The Welfare State: Myths & Measurement

By Dr. Irwin Garfinkel

President Obama is the first president since Lyndon Johnson to win reelection after aggressively expanding the welfare state. His critics say that he is trying to bring the nation closer to European-style socialism, where more and more wealth will be transferred from one part of the population to another.

These critics further assert that a more generous welfare state will lead to more government waste and further cripple our weak economy.

But I would contend that these critics misunderstand the welfare state because of some common myths and mismeasurements. They subscribe to a definition of the “welfare state” that focuses narrowly on cash assistance and social insurance, ignoring the broader set of social welfare transfers such as education, employer provided benefits, all in-kind benefits, and other social welfare programs that serve to boost overall economic productivity.

Here are four of the most prevalent myths.

1. The welfare state is a drag on productivity.

Critics of the welfare state argue that the taxes required to finance it blunt economic incentives and thereby undermine productivity.

While it is true that taxes drag down incentives, the expenditures that the taxes finance—on roads, harbors, bridges and other infrastructure—can increase productivity. The same, of course, holds true for public education and public health—two large elements of welfare states.

Social insurance programs and aid to the poor—how most people define “welfare”—have little effect on growth.

Two large plusses combined with even a small negative add up to a large plus.

2. The United States has an unusually small welfare state, which gives us an advantage over other wealthy nations.

Of the 14 wealthy welfare states I measured for my book on this topic—including the United States—all were strikingly similar in size and structure. The size of the American welfare state is small compared to other well-off nations only if we ignore the fact that our government heavily subsidizes employers who provide health-care benefits to their employees, and compare total welfare-state expenditures to total income in the country.

Among rich nations, if size is measured by the ratio of social welfare expenditures to national income, and employer-provided benefits are included, the U.S. welfare state is close to average.

But even if employer benefits are not included, if the size of the welfare state is measured by how much is spent per person, then the United States has the largest in the world aside from Norway’s.

3. In the United States, most welfare benefits go to the poor and near-poor.

In fact, the richest in our society get the largest medical care and housing benefits, with the poorest following—which means that the working poor, lower middle class, and even the middle class often fall through the cracks. The richest fifth of the population receives housing subsidies through the mortgage interest tax deduction—which is nearly four times the housing assistance provided to the poorest fifth and about eight times the assistance provided to the lower middle and middle classes.

The richest fifth get health benefits that are almost twice those of the poorest fifth.

4. The United States is, and has always been, a welfare state laggard.

The United States has been less than generous in providing aid to the poor than most other rich nations. We have also been slower to adopt social insurance programs such as national health care.

But throughout most of the 19th and 20th centuries, this nation led the world in the provision of mass public education—the most productive part of the welfare state.

Since then, however, other wealthy countries have caught up with us in investing in education for the masses, and most have gone ahead in providing
early childhood education and care.

Why have we surrendered our lead on the educational front, held for over two hundred years, and how will that affect our future economic standing?

Policies on government spending should flow from the answers we provide to such questions. As President Obama said in his second inaugural address:

No single person can … build the roads and networks and research labs that bring new jobs and businesses to our shores.

He went on to assert that our commitments to social justice “do not make us a nation of takers; they free us to take the risks that make this country great.”

Irwin Garfinkel is the is the Mitchell I. Ginsberg Professor of Contemporary Urban Problems at the Columbia University School of Social Work and co-founding director of the Columbia Population Research Center. His most recent book is Wealth and Welfare States: Is America Laggard or Leader? This article first appeared in the Winter 2013 issue of Spectrum, the magazine of the Columbia University School of Social Work.

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