Quote:
Originally posted by Claeren@Dec 24 2004, 12:45 PM
The Americans have been STEALING money from their system for years, leaving it underfunded just to pay for election day promises of yester-year.
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The system itself is designed to be underfunded at all times. As
Montreal Economic Institute writes:
“The Cost of Government Income Transfers Will Be Far Greater Than the Net Gain to the Intended Beneficiaries
WHEN THE WAR ON POVERTY WAS DECLARED in the United States in the mid-1960s, and the government of Canada began its pursuit of « the Just Society, » it was widely believed that poverty could be eliminated if only citizens were willing to transfer a little more income to the less fortunate members of society. They were, and income transfer programs expanded substantially. Social Welfare transfer payments, which include Old Age Pensions, Unemployment Insurance, Welfare, Canada Pension Plan and a range of miscellaneous programs, are the largest component of government spending and are growing faster than any other component of spending other than interest on the public debt.
In spite of this monumental effort, and the generosity of taxpayers, The National Council on Welfare and the Canadian Council on Social Development claim that there are still 4 million Canadians living in poverty! In part, according to Christopher Sarlo, the author of the book Poverty in Canada, published by the Fraser Institute in 1992, this impression of persistent poverty is largely a result of the way in which poverty has been measured. A more sensible measurement of poverty, excluding students and others for whom low income is a temporary state, finds it to be less of a problem. However, there can be no doubt that there is a persistent problem of poverty, and the question must be why that is so, given the nearly $100 billion which is taken from taxpayers and redistributed through government programs.
Economic analysis indicates that their ineffectiveness reflects a more general proposition: it is difficult to transfer income to a group of recipients in a manner that will improve their long term well-being. Once again, this proposition reflects the unintended secondary effects of the transfers. [See James Gwartney and Richard Stroup, « Transfers, Equality, and the Limits of Public Policy, » Cato Journal (Spring/Summer 1986), for a detailed analysis of this issue.] Three major factors undermine the effectiveness of income transfers.
First, an increase in the size of the transfer sector will ###### economic growth. Income is not like « manna from heaven. » Neither is national income an economic pie that is baked by the government so slices of various sizes can be served up hot to people throughout the country. On the contrary, income is something that people produce and earn. It is earned by individuals who provide others with goods and services for which they are willing to pay.
Tax and transfer policies adversely influence both the taxpayer's and the transfer recipient's incentive to earn. As taxes to finance the transfers increase, taxpayers have less incentive to produce and earn and more incentive to invest in wasteful tax shelters. Some choose, in the face of higher taxes, to drop out of the formal economy and resort to barter or other less efficient forms of economic activity. Similarly, since transfer benefits tend to decline as the income of a recipient increases, the recipient will also have less incentive to earn since net income will increase by only a fraction – and in many cases only a small fraction – of the additional earnings. Thus, neither taxpayers nor transfer recipients will produce and earn as much as they would in the absence of the transfer program. In addition, the reallocation of income by politics will encourage people to spend more time politicking and less time producing. All of these factors will ###### economic growth, which will tend to reduce the welfare of the intended beneficiaries as well as that of other citizens.
Second, competition for transfers will erode most of the long-term gain of the intended beneficiaries. In a world of scarce resources, governments must establish a criterion for the receipt of income transfers and other political favours. If it did not do so, the transfers would bust the budget. Generally, the government will require a transfer recipient to own something, do something, or be something. However, once a criterion is established, people will modify their behaviour to qualify for the « free » money or other government favours. As they do so, their net gain from the transfers declines.
There is a third reason for the ineffectiveness of transfers: programs that protect potential recipients against adversity arising from their imprudent decisions encourage choices that increase the likelihood of the adversity. The transfers do two things to potential beneficiaries: a) they make the consequences of the adversity less severe and B) they reduce the incentive of potential recipients to take steps to avoid the adversity. The problem arises because these two things exert conflicting influences.
If you subsidize something, you will get more of it. Anti-poverty transfers are no exception to this general rule. Transfers directed toward the poor encourage high-risk lifestyles (for example, the use of drugs, dropping out of school or the workforce, births by single mothers, marital dissolution, and abandonment of children by fathers). All of these choices tend to increase the number of people who are poor. These secondary effects may not be very important in the short term. Over the longer term, however, the unintended negative consequences will be more severe. In addition, the government anti-poverty transfers crowd out private charitable efforts by families, individuals, churches, and civic organizations. When taxes are levied to do more about a problem, private individuals and groups will predictably adjust and do less to alleviate the problem.
From an economic viewpoint, the failure of transfer programs ranging from farm price supports to anti-poverty programs is not surprising. When the secondary effects are considered, economic analysis indicates that it is extremely difficult to help the intended beneficiaries over the long term. Because behaviour changes when benefits are offered there may even be a perverse effect, as with the increase in unemployment caused by unemployment insurance, so that the situation is actually made worse rather than better.“