Our Poor and Caring Government

I read a fascinating post from zerohedge that was submitted by Tyler Durden on 4/19/12. This article caught me completely off guard, partially because I didn't notice at first that the guest author, James Miller, was from the Mises Institute of Canada.

Mr. Miller begins by relating the story of a sperm donor who has fathered 82 children and how this choice of profession has left the Eurozone teetering on the edge of bankruptcy and extinction. (Miller exaggerates to drive home his point.) This is because our sperm donor, after being paid for his services, foresakes any kind of monetary commitment in the raising of these children.

That responsibility falls on the state; the government provides services that the mothers would not be able to afford on their own. The argument is that the more appealing these services are, the higher the demand for them. And the government, after a while, is not able to afford these services either, but despite this unpleasant reality, continues to provide them.

Mr. Miller explains this phenomenon as follows:

 One general rule in economics follows that if something is subsidized, more of it will likely follow.  If unemployment compensation is indefinitely extended, claims will keep being made.  If you provide food stamps to the poor because, politically, the price of food remains too high, prices then remain elevated.  If student loans are provided via the government to help students with the high cost of tuition, the price of university admission is kept from falling.

Put simply, throwing money at a problem often ends up inducing little change.

The Miller article, stimulating as it is in its expression of the Austrian school of economics point of view, has one glaring weakness. Permit me to quote Miller's conclusion, after which I will critique it and submit an alternative solution to the problem.

 In a free society not plagued by the cancer known as the welfare state, Houben’s profession would be admirable as he out-competes others for market share.  Instead, his actions further bankrupt a deteriorating system of impoverishing dependency.  Bringing about a collapse of the welfare state sooner rather than later would no doubt be a positive development for all.  The short term pain will only serve as a lesson to those who rely on the productivity of others.

Miller believes that the solution for the welfare state is to get rid of welfare. (Houben, by the way, is the sperm donor referred to above.) He ignores a rather fundamental point, which is the root cause of the conflict between liberals and conservatives regarding a myriad of issues. Many people need their welfare benefits in order to survive! What happens to someone who gets cancer or loses his or her job suddenly and has no other means of support? How are we, as a compassionate society, supposed to react to this? Liberals tend to focus on this side of the coin; their conservative counterparts tend to ignore this completely.

My solution is not perfect, but I'd like to believe it's a step in the right direction. Let's suppose that people in need are given $30,000 a year, plus medical insurance, in their first year of coverage. The second year, their benefits will be reduced to $25,000; the third year $20,000. The benefits are no longer an annuity. The present value of future cash flows is not what it used to be. This will force recipients to plan for a time when their benefits will be a less appealing alternative for their well-being, and those plans will adjust accordingly. Of course there will be exceptions to this "weaning-off" approach, and that may be my plan's Achilles heel, but here it is as a starting point for further discussion.