United States is the fourth largest in the world.1 

Governments in the United States pour money into social-benefits programs at rates typical to a Western welfare state. We can debate whether or not the way this is done is sub-optimal or not, but the fact remains, that if we’re going to talk about social programs, the amount of spending in the US is not low in a global context. 

According to the 2016 social expenditure database at the Organisation for Economic Co-operation and Development (OECD), public social spending as a percentage of GDP in the US was 19.4 percent:

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While it is true the US is hardly the highest on this list, its social spending is higher than that of Canada, Australia, Ireland, and Iceland, all of which we are often told are far more “generous” countries in terms of their welfare states. Indeed, if the typical American leftist were asked if the US should spend as much as Canada or Australia on social benefits, the response is very likely to be an emphatic “yes.” 

And yet, the US outpaces all of these, and has spending levels comparable to that of Switzerland. Indeed, the difference between Switzerland and the US in this measure is four-tenths of one percent. The OECD average is 21.4 percent, a matter of 2.1 percentage points difference from the US. 

When we turn to the matter of healthcare, we find that the US is a world leader in terms of governmental healthcare spending. 

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According to the World Health Organization, only Luxembourg, Norway, and the Netherlands spend more government money on healthcare per capita. 

In the US, the sum is $4,153 per capita, and in Norway it is $5,154. In the United Kingdom, the total is $2,716. 

This presents a problem for advocates for more government control of the healthcare system, of course. Often, their line of argument is that Americans are too “stingy” with social health benefits. When confronted with the fact that government spending is quite high, however, they switch tactics, and then declare that if the US adopted a more government-regimented system, then spending would actually be lower. This was a tactic employed by Bernie Sanders. 

This latter claim may or may not be so, but the one thing we do know is that the US already spends more taxpayer money on healthcare than most everyone else. So, it seems hard to fathom that the “problem” — whatever that may be — is a product of too little government spending on health care. 

If advocates for reform want to argue over how the money is spent, let them do so, but the debate should hardly include any proposals to increase government spending. 

In the US, government spending on healthcare as a percentage of total government spending, is one of the highest among wealthy nations. Although, by this measure the US is equal with Japan and the Netherlands. 

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I am not a defender of the US government’s gargantuan military budget, but even considering that huge expense, government healthcare spending still takes up an unusually large amount of government spending in the US. 

There is no shortage of articles in publications like Slate and The Nation stating that “the American social safety net does not exist” and that the US has a “stingy social safety net.”

Now, if by “stingy” one means, “poorly administered,” “ineffective,” or “counterproductive,” then one would be on to something. But if by “stingy,” one means “underfunded,” well, there’s little evidence of that. 

Even many advocates for a reduced federal budget are likely willing to consider ideas that would spend taxpayer dollars more effectively. After all, if it’s a given that one is going to pay a large federal tax bill, one usually would rather see that money go to something like housing for a single mother and her children who are living in a car. 

But are federal dollars actually doing this well? 

Critics of American “stinginess” are themselves quick to point out that all that American spending on social benefits isn’t pushing down poverty rates as in other countries. Even if one believes that governments are generally poor at accomplishing the goals they set out to accomplish, it seems that in this regard, the US government is especially bad. 

A Modest Proposal — Dismember America’s Huge Welfare State

There may be many reasons for this. But it is also worth noting that among the Western welfare states, the United States is by far the largest with 320 million people. The next largest country isn’t even half that size, and is Japan with 125 million people. And, of course, Japan’s geography, culture, are demographics are completely different from that of the US. Once we get to governments of the size and physical scope of the US government, we’re looking at something on a scale that can’t possibly be considered  “responsive” or “accountable” by any measure. It becomes nearly impossible to make changes in such an enormous apparatus which itself cannot possibly take into account the vast number of different populations and conditions that exist across a place as huge as the United States. 

One immediate solution is to decentralize the welfare state immediately, and take it out of the hands of the federal government. But that by itself isn’t a magic bullet, since we know that in California, which has its own supplemental welfare state on top of the federal one, poverty is higher than in any other state

Nevertheless, if we’re going to hear constantly about what successes the Scandinavian welfare states are, for example, we might use this as an excuse to create welfare states on a more Scandinavian scale. Given that the largest Scandinavian nation-state (Sweden) has 10.1 million people, this means breaking up the American welfare state into at least 30 totally independent smaller pieces and going from there. These programs would then be under the control of local residents — as they are in, say, Denmark — and not something controlled by distant, untouchable Washington bureaucrats and politicians. An even better size for each piece would be something on the scale of Norway, which has five million people, and is thus the size of Minnesota or Colorado. At the very least, no government larger than a US state ought to be in the business of social benefits. 

When it comes to government, bigger has never been better. 

Ryan McMaken is the editor of Mises Wire and The Austrian. Ryan has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

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