How to Stem the Tide of the US Welfare State

Español Recent history has seen the welfare programs in most US states swell dramatically. Despite a recovering economy, welfare spending remains high, and aggregate welfare spending rose 83 percent from 1998 to 2013. A new paper by the Manhattan Institute’s Diana Furchtgott-Roth digs into the expansion of the welfare state and what can be done to slow its growth. The numbers are striking.

Number of people enrolled in the SNAP food  voucher program compared to the unemployment rate. Graph from the mentioned Manhattan Institute paper
Number of people enrolled in the SNAP food voucher program compared to the unemployment rate. (Manhattan Institute)

One of the most problematic welfare programs is SNAP, a food-assistance program for low-income families. Putting aside issues with the existence of the program itself, SNAP has serious problems in the way it is administered. While the reasons are somewhat technical, they boil down to the states receiving what amounts to “free money” from the federal government to pay for the majority of the program’s costs.

Such problems for federally funded, state-administered programs are near universal. Government reformers are often quick to call on devolution and federalism as solutions to many of the nation’s problems. Yet, federalism works best when the smaller government, a state or locality, both administers the program and pays for it from local tax dollars.

Not only does this prevent indirect redistribution from rich areas to poorer ones, but it aligns the incentives of politicians with those of the population.

A more devolved system would clarify who is paying for, and who is benefiting from, government assistance. There are many good reasons to think that clarifying the costs and benefits of government programs would lead to better governance. It makes it clear to benefit recipients that the money they spend comes from people they know, encouraging fiscal stewardship. Better yet, it gives taxpayers a more clear understanding of what value they are getting for they money that is taken from them.

Note that this says nothing of the aggregate size or composition of the welfare system. Devolution and localization introduce quasi-market mechanisms to welfare provision, where localities must compete to provide a mix of taxes and welfare spending that best fits the demands of voters. With smaller jurisdictions competing, it would be realistic to believe that options would emerge, where people can choose to live in areas where the social safety net best matches their demand.

Furchtgott-Roth proposes two solutions that would move the system in this direction: First, capping spending at the rate of inflation plus number of people in poverty. This would be a common-sense check on uncontrolled federal welfare spending.

Second, allow states to direct savings from federal welfare programs to other budget functions when they meet objective, poverty-reduction criteria. This proposal maintains the federal funding, but gives state officials a reason to run efficient, goal-oriented programs.

Currently, because such funding may only be used on welfare programs, states that achieve results for less money are treated no better than those who are less objectively efficient at reducing poverty. While this is by no means a perfect reform, Furchtgott-Roth’s proposals are the kind of “good governance” reforms that can end some of the most unnecessarily wasteful aspects of government spending.

Welfare spending is one area where people can genuinely debate the size of government as a matter of personal preference. Yet, almost every case assumes some kind of efficient system of redistribution from the nation’s better-off to those less well-off.

The current welfare system is far from efficient at alleviating poverty, and reforming it must happen before we get to broad debates of philosophy. Reforms like those proposed above say little about how much we “should” spend on welfare. Instead, they seek to realign political incentives for those who create and administer the programs. Beyond politics, good-governance reforms make sense for anyone who genuinely cares about an efficient, goal-oriented government.

Edited by Guillermo Jimenez.

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