Welfare Policies have Great Consequences

In discussions of politics, it is common to see politicians praised for policies and programs that expand the welfare state. Politicians who sign off or approve spending at a greater magnitude than other politicians are often seen as more generous. Many voters are lulled into supporting politicians who spend more at the cost of high taxes because such politicians are often seen as doing “more” than laid-back or fiscally conservative politicians. What supporters of spend-heavy politicians fail to remember is that policies have opportunity costs. Government spending does not occur without consequences.

It is a common misconception that government spending has no effect on the economy. Further, it is in the interest of politicians to make sure that one does not understand that their policies lead to negative consequences. When a politician signs a bill into law providing X amount of money for a particular purpose, that money isn’t simply created out of thin air. It is either taxed from the citizenry or loaned from other sources, although the taxpayers will have to foot the bill for debts in the future anyway. Even when money is created from “thin air,” the negative effect is inflation which is effectively a form of indirect tax.

Voters who are ignorant of this causality do more harm than good by electing politicians who will impose a great burden in order to put their economic policies into effect. I once observed a debate at a gathering where both parties claimed their preferred candidate “did more” than the other one. Of course, by “did more”, they meant that their politician was more willing to spend other people’s money. Despite their negative contributions to society, politicians who spend more tend to have the upper hand on rhetoric as opposed to politicians who have a lesser propensity to act forcefully on peaceful people and distribute their wealth in a politically convenient manner.

Frederic Bastiat had it right when he coined the Broken Window fallacy. In his parable, Bastiat states that a boy breaks a window and that his dad has to pay a glazier to fix the window. The townspeople believe that the boy breaking the window was a good thing since it effectively created a job, or increased spending. What is unseen is the opportunity cost or the cost of repair. The money spent on repairing the window can now not be used for other purposes, which may have led to greater utility. The same fallacy applies to government spending. When the government spends a certain amount, it must collect a similar amount (or loan it with the intention of collecting the amount later). Effectively, what would have been spent by private individuals now becomes public spending.

By taxing your money, the government acts upon the belief that they know how to spend your money better than you do. Even worse, by redistributing wealth, the government also acts upon the belief that some people are more deserving of other people’s wealth. We ought not to celebrate politicians as if they donate their own money to welfare, and we certainly ought not to celebrate them for their willingness to spend the hard-earned money of politicians.