Bankruptcy of American Social Policy

One of the objections by the embattled American working class against the present social policy (e.g. welfare, Medicaid, etc.) that came up repeatedly during the 2016 campaign season is that the way the present policy is structured is “humiliating.”  I think this characterization is a little misleading:  it gives the impression that the primary objection to the policy is mainly “psychological,” that the working class is rejecting the policy that is substantively “good for them” out of sheer obstinate pride.  I think this is basically a wrongheaded characterization that, quite frankly, makes the wonks feel better about themselves and further convinces that these people are “undeserving of help.”  Let’s think of the specifics.

One point that was raised repeatedly in course of Japanese economic morass was that it is impossible to actually lower the savings rate of the Japanese public because Japan is a country with limited social welfare programs where the population is quite old.  When government spends money like mad, the money that makes its way into the pockets of the people find themselves into their savings.  Even when the interest rates are lowered absurdly, to the point of effectively punishing savers, the people will keep saving.  They have no other recourse other than accumulate savings:  they want to keep a reasonable standard of living. They cannot depend on the government (due to the limited nature of Japanese welfare state coupled with high cost of living).  They cannot depend on children (partly due to decaying social networks, partly due to the fact that, to a degree a consequence o decaying social networks in the previous generation, they have no children.)  The magic words here are “a reasonable standard of living.”  Japanese welfare system is adequate enough, as far as I know, to keep people from starving on streets.  But very few Japanese are so impoverished that they are in immediate danger of starving.  Indeed, they are desperate to save so that they would not be in danger of imminent starvation if not for government aid.  A lot of Japanese, no doubt, are in fact quite far from such dire situation.  This does not matter of course:  they do not want to fall into a more desperate set of circumstances and they need savings to ward it off.  Of course, this proclivity to save subverts the very point of expansionary fiscal policy:  very little money will be actually spent to stimulate the economy.

The analogue to the situation in United States is analogous, on multiple fronts.  First, all the monetary policy undertaken to expand the money supply did little good over the past decade.  Banks, firms, and various wealthy holders of capital are almost literally sitting on piles of money.  They see a lackluster economy that is not worth investing in so they keep their capital dry.  But because the investment activity is sparse, the economy remains depressed, except for short term infusions that temporarily raise employment as long as the firms need make no long term commitment to the workers–thus, employment seems getting better-ish at times, but not at a “fundamental” level that provides for long term work for the many underemployed people.  Second, in combination with the fallacies of spatial thinking, the Japanese story underscores why the seemingly beneficent social policy of the American left meets with such disdain among the working class and the lower middle class.  The spatial thinking suggests that, to those who like welfare state, a little welfare state is better than none, even if not as good as a big welfare state.  This is not so.  In order to qualify for the aid offered by government, the little savings of the working class get in the way.  The little bit of resources that they have for themselves to shore up their own cause have to be abandoned in order that they might qualify for little bit of aid.  As it were, even if they do, that they used to have a little bit of resources would actually disqualify them from receiving aid when they need it.  The pride, in other words, is not simply psychological:  it is the little bit of security that they have built for themselves with their own hands, which wind up being worse than security at the time of need, coupled with the fact that they have to lose everything they have and throw themselves at the mercy of the bureaucrats–which adds a psychological dimension to the humiliation.

My personal opinion about Japan had always been that the Japanese government was mistaken in believing that they could pave the country into economic vitality.  It is not construction projects they need, but a guarantee of generous pension for the elderly as a fundamental right, something that can pre-empt the need for obsessive savings.  The same idea should be equally applicable for reforming “welfare” in U.S.: eliminating means testing so that people can qualify for benefits without their small savings that they worked hard for stripped away.  This is hardly a revolutionary idea:  the same idea, in the name of  “Share Our Wealth,” floated around during the Great Depression, although its association with demagoguery of Huey Long and Charles Coughlin discredited it quite a bit.   It is, of course, the same basic idea as “universal basic income” at its core.  Hayek, when he advocated for the basic idea, was concerned about preserving the dignity and independence of the individual.  When those who are struggling economically are forced to choose between their dignity and independence–which, in economic terms, is underscored by their homes, their savings, and limited means to support their dignity on their own–and having to strip them under duress in order to escape privation, the society is transformed to that of serfdom.  The serfs may be superficially well-off, even rich.  But without dignity or independence, they are still serfs and with little ability to run the society they occupy that happens to be a tyranny that operates at the whim of their masters.   U.S. and Japanese welfare state further subverts the social stability because they not only demand degradation of their recipients as the qualification, but because they offer rather little even after the forced degradation.

In an odd way, this is what should make a successful “welfare state” work:  eliminate welfare and replace it with a “right to dignified livelihood,” for which the only qualification is “citizenship,” defined in an older sense–a social, rather than a legal sense.  This is, an a sense, something that even Hayek would have approved of, even if not his less than half-brained self-claimed descendants.


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