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The Welfare State’s War Against the Young

In the welfare states of the western world, young adults are the biggest losers. They pay substantial taxes to support Social Security and other government pension programs, yet their own future benefits – to be paid by those yet unborn – are under threat as populations decline or grow only slowly. Moreover, as a class, the elderly are far wealthier than young adults. In the United States, depending on the year assessed they have from ten to sixty times as many assets on average.

On egalitarian grounds (assuming that increasing equality of outcomes is proper role of government), such intergenerational transfers without means testing could only be justified on the premise of relatively rapid future economic growth, such that the youth of today will enjoy far wealthier retirements and longer and healthier lives on average than today’s elderly generation. While I tend to agree with this projection, the wisdom of the crowd demurs: the majority of Americans, for instance, fear their children’s lives will be worse than theirs. In any event I doubt most young people would be willing to take the wager on economic growth needed to be at peace with the transfer even on these grounds.

State intervention in the labor market is an even more harmful policy for the young. In general, young people are worse prospective employees than older people, who have more experience and more skills and are more reliable. As result, the minimum wage hits younger workers harder. Similarly, laws that make it harder to fire workers also discriminate against the young. Employers are less eager to hire workers who are not easily fired for poor performance, and  even less eager to hire younger workers, who are less of a sure bet. Even younger workers who are employed are disadvantaged, if their current job is a poor match for their skills. These workers may be less likely to leave their job in favor of a better one, if jobs are harder to find. By remaining longer in ill-suited jobs, they put off valuable experience in work that is a better fit.

In the United States, we observe higher unemployment rates among younger people. In continental Europe, where the minimum wage is generally higher relative to the average wage and where job protections are generally much stronger, youth unemployment can reach stratospheric levels. In Greece and Spain, it approaches a quarter of the cohort. And unemployment is one of the greatest sources of human unhappiness—the cause of social isolation and depression.

A more flexible labor market serves the young. It affords them the chance to experiment and gain skills. It permits them to work at low wage jobs to support themselves as they try to pursue dreams, like becoming an actor.

So why don’t young people vote to weaken the welfare state? One reason is that the young vote and focus on the details of politics less than the old. They have not gained the habit of voting and have more enjoyable distractions.   But the left has also put together a generationally effective electoral package that appeals simultaneously to the egalitarian ideals of the young and to the desire for entitlement protection of the old. President Obama’s electoral success is in no small measure due to his rhetorical mastery of this kind of joint appeal.

This powerful political combination has maintained and often increased the size the welfare state. But given that the costs of the welfare state to the young bulk ever larger, the left’s appeal to the young  may be unsustainable. The greatest political imperative for classical liberalism today is to make liberty — a political ideal no less than equality — programmatically attractive to the young.  The growth of the welfare state makes them ripe for ideological conversion.

Reader Discussion

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on August 14, 2014 at 10:56:44 am

1. What the hell does McGinnis know about public finance? A lot, apparently. For a lawyer, he makes a pretty good economist.

2. Public policy poses trade-offs.

Unemployment and underemployment impose long-term consequences on people, perhaps especially the young. Arguably it makes people more risk-averse. It may make people more likely to identify with the underdogs and the have-nots. All of this may make promote a greater affinity for the social safety net.

Yet the taxation that finances the social safety net may make unemployment more likely. That’s the nature of insurance: It makes you poorer relative to a world in which you don’t buy insurance and encounter no accidents. But it makes you richer relative to a world in which you don’t buy insurance and do encounter an accident.

3. Whatever you think about the insurance trade-off in general, it clearly makes sense to raise funds in a way that imposes the least burden on the economy. Given the growing wealth disparity, this suggests that some people are accruing vastly more wealth for each hour worked than in the past. That would suggest that we could have increasing progressive taxation without reaching the point where the tax burden outweighed the benefits that high-earning people accrue from working an extra hour.

4. Side issue: The links in the “No Taxation Without Sensation” post seem to be broken. I can’t get to the bulk of the post, or to the comments.

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nobody.really
on August 14, 2014 at 12:44:35 pm

Welfare State?

A Welfare State would be an embodiment of authority (creating the State) with a (perhaps the) principal function of providing for the physical and material well-being of those subject to the authority. The means required for the exercise of that function include some degree of control over the distribution of the resources available amongst the subject members, as well as some degree of control of the relationships amongst them.

In a highly simplified form, it might require the taking (as in-kind tax) of grain from a producer, requiring someone to transport it to a Miller, requiring the Miller to mill the grain, producing flour, taking the flour and requiring another to transport the flour to a Baker, requiring the Baker to bake bread, taking it and requiring another to deliver the bread to those in need and unable to provide for themselves. In more sophisticated economies this is accomplished principally through taxation whose proceeds are used to acquire the labor and establish the relationships in the simplified example.

But, on closer examination of the characteristics cited by Professor McGinnis, we are observing, throughout most of the developed economies cited, something that is somewhat different from what is too genteelly labeled the “Welfare State.” What we are actually observing are embodiments of authority (the States) whose principal functions have become the administration and service of the particular interests of the members subject to the authority. Those functions range far beyond provisions for physical and material well-being, to those of particular advantage.

What we are observing are not Welfare States (though they may perform some of those functions) but Administrative States, embodied with authorities derived from the representation of the particular interests of groups and individuals of their subject members.

While much is undertaken in the guise of provisions for physical and material well-being, it is almost universally undertaken for some particular interest. The misuse of the term Welfare State is like a Band-Aid applied to cancer.

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R Richard Schweitzer
on August 15, 2014 at 11:57:51 am

What you are actually seeing is inter-generational theft. The callous, selfish, blinders on policies of the voracious welfare State, the actions of people and policies locked into both themselves only and the time they find themselves in. Yesterday is gone, tomorrow isn't here nor thought of, and like Burkes flies of the summer we live for today.
We steal from people unborn.

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john trainor
on August 15, 2014 at 14:05:09 pm

" It may make people more likely to identify with the underdogs and the have-nots. All of this may make promote a greater affinity for the social safety net."

This affinity for the underdog may be broader than it is deep. Using my tailgating buddies as a metric, it would appear that there is almost a rote commitment to supporting the underdog and correspondingly criticizing the rich. The actions of the "tailgaters" belies their expressions of support for the underdog and they also are somewhat critical of the safety net.

I am not certain what this means other than to say that perhaps the opportunity for your favorite revenue enhancer - higher progressivity - may not be as real as it initially appears.

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gabe

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