Analytical Economist explains how our welfare system actually increases poverty among all Americans:
Liberals understand economics when it’s convenient for them.
Want to fight obesity? Tax sugar or trans fats, because liberals realize that when you tax something, people buy less of it. Want to encourage green energy? Subsidize it and you’ll get more of it.
When it comes to the question of redistribution, liberals abandon this logic. Are we supposed to forget the laws of economics and not realize that by taxing work you’ll get less of it, and by subsidizing poverty you’ll get more of it?
Don’t just take my word for it. Economist Daniel Mitchell has a great blog post detailing the research on the issue:
Welfare spending used to be associated with reductions in poverty. But when President Johnson launched his so-called War on Poverty and dramatically increased the level of redistribution, the link between welfare spending and poverty reduction substantially weakened.
“…the real per capita cost in the United States of federal public aid rose 70 percent in the 11 years between 1953—the first year the federal government reported an official poverty rate—and Johnson’s 1964 remarks.
In the 11 years that followed, however, that same real per capita cost increased by an astonishing 434 percent—that is, more than six times faster than in 1953–64. …in 1953–64, every 10 percentage point increase in public aid was associated with a 1 percentage point drop in the official poverty rate. Compare that with the experience of the 11 years following the outbreak of hostilities in the War on Poverty.
During that interval, every 1 percentage point fall in the poverty rate was accompanied by a 50 percentage point increase in real public aid. …the relationship between public aid and the poverty rate is subject to the principle of diminishing returns.”
Not just a diminishing return. There’s a point at which more redistribution actually leads to an increase in poverty.
Mitchell likens this to the Laffer Curve – which demonstrates that there’s a point in which high tax rates actually lead to less revenue by discouraging work and encouraging income sheltering.
Here’s the breakdown of the numbers:
To briefly explain what the table is saying, per capita welfare spending of $500 would reduce the poverty rate by 3.94 percentage points, while $3,000 would increase it by 6.28 percentage points. The optimal level of welfare spending is $1,291 per person.
That’s not to say $1,291 in spending per poor person, but the aggregate of $1,291 per American, which would be redistributed to those eligible for government aid.
According to the study, we spend an extra $2,697 per person in welfare spending, thus:
Since the official poverty rate in 2010 was 15.1 percent, this implies that in the absence of that extra $1,406 of per capita public aid, the official poverty rate in 2010 would have been 6.5 percent.
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