A Case Study of How Government Handouts Undermine Human Decency and Social Capital

Dan Mitchell

International Liberty and The CATO Institute

Comment by Jim Campbell

Wow Dan, you are usually on the nails, how did your manage not to lead with the government subsided Edsel, the Chevy Volt?

The Chevy Volt, “Build it and with government kick back, nobody will come.

That’s my story and I’m’ sticking to it, I’m J.C. and I approve this message.

Why is big government bad for an economy? The easy answer is that big government usually means high tax rates, and this penalizes work, saving, investment, and entrepreneurship. And perhaps some of the spending is financed by borrowing, and this diverts money from private investment.

Obama stole the sprinkles!

That’s a correct answer, but it’s only part of the story. In most cases, there is added damage because politicians spend money in ways that further undermine incentives to produce.

For instance, let’s assume a government spends $1 billion on some sort of redistribution program. Extracting that money from the productive sector of the economy obviously will cause some damage, but it’s also important to estimate how the supposed beneficiaries of the money will react. What if they decide to earn less income in order to be eligible for the handouts, as even the statists at the OECD have recognized?

In other words, it hurts the economy when government collects money, and it often hurts the economy when government spends money. Sort of a perverse 2-for-1 special (though “Rahn Curve” analysis does show that some types of spending – on core public goods – is correlated with better economic performance)

Let’s look at an example from Greece, showing how handouts distort behavior and corrupt people. Here are some remarkable tidbits from a Wall Street Journal story.

The Greek health ministry is investigating on Zakynthos after local officials flagged records showing what they said is an implausibly high number of disability claims for blindness. About 1.8% of the island’s population of 39,000 claimed the benefit last year, according to the health ministry. That is around nine times the prevalence of blindness estimated for many European countries in a 2004 study published in a World Health Organization journal. Among those who put in for the blindness benefit on Zakynthos, a local official said, were a taxi driver and a bird hunter. …But the island is hardly alone, according to health ministry officials, who say fraudulent disability claims are a problem across the nation… Zakynthos Mayor Stelios Bozikis on a Greek television talk show said residents angry about the benefits crackdown and other financial overhauls pelted him with yogurt at a recent event.

Before sneering at the Greeks, keep in mind that “disability” claims also are rising in the United States, which is rather remarkable since jobs have become less arduous over time. Heck, the Social Security Administration decided to give disability payments to a grown man who gets his jollies by wearing diapers.

I’m not sure if that’s better or worse than the Greek government deciding to reward pedophiles with disability payments, but taxpayers are getting screwed in both examples.

Let’s go back to the story and look at a rough estimate of how much fraud exists.

In an attempt to root out fraud, the Greek health ministry recently required disability claimants nationwide to register in a centralized database, appearing in person or sending a representative. The registration resulted in 36,000 fewer disability claims than in 2011, the health ministry said. The ministry alleges these dropped claims were fraudulent, in many cases reflecting multiple claims for the same disability or payments in the name of dead beneficiaries. It also alleges that some doctors accepted money for false diagnoses and some local politicians signed off on the benefits to win support, and said it is giving public prosecutors information about areas where it suspects a high level of fraud. Only 190 of the nearly 700 people it says had been collecting the blindness benefit on Zakynthos participated in the registration, the ministry said.

I have no idea if Zakynthos is representative, but that’s an incredibly high fraud rate. And this is just a glimpse at the workings of one government program. Now multiply that by some large number and you’ll begin to understand the damage caused by government.

And America is not immune. When politicians make it easier to ride in the wagon than to pull the wagon (as this cartoon illustrates), society sooner or later gets in trouble.

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2 thoughts on “A Case Study of How Government Handouts Undermine Human Decency and Social Capital

  1. I agree, mostly. Some government subsidies, a few, have helped. The subsidies for carrying air mail helped to get commercial aviation going, a good thing. The DOD was instrumental in getting the internet — not as we now know it, but in its infancy — going. Now, most of the internet is dealt with through private enterprise to secure profits. That is a good thing. Increasing governmental regulation of the internet is not a good thing.

    Generally, however, government invests “other peoples’ money” with less regard to whether a project has realistic hope of becoming profitable than to who is pushing it. The recent “investments” in solar power are a shining example.

  2. There is never anything noble about providing deadbeats with their evey need and want. The only people who come up with schemes to convince others that welfare is a good thing, are those that know that the deadbeats who are willing to take govenrment assistance and subsistence will become loyalists to their cause, and the Democrats have mastered this strategy, and the Republicans figured out how they could capitalize from the corrupt welfare plantation by establishing cottage industries that service the welfare state. In time the Republicans and Democrats became Allies, and the fools who keep these bogus, one Party Partners, in charge, are called the United States Voters. It is time to end this Collusive Government and start a True Two Pary System that returns the USA to a Constitutional Republic. What we have today is a One Party–Big Government Party made up of Democrats and Republicans who put on Annual or Bi-Annual Dog and Pony Shows of Elections that makes us Fools, the voters, truly believe that our votes matter.

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