The Welfare Grift

Quotable quotes are a wonderful thing. You all know I like them, and that I meme those I find useful or relevant for my blog posts. Some of the great thinkers of history have conveyed concepts with wit or insight or an unusual clarity - or all three.

Meme-able aren't everything, though. Sometimes, a statement that doesn't condense down to a "ooh, clever" nugget still packs "aha!" wallop. One such smacked me in the face the other day, uttered by (of course) the great Milton Friedman.

I think there's all the difference in the world between a social or governmental system in which ninety percent of the people tax themselves to help ten percent who are in distress, and a system in which eighty percent of the people in the middle try to tax the ten percent on the top to help the ten percent on the bottom. What you end up doing is you end up … with A and B imposing taxes on C to help D. And some of it, after all in the process, ends up in the hands of A and B.

The lucidity of describing charity as 'people taxing themselves' was yet another affirmation that Friedman was truly one of the greatest economic thinkers of human history.

I grabbed and parked the quote in my "pending" blog file, where such stay until a reason to share them emerges.

I didn’t have to wait long, though. As sure as the sun rises (and, literally, while the sun was rising), I read a story about a massive bribery scandal at the New York City Housing Authority (NYCHA). As reported by the NY Post, 70 employees took bribes totaling $2M across the past decade from contractors who wanted to secure construction and maintenance jobs. The grift was in many cases overt and blatant, and the grifters grew shameless in both their demands and their flaunting. NYCHA residents were "not surprised."

The NYCHA manages the city's 335 public housing developments, with a budget of about $4.4B per year. $3B of that comes from taxpayers.

What's $2M in comparison to those vast sums, you might wonder? If the best contracts were simply padded upward to pay the grift, perhaps not much. But, we all know how pay-to-play works. Merit and efficiency become secondary, or even irrelevant, in awarding contracts, and even those jobbers who wanted to do right would be very tempted to cut corners or step down in materials and workmanship to recoup the bribe - and the more unscrupulous contractors would simply buy the contracts, knowing they didn't have to compete on quality or price.

Go back and read the last sentence in the Friedman quote now. When there's Other People's Money + Big Government, there is always a vig. People who have no right to that OPM look to wet their beaks.

It's the lure of easy money, it's got a very strong appeal. -- G. Frey

Everybody wants a taste. -- N. Jonas

Money caused all this. -- M. Capuletti

Howard Husock at the American Enterprise Institute suggests that NYCHA's management be privatized, which would introduce corrective market forces, and which has already worked in some locations.

While a few dozen grifters are (hopefully) going to jail for their thievery and extortion, the broader problem remains. Good-hearted people are drawn down the path of OPM temptation when they say "rather than spend some of my own money to help the needy, I'll vote to take money from other people to help the needy." That's not charity, that's armed robbery, and as I've written time and again, it's immoral.

Some disagree, and I've heard the arguments that societies need to empower government to care for the poor because voluntarism, they say, has always been insufficient. That this conclusion relies on a look-back of nearly a century, to an era before the government got into the charity game, ignores the vast growth in societal wealth that enables much greater private sector charity. Real per-capita GDP has multiplied nearly sixfold across that century. Inflation-adjusted private charity has multiplied ten-fold since the 1950s, signaling to us that the growth in societal wealth has fueled greater personal largesse. Americans donated about half a trillion dollars last year, and kicked in another $180B or so in volunteer work.

Now, imagine if the government didn't sap so much from us for welfare spending (13% of the federal budget, not counting Social Security or Medicare). It's a safe conclusion that private giving would grow further. Dismissing the capability of the private sector, today, based on the conditions of a century ago simply doesn't hold water.

What's even worse than the coercion behind public "charity" is the inefficiency of it all. No one is as careful with OPM as they are with their own, and the money manager who knows it is being collected at the point of a gun has far* less incentive to be prudent with it. Private charities have an efficiency of about 70%, in that seven of every ten dollars they collect go to those in need. The government? 30%, meaning that seven of every ten dollars fund their operations.

Excluding Social Security and Medicare, the government spent $800B on "safety nets" last year. This means that $240B went to the poor. Americans would only have to donate $340B to replace that spending, or less than half of what's taken from them via taxes and public debt.

Factoring in the other problems with welfare programs (the welfare trap, welfare cheats, corruption, apathy, and other mechanisms that institutionalize poverty) and the differences become even starker. Volunteers and people working in private charities, knowing that they rely on the high esteem of donors, have much more incentive to do right and to actually help.

So, we wouldn’t even have to donate that much to offset the government. With all that extra money left in the private sector rather than being taken by taxes, the economy would grow faster, and liberate even more charity dollars.

Imagine if the government got out of the charity game. Imagine if people knew that helping their fellow humans was not so easily pawned off on voting away OPM. Who among us would up their giving game?

I would. How about you?