Bryan Caplan  

EconLog Book Club: For a New Liberty, Chapter 8

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Tale of Two Islands... Some Morning Links...
Summary
This chapter, on "Welfare and the Welfare State," argues that the welfare state gives the poor perverse incentives.  A superficial reader might say, "However original this was in 1973 when it was first written, it's now old hat.  Clinton made the same arguments for welfare reform."  However, on closer examination, Rothbard's analysis remains distinctive both positively and normatively.

Positively, Rothbard unapologetically affirms that the poor are typically poor because of their own short-sighted, impulsive values.  He heaps praise on Harvard's Edward Banfield - probably because Banfield was one of the few scholars who actually said what middle-class observers of the poor can't help but think:
[U]pper- and middle-class members tend to be future-oriented, purposeful, rational, and self-disciplined.  Lower-class people... 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.
Strange as it may seem in our post-Bell Curve age, though, Rothbard does not mention low intelligence as a contributing factor.

Normatively, Rothbard breaks with mainstream critics of the welfare state with his abolitionist stance: The only acceptable form of relief for even the "deserving poor" is private, voluntary charity; as for "the undeserving poor," they should straighten up and fly right:
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...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.
Other highlights: Rothbard celebrates the private welfare system of the Mormons and points out a number of ways that regulation hurts the poor.  He also heaps scorn on - and misrepresents - Friedman's "negative income tax," never mentioning that the whole point is to reduce the effective 100% marginal tax rate that welfare recipients typically face.

Critical Comments
I remain a huge fan of this chapter.  While Rothbard neglects the IQ-poverty connection, modern scholars continue to neglect the Conscientiousness-poverty connection.  Frankly, it's a ridiculous oversight.  It's intuitively obvious: How could laziness and impulsiveness not lead to poverty?  And you don't need fancy econometrics to detect it empirically: Kids from low-income areas were bused into my suburban elementary, junior high, and high schools, and all of Rothbard's claims about "lower-class values" described them to a tee.

I also find his abolitionism refreshing.  Sure, private charity couldn't maintain anything like the modern welfare state.  But I see no reason why it couldn't provide a modest safety net for indigent children and the severely handicapped.  Private charity in the U.S. is about $300B annually - 2.2% of GDP.  Admittedly, only a small fraction of that goes to the poor now; but clearly that would change if the welfare state were abolished.  If it seems unrealistic to rely on donations to provide for the poor, consider: Back in the era of established churches, wouldn't it have seemed equally unrealistic to rely on donations to provide for religion?

My main empirical complaints: Even in the 1970s, Rothbard should have spent more time explaining that the welfare state is primarily about helping the old, not the poor.   And he should have spent more time explaining that by world standards, the American "poor" are already well-off.  Then he could have easily moved on to the most philosophically devastating critique of the welfare state: Our immigration laws are a massive, shameful effort to prevent the free market from lifting millions of foreigners out of absolute poverty.

Of course, if Rothbard had focused on global poverty, he would have had to admit the awkward point that voluntary charity does little to alleviate the truly horrific plight of the world's bottom billion.  If the U.S. abolished the welfare state, Americans would open their checkbooks to poor children and the handicapped who happen to be American citizens.  But the absence of a world welfare state has manifestly not led to robust private substitutes.  Modern markets are international, but modern charity remains a largely national affair.


Comments and Sharing


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COMMENTS (32 to date)
Brandon Berg writes:

But the absence of a world welfare state has manifestly not led to robust private substitutes.

Sweatshops.

John Stagliano writes:

"Strange as it may seem in our post-Bell Curve age, though, Rothbard does not mention low intelligence as a contributing factor."

I'm pretty sure you can't really say that today in the MSM.

Jayson Virissimo writes:

"I'm pretty sure you can't really say that today in the MSM." -John Stagliano

Rothbard never was a very mainstream kind of guy and neither is Caplan. Perhaps that's why he often doesn't make the cut on news programs.

A Reformed Banker writes:

ergo post propter hoc

You have been conditioned to associate certain "work ethics" with "success" and you presume to make value judgments about the suitability of the skill sets of those who do not conform to these normative social values. They have nothing to do with objectively demonstrable accomplishment. In fact they are most likely a detriment to it.

"[U]pper- and middle-class members tend to be future-oriented, purposeful, rational, and self-disciplined. Lower-class people... tend to have a strong present-orientation, are capricious, hedonistic, purposeless, and therefore unwilling to pursue a job or a career with any consistency."

This Banfield statement is utterly nonsense.

Certainly the most "capricious, hedonistic, purposeless" people I know are the sons and daughters of privilege. A visit to some of Harvard's Final Clubs or Fraternities would perhaps illuminate this. But of course, when a person from the upper class demonstrates these characteristics they are "eccentric" or "quixotic" rather than lazy and shiftless.

Most of what determines "success" in life is randomness and fitting in.

jsalvati writes:

Bryan,

Have you read "What Intelligence Tests Miss: The psychology of rational thought" by Keith Stanovich? The book's main point is that while IQ tests measure an important thing, they do not measure all of what is commonly referred to as "intelligence". The book claims that there are other cognitive abilities which are good predictors of performance in real life, but which are not measured at all by IQ tests, and it suggests that these could be grouped under the term "rationality".

Arare Litus writes:

Summary: Welfare is bad, as are the people on welfare.

Everyone can see “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.”. Not emphasized is the relatively skilled class that gains from the “care and feeding” of those on welfare, to me this is just a large of an issue as each employee in the “public service” has clear incentive to promote and expand the infrastructure, and they will have the power to push for this. It seems telling that the “direct welfare” components did not grow as much as the total, presumably, in part, due to bureaucracy expansion.

It is odd that Rothbord gives stats, then iteratively corrects for factors – why not save space and just give us the corrected value, and throw the rest in a footnote? And then he states from 55 to 76 “the total number of people on welfare quintupled”, without correcting for population growth – did the relative number go down? Increase? Stay the same?

Rothbard then moves on to suggest that welfare is a “bonanza”, disingenuous at best – I do not think that welfare support is a very lucrative option. To select that option as your best bet suggests you have very unfortunate options; financially, socially, and personally the option is sad. Rothbard may think that the stigma is low, but I am not sure of who actually believes that – defiantly not in my world, and I doubt others. Even (especially?) social workers look down on “welfare bums”.

I will offer one possible example of welfare leading to a more productive outcome – the woman who wrote the Harry Potter series was a welfare bum. Being on welfare, not a pleasant outcome, likely afforded her the time to put serious effort into writing and personal development. The outcome, as judged by markets, was an enormous gain in wealth – both for the author and for each person buying the book. Yes, she could have instead cleaned toilets, or worked in a massage parlor, or something, and been “productive”.

An interesting point is “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.”. Modern research suggests that a lot of what “we” thought was “social” or “choice” is genetic: weak character, like stupidity and ugliness, may be to a sizable part due to bad luck of birth – for ugly, stupid, weak people, i.e. those who got the short end of the stick in life, welfare may be the best of the bad options. For others who hit on hard times and need a chance to recover this may also be the best of some bad options (think Harry Potter).

The Doeringer study that found 70% of job applicants received job offers is somewhat irrelevant without further information – 100% of citizens have “voting offers”. That does not suggest that it is rational to take up any of the offers.

“Since welfare families are paid proportionately to the number of their children, the system provides an important subsidy for the production of more children.”, this is an interesting point that is widely pointed out. One obvious implication is that, to the extent that people on welfare have genetically poor traits, that promotion of children is a bad long term social strategy (“Farewell to Alms”, which I did not finish due to opportunity cost, suggests the industrial revolution was due to reproductive success of those that had productive traits – indicating that if one reverses the reproductive success mechanism we are in for a “industrial devolution”). This evolutionary argument is old, but not seriously discussed it seems (backlash from social Darwinism?).

Rothbard ends on the NIT idea. “It seems clear that there will be no real reason for anyone making less than [the NIT cutoff] a year to keep on working.”. This assumes that the worker sees no long term benefit – that they have such marginal skill as to not move forward, and the work open to them cannot even marginally fulfill the intrinsically good feeling work provide. If they see any hope at all of improving their condition they will work in order to build skill, and to feel pride and the intrinsic rewards of work. I don’t see a huge slippery slope – are work efforts that elastic? Governments seem to be able to tax hard working people fairly heavily without reducing their work as much as one would think, suggesting that elasticity is not huge.

Clearly government will displace private welfare options, and welfare is not good. But I would think that if you are seriously considering welfare than you have sparse and marginal options, I doubt Rothbards slippery slope fear and question his understanding of just how unfortunate some peoples lives are. To me the question is much more on systematic effects – I can see arguments that systematically one could have a better system (in terms of long term growth and benefit) without welfare, even though some will be heavily hurt, but to discount the real poverty of options and resources that some have, and the fact that they will be heavily hurt, is disingenuous. Admit that, give a systematic argument, and offer the salve of private solutions and I would be much more happy with your understanding and honesty.

Arare Litus writes:

the welfare state is primarily about helping the old, not the poor ... the American "poor" are already well-off ... immigration laws are a massive, shameful effort to prevent the free market fro lifting millions of foreigners out of absolute poverty

Good points, none of which I thought of when reading this chapter.

First world, "free", nations stances on immigration, as well as considering long term effects, is what really turned me to seriously considering free markets as a moral system.

Certainly the most "capricious, hedonistic, purposeless" people I know are the sons and daughters of privilege. ... Most of what determines "success" in life is randomness and fitting in.

I see you have not actually meet the lower end. Yes, the ultra rich, like everyone, can show poor traits (however the ultra rich can afford to do so, so it is perhaps not so irrational), but the lower end show extreamly poor traits which they can not afford to have, i.e. to the extent that it is a choice it is a very, very, very bad one. But I suspect it is not a choice - if you grow up malnourished, in abusive maladaptive homes, without good examples, and with peers just like you, and likely with poor genes too boot, well, you are in for a world of hurt.

As for randomness & social skill - this is true to an extent, but other skills are also important. This is also very field dependent, I have the impression that the financial/banking world is much more on the random end, while a trade would be much more on the skill end. And fitting in is not a bad thing - most people are fairly tolerant of differences, as long as your "bad" parts don't become too much of a burden.

Blackadder writes:

What most interested me were the comments about the non-progressive nature of the welfare state (i.e. that it mainly involves redistribution within income groups, rather than between groups). Does anyone know how the situation now compares to when Rothbard was writing?

Randy writes:

Having worked my way into the middle class, I have no sympathy for those who do not. Quite simply, it isn't that hard to do.

Welfare is a political industry.

Steve Roth writes:

Bryan:

While I have little truck with the "it's obvious and anyone can see it" school of argument (it was a favorite among southern slaveholders and--seemingly inexplicably--their poor white supporters), for the sake of discussion I'll let you take as given that the poor are poor because they're shiftless.

Given your (well-founded) enthusiasm for the findings of Judith Rich Harris et. al., I think you'll have to agree that they're shiftless largely because they were born that way. They lost the lucky-sperm contest.

If you accept that--which I think you must--the basic argument of this post is reduced to this:

Rich people should be rich because they were born lucky.

Which I think you'll reject on moral grounds.

But put aside that baseless moral argument. If we take Keynes' advice and look at this issue as a technical problem rather than a morality play (the technical problem being that hummans are naturally lazy), we can come to far more fruitful conclusions.

The field there before us is vast. But I would present this evidence as Exhibit A: There is not one thriving, prosperous, modern economy that does not include a major element of government redistribution and social welfare. If an economic and political model absent those things were in fact so extraordinarily efficient, one would expect that at least *one* thriving, prosperous country would have emerged that embodied such a model. Natural selection, competition, all that. It just hasn't happened.

Just as you argue that "the absence of a world welfare state has manifestly not led to robust private substitutes," I would argue that the absence of a welfare state has manifestly not led to robust political economies.

For explanation, I would posit two things: 1. ever-more-rapidly-increasing productivity, and 2. maintaining aggregate demand. But that's another post, and another discussion.

Steve

RWard writes:

--"If an economic and political model absent those things were in fact so extraordinarily efficient, one would expect that at least *one* thriving, prosperous country would have emerged that embodied such a model. Natural selection, competition, all that. It just hasn't happened."

This only holds if you assume away all other factors that affect the development of economic systems. I would counter that governments have sufficient incentive to prevent this from happening that any benefits of such a system will never be allowed to become a factor.

Randy writes:

Steve Roth,

"Rich people should be rich because they were born lucky."

I think that tossing "the rich" into the equation just confuses the issue*. There's no need to concern ourselves with whether the rich deserve what they have, or with making poor people rich, when the only reasonable objective is to get the poor into the middle class. And doing that, again, just isn't that hard to do.

*Unless, of course, one is a politician concerned with finding justifications for a system of exploitation.

Arare Litus writes:

Randy,

the only reasonable objective is to get the poor into the middle class. And doing that, again, just isn't that hard to do

You have a sample bias Randy, just because it was easy for you does not mean it is easy for others. We all have various qualities we can be measured against, and it seems that often they go hand in hand - for example, if you measure high on IQ you are likely to measure higher on other skill qualities. Then there are looks, altheletic ability, etc. too. Some people measure poorly on all measures, and some of this is genetic. Some people are stupid out of choice, others are just plain stupid and no matter how hard they work they will not reach anywhere close to an useful level of intelligence - one would not be surprised if a seriously retarded person could never read classic literature in Latin. Is it not likely that there is a subset of "the poor" that measure up poorly on a whole bundle of qualities that are required to achieve a middle class life?

Yes, one should encourage growth and not reward bad choices, but one must accept that we do not live in an ideal world, and some lost out on the roll of life - both genetically and by being socialized to maladaptive behaviours. Ones maladaptive behaviours can be fought, but there is a limit to each persons level of possibility. For some, this level is extreamly low.

Steve - For explanation, I would posit two things: 1. ever-more-rapidly-increasing productivity, and 2. maintaining aggregate demand.
1. only explain being able to bare a cost, not that the cost is legitamite, moral, or helpful. 2. makes little sense to me - if the rich keep their money they will invest it, buy high-end products, and otherwise "maintain aggregate demand". In fact, accepting that freely made money transfer is a reflection of perceived value, taking money from those who provide value and giving it to those who do not suggests that wealth growth will be slowed and "aggregate demand" will be ineffectively maintained. Keynesian economics, as presented by the mainstream, appears to ignore the value and signaling aspects of money, to me the most interesting aspect of money, as well as ignoring time. The cartoon aspect gives some insight, but one should not too readily accept the model as a deep and accurate reflection of reality.

I look forward to your post on the aggregate demand explaination.

Floccina writes:

There is not one thriving, prosperous, modern economy that does not include a major element of government redistribution and social welfare.

How about Hong Kong?

Bill writes:

As to the thought that there would be enough private charity to provide something close to a decent safety net, as measured in terms of something that will keep people from starving to death, I think that is contrary to what anyone can reasonably observe.

How many people do you know pay the 80 cents a day or whatever the feed the children charities ask for? Nobody I know. I don't. I and everybody else know that children are starving though. I don't want children to starve. So why don't I contribute to a charity like that? Seriously, I want to know, because I can't figure it out.

Same thing with what I perceive to be overly-hyped concern for immigrants from impoverished places. It is one thing to say you think they should come here when you know the rest of the population won't vote for it and holding your opinion makes you unique and feel good about yourself. Unless one is spending any real amount of time or money helping actual immigrants though, I wonder just how sincere one is.

Randy writes:

Arare Litus,

"You have a sample bias....Is it not likely that there is a subset of "the poor" that measure up poorly on a whole bundle of qualities that are required to achieve a middle class life?"

Yes, I have a sample bias. I have actually lived among the people we're talking about, and actually done the kinds of work that most of them are easily capable of doing.

Yes, there is a "subset" of total incompetents, but its not a very large subset. It only takes about a 6th grade level education to make it into the middle class if one is willing to work hard and avoid stupid behaviors. Just how big a subset do you imagine to be incapable of that?

Steve Roth writes:

(I'm putting several links to my blog in here. Call it blatant self-promotion, or just give it to me that I don't want to repeat the arguments here in lesser forms.)

RWard: "governments have sufficient incentive to prevent this from happening that any benefits of such a system will never be allowed to become a factor."

If we give you that as a given, it's another technical fact about humanity that we have to deal with. One technical suggestion: much wider use of the type of commission that was used to decide which military bases to close. Legislators created the commission, with the proviso that the legislators would only get an up/down vote on the recommendations--no amendments. See Zakaria's The Future of Freedom for excellent discussion of this (I think) worthy improvement to the checks-and-balances system, an improvement which serves to short-circuit key failings of democracy.

http://trueconservative.typepad.com/trueconservative/2008/11/bring-back-the-philosopher-kings.html

Randy: "the only reasonable objective is to get the poor into the middle class. And doing that, again, just isn't that hard to do."

Please, share with us all!

Arare Litus:

1. "if the rich keep their money they will invest it, buy high-end products, and otherwise "maintain aggregate demand"

A. Investment increases GDP (it's part of it), but it does not increase demand. Say's Law, long debunked.

B. As increasing percentages of GDP go to profits and to the wealthy, they find it increasingly difficult to find actually productive investments for those oceans of cash. Hence the derivative/bubble/gambling investments that took off when that shift occurred in the 20s and the 00s.

C. Independent, privately-held businesses, at least--the very engines of innovation and growth that we all love to proclaim and applaud (and which I have started, run, and sold multiple times)--put lack of investment as the *very last* thing on the list of items that constrain their growth.

This was true, at least, in 2007:

http://trueconservative.typepad.com/trueconservative/2008/11/do-wealthy-investors-create-growth-and-prosperity-not-so-much.html

And in February of 2009:

http://trueconservative.typepad.com/trueconservative/2009/03/businesses-constrained-by-lack-of-investment-oh-maybe-not.html

This was also true of major corporations 2004-2008. Despite their supposed desperate need for investment, over that period they actively depleted their capital--putting out more in dividends and stock buybacks ($2.6 trillion) than they earned ($2.4 trillion). (Where did they get that money? The old-fashioned way: they *borrowed* it.)

http://trueconservative.typepad.com/trueconservative/2009/01/we-need-to-spur-business-investment-yeah-right.html

D. While Krugman, quite to my surprise, suggested in a post some time ago (I'm gonna make you look it up) that spending by the rich could indeed provide all the necessary demand for an economy, I find that to be far-fetched and contradicted by history. (See B, above.)

2. I look forward to your post on the aggregate demand explanation.

Here are a couple:

http://trueconservative.typepad.com/trueconservative/2008/10/all-cashed-up-with-nowhere-to-go-what-caused-the-depressions-and-what-to-do-about-it.html

http://trueconservative.typepad.com/trueconservative/2008/11/why-prosperity-requires-a-welfare-state.html

Rimfax writes:

Modern markets are international, but modern charity remains a largely national affair.

I am thwarted in my attempt to re-find my sources, but I recall being able to document that there was about $1 trillion per year given to Africa alone from outside of Africa, a little more than half of it in the form of government aid.

I recommend taking this as rumor until you can corroborate it.

Steve Roth writes:

Arare Litus: "Yes, there is a "subset" of total incompetents, but its not a very large subset."

*By definition,* 50% of people have an IQ below 100.

I personally find it almost impossible to grasp what it would be like to try and make my way in today's economy, if I'd been born with that roll of the dice.

Randy writes:

Steve Roth,

"Please, share with us all!"

Work. Keep working. Don't indulge in stupid behaviors.

What I don't understand is people who think this is complicated. Especially since the people who find it complicated seem to be found most often among the best educated.

Arare Litus writes:

Steve, you misquoted me:

Arare Litus: "Yes, there is a "subset" of total incompetents, but its not a very large subset."

This was Randy, not me. To Randy's point, I believe he is saying that the cutoff is extreamly low - which I tend to agree with. But one should not discount random luck also, and the possiblility that many of the character traits may be genetic.

By the way - it is not necessarily true that 50% are below average, that is only the case for symmetric functions. The bell curve is a simple approximation that is right sometimes, but must be demonstrated.

Steve Roth writes:

Arare Litus: "Steve, you misquoted me"

Sorry. Of course you're right. Oops.

>By the way - it is not necessarily true that 50% are below average, that is only the case for symmetric functions. The bell curve is a simple approximation that is right sometimes, but must be demonstrated.

Good point. But still: Call it 45%. I'm just sayin' that those who have thrived, if they're like me, owe a great deal of it to luck--including being born smart and hard-working. (I can say this even though I have a strong complement of decidedly lazy bones in my body...)

Lincoln, talking about a different but related character flaw:

"In my judgment such of us who have never fallen victims [to alcoholism] have been spared more by the absence of appetite than from any mental or moral superiority over those who have."

Redland Jack writes:

I think the trick to avoiding poverty (not sure exactly what 'middle class' means, and casual research didn't turn anything up) in this country (probably doesn't work in poor countries) is something along the following:

1) Get married (or live with people)
2) Don't have kids
3) Get a job (even a low-paying crummy one)
4) Keep the same car for 15-20 years/carpool
5) Wear the same sets of clothes for 5-10 years
6) Don't eat out/don't smoke/don't drink/don't use drugs
7) For entertainment, play cards, shoot hoops, go to the library... i.e., things that are free/nearly free
8) Buy stuff used/cut your own hair/embrace generics

I sort of assume this kind of stuff is what Randy would describe as 'not indulging in stupid behavior.'

Randy writes:

1. A wife/husband can be a blessing or a curse - choose carefully.
2. It really doesn't take that much money to raise kids - in reasonable quantities. The cost of living hasn't risen all that much - the cost of keeping up with the Joneses has.
3. Absolutely, get a job. Keep your mouth shut, your ears open, and your nose to the grindstone.
4. My father never owned a new car. I've owned one.
5. Wear tough clothes - work clothes. Again, forget the Joneses.
6. I've known more people who've ruined their lives over drugs and alcohol than any other reason.
7. Or a computer. High benefit to cost ratio.
8. Yep, as a matter of fact I do cut my own hair.


37891383 writes:

Suppose we accept the proposition that genetics mainly determine abilities and therefore income. Does this really make it immoral? After all, we have to have some metric for deciding who gets what. I have a problem with eugenics, but I have even more of a problem with the reverse eugenics of a welfare state, which actively gives money to people with poor customs/genetics.

Steve, I could be wrong here, but I think that when you talk about rich people having too much money for investment you might be confusing capital and cash. (insert usual Austrian Business Cycle theory paragraph).

Also, doesn't the fact that most Western governments include welfare have more to do with the nature of democracy than the free market?

Felton writes:

I think that one thing that is missing from the equation is the role of parenting or better, the adult influences in ones life. Are the poor being led to believe they are perpetual victims and can not escape their plights, their schools are mis-educating them, they are dregs of society etc.. I try to instill in my children the fact that they are owed nothing as a matter of 'fairness' and they must at least do all that they can do to understand the real world and the hurdles and opportunities contained therein. I constantly enforce and try to explain within reason, politics, history, math and since finding this site a little economics. I know they are often overwhelmed and sometimes find me overbearing, but I'd rather I be their antagonist and have them prepared for what's to come

Arare Litus writes:

Felton,

To your point: "if you grow up malnourished, in abusive maladaptive homes, without good examples, and with peers just like you, and likely with poor genes too boot, well, you are in for a world of hurt." - this will be the the people who are in "legitimate" need for help, and as Randy points out this is a small subset of people.

The fact is people like this exist, the question is if private solutions that were displaced by the state would emergent again if the welfare apparatus was removed.

37891383

"Does this really make it immoral?", I tend to take the position that "need knows no morals" (descriptive, if not prescriptive) and generalize to "obligations scale with ability" - one should have higher moral standards of people and societies with more power, options, and ability. This is not an argument for a welfare state as it exists, but is an argument regarding how immoral "it" is - in an extremely poor society I see nothing wrong with no welfare at all, in a richer one I see something very wrong with none [though this welfare can be private].

Arare Litus writes:

Redland Jack

not sure exactly what 'middle class' means

It is one of those loose words, with a wide range of interpretations. I have heard that most people identify with the middle class, even those in quite high income brackets. To me this suggests that the meaning is more character based - a feeling that one earned ones place in the world with work, sacrifice, and self determinism.

Randy

It really doesn't take that much money to raise kids - in reasonable quantities.

This is one thing that interests me: many people assume that children are a high cost (i.e. not worth the benefit). I will make a bold statement - people who see children as a high cost have never experienced a loving relationship. I will summarize (misrepresent?) happiness research in one line "happiness is the outcome of love" (love of ones work, of a person, of some interest, etc. etc. etc. - simply having an extremely positive love in your life).

I've known more people who've ruined their lives over drugs and alcohol than any other reason.

To me most problems come from having a short time frame for making decisions, which is why I see politicians as being a net negative for society.

Learning to value a long time frame and wide perspective, in order to inform prudent decisions, is probably the single most important skill to have. One that everyone should teach their children, that schools should teach by repeatedly coming back to this point by breaking down the examples in terms of this, that "welfare" programs should try to communicate. The poor are essentially defined by this short time perspective, and on self reflection most of my mistakes are due to a too shallow and narrow perspective in informing some action. If there is only one lesson I teach my children it will be to cultivate a wide and deep perspective in themselves.

p.s. I would cut my own hair, but my wife would kill me, if the scissors did not (I am clumsy personalized).

Arare Litus writes:

Steve

A. Investment should not increase demand immediately, but it should fuel growth - which will increase future demand. One must consider things as dynamic, not only looking at a narrow time slice. But, as I do not really know Say's Law I will have read up on this more.

B.i. "they find it increasingly difficult to find actually productive investments for those oceans of cash", agreed - but this is an empirical question, it is conceivable that at reachable levels of wealth capture by "the rich" their investments are still more productive than transferring to "the poor" (i.e. subsidizing nonproductive people is conceivably worse than having a marginal productivity - the question is one of relative nonproductivity; it is also a matter of morality - is it right to make that decision for someone? We see a long history of the rich spending money on the poor, or to fund research to help society, where they determine this is the most useful means to spend their money).

B.ii. "Hence the derivative/bubble/gambling investments that took off when that shift occurred in the 20s and the 00s."
I will throw out an alternative interpretation. All investments of outlay O are not equal, as risk and potential gain must be taken into account. The perceived risk of housing investments was low, making this a rational choice of investment. The perception was wrong, but I do not see this as an example of too much capital in the hands of the rich, who had to put it to unproductive and marginal use. More an example of "stupidity".

C. "lack of investment as the *very last* thing on the list of items that constrain their growth."
To me this is a good thing.

Jeremy, Alabama writes:

I am convinced that welfare is a trap that keeps people poor.

There is a vast array credits, such as child-care credits, for the poor and working poor, which make it hardly worth improving your lot (e.g. getting a job if you are unemployed; working overtime; working for a promotion). These credits are well-intended but have the obvious result of trapping rational people in low-income jobs.

I am fully oppose to progressive taxes, not from the position of "the poor should pay their way" but from its inescapable twin, "the poor should profit fully from their marginal unit of work".

I am associated with very low-end manufacturing (pallets), and for half the employees, if you increase the pay, they show up less. In a weird flip-side, even conscientious employers are incentivized to keep pay low. Everybody is happy, I guess.

The "bottom billion" of the planet are not trapped by their crummy droughted environment, but by their mercenary grasping governments. So, the bottom billion they will remain until they rise up and free themselves. I must admit, I worry less about them than I worry about our own mercenary grasping government.

arthas writes:

Excellent post,
It explores the earning side of the poor being poor. Looking at the expenditure side, poor and less self disciplined people (often the same) are the ones who recklessly spend (compared to their earnings) and who go on buying more and more products to buy more happiness. Middle class values when strong prevents this from happening.

The Cupboard Is Bare writes:

"And he should have spent more time explaining that by world standards, the American "poor" are already well-off."

I agree. When people refer to themselves as poverty stricken or destitute, what many of them are saying isn't that they are poor, but that they either don't have everything that they want or that they don't have as much as everybody else.

I also believe that many people confuse the idea of being poor with the fact that they've simply gone broke from overspending. There's a big difference between the two.

Personally, I think they are doing a disservice to those individuals who are truly poor.

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