10 January 2006

Government should concentrate on eradicating poverty

Contrary to expectation, there appears to be no link between the size of the welfare state and the level of well-being within it. In countries with generous social security schemes, people are not healthier or happier than in equally affluent countries where the state is less open-handed. Increases or reductions in social security expenditure are not related to a rise or fall in the level of health and happiness either. Source given here.
In my forthcoming book I argue that, when it comes to targeting societal well-being, the case for government intervention is strongest when there is a high correlation between government spending and measurable indicators of social welfare. It is mainly at lower levels of real income and wealth that the correlation between a quantifiable indicator and social welfare is strong and therefore valid as a guide to policymakers. At higher levels of income numerical targeting can be futile or even counter-productive. I suspect this is what lies behind the research that led to the conclusion quoted above. It is the poor who are also most in need of government intervention and it is the poor who would most benefit from it by any objective criteria. But too much government spending has been hijacked into the provision of subsidies to corporations, the wealthy and the middle class. From at least one angle then, western countries have the worst of both worlds: big and remote government, large (absolute) tax revenues, co-existing with pockets of real poverty.


Anonymous said...

Why should we eradicate all poverty? Even J.S. Mill, way back in the 1850s, acknowledged most poverty was cultural, rather than economic. Why should some be forced to pay for the irresponsibilities of others?

Ronnie Horesh said...

Good question. What is defined as poverty for targeting by government-issued Social Policy Bonds would be decided through the political process. The advantage of a bond regime is that all poverty-reduction activities would be directed at achieving society's desired poverty-reduction outcome, which would be explicit and transparent. Under the current regime government can get away with taking huge tax revenues ostensibly to reduce poverty, but actually to fund their own institution and powerful corporate interests.