Does the War on Poverty Fight Destitution or Subsidize It?

The Census Bureau will be releasing new poverty-rate numbers on Thursday and the numbers are expected to show a big move in the wrong direction. Much of the coverage will be on how much the poverty rate increases, with 15 percent being a likely amount according to some estimate. There also will be lots of discussion about the political implications, as this Associated Press story illustrates.

The number of people in the U.S. who are in poverty is on track for a record increase on President Barack Obama's watch, with the ranks of working-age poor approaching 1960s levels that led to the national war on poverty. Census figures for 2009 — the recession-ravaged first year of the Democrat's presidency — are to be released in the coming week, and demographers expect grim findings. It's unfortunate timing for Obama and his party just seven weeks before important elections when control of Congress is at stake. The anticipated poverty rate increase — from 13.2 percent to about 15 percent — would be another blow to Democrats struggling to persuade voters to keep them in power.

But the real story should be the degree to which the federal government's War on Poverty has been a complete failure. Taxpayers have poured trillions of dollars into means-tested programs, yet the data show no positive results. Indeed, it's quite likely that the programs have backfired. As shown in the chart, Census Bureau data reveal that the poverty rate was steadily falling in the 1950s and early 1960s, but then stagnated once the War on Poverty began. It's possible that there are alternative and/or additional explanations for this shocking development, but government intervention may be encouraging poverty by making indolence more attractive than work.

More Arguments Against a Value-Added Tax

The biggest long-term threat to fiscal responsibility is a value-added tax, as I've explained here, here, here, here, and here. So I'm delighted to see a growing amount of research showing that a VAT is bad news. Jim Powell has an excellent column at Investor's Business Daily that makes a rather obvious point about the wisdom (or lack thereof) of copying the tax policy of nations that are teetering on the edge of fiscal collapse (this cartoon has the same message in a more amusing fashion).

Drums are beating in Washington for a value-added tax in addition to the "stimulus" taxes, health care taxes, energy taxes and other taxes President Obama has imposed and wants to impose on hard-pressed taxpayers. Supposedly a value-added tax is a magic elixir for curing budget deficits and excessive debt. Quack remedy would be more like it. If it worked, you'd observe that countries with a VAT had budget surpluses and no debt problems. But almost every country that has a VAT is plagued with budget deficits and excessive debt. ... No surprise that the worst financial basket cases all have a VAT. Iceland has the highest VAT rates, but this didn't prevent its financial crisis and the near bankruptcy of its government. Italy's VAT rates are almost as high, and its debt exceeds its GDP. Financial crises are looming in Spain and Portugal, and of course they have a VAT. Greece has a VAT, too, and when politicians ran out of money to pay government employees for more than a year's worth of work every year, they rioted in the streets. Great Britain has a VAT, and its government finances are in the worst shape since World War II — its budget deficit is expected to be bigger than that of Greece. Moreover, the OECD has acknowledged that "(VAT) tax and transfer wedges have discouraged firms from offering employment and individuals from taking it, reduced employment and increased inequality."

And a new study by Douglas Holtz-Eakin and Cameron Smith finds evidence that a VAT would lead to bigger government.

VATs provide a significant amount of revenue. ...But do these significant revenues cause government spending to grow larger? Or is it the case that adoption of a VAT is evidence of the desire for a larger government so that the causal arrow runs from a taste for Leviathan to a VAT, and not the reverse? ...we find a statistically significant dynamic relationship between the rate of VAT taxation and the size of government. Although no single study is definitive, this is the first rigorous evidence that a VAT causes government to grow larger. ...countries that adopted a VAT did in fact experience, on average, a 29 percent increase in the size of government. ...The estimated coefficient of 0.262 indicates that adopting a VAT is associated with larger government. This estimate is statistically significant. ...our results shift the burden of proof to those who deny that VATs fuel increases in the size of the public sector.

This study jumps into a long-running chicken-or-egg debate in the academic literature about whether higher taxes lead to higher spending or whether higher spending leads to higher taxes. This causality debate is interesting, but I'm not sure it really matters. A VAT is a terrible idea if it triggers bigger government, and a VAT is a bad idea if it merely finances bigger government. But I suspect this study is correct. The key thing to remember is that Milton Friedman was right when he warned that "In the long run government will spend whatever the tax system will raise, plus as much more as it can get away with." This means that a VAT will allow more government spending and no reduction in deficits and debt, which is exactly what we see in Europe (and as Jim Powell noted in his column).

For those who like to watch rather than read, this video summarizes the arguments against a VAT.

Europe Is Royally %$(#&@, and America May Be Next

Jim Glassman has a thorough article in Commentary explaining that Europe is in deep trouble both because high tax rates discourage work and production and because excessive handouts encourage sloth and dependency. This should be a common-sense observation, but most politicians get votes by convincing voters they can have comfortable lives without producing. The inevitable result is what happened in Greece, though the negative effects of that debacle are being postponed (but also magnified) by the European bailout. Considering what's happening, it's hard to have any optimism about the long-term result. Here's a long excerpt, but the whole article is worth reading since the same thing will happen in America if the Bush-Obama policies are not reversed.

Prosperity, it seems, can bring sloth, which in turn disrupts the virtuous cycle, though not immediately. There is a period, which I believe we are in right now, where the disruption is not apparent, where it can be obscured through government monetary and fiscal manipulation. But eventually, a simple rule will prevail: you can’t live well if you don’t work. It is hardly surprising that work produces well-being, and if work diminishes, then well-being, even in the most advanced economy, will slow down, stop, or shift into reverse gear. “Decadence,” with its connotations of self-indulgence and decline, is not too strong a word for the response we have seen to economic success, especially in much of Europe, over the past few decades. ...In 2004, the year he won the Nobel Prize, Edward Prescott, an economist at the Federal Reserve Bank of Minneapolis, published a paper titled “Why Do Americans Work So Much More than Europeans?” The data were stunning. Prescott found that the average output per adult between 1993 and 1996 in the United States was 75 percent greater than in Italy, 49 percent greater than in the United Kingdom, and 35 percent greater than in France and Germany. “Most of the differences in output,” he wrote, were “accounted for by differences in hours worked per person and not by differences in productivity.” ...Prescott showed that these differences are of fairly recent origin. During the period from 1970 to 1974, Europeans—including the French, Germans, and British—generally worked more than Americans. At that time, however, Europeans were less productive than Americans, so their overall output per person was about the same as it was in 1993-96: around one-third below the U.S. level. So, as Europeans became more efficient (producing more goods and services per hour of work), they cut back on their hours, choosing leisure over work. And the gap has widened. By the time Prescott won his Nobel Prize, Americans were working 50 percent more than the French. ...In his paper, Prescott fingered the culprit: high taxes. “The surprising finding,” he wrote, “is that this marginal tax rate [difference between Europe and the U.S.] accounts for the predominance of differences at points in time and the large change in relative labor supply over time.” Taxation rates on the next euro of income became so high that people were discouraged from working—especially with the enticements of early retirement. But this explanation is incomplete. Why are taxes so high in Europe? Certainly not to maintain a strong defense but rather to pour money into a welfare state that provides lavish support to retirees, perennial students, and others who aren’t working. In other words, Europeans have chosen to have workers support non-workers in their leisure. ...A financial crisis can pull the covers away to give us a clear look at what’s underneath, and the current crisis has exposed Europe as a fool’s paradise. “The fundamental cause of the financial crisis,” wrote the George Mason University economist Tyler Cowen on his blog, Marginal Revolution, “is people and institutions thinking they are more wealthy than they are.” ...The same with nations. Europe supported its welfare state with borrowed money, a practice that can be perfectly healthy as long as both welfare state and debt are modest and loans can be serviced by diligent workers. Europe, however, is not nearly as wealthy as it thought it was, or as wealthy as its national way of life indicated. Take Greece. ...Greece joined the European Union in 1981 and the eurozone—the continent’s monetary union—in 2001. Since the second event, especially, Greece has been behaving as if it were truly rich. The secret was borrowed money. At the end of 2009, the country had a public debt equivalent to 114 percent of its GDP. That’s on top of the 3 percent of GDP that the European Union contributes as direct aid each year. Meanwhile, Greece consistently violated the EU’s rules for minimum deficit and debt levels. The Greeks, however, lived better and better, with an official retirement age of just 58. Only three-fifths of adult Greeks under age 64 were in the work force. ...Default can impose needed fiscal discipline on a government. But in an age of financial magic and euro-solidarity, default for a European nation is not a burden that has to be borne—at least not yet. On the brink of not being able to pay its debts earlier this year, Greece was bailed out with $100 billion in loans from the 15 other eurozone countries and about $50 billion from the International Monetary Fund. This year, the Greek government will make interest payments amounting to 15 percent of GDP on its loans (the U.S. pays less than 3 percent). With Portugal and Spain and perhaps Italy heading for similar trouble, Europe announced it would guarantee debts up to $955 billion. There are two problems with such bailouts. First, they do little or nothing to end the leisure-seeking practices, encouraged by high marginal tax rates and labor regulations, that led to the near-defaults in the first place. Greece may promise austerity as a condition for being saved, but don’t count on delivery. Second is the matter of moral hazard—the tendency of insurance against calamity to provide an incentive toward behavior that produces calamity. I warned of the dangers of moral hazard during the current financial crisis in an article in this magazine last year, and, unfortunately, we are seeing those predictions being realized. Much pain was caused by the crisis, but much was mitigated as well by government policies that kept profligate banks and other businesses alive that should have disappeared—and, of course, Washington took the occasion of the crisis to increase the size of its own welfare state. What the eurozone nations have done in bailing out Greece and pre-bailing Portugal and the others is to introduce a heaping helping of moral hazard that may seem nourishing at first but that inevitably will cause severe indigestion, or worse. ...While the United States is not Europe, many of our states clearly have aspirations in the same decadent direction. With high marginal tax rates and regulations that discourage work, California this year is running a deficit of $20 billion, and a recent study found that the pension shortfall for government workers is $500 billion. Investors were recently paying about $300,000 to buy credit default swaps—that is, an insurance policy—on each $10 million in California municipal bonds. That’s a rate 50 percent higher than on bonds issued by Kazakhstan. As a monetary union, the United States may face a decision similar to that of the eurozone nations: should the federal government bail out California? If it does, we will have entered a fool’s paradise on this side of the Atlantic as well.

European Central Bank President Wants to Exacerbate Continent's Fiscal Crisis

It's been amusing, in an I-told-you-so fashion, to follow the fiscal crises in Greece, Spain, and other European welfare states. And I feel like a voyeuristic ghoul as I observe the incredibly misguided bailout policies being adopted by the political elites (who are trying to bailout the business elites who made silly loans to corrupt nations in Southern Europe). But I'm not sure how to describe my emotions (dumbfounded fascination?) about the latest bad idea emanating from Europe - to have a fiscal federation that would give bureaucrats in Brussels power over national budgets. It's quite possible that this would result in some externally-imposed discipline for a basket case such as Greece, so it would not always lead to terrible results. But most of the decisions would be bad, particularly since the Euro-crats would use new powers to curtail tax competition in order to enhance the ability of governments to impose bad tax policy in order to seize more money. Moreover, fiscal centralization would exacerbate the main problem in Europe by creating a new avenue - cross-border subsidies - for people who want to mooch by getting access to other people's money. The Wall Street Journal Europe has a good editorial on the issue:

Of all the possible responses to Europe's sovereign debt woes, the notion of centralizing fiscal authority in Brussels may well be the most destructive. But that was exactly what European Central Bank President Jean-Claude Trichet proposed in testimony before the European Parliament Monday. Mr. Trichet's idea is that an independent body within the European Commission should have broad power to sanction national governments for fiscal or macroeconomic policies that threatened the stability of the euro. This would amount, in Mr. Trichet's words, to the "equivalent of a fiscal federation" for the euro zone. Mr. Trichet has spent nearly 40 years as a civil servant in one form or another, which may explain his belief that Europe's budgetary problems can be solved by technocrats. ...Fiscal centralization would also undermine competition between different fiscal and macroeconomic policies within the euro zone. That would delight some countries, and probably some at the European Commission as well. During this crisis, French Finance Minister Christine Lagarde has criticized Germany for becoming too competitive for the euro zone's own good. And a decade ago, France was among the euro-zone countries that
attacked Ireland for lowering its corporate income-tax rate to 12.5% to attract
investment. ...Ireland's 12.5% corporate tax rate was an experiment that contributed to a lowering of rates around the world in the succeeding years.

Meet Olga Stefou, a Perfect Symbol of Greece's Downfall

The Los Angeles Times has a story that provides an inside look at the attitudes that have contributed to Greece's fiscal collapse. Let's start with Olga Stefou, who is a good (or bad) symbol for her nation's downfall. She protests in favor of bigger government, naively asserting that the budget shortfall can be solved by pulling 122 troops out of Afghanistan and taxing the Orthodox Church. Olga's entitlement mentality is not unusual. The story also notes that young Greek women think a government job is the most desirable thing in a potential mate. At the risk of being politically incorrect, the people of Greece (at least the ones in the moocher class) deserve a miserable future.

Olga Stefou is 20. She speaks passable English and studies political science. These days she goes into the streets to shout slogans against the government and the International Monetary Fund. She has no choice, she says: She believes that upon graduation she'll be lucky to land a job that pays $500 a month. "I'll be forced to live with my parents and work three jobs," she said, pausing among the throngs trickling into the street as a recent demonstration got underway. "I'll be doomed to a fate I haven't chosen. This is the state of my generation." Stefou believes that the government is bound to respond to her discontent. And she has suggestions: Greece should make up its budget shortfall by pulling its 122 troops from Afghanistan and levying steep taxes on the Orthodox Church rather than squeezing the workers, she says. The government is "in some way afraid of us," Stefou said with a shrug. "There are too many of us." A hot spring night was creeping over Athens. Thousands of demonstrators packed the street; many of them looked to be about Stefou's age. They marched in a slow circle down Stadiou Street to Parliament and then back again, yelling slogans: "Down with the junta of the IMF!" "Euro is here and it makes you poorer!" "Thieves, thieves, banks, stockbrokers and politicians!" ...Last year, Michas did a study of Greek marriage agencies. He found that the top attribute sought by middle-class young women in a potential mate was a job in the civil service or the military. Government service has long been prized because of the elaborate set of benefits attached to the position. "This is the mind-set now," Michas said. "It's a culture of dependency, first on parents, and it becomes a dependency on the state."

Bush, Obama, Greece, and the VAT

Speaking at Cato's Public Policy Day, I explain how Bush and Obama have undermined American prosperity with bigger government and more wasteful spending. I then move from bad news to worse new news by discussing how the politicians will soon try to make America even more like Greece with a value-added tax.

The Collapse of the Euro, the Eurozone, and the European Union

Czech President Vaclav Klaus is one of the few European politicians to believe in the classical liberal ideals of individual freedom, personal responsibility, free markets, and small government. He has wisely warned about the European Union superstate being erected in Brussels is a dangerous mix of centralization, bureaucratization, and harmonization. The economic troubles in Europe show he has been right on the mark, of course, so we should all pay attention as he discusses the prospects for Europe in a column for the Wall Street Journal:

I have not rejoiced at the current problems in the euro zone because their consequences could be serious for all of us in Europe—for members and non-members of the euro zone, for its supporters and opponents. Even the enthusiastic propagandists of the euro suddenly speak about the potential collapse of the whole project now, and it is us critics who say we have to look at it in a more structured way. The term "collapse" has at least two meanings. The first is that the euro-zone project has not succeeded in delivering the positive effects that had been rightly or wrongly expected from it. It was mistakenly and irresponsibly presented as an indisputable economic benefit to all the countries willing to give up their own long-treasured currencies. Extensive studies published prior to the launch of the European single currency promised that the euro would help to accelerate economic growth and reduce inflation and stressed, in particular, that the member states of the euro zone would be protected against all kinds of external economic disruptions (the so-called exogenous shocks). This has not happened. After the establishment of the euro zone, the economic growth of its member states has slowed down compared to previous decades, increasing the gap between the rate of growth in the euro-zone countries and that in other major economies—such as the United States and China, smaller economies in Southeast Asia and other parts of the developing world, as well as Central and Eastern European countries that are not members of the euro zone. Economic growth in Europe has been slowing down since the 1960s, thanks to the increasingly damaging economic and social system which started dominating Europe at that time. The European "soziale Marktwirtschaft" is an unproductive variant of a welfare state, of state paternalism, of "leisure" society, of high taxes and low motivation to work. The existence of the euro has not reversed that trend. According to the European Central Bank, the average annual rate of growth in the euro-zone countries was 3.4% in the 1970s, 2.4% in the 1980s, 2.2% in the 1990s and only 1.1% from 2001 to 2009 (the decade of the euro). A similar slowdown has not occurred anywhere else in the world (speaking about "normal" countries, e.g. countries without wars or revolutions).

The United States of Greece

Americans should not get too smug about the troubles in Europe because the Bush-Obama policies of wasteful spending are bringing us down the same path. The latest evidence comes from a well-researched article about personal income in USA Today showing that the share from private paychecks fell to a record low and the share from government handouts reached a record high. As Veronique de Rugy of the Mercatus Center points out in her quote, this is the pattern that led to fiscal disaster in Greece:

Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of this year, a USA TODAY analysis of government data finds. At the same time, government-provided benefits — from Social Security, unemployment insurance, food stamps and other programs — rose to a record high during the first three months of 2010. ...The result is a major shift in the source of personal income from private wages to government programs. The trend is not sustainable, says University of Michigan economist Donald Grimes. Reason: The federal government depends on private wages to generate income taxes to pay for its ever-more-expensive programs. Government-generated income is taxed at lower rates or not at all, he says. "This is really important," Grimes says. ...Economist Veronique de Rugy of the free-market Mercatus Center at George Mason University says the riots in Greece over cutting benefits to close a huge budget deficit are a warning about unsustainable income programs. Economist David Henderson of the conservative Hoover Institution says a shift from private wages to government benefits saps the economy of dynamism. "People are paid for being rather than for producing," he says.

Class Warfare Taxes in America and England

Appearing on Larry Kudlow's show, I talk about the poisonous class-warfare tax policy in the United Kingdom and United States.

Immigration and the Welfare State

My previous post dealing with whether citizenship should be automatic for babies born to illegals generated a lot of commentary, so it is with some trepidation that I wade back into the issue. But the Wall Street Journal column excerpted below seems to strike exactly the right chord and should (at least I think!) meet with approval from both sides of the immigration debate. And by "both sides," I'm referring to the debate on the right (with some conservatives and libertarians on both sides of the issue) regarding the benefits of immigration generally and the treatment of illegals specifically.

...a larger welfare state is not conducive to comprehensive immigration reform. If foreigners start coming for handouts instead of economic opportunity, tighter restrictions will be justified. ... A 2005 World Values Survey found that 71% of Americans see poverty as a condition that can be overcome by dint of hard work, while only 40% of Europeans share that viewpoint. ...Belief in social mobility has informed welfare and immigration policy from colonial times. In 1645 the Massachusetts Bay colony was already barring paupers. And in 1882, when Congress finally passed the country's first major piece of immigration legislation, it specifically prohibited entry to "any person unable to take care of himself or herself without becoming a public charge." A problem that immigration reformers face is the public perception—fed by restrictionists and exacerbated during economic downturns—that the U.S. welfare state is already a magnet for poor immigrants in search of government assistance. It's true that the U.S. attracts poor people, but it's also true that they come here to work, not to go on the dole. We know this because the data consistently show that foreign nationals in the U.S. are more likely than natives to be employed and less likely than low-income natives to be receiving public benefits. ...While there's no evidence that immigrants come here for public assistance, that could change as the U.S. welfare state grows. And one consequence could be less-welcoming immigration policies. The European experience is instructive. In countries such as France, Italy and the Netherlands, excessively generous public benefits have lured poor migrants who tend to be heavy users of welfare and less likely than natives to join the work force. Milton Friedman famously remarked, "you can't have free immigration and a welfare state." There is a tipping point, even if the U.S. has yet to reach it.

Is America Becoming a Nation of Moochers?

This story from the Daily Caller about colleges helping kids sign up for food stamps, got me completely depressed. It's not so much that this is indicative of a bloated, out-of-control government, though it is. It's more that this symbolizes how the social capital of the nation is being eroded by the moocher mentality. Welfare should have social stigma, it should not be overly generous, and it should not be part of the federal government. As you can see from this excerpt, I'm batting 0-3:

About 20,000 people sign up for food stamps every day, and college students across the country are the newest demographic being encouraged to enlist. Portland State University devotes a page on its Web site to explaining the ease with which students can receive benefits, along with instructions on how to apply. The school says food stamps are not charity but rather a benefit all honest taxpaying citizens can afford. ...Traditionally food stamps are for the working poor and single parents, but colleges are trying to make it as easy as possible for students to obtain federal assistance, no matter their socio-economic background. Oregon has a state-wide non-profit which includes a special focus on food stamps for students... The Grand Views, a college newspaper from Grand View University in Des Moines, Iowa, featured a story on students who apply for food stamps because they claim they don’t have time to hold down a job between classes and basketball practices. ...Adam Sylvain, a sophomore at Virginia’s George Mason University, recounted a recent conversation with friends in his dorm room. “My roommate told me he applied for food stamps, and they told him he qualified for $200 a month in benefits,” Sylvain said. “He’s here on scholarship and he saves over $5,000 each summer in cash.” “A few of our other friends who were in the room also said if there were able to, they would get food stamps … They think that if they’re eligible it’s the government’s fault, so they might as well,” Sylvain said. ...President Obama’s latest budget included $72.5 billion for food stamps — nearly double the amount from 2008. Approximately 38 million people, or 13 percent of the U.S. population is on food stamps. It’s a trend that seems on the rise — Salon recently reported on young, broke hipsters using federal assistance to buy high-end organic food. “I’m sort of a foodie, and I’m not going to do the ‘living off ramen’ thing,” one young man said, fondly remembering a recent meal he’d prepared of roasted rabbit with butter, tarragon and sweet potatoes. “I used to think that you could only get processed food and government cheese on food stamps, but it’s great that you can get anything.”

Great Moments in Foreign Government

Or maybe this belongs in the "great moments in international bureaucracy" series since it relates to European Union law. Regardless, we have another sign of Europe's fiscal nightmare. A court in the United Kingdom has given a big green light to welfare tourism by ruling that a foreign citizen can get handouts based on children living in another country.I realize, of course, that there is welfare tourism in the United States, but surely no state would give money for children living elsewhere (at least I hope). The Daily Express reports on the latest lunacy from the other side of the Atlantic:

A landmark ruling that allows jobless migrants to claim benefits in Britain for their children living in their home country sparked outrage last night. Critics warned the judgment could "open the door" to thousands of benefits tourists abusing generous payouts in Britain. In yesterday"s High Court ruling " showing how EU law is taking precedence over the UK"s " a Portuguese national living in Britain won a legal battle for child benefit for his two daughters in his home country despite no longer working and claiming incapacity benefit here. ...three top judges blocked an appeal by HM Revenue and Customs to prove he was not eligible for the money. Lawyers for Mr Ruas argued EU rules allowed any worker from an EU country who was employed or who received "social assistance" to claim child benefits even if the child lives abroad. Matthew Elliott, chief executive of the TaxPayers" Alliance, said: "This opens the door to a huge bill for taxpayers which is utterly unjustified. "Now there are even greater incentives for people to come to Britain trying to take advantage of the benefits system. Time and again it seems these judgments go against the best interests of hard-pressed British taxpayers."

The Federal Government Is Bribing States to Create More Welfare Dependency?!?

If you want to get depressed or angry, the New York Times has an article celebrating the effort by politicians at all levels of government to lure more people into the food stamp program. New York City is running ads in foreign languagues asking people to stick their snouts in the public trough. The City is even signing up prisoners when they get out of jail. The state of New York, meanwhile, actually set up quotas for enrolling new recipients. And on the federal level, there apparently is a program that gives states "bonuses" for putting more people on the dole. No wonder one out of every eight Americans is receiving food stamps. By the way, this is not just the fault of Democrats. The ranking Republican on the Agriculture Committee is a big defender of the program, in part because of the sordid pact among urban and rural politicians to support each other's handouts. And President George W. Bush's food stamp administrator actually had the gall to assert "food stamps is not welfare." No wonder the burden of federal spending skyrocketed during the reign of so-called compassionate conservatism. The correct policy, of course, is to get the federal government out of the welfare business. If Mayor Bloomberg thinks it is a "civic duty" to expand food stamps, he should see whether New York City voters agree with him - and want to foot the bill.

A decade ago, New York City officials were so reluctant to give out food stamps, they made people register one day and return the next just to get an application. The welfare commissioner said the program caused dependency and the poor were “better off” without it. Now the city urges the needy to seek aid (in languages from Albanian to Yiddish). Neighborhood groups recruit clients at churches and grocery stores, with materials that all but proclaim a civic duty to apply — to “help New York farmers, grocers, and businesses.” There is even a program on Rikers Island to enroll inmates leaving the jail. “Applying for food stamps is easier than ever,” city posters say. ...These changes, combined with soaring unemployment, have pushed enrollment to record highs, with one in eight Americans now getting aid. “I’ve seen a remarkable shift,” said Senator Richard G. Lugar, an Indiana Republican and prominent food stamp supporter. “People now see that it’s necessary to have a strong food stamp program.” ...The program has commercial allies, in farmers and grocery stores, and it got an unexpected boost from President George W. Bush, whose food stamp administrator, Eric Bost, proved an ardent supporter. “I assure you, food stamps is not welfare,” Mr. Bost said in a recent interview. Still, some critics see it as welfare in disguise and advocate more restraints. ...The federal government now gives bonuses to states that enroll the most eligible people. ...In 2008, the program got an upbeat new name: the Supplemental Nutrition Assistance Program — SNAP. ...Since Mayor Michael R. Bloomberg took office eight years ago, the rolls have doubled, to 1.6 million people... Albany made a parallel push to enroll the working poor, setting an explicit goal for caseload growth. “This is all federal money — it drives dollars to local economies,” said Russell Sykes, a senior program official. But Mr. Turner, now a consultant in Milwaukee, warns that the aid encourages the poor to work less and therefore remain in need. “It’s going to be very difficult with large swaths of the lower middle class tasting the fruits of dependency to be weaned from this,” he said.

Examining Swedish Models

No, not these kind. Instead, I'm in Stockholm for a meeting of the Mont Pelerin Society, and this gathering of classical liberals (i.e., the Adam Smith types that believe in freedom, not the modern liberals that favor collectivism) has featured some discussion of the Scandinavian social welfare state - often referred to as the Swedish Model.

What is particularly interesting is that Sweden is not the left-wing paradise that some imagine. Yes, government is far too big, consuming about 50 percent of economic output. But Sweden also has an extensive system of school choice. Equally remarkable, Sweden has a system of personal retirement accounts. Indeed, if one removed fiscal policy variables from the ratings, Sweden would be more free market than the United States in the Economic Freedom of the World rankings.

But even in the area of fiscal policy, Sweden is making progress. In recent years, policy makers have abolished both the death tax and the wealth tax. And the corporate tax rate has been reduced significantly below the U.S. level.

Sweden often is cited as an example of a nation that proves a big welfare state is not an obstacle to being a rich society. But as I wrote in my study comparing the United States and the Nordic nations:

Many prosperous nations in Western Europe have large welfare states. This leads unsophisticated observers to sometimes assume that high tax rates and high levels of government spending do not hinder growth. Indeed, they sometimes even conclude that bigger government somehow facilitates growth. ...This analysis puts the cart before the horse. It is possible for a nation to become rich and then adopt a welfare state. ...A poor nation that adopts the welfare state, however, is unlikely to ever become rich. Before the 1960s, Nordic nations had modest levels of taxation and spending. They also enjoyed—and still enjoy—laissez-faire policies and open markets in other areas. These are the policies that enabled Nordic nations to prosper for much of the 20th century. Once their countries became rich, politicians in Nordic nations focused on how to redistribute the wealth that was generated by private-sector activity. This sequence is important. Nordic nations became rich, and then government expanded. This expansion of government has slowed growth, but slow growth for a rich nation is much less of a burden than slow growth in a poor nation.