Two Pictures that Perfectly Capture the Rise and Fall of the Welfare State

July 15, 2011 by Dan Mitchell

In my speeches, especially when talking about the fiscal crisis in Europe (or the future fiscal crisis in America), I often warn that the welfare state reaches a point-of-no-return when the number of people riding in the wagon begins to outnumber the number of people pulling the wagon.

To be more specific, if more than 50 percent of the population is dependent on government (employed in the bureaucracy, living off welfare, receiving pensions, etc), it becomes rather difficult to form a coalition to fix the mess. This may explain why Greek politicians have resisted significant reforms, even though the nation faces a fiscal death spiral.

But you don’t need me to explain this relationship. One of our Cato interns, Silvia Morandotti, used her artistic skills to create two images (click pictures for better resolution) that show what a welfare state looks like when it first begins and what it eventually becomes.

These images are remarkably accurate. The welfare state starts with small programs targeted at a handful of genuinely needy people. But as  politicians figure out the electoral benefits of expanding programs and people figure out the that they can let others work on their behalf, the ratio of producers to consumers begins to worsen.

Eventually, even though the moochers and looters should realize that it is not in their interest to over-burden the people pulling the wagon, the entire system breaks down.

Then things get really interesting. Small nations such as Greece can rely on permanent bailouts from bigger countries and the IMF, but sooner or later, as larger nations begin to go bankrupt, that approach won’t be feasible.

I often conclude my speeches by joking with the audience that it’s time to stock up on canned goods, bottled water, and ammo. Many people, I’m finding, don’t think that line very funny.

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Milton Friedman – Roots Of The Welfare State

Timeline of Government Growth

• See this timeline for key events in the department’s growth.

Reading Room

• Here are background studies that examine the department’s activities.

Cato Experts

• Michael Cannon, Director, Health Policy Studies
• Michael Tanner, Senior Fellow
• Jagadeesh Gokhale, Senior Fellow
• Chris Edwards, Director, Tax Policy Studies
• Tad DeHaven, Budget Policy Analyst

Spending Cuts Summary

• Here are proposed reforms to save $81 billion annually in the short-run and prevent federal health costs from consuming a growing share of the economy in the long-run.

Downsize This!

• Medicare Reforms. Medicare should be transformed into a system based on vouchers, individual savings, and competitive insurance markets.
• Medicaid Reforms. Federal spending on low-income health care should be converted to block grants for the states.
• TANF and Welfare Spending. Welfare reforms in 1996 created Temporary Assistance for Needy Families, but this sort of aid should be provided by private charities.
• Head Start and Other Subsidies. HHS funds a vast array of other subsidy programs, many of which are wasteful and ineffective.
• 2010 Health Care Legislation. The law expanded Medicaid, added new taxes and subsidies, created new bureaucracies, and did little to reduce cost growth in health care.

“The government of the United States is a definite government, confined to specified objects. It is not like the state governments, whose powers are more general. Charity is no part of the legislative duty of the government.”

– James Madison. A paraphrase from Elliot’s Debates regarding a proposed subsidy bill, House of Representatives, January 10, 1794.

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