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Reform of a Modern Welfare-State through a Basic Income to Restart
Higher Levels of Growth and Ameliorate the Rule of Law
Cameron M. Weber GBRS 2015
Istanbul, Turkey
Outline of Story1. Evolution of fiscal centralization in USA 2. Emergence of welfare-state3. Why welfare-state leads to “new normal” 4. Reform plan to replace welfare-state with a Basic Income (BI) for everyone. 5. Posit that BI re-starts growth by freeing price signals, and, creates more equality under law
Reform of a the Welfare-State with a Basic Income for Everyone
Stylized Facts of the “New Normal” in a Modern Welfare-State
Note: Analysis is specific to the United States of America but hopefully there are some lessons learned for other welfare-states
Fiscal Centralization and the Welfare-State
Anti-Federalists against new central government proposed in U.S. Constitution, thought would “crowd-out” local decision-making and mutual aid
Federalists wanted “vigorous” federal state
American Revolution was won under Articles of Confederation (1776-1788)
The Growth of the Central State
Grey: Local Direct Spending Green: States Direct Spending Red: Federal Direct Spending Blue: Transfer to State and Local
Source: Chantrill, Christopher. 2015. “US Government Spending History from 1900.” [http://www.usgovernmentspending.com/past_spending]
Collective Decision-Making and Basic Government
Most economists agree that collective decision-making necessary to provide “public goods”
Generally agreed to include national defense, court system and the ability to negotiate treaties with other social collectives
We call this “Basic Government” and juxtapose with “Welfare-State”
Collective Decision-Making and Basic Government
• We propose that federal government beyond “Basic Government” is “Welfare-State”
• Welfare-State imposes depersonalized (relatively inefficient) rent-seeking federal intrusions upon personalized and local (relatively efficient) common resource management and local mutual aid
Welfare State and “New Normal”
Hayek 1945Price signals and social crisis
Krueger 1974Rent-seeking and economic stasis
The Beginning of the End
United States has Basic Government at federal level from 1789 – 1848
Common resources are managed locally
Department of Interior (corporate-welfare) created 1849
“Basic Government” and the “Welfare-State”A. Basic Government 2014 (est.) C. Social-welfare 2014 (est.) E. Overhead 2014 (est.)
Department of Defense--Military 571,882 Department of Housing and Urban Dev. 49,479 General Services Administration -231
Department of Justice 32,652 Department of Health and Human Services 1,040,661 Office of Personnel Management 86,723
Department of State 30,505 Department of Education 68,991 Total 86,492
Department of the Treasury 612,782 Department of Labor 75,579
Executive Office of the President 402 Department of Transportation 93,574 USG Spending (A + B + C + D + E) 4,116,050Legislative Branch 4,912 Social Security Administration (On-Budget) 92,247 Government (A + B) 1,511,459Judicial Branch 7,432 Social Security Administration (Off-Budget) 838,917 Welfare State (C + D) 2,518,099Total 1,260,567 Total 2,259,448 Welfare State % of Total USG Spending 61%
Welfare State Overhead Allocation 52,914B. Military-industrial-security complex D. Corporate-welfare Welfare State Plus Overhead 2,571,013Department of Homeland Security 45,034 Department of the Interior 13,172 Government Plus Overhead 1,545,037Department of Veterans Affairs 146,357 Department of Agriculture 141,192 4,116,050Other Defense Civil Programs 59,501 Department of Commerce 8,879
Total 250,892 Department of Energy 31,026
Corps of Engineers-Civil Works 6,415
Environmental Protection Agency 8,412
International Assistance Programs 23,084
National Aeronautics and Space Admin. 18,104
National Science Foundation 7,409 Misc. Independent Agencies & Offsets -232,955
Small Business Administration 958
Total 258,651 Net Outlays 3,883,095
Data: US OMB 2015
Reform of the Welfare-State to Restart Growth
US GDP 2014 ( A ) 17,701,000
Social Welfare Expenditures 2,259,448Corporate Welfare Expenditures 258,651Total Welfare Expenditures 2,518,099
Social Welfare with Overhead ( B ) 2,307,070 90%Corporate Welfare with Overhead ( C ) 263,942 10%Total 2,571,013 100%
Social Welfare % of GDP (B/A) 13.0%Corporate Welfare % of GDP (C/A) 1.5%
2014 US Federal Welfare State Expenditures ( A )$2,571,000,000,000
2014 Population Aged 16 and Over ( B )251,293,200
Basic Income to Replace Welfare State (A/B)$10,231 Per Year Per Person
US Poverty Level (2014)$11,700 Per Person
Reform of the Welfare-State with a Basic Income for Everyone
2014 US GDP ( A )
$17,701,000,000,000
2014 US Government Expenditures ( B )$4,116,050,000,000
US Government % of the Economy23% (B/A)
U.S. Government expenditures 23% of the economy
Therefore extent of market is 77%
Welfare state 14.5% of economy
Reform expands the extent of market price system to 91.5%
Assume “new normal” growth is 2%.
With reform we expect a new rate of 2.4%, an increase of 20% (1)
(1) 77% / 2% = 91.5% / x, where x = 2.4%, and, (2.4% – 2%) / 2% = 20%
Reform of the Elitist Utilitarian Welfare-Warfare State with a Basic Income for Everyone
Civilian Conservation Corps 1933 – 1942 creates “citizen–soldiers” (Suzik 1999)
Aid to Families with Dependent Children 1935 through today creates “obedient citizens” (Russell 2010)
“Obedient citizen-soldiers”
Reform of a the Welfare-State to Restart Growth
“As O’Rourke has pointed out, there can’t be any poor people in the United States. His proof is that if we take the total amount spent on poverty programs and divide it by the number of people in poverty, the income per capita is above the poverty line. QED. But the money is not reaching the poor.”
Munger, Michael. 2015. “One and One-Half Cheers for a Basic Income: We Could do Worse and Already Have,” The Independent Review 19 (4): 503-513.
Reform of Welfare-State through a Basic Income to Restart Higher Levels of Growth
and Ameliorate the Rule of Law
The Anti-Federalist also warned that the Constitution would turn patriots into partisans and demagogues appealing to emotion instead of reason
The Other, us versus them
Degeneration and Rent-Seeking in Republicanism
Republicans and Democrats
Both parties expand size and scope of government and each claim that the other is abusing the U.S. Constitution
R: Oil and Gas (liability limits)D: Clean and Green (subsidies and trade barriers)
Rent-Seeking in American Republicanism
Democrat Party politicians (cities) pander with food stamp (social welfare) and Republicans (rural areas) pander with agricultural subsidies and trade barriers (corporate welfare)
From Patriots to Partisans
Food stamps and agriculture subsidies are on the same legislative agenda, so both Parties always vote for the bill despite the hypocritical antagonistic rhetoric
Reform of the Welfare-State to Restart Growth
*Replacing the elitist utilitarian welfare state (for some people) with a Basic Income (for everyone) is a more just society
* Would encourage entrepreneurial behavior and economic growth as reduces down-side risk
Reform of Welfare-State through a Basic Income to Restart Growth and Ameliorate
the Rule of Law
A corollary, we recommend federal tax code reform, another source of great rent-seeking in the U.S. economy
A single income tax rate for everyone, shown to be 23%, the U.S. Government’s share of the economy