Pope Francis and the Welfare State

Anyone who has had even a minimum of experience trying to balance a check book knows that if you first define the food you want to buy, the car you want to drive, the house you want to live in and the clothes you want to wear, and then look for a job to pay for those expenses, you are very likely going to end up with an acute overdraft on your checking account. Anyone who has ever run a business knows that if you hire the number of people you want, buy the inventories you want and hire the facilities you like, and then start trying to sell products to get the revenue that those costs require, you are almost certainly going to go belly-up.

The welfare state does not confine itself to the same realities as private citizens do. Its MO is the exact opposite of how the real world works. It makes promises to a select group of citizens and then forces another group of citizens to pay for those promises – regardless of whether or not the latter group can afford it. The promises are made in the form of “defined benefits”, in other words government first decides to give away a certain amount of money (welfare checks, housing subsidies, food stamps) or specific services (education, health care, child care) and then, once the package of entitlements is in place, starts looking for a way to pay for it.

This upside-down approach sets up the welfare state for some big trouble. It also has terrible long-term consequences for all of us. When the entitlement programs go online they reduce work incentives among large layers of the population. So do the taxes created to pay for those entitlement programs. Fewer people work to feed themselves fully, while fewer people work fully out to build wealth or create businesses.

So long as the welfare state is small, focusing its entitlement programs only on those who are really needy, there is only a marginal loss of economic activity. The lack of a visible macroeconomic price tag on this small welfare state encourages government expansionists to pursue more entitlement programs with higher taxes.

At some point, though, the growing welfare state inhibits enough productive economic activity to create serious problems with growth and prosperity. What was initially a tolerable balance between tax revenues and entitlement spending soon becomes an unsustainable imbalance: slower economic growth leaves more people entitled to support from the welfare state; slower economic growth produces fewer decent-paying jobs, leaving more people entitled to support from the welfare state; more support from the welfare state discourage people from pursuing decent-paying jobs, eventually reducing supply of such jobs.

To complete the imbalance: slower economic growth reduces the stream of tax revenue needed to pay for the ever-growing output from the welfare state’s entitlement programs. A structural imbalance emerges where government expansionists pursue ever higher taxes and the private sector quietly winds down its operations, or moves them overseas.

Latin America has seen plenty of this, with Argentina as the absolutely best example. In the period from circa 1920 through the 1950s, Argentina was a flourishing economy with among the highest standard of living in the world. There were years when Argentina attracted more immigrants from Europe than the United States. Then the welfare state came and the rest is history.

A history that the current Pope should have learned. He was, after all, cardinal of Buenos Aires before rising to the Holy See. Unfortunately, learning from history is apparently not a prerequisite for rising through the ranks of the Catholic church. The Associated Press reports:

Pope Francis called Friday [May 9] for governments to redistribute wealth to the poor in a new spirit of generosity to help curb the “economy of exclusion” that is taking hold today. Francis made the appeal during a speech to U.N. Secretary-General Ban Ki-moon and the heads of major U.N. agencies who met in Rome this week. Latin America’s first pope has frequently lashed out at the injustices of capitalism and the global economic system that excludes so much of humanity, though his predecessors have voiced similar concerns.

What is injust about an economic system where every individual can find work at his own best ability, or start a business, build a career on nothing but his own merits? What is unjust about an economic system that does not come with long bread lines, where consumers can make independent choices what they want to eat, where they want to live, how much they want to save for their own future? What is unjust about an economic system where people can give to charitable causes regardless of their faith, and regardless of the faith of the recipient? What is unjust about an economic system where people can choose their own doctor, what school their children should attend and how much they want to save up for their own retirement?

What is wrong with an economic system where you get to keep the proceeds of your hard work, where the farmer who spends that extra hour out in the field can put better food on his children’s dinner plates? What is wrong with an economic system where the poor do not have to be poor for the rest of their lives, but can work their way up from despair to independent wealth?

Back to the Associated Press story:

On Friday, Francis called for the United Nations to promote a “worldwide ethical mobilization” of solidarity with the poor in a new spirit of generosity. He said a more equal form of economic progress can be had through “the legitimate redistribution of economic benefits by the state, as well as indispensable cooperation between the private sector and civil society.” Francis voiced a similar message to the World Economic Forum in January and in his apostolic exhortation “The Joy of the Gospel.” That document, which denounced trickle-down economic theories as unproven and naive, provoked accusations in the U.S. that he was a Marxist.

My mother grew up poor. My grandfather, who had six years of school to lean on, worked as a logger and built a small farm big enough to provide the very, very basics of what his family needed. They set aside money so they could move to a mining town where my grandfather hauled iron ore a thousand feet under ground while grandmother raised seven children to be strong, independent, proud and ambitious. My mother once explained what set their family aside from many other families living under the same conditions:

“We didn’t have time to complain about how poor we were. We were too busy doing our homework.”

So there is your priority. Either you invest in yourself, pursue opportunities and build your life – or you sit at your kitchen table day and night complaining about how your neighbor drives a better car than you do.

The Associated Press again:

Francis urged the U.N. to promote development goals that attack the root causes of poverty and hunger, protect the environment and ensure dignified labor for all. “Specifically, this involves challenging all forms of injustices and resisting the economy of exclusion, the throwaway culture and the culture of death which nowadays sadly risk becoming passively accepted,” he said.

And of course the Pope does not spell out what he believes are the root causes of poverty and hunger. If he pursued those “root causes” he would have to address the fact that the poorest nations on Earth are also run by corrupt, ruthlessly selfish dictators who steal from their own people. Or does the Pope see no difference between the government systems of, on the one hand, the United States, Canada, Western Europe, Australia and Japan and, on the other hand, the Democratic Republic of Congo, North Korea, Zimbabwe, Somalia and the Central African Republic?