Privatizing the welfare state

by Robert Maynard

Liberty activists have often noted that the welfare state does more to lock people into a permanent underclass than it does to alleviate poverty.  The logical, but politically challenging, way to solve the problem of a welfare state that does not elevate the poor out of poverty is to privatize it.  Proposals for the privatization of the welfare state have been made by serious scholars for years.  The latest look at this idea is found in this Town Hall atricle by the Independent Institute’s John Goodman.  Here is the second half, in which he sums up the general case:

Have you ever stopped to consider how much of modern life is conditioned by the fact that millions of young women are having children they cannot support? Turns out that the same parents who can’t afford to feed their children also can’t afford to house them or pay for their medical care. They also fail to provide a home environment that is conducive to learning. That’s why there is now a big push for government funded preschool. Is government-funded day care next?

Since the taxpayers are picking up the whole tab anyway, maybe we would be better off removing all these children and raising them in an Israeli-like kibbutz.

I am one of the few writers who seems to be appalled by the immorality of bringing children into the world that you cannot support. [See “Bad Parents, Poor Kids.”] But even if you are not moved by moral concerns, consider the dollars and cents at stake.

Years ago, George Gilder and Charles Murray did pioneering work showing that the welfare state was not benignly helping people in temporary need. It was subsidizing a lifestyle. With the passage of time, the case for that position has gotten stronger and stronger.

By way of anecdotal evidence, take the case of Orlando Shaw. He has fathered 22 children by 14 different women and pays not a dime of child support. As a result, Tennessee taxpayers are forking over more than $7,500 a month. Food stamps and welfare make his lifestyle possible.

On the academic front, University of Chicago economist Casey Mulligan estimates that half the excess unemployment we are experiencing can be directly tied to the incentive effects of entitlement programs. In other words, half the people who should have a job don’t have one because we are paying people not to work.

How could things be different? In Privatizing the Welfare State (study, book), Michael Stroup and I wrote:

There is mounting evidence that the private sector does a better job at getting aid first to those who need it most, at encouraging self-sufficiency and self-reliance, at encouraging the family unit, and at using resources efficiently. Currently, the federal government has a monopoly on welfare tax dollars. It is time to end this monopoly by allowing private citizens to make decisions on how their welfare tax dollars should be spent.

For the food stamp program, the proposal would work like this. Each taxpayer would be able to allocate up to $2,000 of taxes owed to any qualified charity providing assistance to indigent people. Taxpayers could make their gifts at any time during the year and claim a credit on their April 15th tax return. [BTW, this is all back of the envelope, but I think a credit of up to $2,000 is roughly budget neutral.]

I’m even willing to let the food stamp program have all the default money. That is, if a taxpayer doesn’t claim a private charity credit, the food stamp program gets to keep his $2,000. But every dollar that taxpayers give to a private charity is a dollar the food stamp program must forgo.

Of course, our more general proposal was not confined to food stamps. We would subject all welfare programs to this kind of public/private agency competition.

Thoughtful readers will no doubt think of possible objections and I would love to hear about them in the comments section. Stroup and I considered 21 possible objections and you may want to consult those as well.