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Wednesday, December 26, 2012

'A Conservative Case for the Welfare State'

Bruce Bartlett argues conservatives should support the welfare state:

A Conservative Case for the Welfare State, by Bruce Bartlett, Commentary, NY Times: At the root of much of the dispute between Democrats and Republicans over the so-called fiscal cliff is a deep disagreement over the welfare state. Republicans continue to fight a long-running war against Social Security, Medicare, Medicaid and many other social-welfare programs that most Americans support overwhelmingly and oppose cutting. ...
This is foolish and reactionary. Moreover, there are sound reasons why a conservative would support a welfare state. Historically, it has been conservatives like the 19th century chancellor of Germany, Otto von Bismarck, who established the welfare state in Europe. They did so because masses of poor people create social instability and become breeding grounds for radical movements.
In postwar Europe, conservative parties were the principal supporters of welfare-state policies in order to counter efforts by socialists and communists to abolish capitalism altogether. The welfare state was devised to shave off the rough edges of capitalism and make it sustainable. Indeed, the conservative icon Winston Churchill was among the founders of the British welfare state.
American conservatives, being far more libertarian than their continental counterparts, reject the welfare state for both moral and efficiency reasons. It creates unhappiness, they believe, and inevitably becomes bloated, undermining incentives and economic growth.
One problem with this conservative view is its lack of an empirical foundation. Research by Peter H. Lindert of the University of California, Davis, shows clearly that the welfare state is not incompatible with growth while providing a superior quality of life to many of those left to sink or swim in America. ...
There are many ... ways ... in which what the conservatives call bloated European welfare states are actually very efficient. ...
American conservatives routinely assert that the people of Europe live in virtual destitution because of their swollen welfare states. But according to a commonly accepted index of life satisfaction, many heavily taxed European countries rank well above the United States...

If conservatives want to support the welfare state out of the desire to defend capitalism from "socialists and communists" -- to defend it against the instability that high degrees of inequality cause -- no problem, though it's interesting that they would acknowledge that the system itself can lead to societal inequities that are so dangerous the government needs to intervene to fix them. I prefer the efficiency argument (which is not to say that the other argument has no merit, it does). When there are substantial market failures -- the type that exist in retirement and health markets for example -- the government can make these markets work better through rules, mandates, and other regulatory interventions, or it can provide the services itself. Whether a heavily regulated private market will work better than the government providing services itself in the presence of substantial market failures is something that can be debated, and in general the lines aren't always clear. But for health and retirement markets it does appear that direct government provision works better than heavily regulated markets (i.e. "privatization"). In any case, the broader point is that the government provision of social insurance either directly or indirectly can be justified on an efficiency argument, i.e. as a means of overcoming market failures that prevent the private sector from providing these important goods and services in sufficient quantities at the lowest possible price.

    Posted by on Wednesday, December 26, 2012 at 11:40 AM in Economics, Market Failure, Regulation, Social Insurance | Permalink  Comments (70)


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