Welfare and the Welfare State

8

Welfare and the Welfare State

Why the Welfare Crisis?

ALMOST EVERYONE, regardless of ideology, agrees that there is something terribly wrong with the accelerating, runaway welfare system in the United States, a system in which an ever-increasing proportion of the population lives as idle, compulsory claimants on the production of the rest of society. A few figures and comparisons will sketch in some of the dimensions of this galloping problem. In 1934, in the middle of the greatest depression in American history, at a nadir of our economic life, total government social welfare expenditures were $5.8 billion, of which direct welfare payments ("public aid") amounted to $2.5 billion. In 1976, after four decades of the greatest boom in American history, at a time when we had reached the status of having the highest standard of living in the history of the world with a relatively low level of unemployment, government social welfare expenditures totalled $331.4 billion, of which direct welfare amounted to $48.9 billion. In short, total social welfare spending rose by the enormous sum of 5614% in these four decades, and direct welfare aid increased by 1856%. Or, put another way, social welfare spending increased by an average of 133.7% per year during this 1934–1976 period, while direct welfare aid increased by 44.2% per annum.

If we concentrate further on direct welfare, we find that spending stayed about the same from 1934 to 1950, and then took off into the stratosphere along with the post-World War II boom. In the years from 1950 to 1976, in fact, welfare aid increased by the huge sum of 84.4% per year.

Now some of these enormous increases can be accounted for by inflation, which diluted the value and purchasing power of the dollar. If we correct all the figures for inflation by putting them in terms of "constant 1958 dollars" (i.e., where each dollar has roughly the same purchasing power that the dollar could command in 1958), then the relevant figures become as follows: 1934—total social welfare spending, $13.7 billion; direct welfare aid, $5.9 billion. In 1976—total social welfare spending, $247.7 billion; direct welfare aid, $36.5 billion.

Even if we correct the figures for inflation, then, social welfare spending by the government rose by the vast amount of 1798%, or 42.8% per year over these forty-two years, while direct welfare aid rose 519%, or 12.4% per annum. Furthermore, if we look at the figures for 1950 and for 1976 for direct welfare aid, corrected for inflation, we find that welfare spending went up, during the intervening boom years, by 1077%, or 41.4% per annum.

If we adjust the figures still further to correct for population growth (total American population was 126 million in 1934, 215 million in 1976), then we still get an almost tenfold increase in total social welfare expenditures (from $108 to $1152 per capita in constant 1958 dollars), and a more than tripling of direct public aid (from $47 in 1934 to $170 per capita in 1976).

A few more comparisons: from 1955 to 1976—years of great prosperity—the total number of people on welfare quintupled, from 2.2 to 11.2 million. From 1952 to 1970, the population of children eighteen years old and younger increased by 42%; the number on welfare, however, increased by 400%. The total population remained static, yet the number of welfare recipients in New York City jumped from 330,000 in 1960 to 1.2 million in 1971. Clearly, a welfare crisis is upon us.¹

The crisis is shown to be far greater if we include in "welfare payments" all social welfare aids to the poor. Thus, federal "aid to the poor" nearly tripled from 1960 to 1969, leaping from $9.5 billion to $27.7 billion. State and local social welfare expenditures zoomed from $3.3 billion in 1935 to $46 billion, a 1300% increase! Total social welfare expenditures for 1969, federal, state, and local, amounted to a staggering $73.7 billion.

Most people think of being on welfare as a process external to the welfare clients themselves, as almost a natural disaster (like a tidal wave or volcanic eruption) that occurs beyond and despite the will of the people on welfare. The usual dictum is that "poverty" is the cause of individuals or families being on welfare. But on whatever criterion one wants to define poverty, on the basis of any chosen income level, it is undeniable that the number of people or families below that "poverty line" has been steadily decreasing since the 1930s, not vice versa. Thus, the extent of poverty can scarcely account for the spectacular growth in the welfare clientele.

The solution to the puzzle becomes clear once one realizes that the number of welfare recipients has what is called in economics a "positive supply function"; in other words, that when the incentives to go on welfare rise, the welfare rolls will lengthen, and that a similar result will occur if the disincentives to go on welfare become weaker. Oddly enough, nobody challenges this finding in any other area of the economy. Suppose, for example, that someone (whether the government or a dotty billionaire is not important here) offers an extra $10,000 to everyone who will work in a shoe factory. Clearly, the supply of eager workers in the shoe business will multiply. The same will happen when disincentives are reduced, e.g., if the government promises to relieve every shoe worker from paying income taxes. If we begin to apply the same analysis to welfare clientele as to all other areas of economic life, the answer to the welfare puzzle becomes crystal-clear.

What, then, are the important incentives/disincentives for going on welfare, and how have they been changing? Clearly, an extremely important factor is the relation between the income to be gained on welfare, as compared with the income to be earned from productive work. Suppose, to put it simply, that the "average," or going wage (very roughly, the wage open to an "average" worker), in a certain area is $7,000 a year. Suppose, also, that the income to be obtained from welfare is $3,000 a year. This means that the average net gain to be made from working (before taxes) is $4,000 a year. Suppose now that the welfare payments go up to $5,000 (or, alternatively, that the average wage is reduced to $5,000). The differential—the net gain to be made from working—has now been cut in half, reduced from $4,000 to $2,000 a year. It stands to reason that the result will be an enormous increase in the welfare rolls (which will increase still more when we consider that the $7,000 workers will have to pay higher taxes in order to support a swollen and virtually nontaxpaying welfare clientele). We would then expect that if—as, of course, has been the case—welfare payment levels have been rising faster than average wages, an increasing number of people will flock to the welfare rolls. This effect will be still greater if we consider that, of course, not everyone earns the "average"; it will be the "marginal" workers, the ones earning below the average, who will flock to the welfare rolls. In our example, if the welfare payment rises to $5,000 a year, what can we expect to happen to the workers making $4,000? $5,000? or even $6,000? The $5,000-a-year man who previously earned a net of $2,000 higher than the welfare client now finds that his differential has been reduced to zero, that he is making no more—even less after taxes!—than the welfare client kept in idleness by the state. Is it any wonder that he will begin to flock to the welfare bonanza?

Specifically, during the period between 1952 and 1970, when the welfare rolls quintupled from 2 to 10 million, the average monthly benefit of a welfare family more than doubled, from $82 to $187, an increase of almost 130% at a time when consumer prices were rising by only 50%. Furthermore, in 1968, the Citizens Budget Commission of New York City compared the ten states in the Union having the fastest rise in welfare rolls with the ten states enjoying the lowest rate of growth. The Commission found that the average monthly welfare benefit in the ten fastest-growing states was twice as high as in the ten slowest states. (Monthly welfare payments per person averaged $177 in the former group of states, and only $88 in the latter.)²

Another example of the impact of high welfare payments and of their relation to wages available from working was cited by the McCone Commission investigating the Watts riot of 1965. The Commission found that a job at the minimum wage paid about $220 a month, out of which had to come such work-related expenses as clothing and transportation. In contrast, the average welfare family in the area received from $177 to $238 a month, out of which no work-related expenses had to be deducted.³

Another powerful factor in swelling the welfare rolls is the increasing disappearance of the various sturdy disincentives for going on welfare. The leading disincentive has always been the stigma that every person on the welfare dole used to feel, the stigma of being parasitic and living off production instead of contributing to production. This stigma has been socially removed by the permeating values of modern liberalism; furthermore, the government agencies and social workers themselves have increasingly rolled out the red carpet to welcome and even urge people to get on welfare as quickly as possible. The "classical" view of the social worker was to help people to help themselves, to aid people in achieving and maintaining their independence and to stand on their own feet. For welfare clients, the aim of social workers used to be to help them get off the welfare rolls as quickly as possible. But now social workers have the opposite aim: to try to get as many people on welfare as possible, to advertise and proclaim their "rights." The result has been a continuing easing of eligibility requirements, a reduction in red tape, and the withering away of the enforcing of residency, work, or even income requirements for being on the dole. Anyone who suggests, however faintly, that welfare recipients should be required to accept employment and get off the dole is considered a reactionary moral leper. And with the old stigma increasingly removed, people now tend more and more to move rapidly toward welfare instead of shrinking from it. Irving Kristol has trenchantly written of the "welfare explosion" of the 1960s:

This "explosion" was created—in part intentionally, in larger part unwittingly by public officials and public employees who were executing public policies as part of a "War on Poverty." And these policies had been advocated and enacted by many of the same people who were subsequently so bewildered by the "welfare explosion." Not surprisingly it took them a while to realize that the problem they were trying to solve was the problem they were creating.

Here ... are the reasons behind the "welfare explosion" of the 1960s:

1. The number of poor people who are eligible for welfare will increase as one elevates the official definitions of "poverty" and "need." The War on Poverty elevated these official definitions; therefore, an increase in the number of "eligibles" automatically followed.
   
2. The number of eligible poor who actually apply for welfare will increase as welfare benefits go up—as they did throughout the 1960s. When welfare payments (and associated benefits, such as Medicaid and food stamps) compete with low wages, many poor people will rationally prefer welfare. In New York City today, as in many other large cities, welfare benefits not only compete with low wages; they outstrip them.
   
3. The reluctance of people actually eligible for welfare to apply for it—a reluctance based on pride or ignorance or fear—will diminish if any organized campaign is instituted to "sign them up." Such a campaign was successfully launched in the 1960s by (a) various community organizations sponsored and financed by the Office of Economic Opportunity, (b) the Welfare Rights Movement, and (c) the social work profession, which was now populated by college graduates who thought it their moral duty to help people get on welfare—instead of, as used to be the case, helping them get off welfare. In addition, the courts cooperated by striking down various legal obstacles (for example, residence requirements)....

Somehow, the fact that more poor people are on welfare, receiving more generous payments, does not seem to have made this country a nice place to live—not even for the poor on welfare, whose condition seems not noticeably better than when they were poor and off welfare. Something appears to have gone wrong; a liberal and compassionate social policy has bred all sorts of unanticipated and perverse consequences.⁴

The spirit that used to animate the social work profession was a far different—and a libertarian—one. There were two basic principles: (a) that all relief and welfare payments should be voluntary, by private agencies, rather than by the coercive levy of government; and (b) that the object of giving should be to help the recipient become independent and productive as soon as possible. Of course, in ultimate logic, (b) follows from (a), since no private agency is able to tap the virtually unlimited funds that can be mulcted from the long-suffering taxpayer. Since private aid funds are strictly limited, there is therefore no room for the idea of welfare "rights" as an unlimited and permanent claim on the production of others. As a further corollary of the limitation on funds, the social workers also realized that there was no room for aid to malingerers, those who refused to work, or who used the aid as a racket; hence came the concept of the "deserving" as against the "undeserving" poor. Thus, the nineteenth-century laissez-faire English agency, the Charity Organisation Society, included among the undeserving poor ineligible for aid those who did not need relief, impostors, and the man whose "condition is due to improvidence or thriftlessness, and there is no hope of being able to make him independent of charitable... assistance in the future."⁵

English laissez-faire liberalism, even though it generally accepted "Poor Law" governmental welfare, insisted that there be a strong disincentive effect: not only strict eligibility rules for assistance, but also making the workhouse conditions unpleasant enough to insure that workhouse relief would be a strong deterrent rather than an attractive opportunity. For the "undeserving poor," those responsible for their own fate, abuse of the relief system could only be curbed by "making it as distasteful as possible to the applicants; that is, by insisting (as a general rule) on a labour test or residence in a workhouse."⁶

While a strict deterrent is far better than an open welcome and a preachment about the recipients' "rights," the libertarian position calls for the complete abolition of governmental welfare and reliance on private charitable aid, based as it necessarily will be on helping the "deserving poor" on the road to independence as rapidly as possible. There was, after all, little or no governmental welfare in the United States until the Depression of the 1930s and yet—in an era of a far lower general standard of living—there was no mass starvation in the streets. A highly successful private welfare program in the present-day is the one conducted by the three-million-member Mormon Church. This remarkable people, hounded by poverty and persecution, emigrated to Utah and nearby states in the nineteenth century, and by thrift and hard work raised themselves to a general level of prosperity and affluence. Very few Mormons are on welfare; Mormons are taught to be independent, self-reliant, and to shun the public dole. Mormons are devout believers and have therefore successfully internalized these admirable values. Furthermore, the Mormon Church operates an extensive private welfare plan for its members—based, again, on the principle of helping their members toward independence as rapidly as possible.

Note, for example, the following principles from the "Welfare Plan" of the Mormon Church. "Ever since its organization in 1830, the Church has encouraged its members to establish and maintain their economic independence; it has encouraged thrift and fostered the establishment of employment-creating industries; it has stood ready at all times to help needy faithful members." In 1936, the Mormon Church developed a "Church Welfare Plan,... a system under which the curse of idleness would be done away with, the evils of a dole abolished, and independence, industry, thrift and self-respect be once more established amongst our people. The aim of the Church is to help the people to help themselves. Work is to be enthroned as the ruling principle of the lives of our Church membership."⁷ Mormon social workers in the program are instructed to act accordingly: "Faithful to this principle, welfare workers will earnestly teach and urge Church members to be self-sustaining to the full extent of their powers. No true Latter-Day Saint will, while physically able, voluntarily shift from himself the burden of his own support. So long as he can, under the inspiration of the Almighty and with his own labors, he will supply himself with the necessities of life."⁸ The immediate objectives of the welfare program are to: "1. Place in gainful employment those who are able to work. 2. Provide employment within the Welfare Program, in so far as possible, for those who cannot be placed in gainful employment. 3. Acquire the means with which to supply the needy, for whom the Church assumes responsibility, with the necessities of life."⁹ Insofar as possible, this program is carried on in small, decentralized, grass-roots groups: "Families, neighbors, quorums and wards and other Church organizational units may find it wise and desirable to form small groups for extending mutual help one to the other. Such groups may plant and harvest crops, process foods, store food, clothing and fuel, and carry out other projects for their mutual benefit."¹⁰

Specifically, the Mormon bishops and priesthood quorums are enjoined to aid their brethren to self-help: "In his temporal administrations the bishop looks at every able-bodied needy person as a purely temporary problem, caring for him until he can help himself. The priesthood quorum must look at its needy member as a continuing problem until not alone his temporal needs are met but his spiritual ones also. As a concrete example—a bishop extends help while the artisan or craftsman is out of work and in want; a priesthood quorum assists in establishing him in work and tries to see that he becomes fully self-supporting and active in his priesthood duties." Concrete rehabilitation activities for needy members enjoined upon the priesthood quorums include: "1. Placing quorum members and members of their families in permanent jobs. In some instances through trade school training, apprenticeships, and in other ways, quorums have assisted their quorum members to qualify themselves for better jobs. 2. Assisting quorum members and their families to get established in businesses of their own...."¹¹

The prime objective of the Mormon Church is to find jobs for their needy. To this end, "The finding of suitable jobs, under the Welfare Program, is a major responsibility of priesthood quorum members. They and members of the Relief Society should be constantly on the alert for employment opportunities. If every member of the ward welfare committee does well his or her work in this respect, most of the unemployed will be placed in gainful employment at the group or ward level."¹² Other members are rehabilitated as self-employed, the church may aid with a small loan, and the member's priesthood quorum may guarantee repayment from its funds. Those Mormons who cannot be placed in jobs or rehabilitated as self-employed "are to be given, in so far as possible, work at productive labor on Church properties...." The Church is insistent on work by the recipient as far as possible: "It is imperative that people being sustained through the bishops storehouse program work to the extent of their ability, thus earning what they receive.... Work of an individual on welfare projects should be considered as temporary rather than permanent employment. It should nevertheless continue so long as assistance is rendered to the individual through the bishops storehouse program. In this way the spiritual welfare of people will be served as their temporal needs are supplied. Feelings of diffidence will be removed...."¹³ Failing other work, the bishop may assign welfare recipients to aid individual members who are in need of help, the aided members reimbursing the Church at prevailing wage rates. In general, in return for their assistance, the welfare recipients are expected to make whatever contributions they can to the Church welfare program, either in funds, produce, or by their labor.¹⁴

Complementary to this comprehensive system of private aid on the principle of fostering independence, the Mormon Church sternly discourages its members from going on public welfare. "It is requested that local Church officers stress the importance of each individual, each family and each Church community becoming self-sustaining and independent of public relief." And: "To seek and accept direct public relief all too often invites the curse of idleness and fosters the other evils of dole. It destroys one's independence, industry, thrift and self-respect."¹⁵

There is no finer model than the Mormon Church for a private, voluntary, rational, individualistic welfare program. Let government welfare be abolished, and one would expect that numerous such programs for rational mutual aid would spring up throughout the country.

The inspiring example of the Mormon Church is a demonstration that the major determinant of who or how many people go on public welfare is their cultural and moral values rather than their level of income. Another example is the group of Albanian-Americans in New York City.

Albanian-Americans are an extremely poor group, and in New York they are almost invariably poor slum dwellers. Statistics are scanty, but their average income is undoubtedly lower than that of the more highly publicized blacks and Puerto Ricans. Yet there is not a single Albanian-American on welfare. Why? Because of their pride and independence. As one of their leaders stated: "Albanians do not beg, and to Albanians, taking welfare is like begging in the street."¹⁶

A similar case is the decaying, poor, largely Polish-American and almost totally Catholic community of Northside, in Brooklyn, New York. Despite the low incomes, blight, and old and deteriorating housing in the area, there are virtually no welfare recipients in this community of 15,000. Why? Rudolph J. Stobierski, president of the Northside Community Development Council, supplied the answer: "They consider welfare an insult."¹⁷

In addition to the impact of religion and ethnic differences on values, Professor Banfield, in his brilliant book, The Unheavenly City, has demonstrated the importance of what he calls "upper-class" or "lower-class" culture in influencing the values of their members. The definitions of "class" in Banfield are not strictly income or status levels, but they tend to overlap strongly with these more common definitions. His definitions of class center on the different attitudes toward the present and the future: upper- and middle-class members tend to be future-oriented, purposeful, rational, and self-disciplined. Lower-class people, on the other hand, tend to have a strong present-orientation, are capricious, hedonistic, purposeless, and therefore unwilling to pursue a job or a career with any consistency. People with the former values therefore tend to have higher incomes and better jobs, and lower-class people tend to be poor, jobless, or on welfare. In short, the economic fortunes of people tend over the long run to be their own internal responsibility, rather than to be determined—as liberals always insist—by external factors. Thus, Banfield quotes Daniel Rosenblatt's findings on the lack of interest in medical care due to the "general lack of future orientation" among the urban poor:

For example, regular checkups of automobiles to detect incipient defects are not in the general value system of the urban poor. In similar fashion, household objects are often worn out and discarded rather than repaired at an early stage of disintegration. Installment buying is easily accepted without an awareness of the length of payments.

The body can be seen as simply another class of objects to be worn out but not repaired. Thus, teeth are left without dental care; later there is often small interest in dentures, whether free or not. In any event, false teeth may be little used. Corrective eye examinations, even for those people who wear glasses, are often neglected—regardless of clinic facilities. It is as though the middle class thinks of the body as a machine to be preserved and kept in perfect running order whether through prosthetic devices, rehabilitation, cosmetic surgery, or perpetual treatment, whereas the poor think of the body as having a limited span of utility: to be enjoyed in youth and then, with age and decrepitude, to be suffered and endured stoically.¹⁸

Banfield points out, furthermore, that lower-class death rates are, and have been for generations, far higher than for upper-class persons. Much of the differential is caused not by poverty or low incomes per se, as much as by the values or culture of the lower-class citizens. Thus, prominent and particularly lower-class causes of death are alcoholism, narcotics addiction, homicide, and venereal disease. Infant mortality has also been far higher among the lower classes, ranging up to two and three times that of upper groups. That this is due to cultural values rather than to income level may be seen in Banfield's comparison of turn-of-the-century Irish immigrants with Russian Jewish immigrants in New York City. The Irish immigrants were, in those days, generally present-minded and "lower class" in attitudes, while the Russian Jews, though living in overcrowded tenements and on an income level probably lower than the Irish, were unusually future-minded, purposive, and "upper class" in their values and attitudes. At the turn of the century, the life expectancy at the age of ten of an Irish immigrant was only thirty-eight years, whereas for the Russian Jewish immigrant it was more than fifty years. Furthermore, whereas in 1911–1916, in a study of seven cities, the infant mortality was over three times as high for the lowest as compared to the highest income groups, the Jewish infant mortality was extremely low.¹⁹

As in illness or mortality, so in unemployment—which obviously has a close relation to both poverty and welfare. Banfield cites the findings of Professor Michael J. Piore on the essential "unemployability" of many or most of the persistently low-income unemployed. Piore discovered that their difficulty was not so much in finding or learning the skills for steady, well-paying jobs as in the lack of personal fibre in sticking to such jobs. These people are inclined to high absenteeism, leaving their jobs without notice, being insubordinate, and sometimes stealing from the employer.²⁰ Furthermore, Peter Doeringer's study of the Boston "ghetto" labor market in 1968 found that about 70% of job applicants referred by neighborhood employment centers received job offers—but that over half of these offers were rejected, and of those accepted only about 40% of the new workers kept their jobs for as long as one month. Doeringer concluded: "Much of the ghetto unemployment appears to be a result of work instability rather than job scarcity."²¹

It is highly instructive to compare the descriptions of this common refusal of the lower-class unemployed to engage in steady work by the frostily disapproving Professor Banfield and by the highly approving leftist sociologist Alvin Gouldner. Banfield: "Men accustomed to a street-corner style of life, to living off women on welfare, and to 'hustling' are seldom willing to accept the dull routines of the 'good' job."²² Pondering the lack of success of welfare workers in luring these men "away from a life of irresponsibility, sensuality, and freewheeling aggression," Gouldner proclaims that they judge the proferred bargain to be unattractive: "Give up promiscuous sex, give up freely expressed aggression, and wild spontaneity... and you, or your children, may be admitted to the world of three square meals a day, to a high school or perhaps even a college education, to the world of charge accounts, of secure jobs and respectability."²³ The interesting point is that from both ends of the ideological spectrum both Banfield and Gouldner agree on the essential nature of this process, despite their contrasting value judgments on it: that much of persistent lower-class unemployment, and hence poverty, is voluntary on the part of the unemployed themselves.

Gouldner's attitude is typical of liberals and leftists in the present day: that it is shameful to try to foist, even noncoercively, "bourgeois" or "middle-class values" on the gloriously spontaneous and "natural" lower-class culture. Fair enough, perhaps; but then don't expect—or call upon—those same hard-working bourgeoisie to be coerced into supporting and subsidizing those very parasitic values of idleness and irresponsibility which they abhor—and which are clearly dysfunctional for the survival of any society. If people wish to be "spontaneous," let them do so on their own time and with their own resources, and let them then take the consequences of this decision, and not use State coercion to force the hard-working and "unspontaneous" to bear those consequences instead. In short, abolish the welfare system.

If the major problem with the lower-class poor is irresponsible present-mindedness, and if it takes the inculcation of "bourgeois" future-minded values to get people off welfare and dependency (pacethe Mormons), then at the very least these values should be encouraged and not discouraged in society. The left-liberal attitudes of social workers discourage the poor directly by fostering the idea of welfare as a "right" and as a moral claim upon production. Furthermore, the easy availability of the welfare check obviously promotes present-mindedness, unwillingness to work, and irresponsibility among the recipients—thus perpetuating the vicious cycle of poverty-welfare. As Banfield puts it, "there is perhaps no better way to make converts to present-mindedness than to give a generous welfare check to everyone."²⁴

Generally, in their attacks on the welfare system conservatives have focussed on the ethical and moral evils of coercively mulcting the taxpayers to support the idle, while the leftist critics have concentrated on the demoralization of the welfare "clients" through their dependency on the largesse of the State and its bureaucracy. Actually, both sets of criticisms are right; there is no contradiction between them. We have seen that voluntary programs such as those of the Mormon Church are keenly alive to this problem. And in fact, earlier laissez-faire critics of the dole were just as concerned with the demoralization as with the coercion over those forced to pay for welfare.

Thus, the nineteenth-century English laissez-faire advocate Thomas Mackay declared that welfare reform "consists in a re-creation and development of the arts of independence." He called "not for more philanthropy, but rather for more respect for the dignity of human life, and more faith in its ability to work out its own salvation." And Mackay poured his scorn on the advocates of greater welfare, on "the vicarious philanthropist who, in a reckless race after a cheap popularity, uses the rate [tax] extorted from his neighbors to multiply the occasions of stumbling set before the... crowd who are only too ready to fall into dependence...."²⁵ Mackay added that the "legal endowment of destitution" implied by the welfare system "introduces a most dangerous and at times demoralising influence into our social arrangements. Its real necessity is by no means proved. Its apparent necessity arises mainly from the fact that the system has created its own dependent population."²⁶ Elaborating on the theme of dependence, Mackay observed that "the bitterest element in the distress of the poor arises, not from mere poverty, but from the feeling of dependence which must of necessity be an ingredient in every measure of public relief. This feeling cannot be removed, but is rather intensified by liberal measures of public relief."²⁷

Mackay concluded that "the only way in which the legislator or the administrator can promote the reduction of pauperism is by abolishing or restricting the legal endowments provided for pauperism. The country can have, there is no doubt of it, exactly as many paupers as it chooses to pay for. Abolish or restrict that endowment... and new agencies are called into activity, man's natural capacity for independence, the natural ties of relationship and friendship, and under this head I would include private as distinguished from public charity...."²⁸

The Charity Organisation Society, England's leading private charity agency in the late nineteenth century, operated precisely on this principle of aid to foster self-help. As Mowat, the historian of the Society notes: "The C.O.S. embodied an idea of charity which claimed to reconcile the divisions in society, to remove poverty and to produce a happy, self-reliant community. It believed that the most serious aspect of poverty was the degradation of the character of the poor man or woman. Indiscriminate charity only made things worse; it demoralised. True charity demanded friendship, thought, the sort of help that would restore a man's self-respect and his ability to support himself and his family."²⁹

Perhaps one of the grimmest consequences of welfare is that it actively discourages self-help by crippling the financial incentive for rehabilitation. It has been estimated that, on the average, every dollar invested by handicapped persons in their own rehabilitation brings them from $10 to $17 in the present value of increased future earnings. But this incentive is crippled by the fact that, by becoming rehabilitated, they will lose their welfare relief, Social Security disability payments, and workmen's compensation. As a result, most of the disabled decide not to invest in their own rehabilitation.³⁰ Many people, moreover, are by now familiar with the crippling disincentive effects of the Social Security system, which—in glaring contrast to all private insurance funds—cuts off payments if the recipient should be brazen enough to work and earn an income after age 62.

In these days, when most people look askance at population growth, few antipopulationists have focussed on another unfortunate effect of the welfare system: Since welfare families are paid proportionately to the number of their children, the system provides an important subsidy for the production of more children. Furthermore, the people being induced to have more children are precisely those who can afford it least; the result can only be to perpetuate their dependence on welfare, and, in fact, to develop generations who are permanently dependent on the welfare dole.

In recent years, there has been a great deal of agitation for the government to supply day-care centers to care for children of working mothers. Allegedly the market has failed to supply this much needed service.

Since the market is in the business of meeting urgent consumer demands, however, the question to ask is why the market seems to have failed in this particular case. The answer is that the government has ringed the supply of day-care service with a network of onerous and costly legal restrictions. In short: while it is perfectly legal to deposit one's children with a friend or relative, no matter who the person is or the condition of his apartment, or to hire a neighbor who will be taking care of one or two children, let the friend or neighbor become a slightly bigger business, and the State cracks down with a vengeance. Thus, the State will generally insist that such day-care centers be licensed and will refuse to grant the license unless registered nurses are in attendance at all times, minimal playground facilities are available, and the facility is of a minimum size. There will be all sorts of other absurd and costly restrictions which the government does not bother to impose on friends, relatives, and neighbors—or, indeed, on mothers themselves. Remove these restrictions, and the market will go to work to meet the demand.

For the past thirteen years the poet Ned O'Gorman has been operating a successful, privately financed day-care center in Harlem on a shoestring, but he is in danger of being put out of business by bureaucratic restrictions imposed by the New York City government. While the city admits the "dedication and effectiveness" of O'Gorman's center, The Storefront, it is threatening fines and ultimately the coercive closing of the center unless he has a state-certified social worker present whenever there are five or more children in attendance. As O'Gorman indignantly remarks:

Why on earth should I be forced to hire someone with a piece of paper that says they've studied social work and are qualified to run a day-care center? If I'm not qualified after thirteen years in Harlem, then who is?³¹

The example of day care demonstrates an important truth about the market: if there seems to be a shortage of supply to meet an evident demand, then look to government as the cause of the problem. Give the market its head, and there will be no shortages of day-care centers, just as there are no shortages of motels, of washing machines, of TV sets, or of any of the other accoutrements of daily living.

Burdens and Subsidies of the Welfare State

Does the modern welfare state really help the poor? The commonly held notion, the idea that has propelled the welfare state and maintained it in being, is that the welfare state redistributes income and wealth from the rich to the poor: the progressive tax system takes money from the rich while numerous welfare and other services distribute the money to the poor. But even liberals, the great advocates and abettors of the welfare state, are beginning to realize that every part and aspect of this idea is merely a cherished myth. Government contracts, notably of the military, funnel tax funds into the pockets of favored corporations and well-paid industrial workers. Minimum wage laws tragically generate unemployment, especially so among the poorest and least skilled or educated workers—in the South, among teenage Negroes in the ghettoes, and among the vocationally handicapped. Because a minimum wage, of course, does not guarantee any worker's employment; it only prohibits, by force of law, anyone from being employed at the wage which would pay his employer to hire him. It therefore compels unemployment. Economists have demonstrated that raises in the federal minimum wage have created the well-known Negro-white teenage employment gap, and have driven the rate of male Negro teenage unemployment from an early postwar rate of about 8% to what is now well over 35%—an unemployment rate among teenage Negroes that is far more catastrophic than the massive general unemployment rate of the 1930s (20–25%).³²

We have already seen how State higher education redistributes income from poorer to wealthier citizens. A host of government licensing restrictions, permeating occupation after occupation, exclude poorer and less skilled workers from these jobs. It is becoming recognized that urban renewal programs, supposedly designed to aid the slum housing of the poor, in fact demolish their housing and force the poor into more crowded and less available housing, all for the benefit of wealthier subsidized tenants, construction unions, favored real estate developers, and downtown business interests. Unions, once the pampered favorites of liberals, are now generally seen to use their governmental privileges to exclude poorer and minority-group workers. Farm price supports, jacked ever higher by the federal government, mulct the taxpayers an order to push food prices higher and higher, thereby injuring particularly the poor consumers and helping—not poor farmers, but the wealthy farmers commanding a large amount of acreage. (Since farmers are paid per pound or per bushel of product, the support program largely benefits the wealthy farmers; in fact, since farmers are often paid not to produce, the resulting taking of acreage out of production causes severe unemployment among the poorest segment of the farm population—the farm tenants and farm workers.) Zoning laws in the burgeoning suburbs of the United States serve to keep out the poorer citizens by legal coercion, very often Negroes who are attempting to move out of the inner cities to follow increasing job opportunities in the suburbs. The U.S. Postal Service charges high monopoly rates on the first-class mail used by the general public in order to subsidize the distribution of newspapers and magazines. The FHA subsidizes the mortgages of well-to-do homeowners. The Federal Bureau of Reclamation subsidizes irrigation water to well-to-do farmers in the West, thereby depriving the urban poor of water and forcing them to pay higher water charges. The Rural Electrification Administration and the Tennessee Valley Authority subsidize electric service to well-to-do farmers, suburbanites, and corporations. As Professor Brozen sardonically observes: "Electricity for poverty-stricken corporations such as the Aluminum Corporation of America and the DuPont Company is subsidized by the tax-free status of the Tennessee Valley Authority (27 percent of the price of electricity goes to pay the taxes imposed on privately operated utilities)."³³ And the government regulation monopolizes and cartelizes much of industry, thereby driving up prices to consumers and restricting production, competitive alternatives, or improvements in products (e.g., railroad regulation, public utility regulation, airline regulation, oil proration laws). Thus, the Civil Aeronautics Board allocates airline routes to favored companies and keeps out and even drives out of business smaller competitors. State and federal oil proration laws provide for absolute maximum limits on crude oil production, thereby driving up oil prices, prices that are further kept up by import restrictions. And government throughout the country grants an absolute monopoly in each area to gas, electric, and telephone companies, thus protecting them from competition, and sets their rates in order to guarantee them a fixed profit. Everywhere and in every area the story is the same: a systematic mulcting of the mass of the population by the "welfare state."³⁴

Most people believe that the American tax system basically taxes the rich far more than it taxes the poor and is therefore a method of redistributing income from higher to lower income classes. (There are, of course, many other kinds of redistribution, e.g., from the taxpayers to Lockheed or General Dynamics.) But even the federal income tax, which everybody assumes to be "progressive" (taxing the rich far more than the poor, with the middle classes in between), does not really work that way when we take into account other aspects of this tax. For example, the Social Security tax is blatantly and starkly "regressive," since it is a soak-the-poor-and-middle-class tax: a person making the base income ($8,000) pays fully as much Social Security tax—and the amount is rising every year—as someone making $1,000,000 a year. Capital gains, mostly accruing to wealthy stockholders and owners of real estate, pay far less than income taxes; private trusts and foundations are tax exempt, and interest earned on state and municipal government bonds is also exempt from the federal income tax. We wind up with the following estimate of what percentage of income is paid, overall, by each "income class" in federal taxes:

If federal taxes are scarcely "progressive," the impact of state and local taxes is almost fiercely regressive. Property taxes are (a) proportional, (b) hit only owners of real estate, and (c) depend on the political vagaries of local assessors. Sales and excise taxes hit the poor more than anyone else. The following is the estimate of the percentage of income extracted, overall, by state and local taxes:

Following are the combined estimates for the total impact of taxation—federal, state, and local—on income classes:³⁵

Still more recent (1968) estimates of the total impact of taxes on all levels of government amply confirm the above, while also showing a far greater relative rise in the three years of the tax burden on the lowest income groups:³⁶

Many economists try to mitigate the impact of these telltale figures by saying that the people in the "Under $2,000" category, for example, receive more in welfare and other "transfer" payments than they pay out in taxes; but of course this ignores the vital fact that the same people in each category are not the welfare receivers and the taxpayers. The latter group is socked heavily in order to subsidize the former. In short, the poor (and the middle class) are taxed in order to pay for the subsidized public housing of other poor*—and* middle-income groups. And it is the working poor who are socked a staggering amount to pay for the subsidies of the welfare poor.

There is plenty of income redistribution in this country: to Lockheed, to welfare recipients, and so on and on..., but the "rich" are not being taxed to pay for the "poor." The redistribution is within income categories; some poor are forced to pay for other poor.

Other tax estimates confirm this chilling picture. The Tax Foundation, for example, estimates that federal, state, and local taxes extract 34% of the overall income of those who make less than $3,000 a year.³⁷

The object of this discussion is not, of course, to advocate a "really" progressive income tax structure, a real soaking of the rich, but to point out that the modern welfare state, highly touted as soaking the rich to subsidize the poor, does no such thing. In fact, soaking the rich would have disastrous effects, not just for the rich but for the poor and middle classes themselves. For it is the rich who provide a proportionately greater amount of saving, investment capital, entrepreneurial foresight, and financing of technological innovation that has brought the United States to by far the highest standard of living—for the mass of the people—of any country in history. Soaking the rich would not only be profoundly immoral, it would drastically penalize the very virtues: thrift, business foresight, and investment, that have brought about our remarkable standard of living. It would truly be killing the goose that lays the golden eggs.

What Can Government Do?

What, then, can the government do to help the poor? The only correct answer is also the libertarian answer: Get out of the way. Let the government get out of the way of the productive energies of all groups in the population, rich, middle class, and poor alike, and the result will be an enormous increase in the welfare and the standard of living of everyone, and most particularly of the poor who are the ones supposedly helped by the miscalled "welfare state."

There are four major ways in which the government can get out of the way of the American people. First, it can abolish—or at the very least drastically reduce—the level of all taxation, taxation which cripples productive energies, savings, investment, and technological advance. In fact, the creation of jobs and increase of wage rates resulting from abolishing these taxes would benefit the lower-income groups more than anyone else. As Professor Brozen points out: "With less attempt to use state power to compress the inequality in the distribution of income, inequality would diminish more rapidly. Low wage rates would rise more rapidly with a higher rate of saving and capital formation, and inequality would diminish with the rise in income of wage earners."³⁸ The best way to help the poor is to slash taxes and allow savings, investment, and creation of jobs to proceed unhampered. As Dr. F. A. Harper pointed out years ago, productive investment is the "greatest economic charity." Wrote Harper:

According to one view, sharing a crust of bread is advocated as the method of charity. The other advocates savings and tools for the production of additional loaves of bread, which is the greatest economic charity.

The two views are in conflict because the two methods are mutually exclusive in absorbing one's time and means in all the choices he makes day by day....

The reason for the difference in view really stems from different concepts about the nature of the economic world. The former view stems from the belief that the total of economic goods is a constant. The latter view is built on the belief that expansion in production is possible without any necessary limit.

The difference between the two views is like the difference between a two-and three-dimensional perspective of production. The two-dimensional size is fixed at any instant of time, but the third dimension and therefore the size of the total is expandable without limit by savings and tools...

All the history of mankind denies that there is a fixed total of economic goods. History further reveals that savings and expansion of tools constitute the only way to any appreciable increase.³⁹

The libertarian writer Isabel Paterson put the case eloquently:

As between the private philanthropist and the private capitalist acting as such, take the case of the truly needy man, who is not incapacitated, and suppose that the philanthropist gives him food and clothes and shelter—when he has used them, he is just where he was before, except that he may have acquired the habit of dependence. But suppose someone with no benevolent motive whatever, simply wanting work done for his own reasons, should hire the needy man for a wage. The employer has not done a good deed. Yet the condition of the employed man has actually been changed. What is the vital difference between the two actions?

It is that the unphilanthropic employer has brought the man he employed back into the production line, on the great circuit of energy; whereas the philanthropist can only divert energy in such manner that there can be no return into production, and therefore less likelihood of the object of his benefaction finding employment. ...

If the full role of sincere philanthropists were called, from the beginning of time, it would be found that all of them together by their strictly philanthropic activities have never conferred upon humanity one-tenth of the benefit derived from the normally self-interested efforts of Thomas Alva Edison, to say nothing of the greater minds who worked out the scientific principles which Edison applied. Innumerable speculative thinkers, inventors, and organizers, have contributed to the comfort, health, and happiness of their fellow men—because that was not their objective.⁴⁰

Second, and as a corollary to a drastic reduction or abolition of taxation, would come an equivalent reduction in government expenditures. No longer would scarce economic resources be siphoned off into wasteful and unproductive expenditures: into the multibillion dollar space program, public works, the military-industrial complex, or whatever. Instead, these resources would be available to produce goods and services desired by the mass of the consuming population. The outpouring of goods and services would provide new and better goods to the consumers at far lower prices. No longer would we suffer the inefficiencies and the injury to productivity of government subsidies and contracts. Furthermore, the diversion of most of the nation's scientists and engineers to wasteful military and other governmental research and expenditure would be released for peaceful and productive activities and inventions benefiting the nation's consumers.⁴¹

Third, if the government also cut out the numerous ways in which it taxes the poorer to subsidize the wealthier, such as we have named above (higher education, farm subsidies, irrigation, Lockheed, etc.), this in itself would stop the government's deliberate exactions upon the poor. By ceasing to tax the poorer in order to subsidize the richer, the government would aid the poor by removing its burdens from their productive activity.

Finally, one of the most significant ways in which the government could aid the poor is by removing its own direct roadblocks from their productive energies. Thus, minimum wage laws disemploy the poorest and least productive members of the population. Government privileges to trade unions enable them to keep the poorer and minority-group workers from productive and high-wage employment. And licensing laws, the outlawing of gambling, and other government restrictions prevent the poor from starting small businesses and creating jobs on their own. Thus, the government has everywhere clamped onerous restrictions on peddling, ranging from outright prohibition to heavy license fees. Peddling was the classic path by which immigrants, poor and lacking capital, were able to become entrepreneurs and eventually to become big businessmen. But now this route has been cut off—largely to confer monopoly privileges on each city's retail stores, who fear that they would lose profits if faced with the highly mobile competition of street peddlers.

Typical of how government has frustrated the productive activities of the poor is the case of the neurosurgeon Dr. Thomas Matthew, founder of the black self-help organization NEGRO, which floats bonds to finance its operations. In the mid-1960s, Dr. Matthew, over the opposition of the New York City government, established a successful interracial hospital in the black section of Jamaica, Queens. He soon found, however, that public transportation in Jamaica was so abysmal that transportation service was totally inadequate for the hospital's patients and staff. Finding bus service inadequate, Dr. Matthew purchased a few busses and established a regular bus service in Jamaica, service that was regular, efficient, and successful. The problem was that Dr. Matthew did not have a city license to operate a bus line—that privilege is reserved to inefficient but protected monopolies. The ingenious Dr. Matthew, discovering that the city did not allow any unlicensed busses to charge fares, made his bus service free, except that any riders who wished could buy a 25¢ company bond instead whenever they rode the busses.

So successful was the Matthew bus service that he proceeded to establish another bus line in Harlem; but it was at this point, in early 1968, that the New York City government took fright and cracked down. The government went to court and put both lines out of business for operating without licenses.

A few years later, Dr. Matthew and his colleagues seized an unused building in Harlem owned by the city government. (The New York City government is the city's biggest "slumlord," owning as it does a vast amount of useful buildings abandoned because of nonpayment of high property taxes and rotting away, rendered useless and uninhabitable.) In this building, Dr. Matthew established a low-cost hospital—at a time of soaring hospital costs and scarcity of hospital space. The city finally succeeded in putting this hospital, too, out of business, claiming "fire violations." Again and again, in area after area, the role of government has been to thwart the economic activities of the poor. It is no wonder that when Dr. Matthew was asked by a white official of the New York City government how it could best aid Negro self-help projects, Matthew replied: "Get out of our way, and let us try something."

Another example of how government functions occurred a few years ago, when the federal and New York City governments loudly proclaimed that they would rehabilitate a group of thirty-seven buildings in Harlem. But instead of following the usual practice of private industry and awarding rehabilitation contracts on each house individually, the government instead awarded one contract on the entire thirty-seven building package. By doing so, the government made sure that small, black-owned construction firms would not be able to bid, and so the prize contract naturally went to a large white-owned company. Still another example: In 1966, the federal Small Business Administration proudly proclaimed a program for encouraging new black-owned small business. But the government put certain key restrictions on its loans. First, it decided that any borrower must be "at the poverty level." Now since the very poor are not apt to be setting up their own businesses, this restriction ruled out many small businesses by owners with moderately low incomes—just the ones likely to be small entrepreneurs. To top this, the New York SBA added a further restriction: All blacks seeking such loans must "prove a real need in their community" for filling a recognizable "economic void"—the need and the void to be proved to the satisfaction of remote bureaucrats far from the actual economic scene.⁴²

A fascinating gauge of whether or to what extent government is helping or hurting the poor in the "welfare state" is provided by an unpublished study by the Institute for Policy Studies of Washington, D.C. An inquiry was made on the estimated flow of government money (federal and district) into the low-income Negro ghetto of Shaw-Cardozo in Washington, D.C., as compared to the outflow that the area pays in taxes to the government. In fiscal 1967, the Shaw-Cardozo area had a population of 84,000 (of whom 79,000 were black) with a median family income of $5,600 per year. Total earned personal income for the residents of the area for that year amounted to $126.5 million. The value of total government benefits flowing into the district (ranging from welfare payments to the estimated expenditure on public schools) during fiscal 1967 was estimated at $45.7 million. A generous subsidy, amounting to almost 40% of total Shaw-Cardozo income? Perhaps, but against this we have to offset the total outflow of taxes from Shaw-Cardozo, best estimated at $50.0 million—a net outflow from this low-income ghetto of $4.3 million! Can it still be maintained that abolition of the entire massive, unproductive welfare state structure would hurt the poor?⁴³

Government could then best help the poor—and the rest of society— by getting out of the way: by removing its vast and crippling network of taxes, subsidies, inefficiencies, and monopoly privileges. As Professor Brozen summed up his analysis of the "welfare state":

The state has typically been a device for producing affluence for a few at the expense of many. The market has produced affluence for many with little cost even to a few. The state has not changed its ways since Roman days of bread and circuses for the masses, even though it now pretends to provide education and medicine as well as free milk and performing arts. It still is the source of monopoly privilege and power for the few behind its facade of providing welfare for the many—welfare which would be more abundant if politicians would not expropriate the means they use to provide the illusion that they care about their constituents.⁴⁴

The Negative Income Tax

Unfortunately, the recent trend—embraced by a wide spectrum of advocates (with unimportant modifications) from President Nixon to Milton Friedman on the right to a large number on the left—is to abolish the current welfare system not in the direction of freedom but toward its very opposite. This new trend is the "guaranteed annual income" or "negative income tax," or President Nixon's "Family Assistance Plan." Citing the inefficiencies, inequities, and red tape of the present system, the guaranteed annual income would make the dole easy, "efficient," and automatic: The income tax authorities will pay money each year to families earning below a certain base income—this automatic dole to be financed, of course, by taxing working families making more than the base amount. Estimated costs of this seemingly neat and simple scheme are supposed to be only a few billion dollars per year.

But there is an extremely important catch: the costs are estimated on the assumption that everyone—the people on the universal dole as well as those financing it—will continue to work to the same extent as before. But this assumption begs the question. For the chief problem is the enormously crippling disincentive effect the guaranteed annual income will have on taxpayer and recipient alike.

The one element that saves the present welfare system from being an utter disaster is precisely the red tape and the stigma involved in going on welfare. The welfare recipient still bears a psychic stigma, even though weakened in recent years, and he still has to face a typically inefficient, impersonal, and tangled bureaucracy. But the guaranteed annual income, precisely by making the dole efficient, easy, and automatic, will remove the major obstacles, the major disincentives, to the "supply function" for welfare, and will lead to a massive flocking to the guaranteed dole. Moreover, everyone will now consider the new dole as an automatic "right" rather than as a privilege or gift, and all stigma will be removed.

Suppose, for example, that $4,000 per year is declared the "poverty line," and that everyone earning income below that line receives the difference from Uncle Sam automatically as a result of filling out his income tax return. Those making zero income will receive $4000 from the government, those making $3,000 will get $1,000, and so on. It seems clear that there will be no real reason for anyone making less than $4,000 a year to keep on working. Why should he, when his nonworking neighbor will wind up with the same income as himself? In short, the net income from working will then be zero, and the entire working population below the magic $4,000 line will quit work and flock to its "rightful" dole.

But this is not all; what of the people making either $4,000, or slightly or even moderately above that line? The man making $4,500 a year will soon find that the lazy slob next door who refuses to work will be getting his $4,000 a year from the federal government; his own net income from forty hours a week of hard work will be only $500 a year. So he will quit work and go on the negative-tax dole. The same will undoubtedly hold true for those making $5,000 a year, etc.

The baleful process is not over. As all the people making below $4,000 and even considerably above $4000 leave work and go on the dole, the total dole payments will skyrocket enormously, and they can only be financed by taxing more heavily the higher income folk who will continue to work. But then their net, after-tax incomes will fall sharply, until many of them will quit work and go on the dole too. Let us contemplate the man making $6,000 a year. He is, at the outset, faced with a net income from working of only $2,000, and if he has to pay, let us say, $500 a year to finance the dole of the nonworkers, his net after-tax income will be only $1,500 a year. If he then has to pay another $1,000 to finance the rapid expansion of others on the dole, his net income will fall to $500 and he will go on the dole. Thus, the logical conclusion of the guaranteed annual income will be a vicious spiral into disaster, heading toward the logical and impossible goal of virtually no one working, and everyone on the dole.

In addition to all this, there are some important extra considerations. In practice, of course, the dole, once set at $4000, will not remain there; irresistible pressure by welfare clients and other pressure groups will inexorably raise the base level every year, thereby bringing the vicious spiral and economic disaster that much closer. In practice, too, the guaranteed annual income will not, as in the hopes of its conservative advocates, replace the existing patchwork welfare system; it will simply be added on top of the existing programs. This, for example, is precisely what happened to the states' old-age relief programs. The major talking point of the New Deal's federal Social Security program was that it would efficiently replace the then existing patchwork old-age relief programs of the states. In practice, of course, it did no such thing, and old-age relief is far higher now than it was in the 1930s. An ever-rising Social Security structure was simply placed on top of existing programs. In practice, finally, President Nixon's sop to conservatives that able-bodied recipients of the new dole would be forced to work is a patent phony. They would, for one thing, only have to find "suitable" work, and it is the universal experience of state unemployment relief agencies that almost no "suitable" jobs are ever found.⁴⁵

The various schemes for a guaranteed annual income are no genuine replacement for the universally acknowledged evils of the welfare system; they would only plunge us still more deeply into those evils. The only workable solution is the libertarian one: the abolition of the welfare dole in favor of freedom and voluntary action for all persons, rich and poor alike.