Reform of a Modern Welfare-State through a Basic Income to Restart

Higher Levels of Growth and Ameliorate the Rule of Law

Cameron M. Weber GBRS 2015

Istanbul, Turkey

Reform of a the Welfare-State with a Basic Income for Everyone

Outline of Story1. Evolution of fiscal centralization in USA 2. Emergence of welfare-state3. Why welfare-state leads to “new normal” 4. Reform plan to replace welfare-state with a Basic Income (BI) for everyone. 5. Posit that BI re-starts growth by freeing price signals, and, creates more equality under law

Reform of a the Welfare-State with a Basic Income for Everyone

Stylized Facts of the “New Normal” in a Modern Welfare-State

Note: Analysis is specific to the United States of America but hopefully there are some lessons learned for other welfare-states

Fiscal Centralization and the Welfare-State

Anti-Federalists against new central government proposed in U.S. Constitution, thought would “crowd-out” local decision-making and mutual aid

Federalists wanted “vigorous” federal state

American Revolution was won under Articles of Confederation (1776-1788)

Reform of a the Modern Welfare-Statewith a Basic Income

The Growth of the Central State

Grey: Local Direct Spending Green: States Direct Spending Red: Federal Direct Spending Blue: Transfer to State and Local

Source: Chantrill, Christopher. 2015. “US Government Spending History from 1900.” [http://www.usgovernmentspending.com/past_spending]

Fiscal Centralization in the USA

Collective Decision-Making and Basic Government

Most economists agree that collective decision-making necessary to provide “public goods”

Generally agreed to include national defense, court system and the ability to negotiate treaties with other social collectives

We call this “Basic Government” and juxtapose with “Welfare-State”

Collective Decision-Making and Basic Government

• We propose that federal government beyond “Basic Government” is “Welfare-State”

• Welfare-State imposes depersonalized (relatively inefficient) rent-seeking federal intrusions upon personalized and local (relatively efficient) common resource management and local mutual aid

Welfare State and “New Normal”

Hayek 1945Price signals and social crisis

Krueger 1974Rent-seeking and economic stasis

The Beginning of the End

United States has Basic Government at federal level from 1789 – 1848

Common resources are managed locally

Department of Interior (corporate-welfare) created 1849

“Basic Government” and the “Welfare-State”A. Basic Government 2014 (est.) C. Social-welfare 2014 (est.) E. Overhead 2014 (est.)

Department of Defense--Military 571,882 Department of Housing and Urban Dev. 49,479 General Services Administration -231

Department of Justice 32,652 Department of Health and Human Services 1,040,661 Office of Personnel Management 86,723

Department of State 30,505 Department of Education 68,991 Total 86,492

Department of the Treasury 612,782 Department of Labor 75,579

Executive Office of the President 402 Department of Transportation 93,574 USG Spending (A + B + C + D + E) 4,116,050Legislative Branch 4,912 Social Security Administration (On-Budget) 92,247 Government (A + B) 1,511,459Judicial Branch 7,432 Social Security Administration (Off-Budget) 838,917 Welfare State (C + D) 2,518,099Total 1,260,567 Total 2,259,448 Welfare State % of Total USG Spending 61%

Welfare State Overhead Allocation 52,914B. Military-industrial-security complex D. Corporate-welfare Welfare State Plus Overhead 2,571,013Department of Homeland Security 45,034 Department of the Interior 13,172 Government Plus Overhead 1,545,037Department of Veterans Affairs 146,357 Department of Agriculture 141,192 4,116,050Other Defense Civil Programs 59,501 Department of Commerce 8,879

Total 250,892 Department of Energy 31,026

Corps of Engineers-Civil Works 6,415

Environmental Protection Agency 8,412

International Assistance Programs 23,084

National Aeronautics and Space Admin. 18,104

National Science Foundation 7,409 Misc. Independent Agencies & Offsets -232,955

Small Business Administration 958

Total 258,651 Net Outlays 3,883,095

Data: US OMB 2015

Reform of the Welfare-State to Restart Growth

US GDP 2014 ( A ) 17,701,000

Social Welfare Expenditures 2,259,448Corporate Welfare Expenditures 258,651Total Welfare Expenditures 2,518,099

Social Welfare with Overhead ( B ) 2,307,070 90%Corporate Welfare with Overhead ( C ) 263,942 10%Total 2,571,013 100%

Social Welfare % of GDP (B/A) 13.0%Corporate Welfare % of GDP (C/A) 1.5%

2014 US Federal Welfare State Expenditures ( A )$2,571,000,000,000

2014 Population Aged 16 and Over ( B )251,293,200

Basic Income to Replace Welfare State (A/B)$10,231 Per Year Per Person

US Poverty Level (2014)$11,700 Per Person

Reform of the Welfare-State with a Basic Income for Everyone

2014 US GDP ( A )

$17,701,000,000,000

2014 US Government Expenditures ( B )$4,116,050,000,000

US Government % of the Economy23% (B/A)

U.S. Government expenditures 23% of the economy

Therefore extent of market is 77%

Welfare state 14.5% of economy

Reform expands the extent of market price system to 91.5%

Assume “new normal” growth is 2%.

With reform we expect a new rate of 2.4%, an increase of 20% (1)

(1) 77% / 2% = 91.5% / x, where x = 2.4%, and, (2.4% – 2%) / 2% = 20%

Reform of the Elitist Utilitarian Welfare-Warfare State with a Basic Income for Everyone

Civilian Conservation Corps 1933 – 1942 creates “citizen–soldiers” (Suzik 1999)

Aid to Families with Dependent Children 1935 through today creates “obedient citizens” (Russell 2010)

“Obedient citizen-soldiers”

Reform of a the Welfare-State to Restart Growth

“As O’Rourke has pointed out, there can’t be any poor people in the United States. His proof is that if we take the total amount spent on poverty programs and divide it by the number of people in poverty, the income per capita is above the poverty line. QED. But the money is not reaching the poor.”

Munger, Michael. 2015. “One and One-Half Cheers for a Basic Income: We Could do Worse and Already Have,” The Independent Review 19 (4): 503-513.

Reform of Welfare-State through a Basic Income to Restart Higher Levels of Growth

and Ameliorate the Rule of Law

The Anti-Federalist also warned that the Constitution would turn patriots into partisans and demagogues appealing to emotion instead of reason

The Other, us versus them

Degeneration and Rent-Seeking in Republicanism

Republicans and Democrats

Both parties expand size and scope of government and each claim that the other is abusing the U.S. Constitution

R: Oil and Gas (liability limits)D: Clean and Green (subsidies and trade barriers)

Rent-Seeking in American Republicanism

Democrat Party politicians (cities) pander with food stamp (social welfare) and Republicans (rural areas) pander with agricultural subsidies and trade barriers (corporate welfare)

From Patriots to Partisans

Food stamps and agriculture subsidies are on the same legislative agenda, so both Parties always vote for the bill despite the hypocritical antagonistic rhetoric

Reform of the Welfare-State to Restart Growth

*Replacing the elitist utilitarian welfare state (for some people) with a Basic Income (for everyone) is a more just society

* Would encourage entrepreneurial behavior and economic growth as reduces down-side risk

Reform of Welfare-State through a Basic Income to Restart Growth and Ameliorate

the Rule of Law

A corollary, we recommend federal tax code reform, another source of great rent-seeking in the U.S. economy

A single income tax rate for everyone, shown to be 23%, the U.S. Government’s share of the economy

Reform of the Welfare-State to Restart Growth

*Or we can remove all social and corporate welfare and have a single, same for everyone, tax rate of 8.5% (Basic Government’s share of the economy)

*Optimal is some planned transition from here to there