Know Your Enemy--The Welfare State

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November 13, 2006

What is the welfare state?

A welfare state is a government that provides a minimum level of subsistence to everyone, whether they are working or not. Another reason is to 'create a more just society' by reducing income inequality.

The welfare state is a relatively recent invention ' it had its roots in late 19th Century socialist thinking, was first mooted in the Great Depression (incidentally, largely caused by government interference in the economy), and gained momentum after World War II with the increasing popularity of Keynesian economics.

Initially only a small minority of people were eligible to receive payments but the pervasiveness of this system has increased over time. In some countries, the ratio of payers to recipients is approaching 2 to 1. It is a major and increasing drain--the costs are ultimately unsustainable but will be met in the short term by increasing taxes.

Governments cannot create wealth or 'welfare' ' they can only redistribute money from one person to another. It is a zero sum game. This largesse is generally paid for by taxes--compulsory transfer payments from one sector of society to another.

Why is the welfare state our enemy?

The philosophy of the welfare state is fundamentally opposed to the notion of individual responsibility and is grounded in the view of society as a collective entity rather than individuals who have a primary responsibility for their own support.

The underlying assumption is that one person has the responsibility to support another person (not someone who they know, or a family member), but a complete stranger. This is regarded as more important than the well being of the paying person, or their family.

Conversely, the recipient is told that it is their 'right' to demand a certain standard of living from 'society' ' which in effect means the confiscation of wealth from another person.

An 'ideal' society with equal incomes and wealth is a society where the less able are rewarded, and the more able and industrious are penalised ' it doesn't recognise that individuals make different contributions according to their skills, life choices and abilities. Income inequality is the hallmark of a free society. A system that seeks to equalise incomes and wealth can only do so by enslaving the most economically productive members.

Welfare payments (transfer payments) are one of the largest uses of tax revenue in most developed countries and a driver of higher taxes. Taxes by definition are a confiscation of wealth through the threat of force. The welfare state is a therefore a major impediment to free, productive individuals who are threatened with violence to obtain the means to maintain a system that provides nothing for them.

Comparing the US (which has a relatively small welfare sector) to Western Europe (which generally has a complete welfare state) shows that the amount of tax required to run a welfare system significantly reduces private wealth. As a result, Europe has generally higher unemployment and lower GDP growth than the US .

The welfare system disempowers those it is meant to help. It keeps them dependent on handouts, disenfranchises them from the productive economy and takes away the pride felt by a productive person.

The supposed adverse effect of the removal of the welfare state is one of the major arguments raised against the introduction of a free market economy. We need to be able to counter this.

Countering the lies - Arguments for the welfare state

The welfare industry argues against any reductions in the welfare state, not out of any interest in the poor, but because there is a mutual interdependency between the welfare 'industry' and welfare recipients. A reduction in the welfare state, or a reduction in poverty would result in less power for the welfare bureaucrats.

Welfare should not be a state activity. The functions provided by the welfare state are better provided by private means. This aligns with the fact that the good things we enjoy are largely a result of the work of the free market, not the government.

Here are some of the worn and discredited, but well rehearsed arguments you will hear, and my responses:

Don't we all have an obligation to help those 'less fortunate' than ourselves?

A person's first and only obligation is to support themselves and their own family. The ability to do this is seriously affected when taxes of all kinds approach 50% of a person's income. No wonder working families are put under financial stress!

When the welfare state is removed, reduced taxes will result in more wealth voluntarily contributed to private charities. Individuals will decide where best to give their own money. What will motivate this? The same motivation that drives all generosity ' the feeling of well being from voluntarily contributing to a good cause.

Isn't the welfare state something that Christians should uphold?

This argument is advanced by church groups who have forged an 'unholy alliance' with the State. In fact, this is what the Bible itself says:

For even when we were with you, we gave you this rule: "If a man will not work, he shall not eat." 2 Thessalonians 3:10

The early church set up a system to support widows in the church (who couldn't work in that society), but there were strict guidelines as to who could be supported. Churches have always been active in helping the deserving poor--churches have always been active in this. However, this is always a voluntary, private activity and can't be extended as an argument for a welfare state.

What about those who can't work (due to disability)?

There will always be those who can't work ' people with serious disabilities, for example. Incidentally, these are not a major category of welfare recipients, but I'll address the point anyway.

No one would argue that the disabled need to be supported and cared for. But is the welfare state a good way to do this? No!

Before the introduction of the welfare system, the disabled were cared for by private charities and their own families. Individuals will still spend money on goods and services that are important to them, so when the welfare state is abolished, private charities will experience a renaissance.

Removal of minimum wage regulations will open up employment possibilities for a wide range of other welfare recipients ' allowing them to participate actively in the economy. Private insurance and retirement plans paid for by individuals will provide a safety net for them and their families and replace the inefficient welfare system.

The aged have paid taxes all their lives ' don't they deserve to get something back for that?

In Australia where I live, aged pensions are a major component of the welfare system. The gradual, subtle increases in taxes over time (tax creep) means that pension recipients have paid less in lifetime taxes than they will get back in pensions. This is before deducting government services such as defence, justice and police services.

If we remove the welfare state, won't crime increase?

The myth is that without welfare payments, people will starve and rob to survive. This ignores the significant increase in wealth that will occur in society with the abolition of the welfare system and the taxes it uses, and other inefficient restrictions. Income inequality will increase, but everyone would still be better off.

With more people able take a stake in the economy, they won't be wasting time on crime, they will be taking steps to being wealthy themselves.


The welfare state creates more problems than it solves, and its underlying philosophy marks it as an enemy of liberty and personal freedom. Welfare is better provided by private means, and the abolition of the welfare state will significantly increase the wealth of everyone.

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John Locke (a pseudonym) is an Australian IT consultant, free market enthusiast and investor.