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Is The Welfare State Kind?

Uwe Reinhardt, writing at The New York Times economics blog the other day, made two points: (1) we’re not as kind as other countries are and (2) even if we were just as kind we couldn’t do as much for the needy because health care prices in this country are so much higher.

I’ll have to address health care prices in another post, although for a quick reality check see here. On the first point, he writes:

My interpretation is that opposition to the Affordable Care Act largely reflects the age-old reluctance among many of the nation’s haves and the healthy to help purchase for America’s lower-income families and the chronically ill the super-expensive health care that the haves enjoy themselves.

Hmmm. My own view is the exact opposite: That Americans are kinder (much kinder) than Europeans, as is evidenced by our long history of charitable and eleemosynary activities. There simply isn’t anything like that in Europe. If you are injured by the side of the road, looking for help from a Good Samaritan, I would guess that you will be much better off if the next passerby is American rather than European. (And if American, your odds are much better if the passerby is conservative rather than liberal!)

But before tackling the United States, I want to go all the way around the world to find what Uwe may consider the unkindest country of all. At least it is the polar opposite of the European welfare state. Instead of forcing everyone to put their money into a common pool and drawing from it as the need arises, Singapore has created a system based on the philosophy that:

Each generation should pay its own way.

Each family should pay its own way.

Each individual should pay his own way.

Only after passing through these three filters, should anyone turn to the government for help.

…[Pardon me for that pause. I was just trying to imagine how anyone in the modern age could be so uncaring and unfeeling.]

Anyway, in Singapore people are required to save and otherwise self-provide for needs that are the responsibility of government throughout Europe. They are required to save for retirement and for housing and education expenses. In health care, they are required to save through Medisave accounts and buy catastrophic insurance on top of that. The government heavily subsidizes hospitals, but patients are expected to pay the remainder of the bill and to pay for all out-patient care. There are people who slip through the cracks, of course, and there is a government fund to help people who can’t pay their own way. But this government activity is rather small.

So how is all this lack of kindness working out? 

It’s still not what I’m looking for.

Quite well, actually. Singapore probably has the highest savings rate in the world. It has one of the highest rates of home ownership. And along the way its high savings rate has fueled incredible economic growth.

Singapore in 2012 had a per capita GDP of $60,500. That beat such Scandinavian (welfare state) countries as Norway ($54,200), the Netherlands ($42,700) and Sweden ($40,900). It walloped such EU stalwarts as Germany ($38,400), Belgium ($38,200) and France ($35,600). And remember, Singapore not so long ago was a very poor country — just like Hong Kong ($49,800) was. (Ah yes, another country that probably ranks high on the Reinhardt lack of kindness scale.)

There is poverty in Singapore, but the old adage is true: a rising tide lifts all boats. As one report put it, in Singapore it is highly unlikely that you will find beggars lining the streets or see starving children walking the pavements, scrounging for food. Further, Singaporeans believe the poor in their country are better off than the poor in the U.S.

As for health care, Singapore boasts outcomes that are as good or better than other developed countries. Here is praise from Matt Yglesias, hardly a right winger.

Now let’s return to the United States. We don’t throw sick people out on the street if they can’t pay for their medical care. And uninsured patients in this country get more preventive care than insured patients in Canada. In fact, I would say that even if we didn’t enact a single reform, we will continue to outperform Canada by most measures.

[Here's what virtually everyone in the health policy community misses. In Dallas, thousands of people go to hospital emergency rooms every year to get care that they can't get anywhere else. The same thing happens in Toronto and in London. The difference? In Dallas we call these people "uninsured." In Toronto and London, they are called "insured." Other than the labels, there is no difference in the underlying problem — except that the "uninsured" in Dallas are probably getting better care.]

As for kindness, it has nothing to do with the policies of other developed countries. Throughout Europe, social welfare spending is paid for by regressive taxes. In essence, those governments tax people and then give them back their money in the form of social insurance. This isn’t about redistribution. It’s about collectivism.

Or to use Uwe Reinhardt’s language, in Europe the haves have figured out how to make the have-nots pay for their own care, so that it doesn’t become a burden the haves must shoulder. Kindness has its rewards.

And here is something I find ironic. In Uwe’s view ObamaCare should have been funded the European way: with a (regressive) value added tax!

By contrast, maybe 15% or more of the cost of ObamaCare actually is paid for by taxes on the rich. This is far less than the 100% Obama promised as a candidate, but more progressive than the European model. Overall, the entire U.S. welfare state is more progressive than the European welfare states, because we fund ours with progressive taxes and they fund theirs with regressive taxes.

But…and here is where the rubber meets the road…Is there anything “kind” about the welfare state?

Consider that the federal government has spent $15 trillion fighting poverty since 1965 and currently spends about $1 trillion a year on 126 means tested welfare programs. That amounts to almost $22,000 for every poor person in America, or $88,000 for a family of four. Yet after all that spending, the poverty rate in this country is close to where it was 50 years ago when the War on Poverty began.

Absent the welfare state, economic growth alone should have virtually eliminated poverty by now!

Clearly (at least it is clear to anyone with any common sense) we are subsidizing, encouraging and enabling dysfunctional lifestyles. In the Dallas public school system, every single child is getting a free lunch and a free breakfast. The reason? There were so few that didn’t qualify that it didn’t pay to try to segregate them out. Think about that. We have decided that every parent of every school child in Dallas is incapable of feeding her own children. In many parts of the country, children who are getting a free breakfast and a free lunch get a free dinner as well. And that’s on top of the food stamps the parents receive.

Meanwhile, the dysfunctional households in which these children live seem incapable of creating an environment that is conducive to learning. That’s the only reason we’re talking about universal pre-school. But why stop with pre-school? Why not tackle the real problem straight on and put all these children in an Israeli-type Kibbutz?

The Salvation Army and similar private charities are kind. The welfare state is not kind.

When you are in trouble, it’s easy to get private sector relief, but hard to remain for a long time on that relief. In the public sector, it’s hard to sign up, but once you are enrolled you can stay there forever. The private sector is focused on changing behavior so that need for relief will be temporary. The public sector reinforces the behavior that makes the need for relief permanent. The private sector is ameliorating misery. The public sector is subsidizing and expanding misery.

To repeat, private sector charity is kind. The welfare state is not kind.

SOURCE: NCPA

John C. GoodmanJohn C. Goodman is President of the National Center for Policy Analysis, Research Fellow at the Independent Institute, and author of the book Priceless: Curing the Healthcare Crisis.

The Wall Street Journal and the National Journal, among other media, have called him the "Father of Health Savings Accounts." Dr. Goodman's health policy blog is the premier right-of-center health care blog on the Internet.

It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts across the ideological spectrum.

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