Welfare: Society vs. Government


There is a solid case that all the federal government’s welfare programs are unconstitutional because they exceed the enumerated powers in the constitution. State and local governments don’t always have similar legal issues, so we will focus in this post on why the society can provide better welfare services outside of the government.

Government entered into welfare because some people confuse the society with the government. The society is the entity that include all the individuals of a city, state, or country. Government is one of the institutions of the society that has monopoly on the use of force within that society to provide law and order. The free market provides the system of exchange of services and products between people so each can meet his or her needs.

People engage in different activities and trade with other members of the society exchanging their services for income that enable them to buy their needs from the market and save for future needs. Some people may temporary or permanently become unable to get all their needs through their contributions to the free market and the society provides multiple ways to help these people.

Society provides help to people through family, friends and charities and people have relied on these institutions since the beginning of human society. For example, a college student may only be able to have a part-time job so he lives with his parents until he finishes his degree and be able to get a full-time job to support an independent life. A group of students who don’t have family in town may group together and rent a small apartment and share that space while they finish their studies. Another person may have a full-time job but because his skills can only earn him little income he has to live with other people of similar circumstance to afford a place to live until his skills grow enough to get him better income to support an independent life. Some people have more permanent issues such as disabilities that prevent them from having enough income so they have to rely on family or charities to get their basic needs.

Prior to 1900, charities were the main source of help for people outside of friends and family in the United States, but as part of the progressive era activists started to push for the local, state and federal government  to offer welfare programs. Politicians champion welfare programs because they are good way to win people’s vote. Government welfare programs suffer from a number of structural problems that make them inefficient and wasteful:

  • Government welfare programs don’t give incentive to people with temporary inability to cover their needs to improve their state. For example if a person has low skills and only earn low-income as a result he may share a crowded apartment with other people with similar circumstance, this will give him an incentive to work hard to learn more skills and raise his income so he can transition to his own place. Under the current system of government welfare this person may get a free or subsidized apartment from the government; this will not only make it unnecessary for him to work to improve his status but it may encourage him to stay in this low-income job so he can keep the government help.
  • Government doesn’t have a way to know if people are in need so it rely on measures such as income to decide if someone is in need for help but these measures aren’t always right. For example, low-income doesn’t always mean that a person is poor. An early retiree who live on income from his investments may have officially very low-income which can make him eligible to a lot of government programs. A full-time student may have low-income from a part-time job qualifying him for government help even if his parents are rich and can support him while he finishes his studies.
  • Government agencies that run welfare programs have no incentives to make the program more efficient. Usually the bureaucrats who run these programs care about protecting their jobs through making sure the program continue to serve as many people as possible. Economist Thomas Sowell tells a great story about when he spent a summer working in the labor department trying to measure the effectiveness of minimum wage, after spending a couple of months coming up with a method to do that he discovered that the department only cares about administering the program not measuring how effective is it. Private charities have incentive to help people who they serve overcome their problem and making their services more efficient because they compete for the donation money with other charities. Friends and family have incentive to make sure loved ones they help overcome their temporary issues and become independent.
  • Government welfare programs have a lot of moral hazards involved. A person may collect unemployment because he got laid off while another person may get it because he keeps losing his job due to bad performance or carelessness. The government has no way to differentiate between the two.
  • Government welfare programs take resources out of free market that could have been used by other institutions of society to better help people in need. When the government takes more money in taxes to finance these programs fewer people will have disposable income to give to charity or help their friends or family.

Different institutions of society could offer welfare to people who need it better than the government could ever do. It is better for government to get out of offering welfare and let the society take care of its own.