Welfare for the Well-To-Do

|Peter Boettke|

Former student and co-author, and now economics professor at James Madison University, John Robert Subrick, pointed me on FB to this article --- The Unequal State of America --- about the economic situation in DC and its suburban surroundings.  These passages particularly struck me:

Two decades of record federal spending and expanding regulation have fostered a growing upper class of federal contractors, lobbyists and lawyers in the District of Columbia area. The federal government funneled $83.5 billion their way in defense and other work in 2010 - an increase of more than 300 percent since 1989, even after adjusting for inflation. Private industry poured more than $3 billion into lobbying to influence the government, nearly double what it spent a decade ago.

Like spokes on a wheel, the high-rise offices of this elite radiate out from Capitol Hill along major arteries deep into suburban Maryland and Virginia. The latest Census figures placed 10 of the capital's surrounding counties in the top 20 nationwide for median household income - up from six in 1990.

There probably isn't much society can do to stop some causes of the spreading class divide, such as technological change. But there's one factor that is changeable - public policy.

Reading this reminded me of Milton Friedman's discussion in Free to Choose of how public policies designed to help the least advantaged often result not in improving the lot in life of those at the bottom of the economic ladder, but those higher up on the ladder who administer such programs.  Here is the segment from the TV series:

 

And here is Friedman giving a public lecture on middle-class welfare:

One of my teachers -- the great Gordon Tullock -- wrote a fantastic book entitled The Economics of Income Redistribution (1983) as well as a more popular treatment of the issues published as Welfare for the Well-To-Do.  Since that time, as this article shows, the problems has only grown more obvious for anyone who will open their eyes to see.  What are we going to do about it?

 

 

Comments

[Daniel Kuehn]

Could you explain why you think this is "welfare"?

It seems to me there's a difference between a transfer payment for the sake of a transfer payment (which we might think is justified in the case of a low income family but not in the case of a high income family), and the government spending on a good or service. That spending of course makes up someone's salary, but I don't see how its the equivalent of a transfer payment.

I'm not sure your title or description here really gets at what's actually going on.

My wife worked in the defense industry - once with a contractor, now for the DOD. She provides a service that contributes to the provisioning of a public good. We may fight about that public good (that's the point of a democracy).

But it's hardly fair of you to call it "welfare for the well to do", just because the high skill services she provides earns a higher salary than some people in DC or indeed than some of our own neighbors.

[Daniel Kuehn]

Lobbyists are tough of course. Can't very well take away the option of petitioning for a redress of grievances. They might even do some good every once in a while. The trick on that $3 billion, IMO, has more to do with good institutional design and is less a problem with the lobbyists per se.

[Daniel Kuehn]

I would think "welfare for the wealthy" would be something like the mortgage interest deduction or the differential treatment of health benefits.

[Peter Boettke]

Daniel,

Listen to Friedman's lecture --- he uses higher ed as the example. He will explain the point very clearly.

Pete

[Daniel Kuehn]

I did listen to the lecture. I guess I just don't understand how that applies to paid employment that you were talking about like the defense industry. Why is that "welfare". That seems to be an abuse of the term for rhetorical purposes.

The question with Friedman is to the poor on net get more out of public spending on education than they pay in in taxes. Wealthier or middle class people probably get more in terms of state spending on higher education than the poor do, but they also pay more. Friedman did not do a convincing job making the case that the poor are net losers and the wealthy are net winners. This is even before any accounting for the social benefits of a strong public education system of course.

I can't imagine at the federal level Friedman is right at all, since the bulk of the education spending goes to Pell grants, Title 1 grants, and IDEA funding. He might be right at the state and local level, but it's not particularly clear that he is.

But this doesn't seem to have anything to do with paid employment for the provision of a public good. Why is that welfare?

[Roger McKinney]

The US aspires to be a banana republic. In most poor countries, everyone wants to be in government or the military because those jobs get the highest respect from citizens and earn the highest wages.

In the worst countries government work allows one to steal as much as one wants. In the US the theft is concealed through regulations or legislation that help companies of campaign contributors or by directing government spending to contributors. One economist has estimated that campaign contributions have a return on investment of up to 2,000%

One prominent senator has become wealthy through real estate speculation. He bought property from supporters for a third of the market price and then sold it to other supporters for twice the market price.

[Alex Salter]

Daniel,

What's wrong with using the word "welfare" in this context? Of the programs we conventionally think of as welfare, not all of them are unconditional. Thus, if someone sells a product to the government for a price that is significantly higher than it would be in a market without the government-induced resource re-directions, it doesn't seem far-fetched to label it welfare.

Would you prefer a term like "providing rents"?

[Vangel Vesovski]

The first video shows why Friedman is fading in influence. Milton was too afraid to take the next step and argue that government was illegitimate and that a majority had no right to violate the natural rights of a minority. Had he done that there was no way for the attackers on the left to make any points that would put him on the defensive.

[Daniel Kuehn]

Vangel -
So Friedman wasn't more influential because he was too afraid to be a Rothbardian?

Hmmm...

Something doesn't quite add up with that one!

[Daniel Kuehn]

*I'm not agreeing with the premise, btw - I think Friedman is tremendously influential and our lives are much better for his being influential.

[John Papola]

Daniel,

When is government production of a so-called "public good" a transfer payment? When it's a crony boondoggle. When is government production a crony boondoggle? The overwhelming majority of the time.

What's a good example of said boondoggling transfers? With all due respect to your wife... the DOD.

P.S. Does the textbook definition of "public goods" include "creation of a global anti-American backlash due to decades of support for brutal dictators"? What about remote execution of American citizens, women and children with drones?