Thursday, June 14, 2012

Is the welfare state moral or immoral?

In the previous post, we questioned whether capitalism was moral or immoral and what I wanted to express there was that while it has no moral values of its own, it can be supportive of existing moral values and maybe reinforce them by connecting moral values to a profit motive. In this post, we will examine the competitor for capitalism, which in today's age is by and large the welfare state.

Before, we go into analyzing welfarism, let us understand the needs of a man. These can be broadly classified into two groups: 1) material and 2) spiritual. The material needs are food, clothing and shelter. Lately, a few more items have been added to it - like electricity, education, jobs, internet and so on. The spiritual need basically revolves around generating his outlook of life, and some say the need to realize the self. The latter is indeed the Upanishadic goal, most Upanishads focus on educating us about the need of inquiring who we are.

Now, let us analyze welfarism. On the face of it, there seems to have a feel good thing about it. As we saw in the last post, markets redistribute wealth according to people's ability to satisfy others. In this redistribution, some people are left poor. And being poor, they need help. And they expect the government to help. But the government doesn't have any money of its own (let's neglect PSUs for our simple case study), so it taxes and spends on the poor.

And in democracies, this is not unexpected. When the government is defined as by the people, of the people, and for the people, the government is expected to help the people, and one method is to indulge in entitlements. But should the government just handout money to the poor and expect all to get well? Should the government give them food, clothing and shelter and expect all to get well? It is impossible that any government continue to keep managing basic needs of the people for all eternity. Firstly, this happens at a continuous drain of money from the economy through taxation. If the people are just pushed a notch up the socio-economic ladder without any development of their personhood, their expectations of the government keep growing and they vote in increasingly more government spending to satisfy even the most basic of their needs. This raises the first issue of the welfare state, which we shall call for the moment the vote pump. 

Next is the need of money to fund all the welfare. No amount of taxation is actually able to satisfy this vast need of money. In the end, it all boils down to robbing Peter to pay Paul which is a crime all of us can understand. We have to realize that we are in a very connected global system of nations where one company on being taxed more can easily switch to a more agreeable locale with lesser taxes, provided it gets all the conditions it needs for successfully running its business (if you are not clear with this, look up the 'going galt' phenomenon). After a certain number of talented professionals and companies have gone galt, tax revenues of the country start falling. But the amount to be spent remains the same! So the country would start borrowing money and run heavily into debt. This would involve a long and elaborate procedure of coming out of debt spirals, (use this: click as a primer)

But let us not get too much into the details. Welfarism as we have seen thus far, has grave issues, not only does it only satisfy the material needs of men, it also has other issues associated with it as discussed above. Few have been able to satisfy them. However, people expect help from their government, so if welfarism is evil, how should the government go about it? A simple story that many of us learnt during school days, is that it is better to teach a man to fish rather than giving him a fish everyday. If government wants to help people's lives, it should be towards this goal - making people independent in life. With skills, and with jobs resulting from those skills, people must be able to make out on their own and perhaps satisfactorily answer questions about their existence. Maybe, the government helps in people's material needs too, but that should be for a limited span of time, tied to the above mentioned skill development program and not to make them permanently dependent on it. Essentially, the argument for welfare should be that you can withdraw from the common pool of money only if you are going to pay back into it at a later day through taxes on your newly earned job. Only this sort of welfarism, in my view, is moral. 


Dirt Digger said...

The question has to be raised as to where does the welfare state come into picture? Traditionally it exists because the economy of the nation has become stagnant without new avenues for development or the growth of population outstrips the development avenues.
The Govt has several options from turning a blind eye (like Dictatorships) to proactively viewing and addressing this (democracies?).
I agree with your points that the Govt cannot keep plugging in money to solve these problems. Take the example of Europe today, like Greece, the society has become a glorified welfare state where a few have to bear the responsibilities for the many.
Or for that matter India where farmers who need subsidies are being ignored and farmers who don't get it.
As you pointed out it is interesting to analyze the intent of any welfare program and its result. TARP was promoted as an initiative to save the banks from failures which would have caused long term financial meltdown. However looking back, could a meltdown be the cause of a quicker recovery? I'm not so sure.
This topic probably deserves a follow up.

Karmasura said...

Yes, it seems we need to work better on preparing a background on how the welfare state comes into being.

As for TARP and housing bubble, I only have a superficial knowledge of it at the moment. But if government had not eased mortgaging for house purchases (which created a huge demand for housing and supply remain unchanged, thus leading to a bubble?), I assume there would not have been a housing bubble in the first place for a TARP to be organized. So welfare schemes if any have to be organized in such a way that they don't upset the demand supply apple cart and create bubbles of this sort.