Welfare State for the Rich

Living as I do in Arkansas, I'm privileged to read the commentary of Bradley Gitz, a conservative columnist for the Arkansas Democrat-Gazette who occasionally makes libertarian noises. I wish there was a Thomas Sowell Award For By-the-Numbers Regurgitation Of Republican Talking Points, so I could nominate Mr. Gitz.

In his column of Aug. 1, Gitz notes the tendency of welfare states to push themselves to bankruptcy. He quotes the old saw, attributed in urban legend to 18th century Scottish historian Alexander Tytler, that democracies only survive until "voters discover that they can vote themselves generous gifts from the public treasury."

Politicians shower the general public with unearned benefits, rather than telling them to "find jobs, work hard, and save"; you get a lot more votes for having "compassion" than for being "cruel and heartless."

Reading Gitz, you'd get the impression that the main beneficiaries of the welfare state are working people and the poor. But genuine welfare for the poor, like TANF and food stamps, barely amounts to a CBO rounding error. Adding up the so-called "defense" budget, two unfunded wars, "national security" spending on DHS, CIA, DOE and NASA, and interest on debt from past wars, the bulk of the federal government's budget goes to welfare for the Military-Industrial Complex.

Indeed, the dominant feature of the American polity is welfare for big business and the rich. This welfare consists of a wide array of government interventions into the market to enforce artificial scarcities and artificial property rights.

These interventions include patents and copyrights. They include enforcement of absentee title to vacant and unimproved land, which has never been altered by human labor -- the only legitimate means of appropriating land in a free market (in fact, the government pays landowners tens of billions to hold land out of cultivation). They include enforcement of entry barriers to free competition in the supply of credit. And they include enforcement of regulatory cartels, mandated artificially high capital outlays, and all sorts of other entry barriers.

The cumulative effect is to make land and capital artificially scarce, impose overhead costs and other penalties on self-employment, and raise the price of the means of production and subsistence relative to the price of labor. As a result, government intervention shifts income from those who work to those who live off the rents of artificial property rights and artificial scarcity.

That's welfare for the rich. Every time a consumer pays $200 for a CD of MS Windows or Word, when the free market price absent copyright would be $10, she's taxed to pay welfare to Bill Gates. Every time she pays $200 for a prescription that would cost $10 without patents, the patent markup is a tax for welfare to Pfizer. Every time a tenant pays an extra $100 in rent because untold hundreds of millions of square miles of land are closed to development, the extra rent is welfare for the landlord.

The problem is that this welfare state for the rich shifts income from classes with a propensity to spend to classes with a propensity to save and invest. The rentier classes have far more investment capital on their hands than they can find productive outlets for, because there's insufficient demand to fully utilize existing productive capacity. So government resorts to things like the perpetual warfare state, the drug war and prison-industrial complex, and boondoggles like the Interstate Highway System, to use up surplus capital and productive capacity and stave off depression. The financial sector grows steadily, and becomes increasingly prone to speculative bubbles, as investors seek outlets for excess capital.

The welfare state for the poor was actually created to solve the problems created by the welfare state for the rich. New Deal programs like Social Security and AFDC were promoted by "socialists" like GE head Gerard Swope and the Business Advisory Council in order to put a floor under aggregate demand. Government-enforced monopoly and unequal exchange redistribute wealth upward with a backhoe, and then the welfare state for the poor gives back some of it with a teaspoon.

If it weren't for the welfare state for the rich, we wouldn't need welfare for the poor.