Why the Welfare State Is Doomed to Fail

Why is gambling bad?  Why do so many religions and governments abhor gambling?

Is gambling "bad" simply because it encourages greed?  Or is it because it encourages laziness, as winners do not do anything significant to deserve their winnings?  Or is it because it deals primarily in earnings through a game of chance?

No.  It is because gambling is a zero-sum game.  A zero-sum game is one where total gains exactly equal total losses among all the players at any one time.  No net wealth is created or added to society by engaging in the activity.

For example, in a game of poker, your wins are exactly the other players' (including the house's) losses, and vice-versa.  Compare this to a worker in a factory's assembly line -- the worker, by spending his time and labor on raw materials, enhances those materials' value and creates goods which are useful to those who demand them.  The worker contributes to the economy and society by engaging in his work.  Gamblers, on the other hand, contribute nothing to the economy and society and do not create anything of use to others.

Zero-sum games are just a matter of transferring money from the losers' pockets to the winners'.  Wealth is not created via such activities.  Ideally, society would be better off if the players (or gamblers) engaged in value-adding activities instead.  Can you imagine whole communities doing nothing but moving money from one pocket to another?  Who is going to grow the food they need to eat?  Who will make the clothes they need to wear?

Yet this scenario is frighteningly familiar.  A lot of money is being forcibly taken by the federal government from the pockets of those who worked hard to earn it and moved to those who have done nothing to deserve it yet feel entitled to it.  Why is the government allowed to do what private citizens are not allowed to?

Consider this homeless woman featured in the New York Times in December 2011 during a particularly slow news day who gets more than $2,000 each month -- that's more than $24,000 a year -- from the government in various forms of aid.  That figure does not include WIC checks.  While she enjoys her six children, about a quarter of American households are struggling to get by on incomes of less than $24,000 that they toiled to earn.

To add insult to injury, a household that realizes that it cannot responsibly afford even one child on $24,000 a year is subject to punishing federal income taxes of up to $3,000.  That is money that the household could be spending on its members instead of supporting another family.  Eight responsible households are required to pay for the upkeep of one such irresponsible family.  The old saying of "it takes a village to raise a child" suddenly rings true!

While it makes one feel good to help another person in time of need, the intent of social safety net programs is to make it easier for people to get back on their feet during temporary times of distress.  (Social programs for the permanently distressed, such as the permanently disabled, are another matter.)  It is easier for one to concentrate on getting a job when s/he does not have to worry about where the next meal is going to come from or to worry about where to wash oneself before a job interview.  When it is easier for one to get back on one's feet after falling into a provisional period of unemployment, crime rates can be kept down, and anarchy can be avoided.

Programs like WIC ensure that innocent children who did not ask to be born into a poor family will not suffer from stunted development that resulted from childhood malnutrition.  Hopefully, the young beneficiaries of such programs who might otherwise be stuck in a vicious cycle of poverty will grow up to be economically productive adults and "pay back" what society had previously given to them.  That is the implied social contract we agreed to when we established these public assistance programs: one pays into it and will get help if or when one needs it, or one gets help when one needs it and will "pay back" to society what one has taken from it.

In the years following Singapore's independence from the British, then-Prime Minister Lee Kuan Yew had a huge problem with corruption in the civil service.  He concurrently employed three tactics to eradicate corruption: pay civil servants well so that they need not resort to corruption to feed their families; come down harshly on those guilty of corruption; and finally, require civil servants to adhere so rigidly to a set of rules when carrying out their duties that if they made exceptions to the rules, it would be grounds for suspicion of corruption.

The last idea is nothing new.  After all, bureaucrats are notorious for not being able to bend the rules for the people whom they are supposed to serve.  Imagine the opportunities for bureaucrats to extort money from the very people they were supposed to serve if they were allowed to use their discretion to determine if one case is more deserving of public help than another.

Because of the risk of corruption (and not because they are stupid), bureaucrats cannot be entrusted with the task or responsibility of using their discretion in deciding who the "responsible citizens" are who "deserve" public aid and who are not.  Every case that fulfills simple and objective criteria (such as number of children below a certain age, income level, etc.) has to be considered for help.

Hence, regardless of whether or not that homeless woman featured in the New York Times article "deserved" to be helped, she has to be helped nevertheless so long as her case has been made known to welfare workers, especially from a humanitarian point of view -- her six children are innocent and did not ask to be born into poverty and homelessness.

Unfortunately, it is also this set of simple and objective criteria and the distrust in bureaucrats to use their discretion that makes it so easy for citizens to exploit public assistance programs.  Before long, exploitation leads to reliance.  Sooner or later, reliance turns into entitlement.  That was never the intention of public assistance programs.

What then?  Who will pay for these welfare programs?  Such a society is unsustainable economically, especially if the beneficiaries of such programs never have "paid back" and never intend to "pay back" what they "owe" society.  At least gamblers derive some form of entertainment from their activities.  When more people start abusing the welfare system, our society will be akin to one where everyone gambles and no one works to grow the food we eat or the clothes we wear.  Except that there will be nothing entertaining about it.

Nicholas Cheong writes at Comopolis and I Lost My Job Because of Social Media.  Follow him on Twitter at @nicholas_cheong.

Why is gambling bad?  Why do so many religions and governments abhor gambling?

Is gambling "bad" simply because it encourages greed?  Or is it because it encourages laziness, as winners do not do anything significant to deserve their winnings?  Or is it because it deals primarily in earnings through a game of chance?

No.  It is because gambling is a zero-sum game.  A zero-sum game is one where total gains exactly equal total losses among all the players at any one time.  No net wealth is created or added to society by engaging in the activity.

For example, in a game of poker, your wins are exactly the other players' (including the house's) losses, and vice-versa.  Compare this to a worker in a factory's assembly line -- the worker, by spending his time and labor on raw materials, enhances those materials' value and creates goods which are useful to those who demand them.  The worker contributes to the economy and society by engaging in his work.  Gamblers, on the other hand, contribute nothing to the economy and society and do not create anything of use to others.

Zero-sum games are just a matter of transferring money from the losers' pockets to the winners'.  Wealth is not created via such activities.  Ideally, society would be better off if the players (or gamblers) engaged in value-adding activities instead.  Can you imagine whole communities doing nothing but moving money from one pocket to another?  Who is going to grow the food they need to eat?  Who will make the clothes they need to wear?

Yet this scenario is frighteningly familiar.  A lot of money is being forcibly taken by the federal government from the pockets of those who worked hard to earn it and moved to those who have done nothing to deserve it yet feel entitled to it.  Why is the government allowed to do what private citizens are not allowed to?

Consider this homeless woman featured in the New York Times in December 2011 during a particularly slow news day who gets more than $2,000 each month -- that's more than $24,000 a year -- from the government in various forms of aid.  That figure does not include WIC checks.  While she enjoys her six children, about a quarter of American households are struggling to get by on incomes of less than $24,000 that they toiled to earn.

To add insult to injury, a household that realizes that it cannot responsibly afford even one child on $24,000 a year is subject to punishing federal income taxes of up to $3,000.  That is money that the household could be spending on its members instead of supporting another family.  Eight responsible households are required to pay for the upkeep of one such irresponsible family.  The old saying of "it takes a village to raise a child" suddenly rings true!

While it makes one feel good to help another person in time of need, the intent of social safety net programs is to make it easier for people to get back on their feet during temporary times of distress.  (Social programs for the permanently distressed, such as the permanently disabled, are another matter.)  It is easier for one to concentrate on getting a job when s/he does not have to worry about where the next meal is going to come from or to worry about where to wash oneself before a job interview.  When it is easier for one to get back on one's feet after falling into a provisional period of unemployment, crime rates can be kept down, and anarchy can be avoided.

Programs like WIC ensure that innocent children who did not ask to be born into a poor family will not suffer from stunted development that resulted from childhood malnutrition.  Hopefully, the young beneficiaries of such programs who might otherwise be stuck in a vicious cycle of poverty will grow up to be economically productive adults and "pay back" what society had previously given to them.  That is the implied social contract we agreed to when we established these public assistance programs: one pays into it and will get help if or when one needs it, or one gets help when one needs it and will "pay back" to society what one has taken from it.

In the years following Singapore's independence from the British, then-Prime Minister Lee Kuan Yew had a huge problem with corruption in the civil service.  He concurrently employed three tactics to eradicate corruption: pay civil servants well so that they need not resort to corruption to feed their families; come down harshly on those guilty of corruption; and finally, require civil servants to adhere so rigidly to a set of rules when carrying out their duties that if they made exceptions to the rules, it would be grounds for suspicion of corruption.

The last idea is nothing new.  After all, bureaucrats are notorious for not being able to bend the rules for the people whom they are supposed to serve.  Imagine the opportunities for bureaucrats to extort money from the very people they were supposed to serve if they were allowed to use their discretion to determine if one case is more deserving of public help than another.

Because of the risk of corruption (and not because they are stupid), bureaucrats cannot be entrusted with the task or responsibility of using their discretion in deciding who the "responsible citizens" are who "deserve" public aid and who are not.  Every case that fulfills simple and objective criteria (such as number of children below a certain age, income level, etc.) has to be considered for help.

Hence, regardless of whether or not that homeless woman featured in the New York Times article "deserved" to be helped, she has to be helped nevertheless so long as her case has been made known to welfare workers, especially from a humanitarian point of view -- her six children are innocent and did not ask to be born into poverty and homelessness.

Unfortunately, it is also this set of simple and objective criteria and the distrust in bureaucrats to use their discretion that makes it so easy for citizens to exploit public assistance programs.  Before long, exploitation leads to reliance.  Sooner or later, reliance turns into entitlement.  That was never the intention of public assistance programs.

What then?  Who will pay for these welfare programs?  Such a society is unsustainable economically, especially if the beneficiaries of such programs never have "paid back" and never intend to "pay back" what they "owe" society.  At least gamblers derive some form of entertainment from their activities.  When more people start abusing the welfare system, our society will be akin to one where everyone gambles and no one works to grow the food we eat or the clothes we wear.  Except that there will be nothing entertaining about it.

Nicholas Cheong writes at Comopolis and I Lost My Job Because of Social Media.  Follow him on Twitter at @nicholas_cheong.

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