Who Provides Welfare?

June 24, 1963

Many “liberals” are showing signs of disillusion with the welfare state that they once so ardently espoused. One such is Irving Kristol, co-founder of Encounter magazine in London and now senior editor and vice president of Basic Books in New York. In the June issue of Harper’s he openly wonders whether the welfare state has now become obsolete.

His puzzlement is detailed and documented. “There is a real question as to whether the welfare state, as it is taking shape in America today, is not exhibiting delusions of omni-competence.” Kristol finds that well-intended government regulating and spending agencies “soon achieve a life of their own, beyond all trial and error”; that “things are out of hand”; that bold new government programs soon come to be operated by “the job-hungry second-rate.” He begins to wonder why public housing is “so hideously dreary,” and he admits that he “can hardly pick up a newspaper these days without my anti-bureaucratic nerve being given a shock.”

MEDICARE

He is particularly effective in analyzing the illusions behind Medicare: “Any medical insurance program is going to cost the taxpayer money. The mute appeal of a state-run monopoly is the illusion that over a period of time, and in some undefined way, people may get more than they put either because the Federal government will magically ‘close the gap’ or because ‘someone else’ (the rich or the employers or whoever) will be called upon to make up the difference. This idea is appealing, but baseless. It is as appealing, and as baseless, as the notion that government money is something additional to the people’s money, instead of being identical with it. It is as appealing, and as baseless, as the belief that the steeply progressive income tax significantly reduces the tax burden of the average citizen. . . .

“Public welfare outlays by Federal, state, and municipal governments have doubled since 1955, and now amount to more than $40 billion a year.”

Yet even after drawing up this powerful indictment of the welfare state, Irving Kristol does not suggest that we abandon it, but merely that we stop regarding it as the sole road to welfare: “The idea of a welfare state does not necessarily imply that the state should itself always dispense all welfare. Perhaps it would suffice for the state to establish a legal framework for a society in which individual welfare is recognized as a social responsibility without at the same time necessarily being a direct responsibility of the state.”

FREE ENTERPRISE

But Kristol apparently fails to see that what is essential and basic in such a legal framework was established long ago. It is the institution known as Free Enterprise, or Capitalism. It stresses, on the one hand, personal economic freedom, including freedom to choose one’s occupation, freedom to start new ventures, and freedom of consumer choice. It stresses, on the other hand, private property—i.e., the right of the individual to keep the fruits of his labor. These institutions of freedom and private property maximize productive incentives. And as each of us spends the monetary rewards for his efforts on the things that he considers most likely to promote his or his family’s welfare, the free-enterprise system also tends to maximize welfare.

There is, of course, a certain area of collective needs—national defense, police and fire protection, sanitation, roads and streets—that must be paid for by coercive taxation. But this “public” sector is necessarily parasitic on the “private” or voluntary sector of the economy. The reason the “public sector” should be held to a minimum, the reason the burden of proof should be on every effort to extend it, is that the increased taxation that necessarily accompanies this extension reduces both productive incentives and the individual’s freedom to decide how to spend his own earnings.

The wastes and absurdities in bureaucracy that “drive people mad” are not accidental. They are an inevitable product of the welfare state itself—“the great fiction,” as Bastiat called it more than a century ago, “by which everybody tries to live at the expense of everybody else.”