Wasted Welfare Spending: Nationalized Charity Fails to Serve the Poor

The American “welfare state” offers what must be one of the most spectacular failures of government redistribution programs to provide assistance to poor & needy people. Judging from official data, more government spending has brought an increase in the number & proportion of people living below the poverty line.

In 1970, the percentage of families below the poverty line was 10.9%. But in 2011, there were 16.8 million US households with incomes below the poverty line or about 14.6% of total households.

This suggests either massive ineptitude or wanton corruption since federal government spending on means-tested welfare programs for that year was $746 billion or $44,405 for family below the poverty line. With so much money being thrown around, how could anyone in America be considered to be poor.

This amount includes federal government means-tested programs but not Social Security & Medicare or veterans benefits or spending by state or local government that targets needy people.

It looks worse when adding in the $166 billion spent by state & local governments for Medicaid in 2011 so that an average of $54,286 was spent for each family with income below the poverty threshold.

There are problems with measuring poverty. First, it is usually defined in terms of income. A better indicator, thought more difficult to measure, is consumption.

Second, the notion of “relative” poverty is conflated with “absolute” poverty. As it is, the “poor” in America are rich by global standards.

The typical poor household in US owns a car & has air conditioning, 2 color televisions with cable or satellite, DVD player & VCR. They also have a refrigerator, oven stove as well as a microwave, clothes washer, clothes dryer, ceiling fans, a cordless phone & coffee maker.

Part of the problem is that nationalizing the provision of charity creates perverse incentives for poor people to remain indigent as a condition of receiving so much largess. In breaking the interpersonal link that exists with private charities, recipients feel entitled to demand more. Although bureaucratic “benefactors” face weak budget constraints so that they tend to bend rules for eligibility, their commitment is more impersonal since they work from 9-to-5. By contrast, private charities face tight budget constraints yet are more likely to engage recipients on a personal basis.

Before Bismarck introduced the concept of the modern welfare state, assistance depended upon private efforts of religious institutions or neighbors or family members or philanthropic organizations. While no system is ever perfect, there is no historical evidence that private charities were less effective than state-run charity.

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