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Book Review: The End of Welfare

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The End of Welfare: Fighting Poverty in the Civil Society
by Michael Tanner (Washington, D.C.: Cato Institute, 1996); 226 pages; $10.95.

Thirty years ago, when the welfare-state programs of President Lyndon Johnson’s War on Poverty were first being implemented, the general consensus among the political elite and the intellectual community was that wise government, with sufficient funding, could lift the poor from their poverty. Only a handful of critics challenged the rationale and ability of government to defeat poverty in America. And these few were considered right-wing, out-of-touch extremists.

Today, an increasingly larger number of people realize that the welfare state not only has not eliminated poverty but has in fact perpetuated poverty and worsened the lot of many who are poor. However, to call for the full abolition of the welfare state still is not a mainstream view. This is what makes Michael Tanner’s The End of Welfare: Fighting Poverty in the Civil Society such a valuable work. He not only demonstrates the perverse results that have been produced by the welfare state, he in fact does call for the elimination of the welfare state.

In the first three chapters, Mr. Tanner discusses “Poverty in America,” “The Rise of the Welfare State,” and “The Failure of the Welfare State.” Armed with an immense amount of statistical data, all clearly and intelligently presented, he shows that until the introduction of the Great Society programs beginning in the mid 1960s, poverty was rapidly being reduced through market forces. Using the government’s own definitions of poverty, he explains that in 1949, about 34% of the U.S. population was considered to be living in poverty; by the late 1960s, that figure had dropped to less than 15%. For black Americans in 1949, the poverty rate had been over 75%, and it was below 35% in the late 1960s.

Since then, the poverty rate has risen, both for the society as a whole and for the black American community. This reversal of the elimination of poverty has happened even though government spending on the poor has increased by 700% since 1965, with $8,258 being spent for every poor man, woman, and child in America in 1993, or more than $33,000 for each poor family of four. However, Mr. Tanner points out that while 30 years ago, about 70 cents out of each welfare dollar reached the poor, today that has been inverted, with only 30 cents out of each welfare dollar reaching the supposedly needy recipient; the majority of the money goes to fund the bureaucratic network that manages the system.

But the welfare state has not only prevented the further reduction of poverty and wasted vast sums of money. It has also undermined fundamental social institutions, the most important one being the family. In 1960, only 5.3% of births in America were out of wedlock; by 1990, that figure had increased to 28%. For the black community, 23% of births were out of wedlock in 1960; but by 1990, that figure had risen to 65.2%. As Mr. Tanner explains, it would be too extreme to argue that welfare payments to unmarried women have created a profitable baby-making business. But he does argue that “by removing the economic consequences of out-of-wedlock births, welfare has removed a major incentive to avoid them. A teenager looking around at her friends and neighbors is likely to see several who have given birth out of wedlock. When she sees that they have suffered few visible [immediate] consequences . . . she is less inclined to modify her own behavior to prevent pregnancy.”

Mr. Tanner also carefully details the effect of the welfare state on the work ethic, crime, and intergenerational dependency upon government programs. He argues, for example, that those on welfare are not necessarily lazy or shiftless, though certainly examples of such behavior can be found. The fundamental motive is a higher standard of living through welfare benefits than through a paycheck. In other words, many people merely respond to the market price signals, and the signals often say that state dependency is more profitable than a job. Mr. Tanner estimated what a full package of welfare benefits would be equivalent to in terms of an hourly wage. In 40 states, being on welfare is equal to an $8/hour job; in 6 other states and Washington, D.C., it is equal to a $12/hour job; in New York City, it is equal to a $14.75/hour job. If a person is low-skilled, what incentive is there not to take government’s offer of “wages” like these not to work?

After explaining why he believes many of the standard welfare reform proposals presented by both liberals and conservatives are inadequate, Mr. Tanner devotes an extremely important chapter to the issue of how the free society could be expected to solve the problems of poverty and the deserving poor better than the existing government system. He reminds the reader that in the 19th century, assistance to the poor was considered the duty of private charity and local communities, with limited state-level involvement and practically no federal intervention. In the 20th century, first state-level and then federal welfare programs increasingly have crowded out the private sector. But even with this government usurpation, in 1991 charitable cash contributions and voluntary service by millions of people equaled a dollar value of more than $300 billion.

Mr. Tanner persuasively argues that the welfare state should be completely dismantled and repealed. In its place should be a revived arena of private charity and giving. Would it work and would it do a better job? Yes, he says. First, the private sector does not require a separation of church and state; as a result, private charities can try to teach and inculcate moral values for better living in conjunction with financial assistance to the deserving poor. Second, private charity has the flexibility to modify and accommodate its activities to the particular needs and requirements of the poor in ways that big government bureaucracy cannot. Third, private charity injects true compassion and moral participation on the part of both donor and recipient in a way that compulsory taxation to fund the welfare state never can.

Would private charity be sufficient to handle the problem of poverty and the poor in America? Yes, he says. If taxes are lowered to foster capital formation for private-sector job creation; if regulations are repealed that hinder the starting and expanding of private enterprises that can produce new employment opportunities; if minimum wage laws are abolished so the unskilled are no longer priced out of the market, then the number of those needing assistance will dramatically decline. Not only will there be fewer people requiring the help of their neighbors, but the greater wealth generated by a freer and more prosperous market economy will enable a growing number of people to have the financial wherewithal to voluntarily give to those needing that help.

At the conclusion of The End of Welfare, Mr. Tanner says:

Is there a 100 percent guarantee that the proposals offered here will work? No, there is not. Will some people fall through the cracks of the civil society and suffer? Probably. Perfection is not attainable. What we do know is that there is a 100 percent chance that current [welfare state] policies will fail. . . . It is the civil society, built on personal responsibility, opportunity, and true compassion, that offers the best hope for the future.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).