Aug. 15, 2015 - Freedomain Radio - Stefan Molyneux
28:15
3049 The Truth About Welfare: Past, Present and Future
In 1964, President Lyndon Johnson declared an “unconditional war on poverty in America” - not simply to “relieve the symptom of poverty, but to cure it and, above all, to prevent it.” How has that worked out? Today there are over 126 Federal antipoverty programs and in constant dollars, Federal spending has risen from $107 billion to $688 billion – or 640%. Total government spending has ballooned to $21,000 for every person below the poverty level in America, or $63,339 for a family of three. Since the war on poverty began, $19 trillion dollars have been spent ending poverty, but the poverty rate has increased. What is the Truth About Welfare?
Hi everybody, this is Stefan Molyneux from Free Domain Radio.
I hope you're doing well.
Welfare, welfare, welfare.
Is there any more exciting topic?
Ooh, I bet your people just love to have you sit down beside them at a dinner party and talk about the welfare state.
Very important, though.
We really want to help the poor.
I think there's a strong case to be made that the sticky feet roach motel of government welfare is more trapping people in poverty than helping them to ascend out of it, if that's what they want.
And so I think it's time to put the brakes on everybody's assumption that welfare helps the poor.
Look at the big picture and the plan.
How did it all begin?
Everybody's got a plan.
Well, in 1964, the Democrat president, Lyndon Johnson, declared an unconditional war on poverty in America.
Not simply to, quote, relieve the symptom of poverty, but to cure it, and above all, to prevent it.
How's that going?
Well, as a result, growing perhaps like mushrooms or cancers, there are now 126, because you see 125 would be just too few, 126 federal anti-poverty programs.
In constant dollars since the beginning of the war on poverty, federal spending has risen from $107 billion to $688 billion.
That's a 640% growth.
Total government spending, state, federal, local, has ballooned from $160 billion from the beginning to the war on poverty to $981 billion a year.
Now, per capita, these figures are roughly halved, but the point is it was supposed to eliminate poverty, so you can't just say, well, it's per capita, you're supposed to get rid of it.
The federal government or the feds have spent more than $21,000 for every person below the poverty level in America.
That's over $63,000 for a family of three.
Since 1964, $19 trillion have been spent trying to end poverty.
So...
Nineteen trillion dollars.
Nineteen thousand billion dollars.
Nineteen thousand thousand million dollars.
That is a crap ton of money.
Of course, the Government debt in the United States is a little over $18 trillion, so if we hadn't fought the war on poverty, we wouldn't have so much deferred poverty.
Debt is just deferred poverty, right?
You borrow $1,000 now, you've got to spend $1,000 plus interest less later, so you've just deferred your poverty.
So it hasn't solved the problem of poverty, but it's created a massive and incipient financial hellhole that's going to make even more poverty come into being.
Okay, so what do people get?
It's reasonable.
$19 trillion.
Hey, what do we get?
Well, in 1966, the poverty rate was 14.3%.
It's been declining rapidly since World War II by about a percentage point a year.
In 1970, oh look, it's working!
Down to 12.6%.
Oh dear.
Oh no.
2012, back up to 15%.
Now, I understand the poverty rate is a relative ratio.
It tends to increase as wealth increases.
But the whole point, the whole promise, was to eliminate poverty and even prevent poverty from coming into existence.
And...
Just think of these as cancer rates.
I've taken 19 trillion dollars of your money to eliminate cancer and eliminate cancers even forming, and there's more cancer rates now than when I started.
You might question the value of this anti-cancer money.
Most decreases in the poverty rate occurred prior to 1972.
In the last 40 years, less than a third of improvements have occurred despite the massive increases in spending.
And poverty in general is not a massively long-term affair, or at least it didn't used to be in America.
So in a study from 1996 through 1999, only 2% of the U.S. population was poor for two years or more.
34% were poor for at least two months.
And then they got back out of being poor.
So chronic poverty is quite rare, or at least it used to be.
So here's the rollercoaster from hell itself.
This is a graph very, very important to understand.
I've shown this in the show before.
We can't talk about it too much.
This is a poverty rate.
And if you look at 1959, that was almost 19%.
And then by 1968, it had dipped to a little over 9%.
Right?
It's a little bit more than a percentage point a year, and this was particularly true for what were considered the underclasses in America at the time for blacks and so on.
So people were getting out of poverty before the welfare state occurred.
Hey, problem of poverty is being solved.
Let's have the government come in and help just finish it off.
Well, what happens, of course, as you can anticipate, Is that when you start shoveling lots of money at poor people without that sort of in-depth intervention and getting to know people that occurs with private charities, well, look what happens.
You stop the end of poverty.
And then poverty's been bouncing around between 9 and 13 or so percent ever since.
And so that's...
Not good.
This is what happens in these kinds of situations.
Now, of course, another thing occurred as well in 1965.
America basically didn't have a lot of immigration from the 1920s until the 1960s because they said, hey, we've had a whole bunch of people come in late 19th, early 20th century.
Let's take a little bit of time for them and their children and their children's children to adapt and adjust to American values, right?
And in 1965, the government passed legislation that basically eliminated Immigration from Europe, but opened up the floodgates to third world immigration, which resulted in a massive injection and increase in poverty.
Immigration increases poverty because immigrants tend to be poorer than native-born citizens.
And they also, it works to depress wages.
Why is there a growing income gap?
But lots of reasons.
One of the reasons is massive waves of unskilled or low-skilled or low-educated immigrants coming in.
To America.
Half the drop in the wages of high school dropouts between 1980 and 1995 was due to immigration.
And why do native-borns have a tough time getting jobs?
Well, for instance, for women since 2008, all of the job gains have gone to foreign-born people.
Businesses, not surprisingly, like to hire people who charge less for their services.
That tends to be immigrants.
Now, this is important.
This is sort of a core part of what it is that I'm talking about.
This is charity, charitable donations.
The grey bars are inflation-adjusted dollars.
And as you can see, from 1974, when they were cooking around $150 billion a year in donations, 2014, over $350 billion.
And again, some of that is due to population increases, but not all of it.
And so what happens is when people have more money, they tend to donate more.
You can see here in yellow, when there are recessions, in particular over the recessions that occurred in the past, sort of 2008 to 2010, those result in less money, right?
So when people are losing money, they tend to donate less, but when they're gaining money, they tend to donate more.
And what happens is that if people are not taxed as much to pay for the welfare state, they will donate more money to a charity.
When the economy booms, as you can see in the late 90s, lots of charitable donations go up.
Give people more money and they will donate more to charity.
When you tax people to give money to the government for welfare programs, you reduce the amount of charitable donations that people are providing.
And that is a big problem.
So, let's have a look at...
How this math works out.
So over $350 billion was given to charity.
Now in charities, 80-85% of the money gets to the poor.
So overhead, $50 billion or so, it's about $300 billion of money gets to the poor when you give money to charity.
Now you give a trillion dollars to government spending and about 70% of it is consumed by Wide, loathsome spotting behind government bureaucrats and paperwork and shuffling and layers and junk.
And only about 30% of that money gets to the poor.
So you can give $350 billion to charity to get $300 billion to the poor.
Or you can tax people at $100 trillion and still only get $300 billion to the poor.
So if you reduce people's taxes...
It's arguable and highly probable.
If you reduce people's taxes for the welfare state, they will give more money, and more money will actually get into the hands of the poor than currently gets there through the government.
So when we say, let's not have a welfare state, we're not saying...
Let's not help poor people.
What we're saying is let's help poor people more.
Let's help poor people with less overhead and less perverse incentives, right?
Government bureaucrats have no business ending poverty.
They lose their jobs.
Nobody works very hard to put themselves out of a job.
So government bureaucrats...
I wish to retain the number of poor and, in fact, to expand the number of poor because that justifies increased budgets for them.
But charities compete to see who helps the poor the most.
And if you can show the greatest success rate in helping the poor, you tend to get more charitable donations.
So you're moving money from inefficient government non-solutions to efficient private charitable solutions.
But nobody's talking about not helping the poor.
We're talking about actually helping the poor rather than fattening the wallets of So this is really, really important.
It's important to sit, pause, stew on this, really understand this, that it's much more efficient in terms of helping the poor to give money to private charities than it is to have it taxed and given to government bureaucrats.
Now, in particular, this is the case for The welfare cliff, the endless dangers of coerced pretend kindness.
The welfare cliff you may or may not have heard of, but it's something really important.
It's the basic principle that families who are on welfare become poorer as their wages increase.
And the welfare cliff is this dip in benefits that takes forever to recover from as your income goes up.
So your welfare benefits will decline faster than your income will increase.
So here's an example from Cook County, Illinois.
Single parent households can get almost $48,000 in benefits annually.
It's $41 and change for dual parents.
Single moms get the most resources when they're making $8.25 to $12 an hour.
So if a single mom with two kids gets a pay raise from $12 an hour to $18 an hour, her resources collapse By 33%.
Extra $4 an hour, and her resources, including her salary, collapsed by 33%.
In other words, if you go to a single mom who's taking a lot of government benefits, who's making $12 an hour, and you say, wow, you've been great.
I'm going to give you a $6 an hour increase in your wages.
She's going to fight you ferociously because it's going to make her a whole lot poorer to get that increase.
Now, in order for her to recover from that, If you take it at $18 an hour and her resources collapse by 33%, she gets 33% fewer donations or money in kind or benefits, she doesn't get back to where she was at $12 an hour until she's at $38 an hour.
In other words, she has to more than triple her salary to get the same benefits that she used to get at $12 an hour, to get the same amount of resources.
I don't know about you, but it didn't take me a short amount of time to triple my salary when I first started working in business.
To double your salary, if you work really hard at it, can take you...
5, 6, 7, 8, 10 years.
Depends on where you are, how much potential you have, and how hard you work.
But to triple your salary, my goodness, it's going to take you probably 10 to 15 years, by which time your kids have probably grown and all that.
So it's really terrible.
And even if you get to $38 an hour, you still have a giant hole of all the money you had to spend in the 10 to 15 years it took for you to triple your salary, even if you work really hard.
So this is a huge problem.
So if the minimum wage increases to $10, for instance, two-parent working households suffer a loss of $9,000.
This is one of the reasons why governments want to push up minimum wages, is they can claw back welfare benefits.
And this is the reason why people get trapped and stuck in welfare.
It's gruesome.
It's horrifying.
Because you get a raise and you lose a crap ton of money.
$9,000 a year loss for poor people is catastrophic.
So here's how it looks in terms of graphics.
So the welfare cliff here, on the left you see the stacked benefits, and on the right you see the sort of bottom line, the blue one going up.
That's earned income minus taxes.
And as you can see, around $10,000, if you continue to increase, you suffer a significant loss in benefits.
And what you're making when you're making sort of $9,000 or $10,000 an hour You basically have to get to $60,000 to $70,000 before you're back in that ballpark.
And no one is going to really do that.
And this kind of stuff is really hard to understand.
If you've not sort of been around...
I grew up in a sort of welfare environment.
If you've not seen this and the calculations that people make...
I mean, people in welfare are certainly not stupid...
And they know which side of the bread is buttered and so on.
So here's a report from Gary Alexander, Secretary of Public Welfare in Pennsylvania.
The single mom is better off earning a gross income of $29,000 because she gets $57,000 in change in net income and benefits.
So if she's making $29,000, she ends up with over $57,000.
But if she earns $69,000, then she only ends up with $57,000 flat pretty much.
So she loses a couple of hundred dollars going from $29,000 of income to $69,000 of income.
Of course, to make $69,000 of income, you need to work a lot harder.
You usually need to get really well educated.
You've got to work overtime.
You've probably got to travel.
There's a lot more stress.
And it's a big problem.
So why on earth would anyone want to do that?
I mean, there may be abstract reasons to do it, you know, a work ethic and showing the right thing to your kids.
But of course, for single moms as well who want to pursue that kind of work ethic, it's going to come at the cost of them spending time with their children, which is also a significant challenge.
So let's go to Mississippi and have a look at how this shakes out.
I'm not going to go through all these numbers.
You can, of course, pause the video.
And, of course, all the sources for this, as usual, are below.
So let's say in Mississippi you make $3,600 a year.
Well, your total economic benefit is close to $32,000.
Not quite ten times, but, you know, it's not a bad figure to have in your head.
You make $3,600 and you get almost $32,000 of benefits.
Let's say that you decide to make almost 10 times as much money.
You make $30,000 instead of $3,600.
You make $30,000 in Mississippi.
Well, instead of making $31,600, you make $27,300.
So your final economic benefit is lower when you make $30,000 than when you make $3,600.
And it's scarcely better...
When you make $60,000, so let's just say you make $14,500, you end up with almost $38,000 in benefits.
Let's say that you make $60,000, you end up with only $34,000 in benefits, which is a couple of thousand dollars less.
These are bizarre economic incentives and this is why there's this huge gap.
When you get stuck in the sticky fly web of government dependence, it's almost impossible to get out because you have this giant Grand Canyon of economic loss that you have to cross over before you can start to reap any particular benefits, which is why people get stuck in this underclass and why the welfare system has not solved the problem of poverty and has no capacity to solve the problem of poverty.
What's weird is that in communist China, the welfare system is far stingier.
You actually have to work to eat.
And under President Clinton, as the result of Charles Murray's articles on this sort of stuff, President Clinton put in, you know, you've got to work to get welfare kind of stuff, and that lasted for a while, and then Obama took it out, which is another reason why the welfare spending is jumping so significantly under Obama.
But you can't solve this problem.
There's no particular way to solve this problem.
So if a family provider in Mississippi works one week a month at minimum wage, he or she makes 92% as much as a provider grossing $60,000 a year.
So you work one week a month at minimum wage, you make almost as much as somebody who's grossing $60,000 a year.
I mean, of course people are going to get stuck in poverty.
It's like Mastodon on a tar pit.
It ain't yoga, it's sinking.
If you get a cash-only job, I know that nobody on welfare ever gets a cash-only job.
Sarcasm, sarcasm.
But if you did, you can do even better.
And some economists have estimated that there's a trillion dollars worth of under-the-table jobs in the U.S. every single year.
Also, SSI, you can get over $8,000 a year for a, quote, disabled family members.
And this is not to say that there aren't genuinely disabled family members.
But according to the legislation, it can include those who are judged to be without the cultural or educational skills to get a job.
So it is a huge problem.
And this is why the welfare system is not working and can't ever possibly work in its current state.
Now, how is this working out for wealth producers?
Well, let's look at some of these numbers.
So, total federal benefits, those who are receiving federal benefits, over $150 million in the US. Those who have received welfare, almost $110 million.
Government employees, over $21 million.
But there are only 115,000, sorry, 115 million private employees.
So that's not particularly good, right?
And so this is a massive, massive problem.
Under the sort of received welfare, that's Americans who live in households that received benefits from one or more federally funded means-tested programs, also known as welfare, as of the fourth quarter of 2012.
So for every person receiving welfare benefits, there are 1.05 people who are privately employed.
That's not sustainable at all.
So when you add those who are receiving benefits from non-means-tested federal programs like Social Security, Medicare, Unemployment, If you add those numbers to those taking welfare benefits, it turns out that 153,323,000 people were getting federal benefits of some type at the end of 2012.
In other words, for every person receiving federal benefits, there is only three-quarters of a person privately This is absolutely, completely and totally unsustainable.
And can you imagine how gruesome it's going to be when the government runs out of money to pay for these dependents?
Well, normally what they do is they go to war and they kill off the dependent underclasses, but that has become less likely as weapons of mass destruction have occurred.
But there is going to be a brutal infliction of suffering among the poor in particular.
I mean, some of them are going to shake off their lassitude and just go out and get jobs and so on.
But a lot of people who are too old or who've just really adapted to a life of receiving benefits, and it's going to be brutal.
And it is, of course...
Uncomfortable to change welfare policies in the present, but so what?
It's uncomfortable to quit drinking if you're an alcoholic.
It's uncomfortable to quit smoking if you're a smoker.
But we do it because the results of not doing it are far worse.
And this is going to be unbelievably brutal.
And all of those who, like myself for many decades, have been warning people about exactly what's going to happen in the long run.
To these programs and the poor people dependent on it.
Well, somehow we are talked about as if we don't care about the poor.
Like, hey man, why do you want to make the smoker uncomfortable?
Just let him smoke, man.
It's like, no, it's because I care about the smoker that I want him to quit.
Overall, I mean, welfare spending, Obama's 2011 budget had a 42% increase in welfare spending over 2008.
And another reason why, of course, the poor are getting stuck in poverty is that women marry the state.
There's been a huge collapse in marriage.
The collapse of marriage is the predominant cause of child poverty in This is not the result of racism directly, of course.
The African-American family...
It was much more stable in the 1920s through the 1950s and there were times when black women were married at a more regular rate than white women So, unless somebody's willing to argue that racism was somehow less in 1920 than it is in the present, this out-of-wedlock birth rate is not occurring because of racism or slavery or anything like that.
It is occurring because when you are poor and perceive that you have fewer opportunities, the welfare state is more attractive, right?
I mean, I was born into a welfare family, but I really wanted to get out of a welfare family, felt that I had lots of opportunities, and then went ahead and, you know, Built companies and started podcasts and I've been an entrepreneur for 20 years right now.
So I created jobs for like 200 people over time.
So if you don't feel like you have a lot of opportunities, welfare is disproportionately beneficial to you.
And, you know, if you feel, oh, I'm never going to make more than $20,000 or $30,000, then there's no point trying to get a job and improve your skills because you're never going to make more than welfare can pay you with only a little bit of work.
So the collapse of marriage is pretty foundational.
The degree to which blacks and other underclasses get stuck in the system is inevitable.
You know, helping the poor, it's really a very, very difficult and complicated business.
I mean, we all want to help the poor.
Of course we do.
But helping the poor is really, really challenging.
I mean, in this show, I've given out lots and lots of money to listeners.
Some of it has been effective and some of it has been disastrous.
I don't know.
I'm not an expert.
I just do what I think is right.
And helping people get out of poverty is really tough.
I mean, you want to give money to people to help them over a hump, but at the same time, some people will pretend to have diminished opportunities or, oh, my back aches, or just to get free stuff.
I mean, unfortunately, there is the jerk factor in giving to the poor.
Some uniform like baby cheeping birds who just need worms or they're going to die.
Some poor people are genuinely disadvantaged and need people's help.
Other poor people are manipulative and fraudulent and making bad decisions.
You know, same as everybody else.
And differentiating these two, the deserving versus the undeserving poor, is a very complicated operation because the undeserving poor, those who just want to game the system and defraud everyone and get free stuff, Well, they try to imitate themselves as much as possible.
It's like those frogs that are brightly covered because they're poisonous, and then other frogs say, hey, if I'm brightly colored, nobody will eat me either, even though I don't have any poison.
The undeserving poor try to mimic the deserving poor as much as possible, and it takes intimate, on-the-ground, in-depth knowledge to differentiate the two Such knowledge is not available to bureaucrats pushing paper a thousand miles away in an air-conditioned office.
Helping the poor is a very delicate operation, and the more delicate the operation, the less appropriate it is to use the might and power and blindness of government power to attempt to solve the problem.
There's no competition in effectiveness among the welfare state.
The bureaucrats don't get paid for every poor person who gets off the rolls, which is basically what happens in private charities, because people want to give money to those private charities that produce the best outcomes.
And so without competition in effectiveness, you end up with Soviet-style breadlines.
In the Soviet Union, you wait for bread.
In a capitalist country, bread waits for you.
Just go look at the rows of bread in a bakery.
So without competition for effectiveness, you get lassitude and ineffectiveness.
Because when you have a job because there are lots of poor people, it's like being a farmer, being paid for your crop.
Does a farmer go and burn all his crop?
No.
I mean, unless he's paid to by the government, but he doesn't do that.
And bureaucrats in the government have no incentive to end poverty because poverty is the reason they have a paycheck.
And, you know, two basic principles of economics.
Number one, all human desires are infinite, all resources are finite.
Number two, people respond to incentives.
You cannot set up a system where people profit from the existence of poverty and then expect them to eliminate poverty.
That is completely, completely insane.
It's like setting up a record label and expecting it to destroy the music industry as a whole.
Now, of course, the problem is that the welfare system has existed for so long that we actually have multi-generational welfare recipients now.
People whose parents have taken welfare pretty much the whole child's existence and maybe even their children as well give three generations of people stuck on welfare, particularly if there's teen pregnancies going on, it could be even four.
And so you have children growing up whose parents and grandparents have never had a job that they can see.
The amount of human capital that gets destroyed by that is enormous because you don't have someone who can say, oh, here's how you get a job.
Here's how you behave.
Here's how you deal with crappy bosses.
Here's how you deal with difficult customers.
Here's how you make sure you're on time.
That knowledge has all been lost.
And asking people to now, hey, just go into the workforce is really tough because all of the knowledge they might have been able to get from their parents has vanished into the giant sludge of welfare dependency.
And that's a huge problem as well.
I could go on and on about the problems.
I don't expect to have completely changed your mind.
It's a relatively short presentation.
But I hope that it's given you something to think about.
Fundamentally, the welfare state is...
It's immoral.
Of course it's ineffective and of course it traps people in cycles of poverty.
Of course it widens the income disparities and so on.
But fundamentally it's immoral.
I mean, it's wrong to take people's money by force through taxation and hand it out.
And basically it's not about ending poverty.
It's just vote buying.
It's just vote.
I mean, the drip-drip heroin...
This feeding bag of poverty has now just created groups of people who want big government because big government gives them stuff and they've lost any faith in their ability to compete in the free market.
So it's just about buying votes.
It's about maintaining a social order and paying people off because we all know that our social order is pretty bad and needs to change considerably.
But rather than having people really get upset with the social order, We're good to go.
A reasonable critique.
And I look forward to opening up a dialogue.
I will have a look at the comments below.
Tell me what you think.
Tell me any way that I can improve this presentation.
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