Saturday, August 15, 2015

Welfare is NOT Socialism

I have come to realize that too many people -- on the left, on the right, and even far too many libertarians -- are deeply confused about the nature of socialism. I keep hearing people claiming to want socialism when what they really want is welfare. I keep hearing people complaining about socialism when what they are really complaining about is welfare.

The issues surrounding government involvement in the economy qua economy are completely separate from the issues surrounding welfare provisions and the ways to pay for those provisions. It is perfectly possible to have a completely unregulated, free economy combined with government-provided welfare. Equally, one could have an economy completely controlled by the government without that government providing a single dime for welfare-type programs. We perhaps confuse the two because of Marx's combining them in his famous phrase, "To each according to their need, from each according to their ability." But they are not at all necessary companions.

One consequence of this confusion is the mistaken identity of welfare as socialism. I keep hearing people arguing for socialism, but when you get the details, they really only want more welfare provisions. One can receive money (it is always money, in a variety of forms, though some of those monies cannot be spent but in certain ways, depending on the programs) from the government without that government owning or controlling the means of production. More, most people don't understand that socialism means central planning -- even market socialism involves central planning. The latter attempts to allow for prices, but in the end, everything is owned by the central government and the economy is thus completely folded into the government itself. Most people don't realize that this is what socialism means, or that this model has been refuted over and over, in a variety of ways. If you want the complete destruction of the economy and the elimination of all wealth in the economy, socialism is the way to go. Why? It eliminates the entrepreneur, which is the only source of wealth creation in the economy. No entrepreneurs, no wealth creation.

Of course, most people who talk about socialism don't actually mean this. No, what they really are talking about is increased welfare provisions. Those provisions can extend from food stamps and housing to a single payer for health care to a basic income guarantee. This is why you can find some avid opponents of socialism and government intervention into the economy, like Hayek and Milton Friedman, making arguments in favor of basic income guarantees, negative income taxes, and even single-payer, universal health insurance. They were smart enough to understand that welfare has absolutely nothing whatsoever to do with socialism or interventionism.

This isn't to say that the taxes necessary for welfare or the welfare itself won't have an effect on the economy. But having coincidental effects is not the same as legislation directly regulating what a given business can or cannot do. One can oppose the minimum wage while favoring welfare. Equally, once can oppose welfare while favoring the minimum wage (as a way of getting people off of welfare, though that would ignore the fact that increasing the minimum wage necessarily increases the number of those unemployed, meaning it increases the number of people on welfare). Some early progressives favored having a minimum wage precisely because it would create unemployment among minorities, who would be starved out because there was no welfare available -- it was an attempt at eugenics through economic interventionism.

At the same time, not all taxes are created equally. If you want to discourage something, tax it. If you tax income, you discourage work. If you tax sales, you discourage buying. If you tax capital gains, you discourage business creation and expansion. If you tax property, you discourage property ownership. There are some things, like business creation and expansion, which you probably do not want to discourage. One could make the argument that since jobs are a cost, income taxes that encourage businesses to automate more and thus drive down prices are good for the economy over the long run. Licenses are also a tax -- on starting new businesses. If you want to discourage the creation of new businesses, licenses and capital gains taxes are the way to go.

Equally, subsidies encourage certain behaviors. Subsidies can come in a variety of forms, including artificially cheap loans, insurance, or government protections. If you want to encourage risk, make risk cheaper. Socialize risk by providing cheap government-provided insurance. Government flood insurance encourages people to build in flood plains, creating far more property destruction and loss of life when people's property is flooded.

Those who confuse government regulations on the economy or government control of the economy with welfare are confusing taxes for subsidies, and vice versa. Also, the data on things like negative income taxes and basic income guarantee suggest that they do not encourage people to not work per se, but rather give people the leeway to hold out for better jobs or to create new businesses. As such, these programs can in fact improve economic conditions. But only if the government doesn't at the same time erect barriers to entry and growth such as licenses, regulations, and taxes on capital gains.

Those who truly want people to have better lives need to understand the difference between socialism/interventionism and welfare. The arguments for and against each are completely different. They really have nothing at all to do with each other, and confusing them only harms the arguments in favor of free markets. The arguments for free markets and against interventionism/socialism are one thing; the arguments for and against various welfare programs are quite another. Each of these can be combined in a variety of ways. If we understand this, we can understand how Hayek and Milton Friedman were able to argue for some of the programs they did, even while completely supporting free markets.


JWO said...

Yes, and I think an economy can handle much more welfare than socialism.

Troy Camplin said...

I think there is little question you are right about that.