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Reform of a Modern Welfare-State through a Basic Income to Restart Higher Levels of Growth and Ameliorate the Rule of Law Cameron M. Weber GBRS 2015 Istanbul, Turkey Reform of a the Welfare-State with a Basic Income for Everyone Reform of a the Welfare-State with a Basic Income for Everyone Outline of Story 1. Evolution of fiscal centralization in USA 2. Emergence of welfare-state 3. Why welfare-state leads to “new normal” 4. Reform plan to replace welfare-state with a Basic Income (BI) for everyone. 5. Posit that BI re-starts growth by freeing price signals, and, creates more equality under law Stylized Facts of the “New Normal” in a Modern Welfare-State Note: Analysis is specific to the United States of America but hopefully there are some lessons learned for other welfare-states Fiscal Centralization and the Welfare-State Anti-Federalists against new central government proposed in U.S. Constitution, thought would “crowdout” local decision-making and mutual aid Federalists wanted “vigorous” federal state American Revolution was won under Articles of Confederation (1776-1788) Reform of a the Modern Welfare-State with a Basic Income The Growth of the Central State Grey: Local Direct Spending Green: States Direct Spending Red: Federal Direct Spending Blue: Transfer to State and Local Source: Chantrill, Christopher. 2015. “US Government Spending History from 1900.” [http://www.usgovernmentspending.com/past_spend ing] Fiscal Centralization in the USA Collective Decision-Making and Basic Government Most economists agree that collective decisionmaking necessary to provide “public goods” Generally agreed to include national defense, court system and the ability to negotiate treaties with other social collectives We call this “Basic Government” and juxtapose with “Welfare-State” Collective Decision-Making and Basic Government • We propose that federal government beyond “Basic Government” is “Welfare-State” • Welfare-State imposes depersonalized (relatively inefficient) rent-seeking federal intrusions upon personalized and local (relatively efficient) common resource management and local mutual aid Welfare State and “New Normal” Hayek 1945 Price signals and social crisis Krueger 1974 Rent-seeking and economic stasis The Beginning of the End United States has Basic Government at federal level from 1789 – 1848 Common resources are managed locally Department of Interior (corporate-welfare) created 1849 “Basic Government” and the “Welfare-State” A. Basic Government Department of Defense--Military 2014 (est.) 571,882 C. Social-welfare Department of Housing and Urban Dev. 2014 (est.) 49,479 General Services Administration -231 1,040,661 Office of Personnel Management 86,723 Total 86,492 Department of Justice 32,652 Department of Health and Human Services Department of State 30,505 Department of Education 68,991 Department of Labor 75,579 Department of Transportation 93,574 Department of the Treasury Executive Office of the President 612,782 402 2014 (est.) E. Overhead USG Spending (A + B + C + D + E) 4,116,050 Legislative Branch 4,912 Social Security Administration (On-Budget) 92,247 Government (A + B) 1,511,459 Judicial Branch 7,432 Social Security Administration (Off-Budget) 838,917 Welfare State (C + D) 2,518,099 Total 1,260,567 Total 2,259,448 Welfare State % of Total USG Spending Welfare State Overhead Allocation B. Military-industrial-security complex Department of Homeland Security D. Corporate-welfare 45,034 Department of the Interior 13,172 Department of Veterans Affairs 146,357 Department of Agriculture 141,192 Other Defense Civil Programs 59,501 Department of Commerce 8,879 Total 250,892 Department of Energy 6,415 Environmental Protection Agency 8,412 International Assistance Programs 23,084 National Aeronautics and Space Admin. 18,104 Small Business Administration Total 52,914 Welfare State Plus Overhead 2,571,013 Government Plus Overhead 1,545,037 4,116,050 31,026 Corps of Engineers-Civil Works National Science Foundation 61% 7,409 Misc. Independent Agencies & Offsets -232,955 958 258,651 Net Outlays 3,883,095 Data: US OMB 2015 Reform of the Welfare-State to Restart Growth US GDP 2014 ( A ) 17,701,000 Social Welfare Expenditures Corporate Welfare Expenditures Total Welfare Expenditures 2,259,448 258,651 2,518,099 Social Welfare with Overhead ( B ) Corporate Welfare with Overhead ( C ) Total 2,307,070 90% 263,942 10% 2,571,013 100% Social Welfare % of GDP (B/A) Corporate Welfare % of GDP (C/A) 13.0% 1.5% 2014 US Federal Welfare State Expenditures ( A ) $2,571,000,000,000 2014 Population Aged 16 and Over ( B ) 251,293,200 Basic Income to Replace Welfare State (A/B) $10,231 Per Year Per Person US Poverty Level (2014) $11,700 Per Person Reform of the Welfare-State with a Basic Income for Everyone 2014 US GDP ( A ) $17,701,000,000,000 2014 US Government Expenditures ( B ) $4,116,050,000,000 U.S. Government expenditures 23% of the economy Therefore extent of market is 77% Welfare state 14.5% of economy US Government % of the Economy 23% (B/A) Reform expands the extent of market price system to 91.5% Assume “new normal” growth is 2%. (1) 77% / 2% = 91.5% / x, where x = 2.4%, and, (2.4% – 2%) / 2% = 20% With reform we expect a new rate of 2.4%, an increase of 20% (1) Reform of the Elitist Utilitarian Welfare-Warfare State with a Basic Income for Everyone Civilian Conservation Corps 1933 – 1942 creates “citizen–soldiers” (Suzik 1999) Aid to Families with Dependent Children 1935 through today creates “obedient citizens” (Russell 2010) “Obedient citizen-soldiers” Reform of a the Welfare-State to Restart Growth “As O’Rourke has pointed out, there can’t be any poor people in the United States. His proof is that if we take the total amount spent on poverty programs and divide it by the number of people in poverty, the income per capita is above the poverty line. QED. But the money is not reaching the poor.” Munger, Michael. 2015. “One and One-Half Cheers for a Basic Income: We Could do Worse and Already Have,” The Independent Review 19 (4): 503-513. Reform of Welfare-State through a Basic Income to Restart Higher Levels of Growth and Ameliorate the Rule of Law The Anti-Federalist also warned that the Constitution would turn patriots into partisans and demagogues appealing to emotion instead of reason The Other, us versus them Degeneration and Rent-Seeking in Republicanism Republicans and Democrats Both parties expand size and scope of government and each claim that the other is abusing the U.S. Constitution R: Oil and Gas (liability limits) D: Clean and Green (subsidies and trade barriers) Rent-Seeking in American Republicanism Democrat Party politicians (cities) pander with food stamp (social welfare) and Republicans (rural areas) pander with agricultural subsidies and trade barriers (corporate welfare) From Patriots to Partisans Food stamps and agriculture subsidies are on the same legislative agenda, so both Parties always vote for the bill despite the hypocritical antagonistic rhetoric Reform of the Welfare-State to Restart Growth *Replacing the elitist utilitarian welfare state (for some people) with a Basic Income (for everyone) is a more just society * Would encourage entrepreneurial behavior and economic growth as reduces down-side risk Reform of Welfare-State through a Basic Income to Restart Growth and Ameliorate the Rule of Law A corollary, we recommend federal tax code reform, another source of great rent-seeking in the U.S. economy A single income tax rate for everyone, shown to be 23%, the U.S. Government’s share of the economy Reform of the Welfare-State to Restart Growth *Or we can remove all social and corporate welfare and have a single, same for everyone, tax rate of 8.5% (Basic Government’s share of the economy) *Optimal is some planned transition from here to there