James Madison said, “I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.” [1] Thomas Jefferson took it a step further, saying “to compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.” [2] After all, “[d]ependence begets subservience and venality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition.” [3]

It has been argued that “[m]ost conservatives … are more than happy to spend hundreds of billions of dollars a year on national security and defense programs, or to use the power of government to prevent abortions. So when they are attacking ‘government,’ what they really are aiming at are the two main pillars of the modern democratic state: social programs and regulatory efforts.… These are the two activities that have become more and more central to government since the New Deal, and it is these activities that anti-government activists want to curtail.” [4]

The first claim is specious on a number of levels. While most advocates of limited government concede the validity of government spending on national defense, the implication that “conservatives” are unconcerned with limiting military expenditures and/or military excursions beyond those required for defense is without basis. And while it is true that many conservatives favor laws against abortion, the nature of the issue is fundamentally removed from those under discussion. [5]

The charge that the rejection of modern social programs and the explosion of regulatory activity by government is central to those embracing limited government is entirely valid. But the onus then falls upon the accuser to demonstrate that there is something wrong with that position. It must be demonstrated positively that the proliferation of such programs and regulations has had a net beneficial impact on society. All too often, the positive value of social programs is presented as an unsupprted assertion (or, more commonly, the benefits that accrue to one individual or set of individuals are considered without regard to consequences realized by others). In the case of regulations – addressed in the next chapter – the tendency is to presume, again, without justification, that tremendous harm would be done to the public without it either because unscrupulous businessmen would harm the public/customers/workers and that no private alternative exists to such regulatory intervention. For the nonce, I will focus on the relative failure of social programs to yield a societal benefit.

Broadly defined, social programs in most modern economies fall into three categories: social insurance (social security), anti-poverty programs (welfare, minimum wage laws, subsidies, tariffs, etc.) and healthcare (universal coverage, Medicare/Medicaid). I will examine the first two of these here. The third will require a more in-depth treatment and its failures will be addressed at a later time.

Social Insecurity

“The ‘social security’ program is one of those things on which the tyranny of the status quo is beginning to work its magic. Despite the controversy that surrounded its inception, it has come to be so taken for granted that its desirability is hardly questioned any longer.” -- Milton Friedman, 1962 [6]

Social Security has been touted as the “most successful social program in the history of the world”, [7] most frequently by those administering the program. [8] It is certainly one of the most politically popular programs and is, arguably, “successful” from that standpoint, but the question remains as to whether or not the program has been successful from the standpoint of the benefits provided to society. Examined in that light, the program has been nothing less than an abject failure.

The Social Security program in the United States is by no means the first social insurance program ever to be adopted. That honor goes to the plan of Otto von Bismarck who implemented social insurance among other socialist measures to appease the working class and curtail internal threats to the German Empire. He was entirely forthright about his reasons for implementing such a policy: "Whoever has a pension for his old age," said he, “is far more content and far easier to handle than one who has no such prospect.” [9] Today, the social democracies of Western Europe, in particular, face a social security crisis several orders of magnitude greater than that which now faces the United States.  Nevertheless, I will concentrate on the American system of social insurance in this analysis.

Much of the support for social security in the United States is based upon gross misconceptions. Many believe that the time before the implementation of the program was characterized by widespread poverty among the elderly that was “cured” by this new program and that only a governmental solution could have worked. Many believe that the adoption of social insurance was uncontroversial at the time it was implemented; that social security is, or has been, an insurance program in the classic sense; that there is a “trust fund” from which payments are made or even that “Social Security payments constitute no more than a return to them of the payroll taxes that they have paid during their working years” [9] Some are convinced that each recipient will receive an adequate return on their investment. And some even believe that it had no immediate negative consequences, that the program has been financially viable in the past and that it has yielded economic benefits to American society. All of those beliefs, without exception, are false.

Let’s examine each of these myths in turn.

Were the elderly being left out to in the cold before they were saved by social security? No. The supposed destitution of the elderly before social security was passed is a particularly difficult myth to dispel. No official statistics on poverty were kept before 1964 (typically restated back as far as 1959) so discussions of poverty in periods prior to that time are fraught with the difficulties of missing data, differing calculation methodologies and anecdotal rather than statistical information. By some measures, 56 percent of all American families lived in poverty in 1900. [10] This statistic has been used as an ex post facto justification for governmental anti-poverty programs. But is it credible?

Consider that statistic for a moment. More than half of the people in the United States were living in poverty at the turn of the century.  Really?  Poverty is a relative measure not a static one. There is no universally agreed upon income standard that can be used to say that the individual making $1 less than this is poor and the individual making $1 more than this is not. But by 1900, the US had been benefiting more than perhaps any other country from the prosperity flowing from the Industrial Revolution. More and more consumer goods and services were available to more and more people at generally lower prices. Department stores and mail-order catalogs and telephone-shopping sprang up to meet consumer needs. Electricity was reaching more and more people and electric lighting was sparing more and more people from the soot and smoke of the previous source of light and heat. Leisure time increased. Annual vacations for the growing middle class became increasingly common. And life expectancy had improved by a decade since 1850 and by another 6 years in just a decade. [11] .

By 1900, the US had become, by far, the wealthiest nation on the planet, achieving a gross domestic product (GDP) roughly half that of all of Western Europe combined and with the third highest GDP per capita. [12] There is no question that the rapidly changing nature of society left some in dire straits, but the the case that half of the US population lived in poverty when such things were taking place simply cannot be made.

Similar arguments used to describe the gross income inequality of the period – typically by the same individuals that argue that it is now growing out of control – invariably rely upon income tax data that say more about the income tax laws of the period than anything else. Kevin Phillips has been among those most consistently referencing this data despite the well-known problems with making conclusions from it.

But the issue here is the level of poverty experienced specifically by the elderly. For example, it has been stated that, “[w]hen Franklin Roosevelt was governor of New York, poverty among the elderly in the United States exceeded 40%” [13] So, again, the question becomes, is this assertion credible? Well, it depends. The same difficulties with making such assessments exist, but there is also another: at what time was the assessment made? One may ask what difference it makes, but it must be remembered that Roosevelt was governor of New York up until the time he became president in March of 1933. At the depth of the (government-caused) Depression, it would hardly be surprising that poverty had spiked for every group, including the elderly. Such is particularly the case given the relatively small size of the elderly population at the time and the cultural tendency of the elderly to live with their adult children – who were, of course, subject to high unemployment. Even if the 40 percent figure is credible, the question of how that figure compares to the general populace remains unanswered. Remember, the justification for a social security program is not as a general poverty response but as one directed specifically at poverty among the elderly.

What really must be asked is what the level of poverty among the elderly was before governmental failures harmed the economy. There are few sources available for reasons already discussed, but there are clues available. The New York Commission of 1930 was particularly interested in determining where the proper “danger line” for determining poverty was. Its determination is commonly used as a basis for measuring poverty during the period. Thus it is of particular interest that the Commission’s data indicate that almost 90 percent of the people of New York over the age of 65 in 1929 (when Roosevelt was governor) were either entirely self-supporting or were provided for voluntarily by family and/or friends. Fewer than four percent of these individuals were found to be dependent on either public or private charity. [14]

Were there no viable private (that is, non-governmental) solutions to the perceived problem? Of course not. In fact, one of the reasons that government-run pension systems were not the norm before the Great Depression was that the private sector had already stepped up with solutions of its own. The first retirement annuities were offered to the general public by the Pennsylvania Company for Insurance on Lives and Granting Annuities in 1912 (annuities for more select groups had been available since colonial times). “In 1915, annuity premiums were 1 percent of life insurance premiums; annuity premiums climbed to 2.8 percent of premiums in 1929 and 15 percent in 1935. [15] Note, in particular, that the embrace of private pension funding increased rapidly during the Depression (and before government social security was enacted). During a period when current financial needs were so dear, the demand for private solutions to long-term income security grew dramatically … and the marketplace responded.

One need not, however, rely solely upon the conditions eighty years in the past to recognize that the private sector is prepared to offer alternatives to meet the needs of the elderly of the future. Not only has there been an enormous expansion of employer-provided pensions since the 1930s but, in the face of fears that social security will not be available to meet future needs, private solutions such as individual retirement accounts (IRAs) have become widely available. Authorized initially in 1974, IRAs now contain some $9.2 trillion in deposits. Total private US retirement assets come to appoximately $13.3 trillion covering 71% of US households. [16] Total retirement assets (including pensions for federal, state and local government employees) grew $1.1 trillion in 2007, alone.

If the primary justification for the adoption of centralized, governmental social insurance for the elderly held true – specifically, that efficiencies of scale of a program exercised by government (distinct from other charitable venues) and unrestrained by the need to generate profit (distinct from the private insurance market) would result in the superior provision of benefits and an overall benefit to society – then neither the rise of alternative retirement financing nor the looming financial crisis in the existing program could never have come into being. This argument for governmental intervention is logically untenable.

Finally, let’s dispose of the paternalistic argument – that individuals cannot be trusted to avail themselves of private alternatives. Ludwig von Mises put it simply, long before the Social Security system was established in this country: “One may try to justify [a system of social security] by declaring that the wage earners lack the insight and the moral strength to provide spontaneously for their future. But then it is not easy to silence the voices of those who ask whether it is not paradoxical to entrust the nation's welfare to the decisions of voters whom the law itself considers incapable of managing their own affairs; whether it is not absurd to make those people supreme in the conduct of government who are manifestly in need of a guardians?” [17] The assumption that politicians selected by the public are magically more capable than the very public that selected them to make decisions about the well-being of individuals is not only logically indefensible, it is glaringly inconsistent with observable reality.

And if, as I contend, the need for social security legislation was so absent, why then was it so readily accepted? Put simply, it wasn’t. “Even after Roosevelt's landslide victory, Congress was reluctant to enact a plan that seemed far too radical to some members.” [9] Despite demands that something be done about the state of the economy, the debates on the Social Security Act endured from early April in the House to mid-June in the Senate generating about 475 pages of testimony in the Congressional Record. As historians Eric R. Kingson and Edward D. Berkowitz (who has argued that passage of Social Security was the major impetus for the “Roosevelt Recession” in 1937 – 1938) put it: “The Social Security Act of 1935, like many landmark pieces of legislation, was a near thing. President Franklin D. Roosevelt slipped it through a window of political opportunity that opened in the middle of the depression and closed very soon afterwards.” [18]

One of the chief concerns of those opposed to the measure was that, at a time of massive unemployment, it would cost jobs. Even many proponents of the legislation conceded this point, arguing that it was, in fact, a benefit of the program as it would encourage older workers to retire creating opportunities for younger people. That anyone would fall for such a specious economic argument – that converting productive members of the workforce to unproductive drains on the federal treasury could in any way yield an economic benefit – is distressing. In any event, those concerns proved to be prophetic.

Ironically, in 1934, as the concept of an American “social insurance” plan was being developed in detail, a man was in the process of being deported to his native Italy by the same government developing that system for employing the very model that system would take. This famous Italian immigrant had concocted a scheme that would enrich early participants to a degree much greater than their investments would ordinarily command but would ensure losses for the much larger group who placed their funds in trusted hands later in the process. The man’s name was Charles Ponzi and the scheme that now bears his name is the very model for the Social Security system as it has been implemented. That comparison is by no means a new one. Paul Samuelson, winner of the first Nobel Prize for economics, made the same comparison back in 1967: “The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in -- exceed his payments by more than ten times (or five times counting employer payments)! … How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population…. More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired…. Social Security is squarely based on what has been called the eight wonder of the world -- compound interest. A growing nation is the greatest Ponzi game ever contrived.” [19]

Social Security was originally sold as an insurance program, not a retirement program or a social responsibility - in fact, Roosevelt himself argued against it being anything but insurance - though that, in and of itself, is debatable, since an insurance program would involve policyholders (in this case workers) paying the cost of some defined benefit to be provided under a given set of circumstances. If you want, you can go to an insurance company today and purchase an open ended annuity to begin at age 67 (or any other age, for that matter) and you can do so for less than the current system costs you.  Moreover, you can transfer that asset to someone else if you so choose. You could even cash it in at an earlier date in an emergency based upon the value of the assets invested up to that time.  The notion that the current system is a real insurance program is utter nonsense. As L. Meriam and K. Schlotterbeck, put it just 15 years after the system was implemented, “[a]doption of the term ‘insurance’ by the proponents of social security was a stroke of promotional genius. Thus social security has capitalized on the good will of private insurance and, through the establishment of the reserve fund, (sic) has cloaked itself with an aura of financial soundness. In fact, however, the soundness of old age and survivors insurance rests not on the Social Security Reserve Fund but on the federal power to tax and borrow.” [20] Interestingly, it was the mere suggestion of a system of this kind that once prompted Thomas Jefferson to note, “The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."

The only problem with Meriam and Schlotterbeck’s conclusions is the notion that the reserve fund was ever anything more than an accounting fiction. There is no “trust fund” in reality and there never has been. [21] “From the very first, Social Security benefits have been paid out of taxes deducted from the paychecks of people working that year, who in turn have to rely at their retirement on benefits from taxes paid by their children's generation.” [22]

Remember also that, unlike a privately purchased annuity, the assets taken and disbursed under the current social security program are never those of the individual workers. The program was set up with the explicit understanding that nearly half of those paying social security taxes would die before receiving any benefits (the median life expectancy was just over the age of eligibility for benefits). “More fundamentally, the aged have been misled for two generations into believing that Social Security payments constitute no more than a return to them of the payroll taxes that they have paid during their working years.” [20] Even as recently as 2005, while half of poll respondents believed (with good reason) that they would ultimately receive less in benefits than they paid in, nearly a third believed that they would receive in benefits the same amount that they had contributed. [23]

Further, the program has been altered so frequently that even the mere pretense of defined-benefit insurance has been completely abandoned.  For similar reasons, the argument that the program has “worked” because it “has always run a surplus” neglects both the miserable returns received by retirees (as I’ll come back to) and the fact that it initially collected only 3% on the first $3,000 of a workers paycheck and now siphons off more than 12% of the first $90,000. When Ida May Fuller cashed the first Social Security check ever issued for $22.54, just over five years after Ponzi had been deported, she received more than she had ever actually paid into the program. By the time she cashed her last check, she had collected $20,944.42, but she was by far the last to receive anything even resembling such an incredible return.

Expected returns today are far, far lower. When the decidedly partisan Center for Budget and Policy Priorities (CBPP) argued, in response to comments by President George W. Bush, that “In stating that Social Security’s 1.8 percent return is pitiful compared to the 4.5 percent return that would be expected on a mix of stocks and bonds, the President committed another basic error — he ignored the additional risk that is associated with investing in the stock market” [24] and even had the audacity to reference economist Gary Becker one who conceded that position, there were two glaring problems with their analysis.

First, it overlooks the tremendous risk that those paying into the plan would not survive to actually receive benefits. This point is frequently discarded by social security advocates who concentrate solely on “social security recipients” instead of those paying into the program and the problem is typically compounded (every time you see a payback period presented) by the selection only those who will survive until the payback period has elapsed. According to a 1997 Congressional Research Service (CRS) report from 1997, those then retiring at age 65, “[u]nder the most commonly used economic assumptions, workers … will recover the value of the retirement portion of their and their employer's Old-Age and Survivors Insurance taxes plus interest in 13.9 years.” [25]

By definition, one must live to be nearly 79 in order to simply get one's money back. The report further suggested that under existing rules the payback period would grow to 26.2 years by 2025 (as the retirement age was postponed to age 67) meaning that you would need only to live to be 93 years old to get your money back, assuming, of course, that further benefit cuts or postponed eligibility are not implemented to “save” the program from bankruptcy. Remember also, that these are just estimates and, if they are wrong, the situation is far more likely to be worse than better. Just five years earlier, Carolyn Weaver, a member of the Social Security Advisory Board had estimated that the payback period at the time was 12.9 years and would rise to 18.3 years by 2030. [26] Note how the long term estimate changed in that relatively short period.

Second, while Becker did argue that “[t]here are no freebies from such investments since the higher return on stocks is related to their greater risk and other trade-offs between stocks and different assets,” [27] he was discussing the investment of governmentally held funds (private accounts as opposed to the full embrace of private retirement financing) and only in the context of short term investment. While the return on stocks is related to the higher level of risk, the time horizon of retirement savings is typically such that those risks (unlike the risks of dying before benefits are available) are largely erased. The average annual return in the stock market (S&P) from 1926 to 1999 – a period that, of course, included the Great Depression, was 11%. In fact, over that period (and since), the stock market’s worst 30-year return was better than the bond market’s best 30-year return by a factor of nearly three.

There are numerous investment alternatives that perform materially better than the governmentally-run social security system and also provide direct ownership to the eventual retiree and are less risky in the long-run from the standpoint of all but those who are expected to live longer than average. In fact, life expectancy and work habits have resulted in a rather unique form of wealth redistribution under the current system: “People with higher incomes have a longer life expectancy. The children of the middle and upper classes start work later, often substantially later, than the children of the lower classes. Both these facts tend to make Social Security a much better deal for the not-poor than for the poor.” [28] More than anything else, the current system works to transfer wealth from relatively poorer black males to relatively more affluent white women.

Studies attributing the reduction in poverty among the elderly to increases in social security benefits, most notably a study by Gary V. Engelhardt and Jonathan Gruber, [29] are economically sound as far as they go, but fail to consider either the overall impact on the economy of the social system that has been put in place to begin with or the monopolistic nature of the program that reduces the availability of private alternatives. It is easy to credit increased payouts with economic success when the entire issue of dependency is omitted from the analysis.

So what happened when the program was first installed and what condition is the program in now?

At the outset the impact of the Social Security program was nothing less than disastrous. It imposed higher taxation during a time of economic crisis (overall taxes tripled under Roosevelt), made it more expensive to employ people at a time when unemployment was already unusually high and contributed to, in the words of economic historian Robert Higgs, a “regime uncertainty” about what the latest anti-business or economically damaging program that the administration would impose. All told, these actions cost somewhere in the neighborhood of 1.2 million jobs by 1938. [30]

As James A. Emery of the National Association of Manufacturers pointed out in his testimony regarding the Act itself:

“I call that to your attention because I assume it is the purpose of this committee in the legislation which is before if, and the circumstances which are to govern the legislation, if it is to be enacted the purpose of it is to encourage and not to discourage employment.

“As soon as you begin to tax pay rolls you make everyone pay a new tax. And every time you are in a manufacturing industry, in which machines are used, you are encouraging it, if it is within the power of the industry to do it, to enlarge its mechanical as distinguished from its personal operation.

“So the net effect of the tax is to encourage to some extent the avoidance which would express itself in mechanization as against human employment, by enlarging the tax burden of the taxpayer.

“So, Mr. Chairman, if the primary purpose here is to put an urge behind the entire recovery effort in which the industry of this Nation has joined, and undertake to multiply and increase employment, a tax, the purpose and effect of which is to tax pay rolls, will have a distinctly opposite effect from that intended by the recovery program, to spread employment.” [31]

The impact on employment exists so long as the underlying taxation exists. It is impossible to tell how much employment is ultimately depressed by the taxation necessary to fund the social security program but it can be asserted with certainty that (a) the impact is cumulative – the incentives to delay job creation and increase automation do not abate over time – and (b) the impact must rise at least proportionately with any increase in payroll taxes. This latter point is particularly relevant. In 1938, at the depth of the “Roosevelt Recession”, the payroll tax took two percent of the impacted workers’ pay – one percent paid by the worker and one percent paid on the worker’s behalf by the employer. By 1990, the impact had climbed more than seven-fold to a combined 15.3 percent.

To put that in perspective, that’s a greater percentage of income than consumers spend on food or transportation; it’s more than half of what consumers typically spend on housing; it’s even more than consumers spend on health care, insurance and private pension plans combined. [32] There’s little wonder that, due to continually rising payroll taxes, more and more poor and middle-income workers do not have sufficient after-tax resources to invest in private supplemental pension plans.

Harvard economist Martin Feldstein has attempted to quantify the impact of this drag: “The social security payroll tax distorts labor supply and the form in which compensation is paid. Although each individual's benefits are linked to that individual's previous payroll tax payments, the low equilibrium rate of return inherent in an unfunded system implies a `net' payroll tax that causes distortions. The resulting deadweight loss is 1% of each year's GDP in perpetuity, an amount equal to 20% of payroll tax revenue and a 50% increase in deadweight loss of the personal income tax.” [33]

That increase in taxation in the worker has not merely depressed employment – an obvious drag on the economy in itself – but it has also substantially impaired the chief driver of economic growth – savings and investment. As payroll taxes rise, workers have fewer dollars left over for savings or to supplement their own retirement income. These dollars are not invested by government to perpare for the future retirement of payees but are instead immediately dispensed to meet the needs of current retirees. The economic costs of such a mismatch can be staggering. Feldstein continues, “there is the loss of investment income resulting from forcing employees to accept the low implicit return of an unfunded program rather than the much higher return paid on private saving or in a funded social security program. The present value of the annual losses from using an unfunded system exceeds the benefit to those who received windfall transfers when the program began and when it expanded. Shifting to a funded program cannot reverse the crowding out of capital that has already occurred.” [33]

Feldstein’s research, originally published in 1974, [34] found that, by 1971, the pay-as-you-go funding methodology for Social Security had depressed private saving by fully a third because the promise of future governmentally provided benefits reduces the incentive to save among all those who expect to receive those benefits. Such a reduction in personal savings when not offset by government saving results in a huge loss of investment capital and, consequently, lower real incomes. This view was, to say the least, controversial, but it did seem to shed some light on the depressed overall savings rate in the United States. Subsequent research [35] served to validate Feldstein’s assessment of the incentive impact in many cases (primarily in the case of single individuals) but not so much in other cases (primarily couples with children who save more for their heirs). Still, while the degree of the problem remains an open question, the depression of private savings resulting from the current Social Security funding mechanism is not in doubt

“The existing pay-as-you-go system interferes with individual choice and distorts economic behavior in three ways. First, the system attenuates the freedom of workers to determine the optimal mix of savings and consumption for themselves (or the time path that they desire for consumption). Workers are forced to pay Social Security taxes - to redistribute income to the elderly - with the promise of future Social Security benefits. This process tends to depress private savings and investment. Second, Social Security interferes with the freedom of workers to determine the timing of retirement. The earnings test and other features of the system induce workers to retire earlier than they would in the absence of Social Security. Third, the payroll tax artificially increases the price of labor in relation to capital, causing a misallocation of resources.

“Social Security affects both the intragenerational and intergenerational distribution of income. The 1983 amendments continue to redistribute income from high-income to low-income earners, from single persons to married couples, and from younger workers to the elderly retired. Most significant, the 1983 law imposes losses on all Social Security participants, with the greatest burden falling on the younger generation of workers.” [36]

This shift from private annuity financing of retirement to governmental pay-as-you-go pension funding is often confused by the general public with something similar to private insurance coverage, but it is not. Private insurance activities create wealth (and the resultant economic prosperity) by investing the funds set aside for retirement in productive activities, while government programs have no economic investment benefit of any kind.

“What this means is that a private annuity invests the premiums that come in – creating factories, apartment buildings, or other tangible assets whose earnings will later enable the annuities to be paid to those whose money was used to create these assets. Government pension plans, such as Social Security in the United States, simply spend the premiums as they are received. Much of this money is used to pay pensions to current retirees, but the rest of the money can be used to finance other government activities, ranging from fighting wars to paying for Congressional junkets. There is no wealth created to be used in the future to pay the pensions of those who are currently paying into the system.

“The illusion of investment is maintained by giving the Social Security trust fund government bonds in exchange for the money that is taken from it and spent on current government programs. But these bonds represent no tangible assets. They are simply promises to pay money collected from future taxpayers. The country as a whole is not one dollar richer because these bonds were printed, so there is no analogy with private investments that create genuine wealth. If there were no such bonds, then future taxpayers would have to make up the difference when future Social Security premiums are insufficient to pay pensions to future retirees. That is exactly the same as what will have to happen when there are bonds.” [37]

The economic implications of the program are nearly too large to fathom. As Feldstein pointed out in 2005, “[s]ocial insurance programs have become the most important, the most expensive, and often the most controversial aspect of government domestic policy, not only in the United States but also in many other countries, including developing as well as industrial nations. In the United States, these programs include Social Security retirement, disability and survivor insurance, unemployment insurance, and the Medicare health insurance for those age 65 and older. Together they accounted in 2003 for 37 percent of federal government spending and more than 7 percent of GDP. These ratios have increased rapidly in the past and are projected to increase even faster in the future because of the more rapid aging of the population”. [38] And, of course, now the program faces bankruptcy.

The inescapable reality is that, within the next ten years, the system that is Social Security will no longer be able to cover outlays with incoming expenditures and, as has already been pointed out, not so much as a single, solitary dime is stored up somewhere to make up the difference. To clarify, as Social Security taxes are taken in by the federal government, a laser printer in a vault in West Virginia dutifully prints out a newly created Treasury Bond certificate as the actual funds are dispensed to the general fund for the maintenance of other government spending. Ordinarily, Treasury Bonds are a financial instrument issued by the federal government in much the same way that currency is issued. The issuance of such instruments has a direct impact on the money supply, which is why dumping new dollars into the market and dumping new Treasury Bonds onto the market and then spending the dollars has the same effect. It increases the supply of money without adding real wealth – a practice that is highly inflationary. But that is not the case with regard to the bonds supposedly funding the Social Security surplus.

As of the printing of the bond, no such inflationary activity has occurred. This is because the process of printing Treasury bonds without actually distributing them to the public is an extra-market activity. That is, since the bonds have not been disseminated, it is essentially the same as printing greenbacks and putting them in a vault. Until they are released into the market, no such inflationary activity takes place.

Take that to its logical conclusion. If those bonds (or that vault of greenbacks in the example) are never released into the market, then there is no sudden rise in inflation because, from an economic perspective, they never existed. And if they are never released into the market, then, again, there is not now, nor has there ever been, a trust fund because there is no way to “redeem” their value. If that weren’t enough, the bonds created to recognize the dollars taken from Social Security, as a matter of law, cannot be sold on the open market. Economically, they possess as much value as the colorful sheets found in any Monopoly game.

Because the government is borrowing from itself it has deferred the economic consequences of spending beyond its means while ostensibly incurring long-term obligations until the point when outflows exceed inflows. This is actually the major reason why the “Social Security trust fund” is obligated by law to purchase only Treasury Bonds – otherwise the accounting sleight of hand wouldn’t work.

Sadly, the defenders of the program wish to pretend that redeeming these instruments is painless, but upon those true believers a cruel joke has been played. The joke is that there is a difference between “Transaction A” (raising taxes or printing new money to redeem un-circulated Treasury Bonds; then using the proceeds to pay Social Security benefits) and “Transaction B” (raising taxes or printing new money to pay Social Security benefits - not already covered by inflows - and just burying the vault in West Virginia under several hundred tons of concrete).

The Washington Post made this clear in 1999: “Often ignored in the debate is the inevitable effect that the huge increase in payouts to retiring Boomers will have on the federal budget…. That's because, in some ways, the Social Security Trust Fund is a fiction. It technically holds government bonds, but – as a way of disguising the size of the federal deficit – the government doesn't count those bonds as debt…. So in about 15 years, when the trust fund starts turning in its bonds for cash to pay benefits, the government will have to raise that cash. It can do so in only three ways: by increasing taxes, cutting other spending or running a deficit.” [39]

The response to this reality has been interesting, to say the very least. New York Times columnist Paul Krugman, for example, has consistently argued that no such crisis in Social Security exists, but, at the very same time, he argued vehemently against the Bush tax cuts on the basis that they would ultimately undermine the ability of the government to make social security payments. That Krugman chose to deliberately ignore the economic consequences of the current Social Security situation is par for the course, having largely abandoned economic reasoning whenever it does not facilitate his crusade against all things Republican. [40] What is interesting is the implications of the position he has taken – specifically that a reduction in general tax revenues completely unrelated to payroll taxes (which were not impacted by the cuts about which he was speaking) would impair the ability of the government to make payments to retirees. The position explicitly acknowledges that the program cannot be maintained at existing levels without expenditures from the general fund – that is, when the program goes bankrupt because no trust fund exists.

According to the trustees of the program, the un-funded liability of the Social Security system is currently $15.6 trillion dollars – an amount larger than our current gross domestic product (the un-funded liability for Medicare is currently $76.5 trillion, five times larger even than that, but that is a topic I shall address in a later chapter). That there is a problem is undeniable. All that is uncertain is the ultimate degree of the problem and when exactly it will come to a head. The Congressional Budget Office (CBO) recently estimated that projected revenues will be insufficient to cover more than 84 percent of currently promised benefits in the year when the current surplus is exhausted. [41] The Trustees of the program don’t believe it will have even that much, estimating the maximum coverage at 78 percent of promised benefits. [42]

As has been widely commented upon elsewhere, the American Social Security program, like essentially every other such program across the globe, is unsustainable in its current form.

Given the extensive problems with the program discussed to this point, the question remains: how can anyone possibly view the program as a success of any kind, let alone the most successful program the government has created? The answer is simple really. It amonunts to nothing more than “the broken window fallacy” that Bastiat so famously described back in 1850. [43] Because the social security checks are so readily visible to all concerned while the forgone savings, uncreated jobs and economic consequences are largely invisible (that is, in the last instance, until things come to a head and the program goes bankrupt), the program’s defenders simply operate from the gross misperception that those consequences are simply not real when, in fact, they are far more devastating than any benefit to society that the program provides.

The Poor Laws – Poor Results

It has been asserted that regulation and social programs “are the two main pillars of the modern democratic state.” [44] Inherent in that assertion is the preconception that these things provide societal benefits. The fallacy of that position has already been demonstrated with regard to Social Security. The same fallacy exists with regard to anti-poverty programs, and, in large part, for the same reason.

The initial premise is that a modern society has an obligation to protect its citizens from the inimical hand of fate; that it is inexcusable that people should starve in a country as prosperous as the United States while others live in opulence; that poverty should be reduced as much as it is possible for society to accomplish. I agree. In fact, agreement on this point – interventionist rhetoric notwithstanding - is nearly universal. The issue is not whether this is a worthy or even achievable societal goal but, rather, what is the best way to achieve it. Those who insist that governmental anti-poverty programs are necessary operate from the premise that, in their absence, poverty is permitted to oppress a large segment of the population. It is presumed that there is no private sector remedy that can address the issue and that history demonstrates the failure of the capitalist system to meet the needs of the segments of society most susceptible to economic hardship. Generally, no effort is made to demonstrate these premises; they are merely taken for granted. They are, of course, entirely wrong.

To a certain extent, the erroneous nature of these positions has already been touched upon. In the Introduction, the Marxian theory, put forth by Engels, that the Industrial Revolution increased poverty, specifically in London, was examined and found wanting. It didn’t even survive Engels’ own subsequent scrutiny. Moreover, it never occurred to Engels to ask why so many people gravitated to London if life there were so unbearable. In reality, the migration to cities during the Industrial Revolution was a direct result of greater opportunities and better living standards. The increase in deaths due to disease examined by Engels was not the result of industrial impoverishment but the inevitable result of members of a largely rural and isolated population congregating en masse in an urban setting conducive to the spread of communicable disease. The same dynamic played out in the American Civil War as disease swept through both armies for the same reason.

The myth of widespread poverty at the turn of the century has likewise been touched upon in the discussion of conditions before Social Security was passed, but it is important to expand upon the issue before going further. Poverty, as previously stated, is a relative measure and, as such, is to a certain extent subjective. The poor of the United States today are fabulously wealthy in comparison to the middle-class and even the wealthy of centuries past. Starvation has been essentially eliminated in this country except in cases of extreme child abuse. The poorest of the poor – the poorest 10 percent in America – typically have two or more color TVs (with cable), a stereo, a microwave oven, air conditioning, a VCR and/or DVD player, a car (nearly one in three own two or more), and greater average living space than the middle class of Europe. Nearly half own their own homes. More than one in five own computers. [44] By 2001, when we were breathlessly told that 14.1 percent of Americans lived in poverty – a whopping 39 million – the annual expenditure per person in the lowest income quintile (the bottom 20 percent) had surpassed the median per person expenditure in America in 1973 after the dollars had been adjusted for inflation. [46]

One of the chief reasons for this is that income mobility is so high that four out of five are “poor” for less than a year. And the people at the turn of the last century were fabulously wealthy in comparison to their forebears. This is a relatively new phenomenon from an historical perspective. Consider: the lot of the poor 500 years ago was little different than the lot of the poor 500 years before that and 500 years before that and so on and so on. And those poor people of the past had virtually no chance of improving their lot.

More economic prosperity has been bestowed upon the people of the earth and more wealth has been created over the last three centuries than in all of human history prior to that time. It is no accident that this leap forward in prosperity has coincided with the greater embrace of capitalism and the division of labor. The Industrial Revolution and the technological boom of the period are a direct result of this. It was not spawned by government intervention and state run anti-poverty programs, but by the power of the marketplace to allocate resources. Put simply, capitalism, in and of itself, has proven to be the most effective anti-poverty program ever conceived by the mind of Man. And, still, we are forever told that poverty is the result of “unfettered capitalism” rather than the very fetters placed upon it by the state.

With that in mind, we can then examine whether or not anti-poverty programs enacted by the state are effective. Such an inquiry is hardly new. We have already examined a number of passages from one of the most scathing reviews of governmental intervention and charity programs written to that time, The Wealth of Nations. The main thrust of the argument was related to the mercantilists and others imposing restrictions upon trade. Particular ire was aimed at the corn laws, which restricted trade in that commodity and ultimately increased the price for food. Adam Smith argued, “In the present season of scarcity the high price of corn no doubt distresses the poor” [47] completely repudiating Franklin Delano Roosevelt’s agricultural policies (price supports, subsidies, the outright destruction of agricultural products while people were hungry) nearly 160 years before they were enacted. But he also had something to say about the poor laws enacted in England and their unintended consequences with regard to the poor:

“When by the destruction of monasteries [by the government] the poor had been deprived of the charity of those [private] religious houses, after some other ineffectual attempts for their relief, it was enacted … that every parish should be bound to provide for its own poor; and that overseers of the poor should be annually appointed, who, with the churchwardens, should raise, by a parish rate, competent sums for this purpose.

“By this statute the necessity of providing for their own poor was indispensably imposed upon every parish. Who were to be considered as the poor of each parish, became, therefore, a question of some importance. This question, after some variation, was at last determined by the 13th and 14th of Charles II when it was enacted, that forty days undisturbed residence should gain any person a settlement in any parish….

“Some frauds, it is said, were committed in consequence of this statute; parish officers sometimes bribing their own poor to go clandestinely to another parish and by keeping themselves concealed for forty days to gain a settlement there, to the discharge of that to which they properly belonged. It was enacted, therefore, … that the forty days undisturbed residence of any person necessary to gain a settlement, should be accounted only from the time of his delivering notice in writing….

“But parish officers, it seems, were not always more honest with regard to their own, than they had been with regard to other parishes, and sometimes connived at such intrusions, receiving the notice, and taking no proper steps in consequence of it. As every person in a parish, therefore, was supposed to have an interest to prevent as much as possible their being burdened by such intruders, it was further enacted … that the forty days residence should be accounted only from the publication of such notice in writing on Sunday in the church, immediately after divine service.

“This statute, therefore, rendered it almost impracticable for a poor man to gain a new settlement in the old way, by forty days inhabitancy. But that it might not appear to preclude altogether the common people of one parish from ever establishing themselves with security in another, it appointed four other ways by which a settlement might be gained without any notice delivered or published [but, as Smith explains at length, each was a practical impossibility].”

These statutes, all begun with the premise that the government should take care of the poor since the private sector could not (only because the government had interfered with that delivery mechanism) resulted in a circumstance wherein the “free circulation of labour” so necessary to permit the poor to avail themselves of employment opportunities had, by “those different statutes [been] almost entirely taken away”. [48]

Thomas Malthus objected to the poor laws on similar grounds. “These laws limited the mobility of labour, he said, and encouraged fecundity and should be abolished. ”He also felt that the poor laws encouraged “large families with their doles” and suggested that if the poor laws had “never existed, though there might have been a few more instances of severe distress, the aggregate mass of happiness among the common people would have been much greater than it is at present.” [49]

The economist David Ricardo also called for their abolition:

“These then are the laws by which wages are regulated [supply and demand], and by which the happiness of far the greatest part of every community is governed. Like all other contracts, wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature.

“The clear and direct tendency of the poor laws, is in direct opposition to these obvious principles: it is not, as the legislature benevolently intended, to amend the condition of the poor, but to deteriorate the condition of both poor and rich; instead of making the poor rich, they are calculated to make the rich poor; and whilst the present laws are in force, it is quite in the natural order of things that the fund for the maintenance of the poor should progressively increase, till it has absorbed all the net revenue of the country, or at least so much of it as the state shall leave to us, after satisfying its own never failing demands for the public expenditure.

“This pernicious tendency of these laws is no longer a mystery, since it has been fully developed by the able hand of Mr. Malthus; and every friend to the poor must ardently wish for their abolition. Unfortunately, however, they have been so long established, and the habits of the poor have been so formed upon their operation, that to eradicate them with safety from our political system, requires the most cautious and skilful management. It is agreed by all who are most friendly to a repeal of these laws, that if it be desirable to prevent the most overwhelming distress to those for whose benefit they were erroneously enacted, their abolition should be effected by the most gradual steps….

“The nature of the evil points out the remedy. By gradually contracting the sphere of the poor laws; by impressing on the poor the value of independence, by teaching them that they must look not to systematic or casual charity, but to their own exertions for support, that prudence and forethought are neither unnecessary nor unprofitable virtues, we shall by degrees approach a sounder and more healthful state.

“No scheme for the amendment of the poor laws merits the least attention, which has not their abolition for its ultimate object; and he is the best friend to the poor, and to the cause of humanity, who can point out how this end can be attained with the most security, and at the same time with the least violence. It is not by raising in any manner different from the present, the fund from which the poor are supported, that the evil can be mitigated. It would not only be no improvement, but it would be an aggravation of the distress which we wish to see removed, if the fund were increased in amount, or were levied according to some late proposals, as a general fund from the country at large….

“It is to this cause [administration at the local parish level], that we must ascribe the fact of the poor laws not having yet absorbed all the net revenue of the country; it is to the rigour with which they are applied, that we are indebted for their not having become overwhelmingly oppressive. If by law every human being wanting support could be sure to obtain it, and obtain it in such a degree as to make life tolerably comfortable, theory would lead us to expect that all other taxes together would be light compared with the single one of poor rates. The principle of gravitation is not more certain than the tendency of such laws to change wealth and power into misery and weakness; to call away the exertions of labour from every object, except that of providing mere subsistence; to confound all intellectual distinction; to busy the mind continually in supplying the body's wants; until at last all classes should be infected with the plague of universal poverty. Happily these laws have been in operation during a period of progressive prosperity, when the funds for the maintenance of labour have regularly increased, and when an increase of population would be naturally called for. But if our progress should become more slow; if we should attain the stationary state, from which I trust we are yet far distant, then will the pernicious nature of these laws become more manifest and alarming; and then, too, will their removal be obstructed by many additional difficulties.” [50]

Thus, Ricardo managed to accurately predict the nature and expansion of the Great Society a century and a half before Lyndon Johnson signed it into law. The point is that none of the arguments against the modern welfare state are in any way new. They are based on the failure of similar systems in the past and an understanding of human behavior that has not changed. Modern anti-poverty programs have been no less ineffectual.

Interestingly, the term “great society” did not spring into being in the 1960s. Adam Smith used it to describe those advocates of “system” (later known as Marxists, fascists and modern progressives) who would abandon the only “system” that Smith believed yielded the best results – “All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord.” [51] The “theorizer” and the social engineer, he said, “is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it (emphasis added).” [52]

Minimum Wage – Maximum Damage

Perhaps the easiest anti-poverty program to discredit is the minimum wage. First implemented nationally in the United States in 1933, as part of FDR’s National Recovery Act, it initially did not survive constitutional scrutiny (Schechter Poultry Corp. v. United States) on the grounds that it interfered with freedom of contract. Roosevelt, outraged at this and other Supreme Court rulings against his New Deal programs, famously undertook to stack the court in his favor. In 1938, the minimum wage was resurrected as part of the Federal Labor Standards Act. By the time the law faced constitutional scrutiny in 1941 (United States v. Darby Lumber Company), Roosevelt had appointed seven new justices and the act’s constitutionality was upheld unanimously. There has been a national minimum wage in the United States ever since.

The failure of the minimum wage as an anti-poverty program has been clearly demonstrated. That it’s chief result is the destruction of jobs is well established by both theory and actual research. The contention that there is a lack of consensus among economists on this point is largely mythological. On this last point suffice it to say that a study by Dan Fuller and Doris Geide-Stevenson [53] found that there was a “substantial” consensus on this point with 45.6 percent of respondents to their survey of economists finding that, without provision, they agreed that “Minimum wages increase unemployment among young and unskilled workers” while another 27.9 percent agreed with that statement subject to provisos (i.e., if the minimum wage is set below the market wage rate, it will have no effect). Given the large number of American Economics Association members in the employ of organized labor, that nearly three quarters of AEA economists have reached this conclusion is noteworthy in itself. [54]

Few still attempt to make the argument that the minimum wage is at all effective as an anti-poverty tool, most vocally Jared Bernstein of the Economic Policy Institute (EPI). Bernstein holds a PhD not in economics but in social welfare and it has been under his tenure at the EPI, a partisan advocacy organization funded almost exclusively by organized labor, that it has championed the Card and Krueger New Jersey fast food study long after it has been refuted (as discussed below). The EPI continues to tout the Card and Krueger research, its own flawed studies and those of the Fiscal Policy Institute (FPI), which is not an independent organization but a sister group that, in its own words “works with the Economic Policy Institute and the Center on Budget and Policy Priorities to coordinate the release of The State of Working New York, information on wage trends, income distribution and the working poor.” [55] These organizations would have you believe that they represent the mainstream of economic thought. They do not, in fact, represent even a sizable minority.

In reality, reputable economists have repeatedly examined the evidence and the overwhelming consensus is that the minimum wage does not reduce poverty. David Neumark of the University of California–Irvine assesses the available research:

“The central goal of raising the minimum wage is to raise incomes of low-income families and reduce poverty. There are three reasons why raising the minimum may not help to achieve this goal. First, a higher minimum wage may discourage employers from using the very low-wage, low-skill workers that minimum wages are intended to help. Second, a higher minimum wage may hurt poor and low-income families rather than help them, if the disemployment effects are concentrated among workers in low-income families. And third, a higher minimum wage may reduce training, schooling, and work experience - all of which are important sources of higher wages - and hence make it harder for workers to attain the higher-wage jobs that may be the best means to an acceptable level of family income.

“The evidence from a large body of existing research suggests that minimum wage increases do more harm than good. Minimum wages reduce employment of young and less-skilled workers. Minimum wages deliver no net benefits to poor or low-income families, and if anything make them worse off, increasing poverty. Finally, there is some evidence that minimum wages have longer-run adverse effects, lowering the acquisition of skills and therefore lowering wages and earnings even beyond the age when individuals are most directly affected by a higher minimum....” [56]

Neumark teamed up with Mark Schweitzer of the Federal Reserve Bank of Cleveland, and Will­iam Wascher of the Federal Reserve Board in 2004 to exam­ine how the minimum wage affects incomes for poor or near-poor families. Their conclusion: “Although minimum wages do increase the incomes of some poor families, the evidence indicates that the overall effects are to increase the proportion of families that are poor and near-poor, and to decrease the proportion of families with incomes between 1.5 and 3 times the poverty level.” [57] They were by no means the first to come to that conclusion. In 2001, Ohio University economists Richard Vedder and Lowell Gallaway concluded “that minimum wages, because of inefficient targeting of the poor and unintended adverse consequences on employment and earnings, are ineffective as an antipoverty device” based on an “array of empirical evidence showing that, however one views the data, in the United States, state and federal minimum wages have not reduced poverty. They [found] that the national minimum wage was ineffective in reducing poverty both in the aggregate and for specific subgroups. In fact, for some subgroups, the minimum wage actually appeared to raise the level of poverty.” [58]

Economists Richard V. Burkhauser of Cornell University (coincidentally the university from which Jared Bernstein received his doctorate in social work) and Joseph J. Sabia of the University of Georgia examined the direct impact of increases in the minimum wage on the earnings of the poor in 2005. Their study was confined to the direct impact alone without regard for any concurrent job loss. They concluded: “Even the small gains that we find among the working poor probably overestimate the actual gains of the proposed legislation to the working poor since, for purposes of this paper, we assume that minimum wage increases will have no negative employment effects. In fact, the preponderance of evidence suggests that teenagers, young African-Americans and young high school dropouts will experience reductions in their employment rates when minimum wages are increased…. The minimum wage makes little sense in 21st Century labor markets, where multiple workers living in a single household is the rule rather than the exception and being a low-wage worker is only fuzzily connected to living in poverty.” [59]

And, if that weren’t enough, Peter Tulip, an economist at the Federal Reserve, examined whether the minimum wage raises the equilibrium economy-wide rate of unemployment.  He found that a high minimum wage puts pressure on pay differentials raising wage growth across the economy and increasing unemployment in other areas of the economy. “So strong is this indirect effect ... that the gradual fall in the relative value of America’s minimum wage over the past 20 years is capable of explaining 1.5 percentage points of the fall in the country’s equilibrium rate of unemployment over the same period.” [60]

Of what, then, are minimum wage proponents speaking when they cite research indicating that the minimum wage does not destroy jobs? Most often, it is a reference to the Card and Krueger New Jersey Fast Food Study mentioned earlier. Former Clinton economic advisor Gene Sperling argued, for example, that “No one has yet rebutted convincingly David Card and Alan Krueger's study that compared fast-food jobs on the border of New Jersey and Pennsylvania, and found no decrease in lower-wage jobs after New Jersey raised its state minimum wage.”

            estimates of the employment effect of the New Jersey minimum wage increase from the payroll data lead to the opposite conclusion from that reached by CK [Card & Hrueger].

“Nor is he convinced by another Neumark-Wascher study that found

"no compelling evidence" that minimum wages help in the fight against poverty. A higher minimum wage...generates tradeoffs with respect to the incomes of poor and low-income families. Some families gain and others lose.

“Nor is he convinced by the Neumark-Nizalova study that found adverse long-run effects of the minimum wage:

The evidence indicates that even as individuals reach their late 20's, they work less and earn less the longer they were exposed to a higher minimum wage, especially as a teenager.

“Nor is he convinced by the Abowd-Kramarz-Margolis study that reported

movements in both French and American real minimum wages are associated with mild employment effects in general and very strong effects on workers employed at the minimum wage.

“To me, Gene looks like a doctor prescribing a drug relying on a single controversial study that finds no adverse side effects, while ignoring the many reports of debilitating results.” [61]

Other examinations of the New Jersey fast food study found the conclusions wanting, attacking the methodology used in the original research as hopelessly flawed. One, by the Employment Policies Institute, [62] has been subjected to criticism because it was not an independent study and because executive director Richard B. Berman has ties to the restaurant business, but it is widely agreed that the flaws cited (that the data in the study show irreconcilable anomalies and that using unscientific phone surveys as opposed to an examination of actual time cards yields inferior and contradictory results) are entirely valid. It is only Berman’s conclusions that have been legitimately questioned, largely due to the smaller sample size available to him.

Completely overlooked by minimum wage advocates is the fact that even Card and Krueger don’t adhere to their original results anymore. “Card and Krueger no longer insist that the higher minimum wage pushed employment up; they have settled for saying that (contrary to the standard model) it ‘probably had no effect’", [63] a position still contrary to the other available research.

Again, those favoring the policy are relying solely upon what is seen (the higher wages among individual recipients of the minimum wage) while ignoring – or even denying – what is unseen (the destruction of jobs that results from the policy’s implementation).

How to Succeed in Increasing Poverty Without Really Trying

"The days of the dole in our country are numbered....  We are not content to accept the endless growth of relief rolls or welfare rolls. We want to offer the forgotten fifth of our people opportunity and not doles." [64]

“The lessons of history, confirmed by evidence immediately before me, show conclusively that continued dependence on relief induces a spiritual and moral disintegration fundamentally destructive to the national fibre. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is a violation of the traditions of America.” [65]

What evil right-wing, poor-hating monsters were responsible for saying that? Lyndon Baines Johnson made the first comment even as he signed into law the so-called “Great Society”. Franklin Delano Roosevelt said the second. He went on to say, “The Federal Government must and shall quit this business of relief.” Would that his predictive abilities were as good as his assessment of the problem. Unfortunately, as has been touched on before, the federal government has spent more than $11 trillion on the eradication of poverty and has nothing to show for it. How can I say that? It’s simple really. The poverty rate in 1968 was 12.8 percent. [66] As of 2007, it had fallen to … 12.5 percent. [67] and, as the economy falters due to the latest governmental mismanagement of the economy, that figure is likely to rise in 2008.

Poverty is, again, a relative measure and capturing it accurately is a challenge. It is certainly fair to argue that the poverty threshold is arbitrary and that there are issues with the consumer price index (CPI) that make adjusting for the impact of inflation on “necessities” problematic. On the other hand, the poverty thresholds in the United States have been determined on a consistent basis over this period (as opposed to the periods before 1959) making relative comparisons possible. The chief response to this comparison is that the poverty level was a much more onerous 19.0 percent in 1964 when the Great Society was passed. Shouldn’t the “Great Society” be credited with that reduction in poverty?

Not in the slightest.

The fact is that the US economy had already begun a strong recovery, helped in no small part by the tax cuts signed by President Kennedy.  The poverty rate had already fallen from 22.4 percent in 1959 to 19 percent in 1964 and had dropped an astounding 1.7 percent more to 17.3 percent in 1965 before any of the Great Society programs were up and running. It wasn’t until 1968 that these programs began to affect a large number of people and, by then, the poverty rate had reached the 12.8 percent level. [68] Poverty levels had actually fallen steadily during the 1960s. The pace slowed materially as the Great Society ramped up and poverty rates actually rose again as the anti-poverty programs came fully online. This does not mean that these programs actually increased poverty (that assertion takes a more analytical approach) but it does completely destroy the argument that these measures yielded a demonstrable reduction in poverty based on a simple examination of general poverty rates.

Of greater interest is the fact that poverty rates declined steadily over time in the absence of such governmental intervention. Roosevelt had talked about a third of the populace living in poverty during the Depression. By 1959 in a period of recession, that figure had fallen to little more than 22 percent and by the time Johnson’s programs were operational it had fallen to 12.8 percent. Since those programs were enacted, the poverty rate has essentially reached a plateau, hovering between 11.1 percent (1973) during a period of economic growth and 15.2 percent (1983) during a period of recession. Who can say what the overall poverty level might have fallen to if the forces already in place had not been interfered with?

If the poverty level has been relatively stable and has not fallen materially in the period since these anti-poverty programs were implemented, how can organizations like the Center on Budget and Policy Priorities (CBPP) make claims such as these?: “The Census data show that both the number and the percentage of individuals removed from poverty by safety net programs either set or tied an all-time high in 1995. Without government programs, 57.6 million people would have been poor last year. But when government benefits are counted — including food stamps, housing assistance, school lunch support, and benefits provided through the earned income tax credit — the number of poor people drops to 30.3 million. In other words, the safety net programs lifted 27 million people out of poverty last year, cutting the size of the poverty population nearly 50 percent.”[69]

It’s obvious really: they are lying. That’s a serious charge, but it is the only one consistent with the facts. The “study” is based on the premise that the existence of these anti-poverty programs has absolutely no impact on human behavior or the economy in general. It presumes that, in the absence of the government handouts provided by the welfare state, that resources would never have been obtained from any alternative source. It is the “broken window” fallacy revisited. It isn’t simply that the basis for the assumption is absurd on its face; no competent scientist or researcher could possibly take such a position. Thus, the only possible explanation is blatant, deliberate dishonesty.

Certainly, any analysis of the effectiveness of anti-poverty programs – or anything else, for that matter – must examine not only the visible outward effects of the program (in this case, the actual benefits paid out and the only thing considered in the CBPP assessment) but also the conditions that likely would have been present in the absence of the program. Such an assessment must consider the productive activities for which the billions of dollars spent on welfare each year could otherwise have been used creating jobs, raising productivity and increasing prosperity. It must take into account the massive disincentives to self-sufficiency and work inherent in such a program. It must address the inevitable increase in the unproductive sector of society at the expense of productive sectors. And, over and above recognizing the inability of government to allocate resources efficiently, it must also address the resources lost to inefficiency, waste and fraud likewise inherent in such a program.

In regard to this last point, consider that between 1965 and 1978, total federal, state and local welfare spending grew from $77 billion to $394 billion while the total number of poor people remained virtually unchanged at about 2.5 million. "One has to wonder how it is possible to spend these hundreds of billions to alleviate poverty and still have the same number of poor people that we had, say, in 1968. Waive that objection for a moment, however, and simply compare the number of poor people with the dollars spent to help them: You discover that, if we had taken that $317 billion annually in extra ‘social welfare’ spending, and given it to the poor people, we could have given each of them an annual grant of $13,000—which is an income, for a family of four, of $52,000 a year…. In other words, with this colossal sum of money, we could have made all the poor people in America rich…. It prompts the more suspicious among us to ask: What happened to the money? … [A] tremendous chunk of these domestic outlays goes to pay the salaries of people who work for and with the federal government—including well-paid civil servants and an array of contractors and ‘consultants,’ many of whom have gotten rich from housing programs, ‘poverty’ studies, energy research grants, and the like.” [70]

Let’s take a more analytical approach to the information provided by the CBPP. By their reckoning, 1995 was a truly banner year for anti-poverty programs. But in 1995, then president Bill Clinton was being undeservedly lauded for presiding over the stellar performance of the economy as a whole. The economy had been improving steadily since the recovery began in 1991 and unemployment averaged about 5.5 percent, down two full percentage points from its peak in 1992. [Note: It must be remembered that presidents cannot wave a magic wand and change economic conditions. Clinton was elected in 1992; took office in 1993 and signed his first budget for fiscal 1994. The economy had turned before he took office and changes in unemployment trends lag behind economic turns by more than a year.] With the economic picture so rosy, one would expect the poverty situation to have improved on that basis alone. In 1995, however, according to that same Census Bureau data, 36.4 million people or 13.8 percent of the population lived in poverty. As we have seen, that figure is a full percentage point higher than in 1968, so, from that perspective, claims that anti-poverty programs had been successful are problematic at best.

The effectiveness of these programs is, however, far worse than even that analysis would indicate. The CBPP position actually shows how great a failure they have been. They state, again, that “safety net programs lifted 27 million people out of poverty” that year [their figures do not reconcile with the Census Bureau data cited here but this does not alter the nature of this example]. So, in 1968, when the program began and very few of the program’s dollars had gone to recipients, the percentage of the population in need (below the poverty level) was 12.8 percent, but in 1995, the percentage of the population in need (below the poverty level if not for government assistance) was 24.0 percent - double the rate at the program’s inception! Not only is the program’s effectiveness clearly disproved, but a compelling argument can be made that it has measurably increased real poverty.

This point has also been made by Charles Murray, [71] who in his 1984 book, Losing Ground: American Social Policy, 1950 - 1980, discussed the trends in “latent poverty” (that percentage of the population dependent upon government benefits to remain ostensibly above the poverty line), or respective lack of self-sufficiency, as perhaps the best indication of progress against poverty. Like the official poverty rate, this percentage steadily declined until the late 1960s. Unlike the official poverty rate, it ballooned, rising in each successive year (the lone exception being 1975) until reaching 23 percent in 1980. [72]

The largest federal anti-poverty expenditures in the US include, of course, social security, which we have already touched upon and medical assistance (Medicare/Medicaid) that we will examine later. Unemployment insurance will also be addressed later, albeit the impact of payroll taxes has already been explored at some length. The remaining social welfare programs include food stamps, public housing, vocational rehabilitation and, of course, Aid to Families with Dependent Children (AFDC). While many of these programs have been the subject of wide-spread and detailed criticism – just look at the condition of any public housing units a few decades after their initial habitation assuming these blighted projects have not already been torn down – but, by far, the last item has received the greatest amount.

The complaints, as summarized by Richard and Peggy Musgrave back in 1980, represent attacks from across the political spectrum and include:

8.    Welfare administration would be simplified by providing all the support in cash form [emphasis added]. [73]

Clearly, there are societal implications of this program – overwhelmingly negative - that go far beyond the individual assistance provided to any given family. We can examine but a couple of them here.

Research indicates that the migration effect of welfare programs is quite real. Studies ranging from Southwick (1981) to Cushing (2005) and McKinnish (2005) have found varying degrees of welfare-driven migration. The study that is perhaps the most reliable, Black (1988) looked at the migration patterns of female-headed households with children across state lines using data from the US Census Bureau’s Current Population Survey (1979). The study found that, while wage income exerts a stronger influence upon behavior, as might be expected particularly given that welfare recipients represent less than half of the population sample, welfare benefits unequivocally affect location decisions among female-headed households. Only a couple of studies, most notably Walker (1994) and Levine-Zimmerman (1995), have found no evidence of this migratory effect. Each of these used similar methodologies, but Walker, in particular, “has been criticized for ignoring what were thought to be more important long-distance migration flows”. [74]

The problem of family disintegration has been addressed at length, particularly with regard to the black family.  Once the most stable of familial units for nearly a century after slavery came to an end, the black family structure has become weaker and weaker in the age of entitlement.  Thomas Sowell, in particular, has discussed how it has been the welfare policies of the 1960s (consistent with the statistical, empirical data) as opposed to racism or a “legacy of slavery” that has resulted in widespread dysfunction among inner city families. [75] Of course, it is not a matter of race. Skin color has nothing to do with it. No clearer example of the devastation of our current attempts at fighting poverty can be found than in Appalachia. [76]

Former Deputy Assistant for Domestic Affairs in the Clinton Administration, William Galston, estimated that at least 15 to 20 percent of the family disintegration in America was directly related to the United States welfare system. [77] More to the point, a US Department of Heath and Human Services study found that an increase in monthly welfare benefits led to an increase in out-of-wedlock births even when controlling for income, education and urban/rural factors. An increase in the value of AFDC and food stamp payments of 50 percent resulted in a 43 percent increase in such births. [78] A similar study found that a $200 increase in monthly welfare benefits resulted in a 150% (!) increase in out-of-wedlock births. [79] Surprisingly, at least to defenders of the program, human beings respond to incentives.

Former member of President Reagan's Council of Economic Advisers, William A. Niskanen, has summed it up quite well: “Welfare is both a consequence and a cause of several conditions best described as social pathologies. These conditions include dependency, poverty, out-of-wedlock births, nonemployment, abortion, and violent crime…. Analysis of the state data for 1992 yields the following estimates of the effects of an increase in Aid to Families with Dependent Children (AFDC) benefits by 1 percent of the average personal income in the state: the number of AFDC recipients would increase by about 3 percent; the number of people in poverty would increase by about 0.8 percent; the number of births to single mothers would increase by about 2.1 percent; the number of adults who are not employed would increase by about 0.5 percent; the number of abortions would increase by about 1.2 percent; and the violent crime rate would increase by about 1.1 percent…. The social pathologies associated with the current welfare system no longer seem acceptable, not so much because of their fiscal costs but because of their malign effects.” [80]

On balance, the welfare state has been a disaster. No honest examination of the empirical evidence can support any other conclusion. Even the effects of welfare reform (examined later) - predicted by defenders of the welfare state to be a disaster for the poor, but proved to be exactly the opposite - bear out this conclusion. The one argument that remains is the assertion that, no matter how poorly the government has done, no alternative is even remotely adequate and the private sector is simply incapable of meeting the needs of the poor. The assertion is, however, not merely without basis, but is actually contrary to the available evidence.

The fiction of pre-welfare state destitution (in the absence of other governmental failures) has already been addressed. The tendency of welfare programs to increase poverty rather than reduce it along with a whole host of other deleterious effects has been established as well. All that remains is to establish the capacity of private insurance to meet societal needs.

On a direct basis, this would appear to be difficult. Over and above the reduced availability of charity that must result from the reduced resources available to the charitable when economic policies do such tremendous harm, there is the crowding out effect that governmental investment – even in charitable venues – has on private investment. Still, today we live in the most generous society in the history of the planet. Some 75 percent of US households – consider that figure in relation to the percentage receiving government assistance – give regularly to charity. [81] In 2005, those households gave an estimated $260.3 billion to charity, up 2.7 percent in real terms from 2004, including $5.3 billion for Hurricane Katrina victims and $1.9 billion for Tsunami relief. Americans have donated approximately 2 percent of gross domestic product to charity for the last four decades and the percentage has been trending upward. [82] And that is at a time when governmental social spending has never been greater.

[2] Thomas Jefferson, "A Bill for Establishing Religious Freedom," The Papers of Thomas Jefferson, ed. Julian P. Boyd, vol. 2, p. 545 (1950): http://religiousfreedom.lib.virginia.edu/sacred/vaact.html

[3] Thomas Jefferson, Notes on the State of Virginia, 1787. Query XIV: Laws; Query XIX: Manufactures: http://www.auburn.edu/~lakwean/hist2010/doc1787_tjnotes.html

[4] Professor Douglas J. Amy, “The Anti-Government Campaign”, Government is Good: http://www.governmentisgood.com/articles.php?aid=9&p=2

[5] This is not a thesis on social conservatism, but a defense of the position that government expansion into the economy and the lives of its citizens in the form of the welfare state has been a detriment to society. That said, if the state has any justification at all, it is to protect the populace from harm inflicted by third parties. This is, and has always been, an accepted function of government. If the conservative position on abortion is correct, then a new person entitled to protection comes into being at conception. Moreover, the state function of prohibiting certain behaviors is of an entirely different character than the state’s foray into charity and wealth redistribution. To present this example as if it were a contradiction in conservative thought is inherently dishonest.

[6] Milton Friedman, Capitalism and Freedom, 1962, p. 182

[7] Harry Reid, The Las Vegas Review-Journal, August, 2004, http://www.reviewjournal.com/lvrj_home/2004/Aug-31-Tue-2004/opinion/24657989.html

[8] See, for example: http://www.socialsecurity.gov/kc/, http://www.socialsecurity.gov/legislation/testimony_051804.html, http://kohl.senate.gov/SocialSecurity_Anniversary.doc, http://www.phxnews.com/fullstory.php?article=52141

[9] Otto von Bismarck, 1881, referenced in “A Debt-Threatened Dream”, George J. Church, Hays Gorey and Jeanne Saddler, Time, May 24, 1982: http://www.time.com/time/magazine/article/0,9171,953496-3,00.html

[10] Stanley Lebergott, The American Economy: Income, Wealth and Want, (Princeton: Princeton University Press, 1976), p. 508

[11] Life Expectancy by Age, 1850–2004, Department of Health and Human Services, National Center for Health Statistics; National Vital Statistics Reports, vol 54., no. 19, June 28, 2006. found here: http://www.infoplease.com/ipa/A0005140.html

[12] Historical Statistics of the World Economy: 1 – 2003 AD, copyright Angus Madison, http://www.ggdc.net/maddison/Historical_Statistics/horizontal-file_03-2007.xls

[13] “Why FDR Called It Social Security, Not Social Investment”, Numerian, The Agonist, January 11, 2005: http://www.agonist.org/story/2005/1/6/212133/2309

[14] New York State Commission on Old Age Security, Old Age Security (J. B. Lyon Co., Albany, 1930), referenced by Carolyn L. Weaver, The Crisis in Social Security: Economic and Political Origins (Durham, NC: Duke Press Policy Studies, 1982; reference to the nature of the New York Commission activity can be found here: http://www.ssa.gov/history/reports/ces/cesbookc7.html

[15] Jim Powell, FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression, (Three Rivers Press, New York, New York, 2003), p. 176

[16] 2008 Investment Company Fact Book, Investment Company Institute, 2008: http://www.icifactbook.org/fb_sec7.html. The $13.3 trillion figure is net of federal, state and local government plans totaling $4.3 trillion in assets.

[17] Ludwig von Mises, Human Action: A Treatise on Economics, (1949) Part 4, Chapter XXI, Section 7:http://www.mises.org/humanaction/chap21sec7.asp

[18] Eric R. Kingson and Edward D. Berkowitz, Social Security and Medicare: A Policy Primer (Auburn House, 1993) p. 27.

[19] Paul Samuelson, Newsweek, 1967, quoted here: http://www.scrivener.net/2005/02/beauty-of-social-security-by-paul.html

[20] L. Meriam and K. Schlotterbeck, The Cost of Financing Social Security, 1950, p. 8

[21] “Every dollar of the Social Security surplus has been borrowed by the government and spent for other government programs. The only thing in the Social Security Trust Fund is government IOUs called “special issues of the Treasury.” These “special-issue” securities have no commercial value because they cannot be sold in the market place. In essence, these IOUs represent a promise by the government that, in order to pay Social Security benefits, it will obtain resources in the future equal to the value of the securities.” -- CNN expert Dr. Allen W. Smith, PhD

More from a wide range of opinions can be found here: http://www.fee.org/vnews.php?nid=4569; http://baltimorechronicle.com/ssa_jul99.html; http://www.fff.org/comment/ed0901j.asp; http://www.heritage.org/Research/SocialSecurity/em940.cfm;
http://www.heritage.org/Research/SocialSecurity/BG1256.cfm

[22] George J. Church, Hays Gorey and Jeanne Saddler, “A Debt-Threatened Dream”, Time, May 24, 1982: http://www.time.com/time/magazine/article/0,9171,953496-3,00.html

[23] CBS News/New York Times Poll. June 10-15, 2005. N=1,111 adults nationwide. MoE ± 3 (for all adults): http://www.pollingreport.com/social.htm

[24] Jason Furman, “President Misleads on Social Security Rate of Return”, Center for Budget and Policy Priorities, June 6, 2005: http://www.cbpp.org/6-6-05socsec.htm

[25] Library of Congress' Congressional Research Service (95-149 EPW, update June 2, 1997).

[26] Carolyn L. Weaver, “Social Security”, The Concise Encyclopedia of Economics, 1992: http://www.econlib.org/library/Enc1/SocialSecurity.html; The article is an excellent source of information on the topic. Weaver’s The Crisis in Social Security: Economic and Political Origins is also highly recommended.

[27] “A Political Case for Social Security Reform,”, Gary Becker, Wall Street Journal, February 15, 2005.

[28] David Friedman, The Machinery of Freedom, 1973, p. 23

[29] Gary V. Engelhardt and Jonathan Gruber, “Social Security and the Evolution of Elderly Poverty”, NBER Working Paper No. 10466, May 2004: http://www.nber.org/papers/w10466

[30] Richard K. Vedder and Lowell E. Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America (1993)

[31] Statement of James A. Emery of the National Association of Manufacturers, January 21, 1935, p. 1023: http://www.ssa.gov/history/pdf/hr35emery.pdf

[32] Bureau of Economic Statistics, Economic News Release: Consumer Expenditures in 2006, October 26, 2007: http://www.bls.gov/news.release/cesan.nr0.htm

[33] Martin Feldstein, "The Missing Piece in Policy Analysis: Social Security Reform," NBER Working Paper No. 5413, July 1997 Abstract: http://www.nber.org/papers/w5413

[34] The study ("Social Security, Induced Retirement, and Aggregate Capital Accumulation") was corrected to fix a small programming error and updated in 1982 ("Social Security and Private Saving: Reply") and expanded upon further in the 1997 paper referenced previously in this chapter.

[35] See B. Douglas Bernheim and Lawrence Levin, “Social Security and Personal Saving: An Analysis of Expectations”, The American Economic Review, Vol 79, No. 2 Papers and Proceedings of the Hundred and First Annaul Meeting of the American Economic Association (May, 1989), pp. 97-102, first page reference contained here: http://www.jstor.org/pss/1827738

[36] J. A. Dorn, editor, “Social Security: Continuing Crisis or Real Reform”, Cato Journal p. 337-338: http://www.cato.org/pubs/journal/cj3n2/cj3n2-1.pdf

[37] Thomas Sowell, Basic Economics: A Common Sense Guide to the Economy (Basic Books, 2007), p. 416-417

[38] Martin Feldstein, "Rethinking Social Insurance" Presidential Address to American Economic Association, January 8, 2005: http://www.nber.org/feldstein/aeajan8.pdf

[39] Dan Froomkin, “Social Security: The Clock is Ticking”, The Washington Post, Special Report on Social Security, February 25, 1999: http://www.washingtonpost.com/wp-srv/politics/special/security/security.htm

[40] I have written previously on just a few such examples: http://fletchforfreedom.blogtownhall.com/2007/07/10/paul_krugman_is_lying_to_you.thtml, http://fletchforfreedom.blogtownhall.com/2007/07/12/paul_krugman_is_lying_to_you_-_again.thtml, http://fletchforfreedom.blogtownhall.com/2007/07/17/paul_krugman_is_still_lying_to_you.thtml, http://fletchforfreedom.blogtownhall.com/2007/06/15/paul_krugman_and_the_bush_tax_cuts.thtml

[41] Congressional Budget Office,Updated Long-Term Projections for Social Security, Pub. No. 3174, August, 2008: http://www.cbo.gov/ftpdocs/96xx/doc9649/08-20-SocialSecurityUpdate.pdf

[42] The Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, The 2008 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, March 25, 2008, at http://www.ssa.gov/OACT/TR/TR08/tr08.pdf

[43] Frederic Bastiat, “What Is Seen and What Is Not Seen”, Selected Essays on Political Economy, 1850, available here: http://www.econlib.org/library/Bastiat/basEss1.html; a brief description of the concept, its economic applications – including the long-refuted Keynesian fallacy, and even a case of New York Times columnist Paul Krugman falling into the same trap can be found here: http://en.wikipedia.org/wiki/Parable_of_the_broken_window

[44] Professor Douglas J. Amy, “The Anti-Government Campaign”, Government is Good: http://www.governmentisgood.com/articles.php?aid=9&p=2

[45] Most of these figures come from the United States Census Bureau Percent of Families With Access to Consumer Durables reports. Living space figures were compiled as part of a European Union report.

[46] U.S. Department of Labor, Bureau of Labor Statistics, Consumer Expenditure Survey: Integrated Diary and Interview Survey Data, 1972–73, Bulletin No. 1992, U.S. Department of Labor, Bureau of Labor Statistics, Consumer Expenditures in 2001, Report No. 966, April 2003. Figures adjusted for inflation by the personal consumption expenditure index.

[47] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter 11, paragraph 239: http://www.econlib.org/library/Smith/smWN5.html#I.11.239

[48] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book I, Chapter 10, paragraphs 102-111: http://www.econlib.org/library/Smith/smWN4.html#B.I,%20Ch.10,%20Of%20Wages%20and%20Profit%20in%20the%20Different%20Employments%20of%20Labour%20and%20Stock

[49] “Thomas Robert Malthus”, Encyclopedia Britannica Online, accessed November 15, 2008: http://www.britannica.com/EBchecked/topic/360609/Thomas-Robert-Malthus/222944/Malthusian-theory#ref=ref748256

[50] David Ricardo, On the Principles of Political Economy and Taxation (1817), Chapter 5, paragraphs 34-40: http://www.econlib.org/library/Ricardo/ricP2.html#5.40

[51] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV, Chapter 9, paragraph 51: http://www.econlib.org/library/Smith/smWN19.html#B.IV,%20Ch.9,%20Of%20the%20Agricultural%20Systems,%20or%20of%20those%20Systems%20of%20Political%20Oeconomy,%20which%20Represent%20the%20Produce%20of%20Land

[52] Adam Smith, The Theory of Moral Sentiments, (1790) Part VI, Section II, paragraph 29: http://www.econlib.org/library/Smith/smMS6.html#VI.II.42

[53] Dan Fuller and Doris Geide-Stevenson, “Consensus Among Economists Revisited”, Journal of Economic Education, Fall 2003: http://www.indiana.edu/~econed/pdffiles/fall03/fuller.pdf

[54] I have written on this topic in the past with particular attention to the Economic Policy Institute: http://fletchforfreedom.blogtownhall.com/2007/05/22/yes,_virginia,_there_are_liberal_economists_%e2%80%93_part_i.thtml; http://fletchforfreedom.blogtownhall.com/2007/05/24/yes,_virginia,_there_are_liberal_economists_%e2%80%93_part_ii.thtml (it should be noted that the reference to a non-existent housing bubble mentioned in the column refers to claims made before 2005 when Fed actions had not so drastically flooded the economy with excess liquidity)

[55] Fiscal Policy Institute, “About FPI”: http://www.fiscalpolicy.org/about_04.html

[56] David Neumark, “The Economic Effects of Minimum Wages: What Might Missouri Expect from Passage of Proposition B?”, October 2, 2006 : http://showmeinstitute.org/docLib/20070411_smi_study_2.pdf

[57] David Neumark, Mark Schweitzer, William Wascher, “The Effects of Minimum Wages on the Distribution of Family Incomes: A Non-Parametric Analysis”, NBER Working Paper No. 6536, April 1998: http://www.nber.org/papers/w6536

[58] Richard K. Vedder and Lowell E. Gallaway, "Does the Minimum Wage Reduce Poverty?" Employment Policies Institute, June 2001: http://www.epionline.org/studies/vedder_06-2001.pdf

[59] Richard K. Burkhauser and Joseph J. Sabia, “Raising the Minimum Wage: Another Empty Promise to the Working Poor”, Employment Policies Institute, August 2005: http://www.epionline.org/studies/burkhauser_08-2005.pdf

[60] The quote is from “Debating the minimum wage”, The Economist, February 1, 2001: http://www-personal.umich.edu/~kathrynd/minimumwage.pdf; the actual research, Peter Tulip, “How do Minimum Wages increase the NAIRU?”, can be found here: http://www.ssc.upenn.edu/~ptulip/how.PDF

[61] Greg Mankiw’s Blog: Random Observations for Students of Exonomics, June 22, 2006: http://gregmankiw.blogspot.com/2006/06/sperling-on-minimum-wage.html

[62] Richard B. Berman, “The Crippling Flaws in the New Jersey fast Food Study”, Employment Policies Institute, April 1996: http://www.epionline.org/studies/epi_njfastfood_04-1996.pdf

[63] “Debating the minimum wage”, The Economist, February 1, 2001: http://www-personal.umich.edu/~kathrynd/minimumwage.pdf

[64] “The Politics of Poverty”, Time, August 24, 1964: http://www.time.com/time/magazine/article/0,9171,876085,00.html?iid=chix-sphere

[65] Franklin Delano Roosevelt, annual message to the Congress, January 4, 1935.—The Public Papers and Addresses of Franklin D. Roosevelt, 1935, p. 19 (1938): http://newdeal.feri.org/speeches/1935a.htm

[66] United States Census Bureau, Historical Poverty Tables, “Poverty Status of People by Family Relationship, Race, and Hispanic Origin: 1959 to 2006”: http://www.census.gov/hhes/www/poverty/histpov/hstpov2.html

[67] United States Census Bureau, “Poverty: 2007 Highlights”: http://www.census.gov/hhes/www/poverty/poverty07/pov07hi.html

[68] Charles Murray, Losing Ground: American Social Policy, 1950 - 1980  (New York, Basic Books, 1984), p.48: “[T]he great legislative victories that required money for implementation did not begin to affect large numbers of persons until about 1967-68 and did not reach full scope until the 197os. The underlying principles changed earlier. Their implementing agencies began earlier. The legislation began earlier. But the income maintenance and social action programs that were authorized during Johnson’s legislative hegemony in 1964-66 had relatively small budgets [and that concentrated upon building the program infrastructure] and scope during his term in office.”

[69] Center on Budget and Policy Priorities, “The Safety Net Delivers: The Effects of Government Benefit Programs in Reducing Poverty” Revised November 15, 1996: http://www.cbpp.org/SNDSUM.htm

[70] M. Stanton Evans, “Where Do All the Welfare Billions Go?”, Human Events, February 6, 1982: found here: http://www.fee.org/publications/the-freeman/article.asp?aid=1059

[71] Murray is perhaps most famous for The Bell Curve: Intelligence and Class Structure in American Life, written in 1994 with Harvard professor Richard J. Hernstein. The controversial book found that intelligence is a better indicator of human behavior and outcomes (crime, income, job performance, unwed pregnancies, etc.) than class as defined by either the socio-economic status or education levels of a given individual’s parents. The work has often been denounced as racist (almost exclusively by those who have not actually read it), because two chapters address the issues of race and intelligence. The criticism is without merit. The authors take no position on the issue and do not claim that IQ differences are genetic. In fact, the authors state unequivocally that "The debate about whether and how much genes and environment have to do with ethnic differences remains unresolved." That IQ is to some extent heritable is agiven. The authors assert that “half a century of work, now amounting to hundreds of empirical and theoretical studies, permits a broad conclusion that the genetic component of IQ is unlikely to be smaller than 40 percent or higher than 80 percent.” That conclusion was hardly controversial and claims that it had been debunked by later research by Michael Daniels, Bernie Devlin, and Kathryn Roeder of Carnegie Mellon University – and found a range of 34 percent to 46 percent – are absurd on their face. Note again the author’s original disclaimer and the fact that the two ranges overlap.

[72] Charles Murray, Losing Ground: American Social Policy, 1950 – 1980, Basic Books, 1984

[73] Ricard A. Musgrave and Peggy B. Musgrave, Public Finance in Theory and Practice, Third Edition (McGraw-Hill Book Company, 1980), p. 719-720

[74] Terra McKinnish, “Welfare-Induced Migration at State Borders: New Evidence from Micro-Data”, University of Coloraso, 2005: http://spot.colorado.edu/~mckinnis/newmig091405.pdf

[75] See for example: Thomas Sowell, The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy, (Basic Books, 1995)

[76] James L. Payne, “Why the War on Poverty Failed”, The Freeman: Ideas on Liberty, Vol. 49, No. 1, January 1999: http://www.fee.org/publications/the-freeman/article.asp?aid=3684

[77] William Galston, "Beyond the Murphy Brown Debate: Ideas for Family Policy," Institute for American Values, Family Policy Symposium, New York, December 10, 1993.

[78] M. Anne Hill and June O'Neill, "Underclass Behaviors in the United States: Measurement and Analysis of Determinants," Baruch College, City University of New York, March 1990, p.5

[79] Shelley Lundberg and Robert Plotnick, “Adolescent Premarital Childberaing: Do Opportunity Costs Matter?”, University of Washington, September 1990, http://www.irp.wisc.edu/publications/dps/pdfs/dp92690.pdf

[80] William A. Niskanen, “WELFARE AND THE CULTURE OF POVERTY”, The Cato Journal, Vol. 16, No. 1, Spring/Summer 1996: http://www.cato.org/pubs/journal/cj16n1-1.html

[81] Independent Sector, The New Profit Almanac in Brief: Facts and Figures on the Independent Sector (Washington: Author, 2001)

[82] Giving USA 2006: The Annual Report on Philanthropy for the Year 2005. Giving USA Foundation: AAFRC Trust for Philanthropy (researched and written at the Center on Philanthropy at Indiana University). 51st annual issue, 2006

[83] Ludwig von Mises, Human Action: A Treatise on Economics, (1949) Part 6, Chapter XXXV, paragraph 19: http://www.mises.org/humanaction/chap35sec2.asp