Welcoming the Bankruptcy of the Welfare State

May 16, 2010

by Mario Rizzo   

There are at least two kinds of opponents of the welfare state. There are those who think it has gone too far because, for example, it is very expensive, counterproductive, reduces incentives for economic initiative, depresses general economic growth, and may cause an unsustainable debt burden. You can count many economists in this group.  

Then there are those who believe that these consequences will follow but also believe that the welfare state is a profoundly immoral institution. It is true that these economic consequences are one of the things that make the welfare state immoral. But that is not all that makes it immoral.  

The root of the problem is the welfare state’s bogus liberality.I am not opposed to helping the poor or to beneficence more generally. I am opposed to the involvement of the state in such matters. I am for the separation of state and beneficence. I am for the growth of voluntary institutions of civil society that focus on the solution of undesirable conditions of human beings in a way that does not do violence to the dignity and autonomy of those who have legitimately acquired wealth. I do not view the absence of wealth on the part of some as per se amounting to legally-enforceable moral claims on the wealth of others.   

One of my favorite quotations in this regard is from the Roman senator, philosopher, and opponent of the dictatorship of Julius (Gaius) Caesar, Marcus Tullius Cicero:  

There are, though, many especially those greedy for renown and glory, who steal from one group the very money they lavish upon another. They think that they will appear beneficent towards their friends if they enrich them by any method whatsoever. But that is so far from being a duty that in fact nothing could be more opposed to duty. We should therefore see that the liberality we exercise in assisting our friends does not harm anyone. Consequently, the transference of money by Lucius Sulla and Gaius Caesar from its lawful owners to others ought not to be seen as liberal: nothing is liberal if it is not also just.     ON DUTIES, Bk.1. XIV. 43    

None of this implies, however, that the moral argument against the welfare state is simply based on “values” divorced from consequences. But the consequences that make it immoral are more general, more long-run, less easily visualized than those generally adduced.  

The nineteenth-century philosopher Herbert Spencer distinguished between two types of “utilitarianism”: rational and empirical. “Empirical utilitarianism” refers to the emphasis on particular, perhaps easily predictable, bad consequences of policies. These are what economists generally talk about. But there are other, more long-run, consequences that Spencer summarized as the “kind of society we are tending to produce.” Attention to these consequences is what he meant by “rational utilitarianism.”  

Some of these include to the political momentum that creates ever-greater government involvement in our lives. As certain policies create problems that “call for” further government intervention to solve those problems, we move from more to more. We are now seeing, for example, the decline in individual autonomy as policy-makers say that we must mandate that people take care of their health because taxpayers will have to pay for their healthcare costs if they fail to. Or that people must buy health insurance because otherwise the ObamaCare scheme will not work.  

We see the increasing tribalization of society as politicians play one interest group against another. And contrary to what contemporary progressives believe, no one is in charge of the overall outcome. So we get a government that both subsidizes tobacco through the Agriculture Department and penalizes tobacco through taxes, negative advertising, and so forth.  

We, as a civilization, have come a long way from the society based on status (feudalism, for example) to a society based on contract or voluntary association. Now the government seeks to reinstate status with group-interest politics, the creation of a class of tax-consumers and tax payers, and crony capitalism.  

Therefore, I view the more immediate negative consequences of the welfare state as intimations of the long-run effects. They are the easier-to-understand stories that may affect public opinion. In a sense, most economists, for all their complex reasoning, theories and data, are the simpletons of public policy. Their work is preliminary to the real issues. There are, course, some economists like James Buchanan, Deidre McCloskey, Mancur Olson and others who have this broad vision. Unfortunately, their work is vastly undervalued in the economic profession as it has developed in the late twentieth-century into the twenty-first.  

Therefore to welcome the bankruptcy of the welfare state is not as perverse as it may seem at first. It is to welcome a warning that may prevent the collapse of what Adam Smith called, “the Great Society.” It is like the child getting burned by touching the hot stove and yet that protects him from possibly far worse damage in opening the oven door. Or perhaps it teaches him about the dangers of fire.

Let us hope this analogy is correct.

9 Responses to “Welcoming the Bankruptcy of the Welfare State”


  1. My only amendment to this fine post is that we await the re-birth of private benevolence. The welfare state crowded out an extensive system of private charities.

    America is still the most benevolent country because its welfare state has heretofore been relatively small. And its churches are privately funded, rather than state-subsidized as in Europe.

  2. Kyle Says:

    We should start a pool bet on what Brad “Eric Cartman” Delong will use as a headline for his typically thoughtful and erudite comment on this.

    My guess:

    “Racist Sociopath Austrian Mario Rizzo wants to kill all single moms and drink their babies’ blood”

  3. Mario Rizzo Says:

    Send it to him. He is easily sent into a polemical frenzy.

  4. The_Orlonater Says:

    Great post Mario,

    But I think other sectors of the economy that the government is involved in that isn’t part of the caricature of welfare/warfare state. I think I can called this the Interventionist state. Where there has been most intervention, there will surely be collapse. My most immediate thought is health care and higher-education. Those two things need to collapse, for their existing state for the most part are harmful and induce tendencies for further state involvement.


  5. Perhaps the bankruptcy will come sooner rather than later. http://www.aei.org/article/102053

  6. Renaud Fillieule Says:

    I am not sure that we can generalize the case of Greece to more developed countries.

    As a French citizen and resident, I can see that even a moderately working capitalist system can sustain for a loooong time a huuuuge Welfare State.

    Bankruptcy of the Welfare State? A welcome outcome for sure if it leads to a more libertarian system, but… I will not hold my breath!

  7. Pietro M. Says:

    The AEI paper is interesting. However, the economic policy following the crisis has shown that governments do not lack instruments for bailing the financial sector in helping with the debt burden, and this is always been the main reason for government involvement in monetary and financial policy. So, I don’t expect a quick collapse due to rollover problems, but a long agony.

    It is also true that the US (but not the EU) has to rely on the rest of the world for savings and it thus can suffer a sudden stop and reversal of capital inflows on short notice. However, it has a huge leverage in international politics, at the moment, and it can capitalize on it as long as this leverage lasts.

    Neither the EU nor the US are thus lacking in symptoms-hiding instruments, they can trade off a present crisis for a future collapse without problems. And they neither lack the will to do it, unfortunately.

  8. Troy Camplin Says:

    Great post. Very incisive. It really gets to the heart of things in a clear way. Next question: And if it does collapse, how can/have we do(ne) anything to pay the groundwork for the emergence of classical liberalism rather than a dictatorship?

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