The latest banking crisis only increased concerns that the U.S. economy is headed for a downturn. Some politicians, including President Joe Biden, are now exploiting recession fears to extend pandemic-era aid programs.
The sad reality is that these aid programs cannot deliver on their promises to solve the poverty problem.
Between the beginning of Ronald Reagan’s presidency and that of Donald Trump, taxpayer spending on the nation’s 13 largest means-tested welfare programs increased by almost 240 percent. While poverty generally tends to fall during boom times and rise during busts, the overall trend has been mostly unchanged. That’s a terrible return on public investment.
My recent research, commissioned by the Commonwealth Foundation, suggests the ever-soaring growth in public spending is likely counterproductive. In fact, cutting government spending—and expanding economic freedom more broadly—can simultaneously lower poverty and promote prosperity across all income levels.
Economic freedom entails expanding the sphere of personal choice—and minimizing the role government plays in our lives. It means reasonably low levels of government spending, low taxes, and a lack of onerous labor market regulations.
Nearly three decades of research has found that areas with higher levels of economic freedom experience positive outcomes, ranging from faster economic growth to cleaner environments. Data from the 2022 Economic Freedom of North America (EFNA) report shows that, on average, residents in the most economically free states have incomes per capita over $3,000 higher than residents in the least free states.
The least free states also tend to spend significantly more on public welfare programs—with the 10 least free states spending almost twice as much per recipient as the most free states. While poverty rates are higher in less free states, they’re not high enough to necessitate twice the spending. Unfortunately, government solutions that focus on the alleviation of poverty—and not the promotion of prosperity—come riddled with damaging unintended consequences. The structure of many programs is at odds with incentivizing upward mobility, essentially trapping recipients in the very poverty they want to escape.
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“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
Government is one group of people trying to live off another group... Frederic Bastiat.