Poverty and Big Government

Ah, the welfare state… The cure for all social evils, especially poverty:

Twenty-four percent of the EU population – or 119.6 million people – were at risk of poverty or social exclusion in 2011, according to Eurostat figures published yesterday (3 December). The figure is one percentage point higher than the year before, when 23.4% of the population was considered at risk of poverty or social exclusion. It marks a significant deterioration of the social landscape in Europe as the economic crisis continues to bite.

The welfare state was created in response to the Great Depression and the deplorable poverty that so many people endured back then. It was created to provide not just a safety net for the poor and needy, but also a redistribution system of income and wealth so those who earn less would have more and those who earn more would have less. Furthermore, the idea was that the welfare state, through its redistribution systems, would assure that there would always be enough spending in the economy to prevent a deep recession and widespread poverty.

It’s been a real success, hasn’t it?

Euractiv again:

The highest shares were recorded in Bulgaria (49%); Romania and Latvia (both 40%); Lithuania (33%); and Greece and Hungary (both 31%). The lowest were in the Czech Republic (15%), the Netherlands and Sweden (both 16%), and Luxembourg and Austria (both 17%).

So a social and economic model that saw the light of day eight decades ago still has not been able to bring poverty down below 17 percent?

In related statistics, 9% of the EU population were considered as “severely materially deprived”, meaning they were struggling to pay their rent or utility bills and could not afford taking one week holiday from home.

But I thought that was the whole ever friggin’ point with the welfare state?! How can anyone be “severely materially deprived” when government – the benevolent, compassionate, the-only-thing-we-all-belong-to government – has promised to take care of them? Can some leftist out there please explain??

Well, I shouldn’t be asking them to do that. They can’t. If they tried, they would soon realize that the welfare state is actually the cause of the problem, not the remedy. But there is also another angle to this. If the welfare state actually did eradicate poverty, there is a significant risk that people would demand the end of the welfare state. And that would mean the end of millions of bureaucrat jobs currently dedicated to taking Jack’s money and giving it to Joe. It would also mean that millions of leftist politicians and activists would find themselves without a movement they could support. If they can’t support that political movement they won’t be able to look like do-gooders.

So what do we do? Well, the Euractiv story gives a hint (emphasis added):

“It is important to note that the at-risk-of-poverty rate is a relative measure of poverty and that the poverty threshold varies greatly between member states,” Eurostat said in a note. “The [poverty] threshold varies also over time and in a number of member states it has fallen in recent years due to the economic crisis,” added the EU statistical office. … Overall, 17% of the EU’s total population were considered at-risk-of-poverty, meaning their disposable income was below 60% of the national average, after social security transfers.

The lawmakers who define poverty legally have created a measurement that almost by definition can never be zero. Because it is a ratio of median or average income (depending on method) it will only be zero when median or average income is zero.

But does this really mean that there will always be people making little enough to be defined as poor? Strictly speaking, no. In practice, though, the answer is yes, especially when the economy is doing better. A steady rise in average income will automatically raise the income threshold for poverty. In good times demand for high-skilled workers and professionals rises first, which means that income differences increase early on in a growth period. Furthermore, people who were previously unemployed re-enter the job market at relatively low incomes. As higher incomes rise, average income increases and so does the poverty threshold. This typically has the interesting effect of increasing poverty, even though more people earn more money.

Obviously, this gives the advocates of big government yet another reason to propose higher taxes and more government spending on income redistribution programs. Taxes go up, more people get more entitlements – and as a result of both, fewer people work. The strong growth period weakens and the economy is more vulnerable to recession generators.

When the recession gets under way, the aforementioned scenario is reversed. Fewer people earn high incomes, average income falls and so does the poverty threshold. This can lead to the absurd effect that poverty shrinks in the midst of a recession, even though more people live on less money. Because of the drop in the poverty threshold, fewer people qualify for entitlement programs – whereupon the welfare state actually abandons those it was designed to help, at the very point when they thought they could count on it the most.

Europe’s poverty is one of many good reasons why the Europeans should get rid of their welfare state (and we should get rid of ours). It defeats its own purpose, it costs jobs and prosperity, it traps people in poverty – real poverty, not the statistical smokescreen used by statist politicians – and perpetual dependency on government. It also discourages people from creating jobs, and even taking the jobs that are out there. 

The only purpose the welfare state serves with excellence is that of a poison slowly killing the democratic, industrialized West, the most prosperous civilization humankind has ever created.