Sunday, September 22, 2013

Welfare Subsidizes Poverty

One of the foundational principles of economics is that people act to increase their future satisfaction. They apply means according to their understanding of causal relations to achieve their end. For example, other things equal, they buy at the cheapest price and sell at the highest price.

One bureaucratic institution that puts in place incentives that works against the very ostensible purposes of its advocates is the welfare state. According to Michael Tanner and Charles Hughes, "welfare currently pays more than a minimum wage job in 35 states, even after accounting for the Earned Income Tax Credit." This does not bode well for a system that ostensibly is designed to reduce poverty.

If a person's income is subsidized for his lower income, welfare ends up subsidizing poverty. This is because receiving income without working reduces the opportunity cost of leisure time and, therefore, promotes idleness. This does not, of course, imply that everyone stops working if income subsidies are available. It is to say, however, that some, perhaps many, people will opt for not working it is made worth their while. This is important, because historically one of the main reasons children live in poverty in the U.S. is because their parents do not work. Encouraging people to not work is the last thing we want to do if we want to combat poverty.

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