Reform of a Modern Welfare-State through a Basic Income to Restart Higher Levels of Growth and Ameliorate the Rule of Law Cameron M. Weber GBRS 2015 Istanbul, Turkey

Reform of a the Welfare-State with a Basic Income for Everyone

Outline of Story 1. Evolution of fiscal centralization in USA 2. Emergence of welfare-state 3. Why welfare-state leads to “new normal” 4. Reform plan to replace welfare-state with a Basic Income (BI) for everyone. 5. Posit that BI re-starts growth by freeing price signals, and, creates more equality under law Reform of a the Welfare-State with a Basic Income for Everyone

Stylized Facts of the “New Normal” in a Modern Welfare-State Note: Analysis is specific to the United States of America but hopefully there are some lessons learned for other welfare-states

Fiscal Centralization and the Welfare-State Anti-Federalists against new central government proposed in U.S. Constitution, thought would “crowd- out” local decision-making and mutual aid Federalists wanted “vigorous” federal state American Revolution was won under Articles of Confederation ( )

Reform of a the Modern Welfare-State with a Basic Income

The Growth of the Central State Grey: Local Direct Spending Green: States Direct Spending Red: Federal Direct Spending Blue: Transfer to State and Local Source: Chantrill, Christopher “US Government Spending History from 1900.” [ ing]

Fiscal Centralization in the USA

Collective Decision-Making and Basic Government Most economists agree that collective decision- making necessary to provide “public goods” Generally agreed to include national defense, court system and the ability to negotiate treaties with other social collectives We call this “Basic Government” and juxtapose with “Welfare-State”

Collective Decision-Making and Basic Government We propose that federal government beyond “Basic Government” is “Welfare-State” Welfare-State imposes depersonalized (relatively inefficient) rent-seeking federal intrusions upon personalized and local (relatively efficient) common resource management and local mutual aid

Welfare State and “New Normal” Hayek 1945 Price signals and social crisis Krueger 1974 Rent-seeking and economic stasis

The Beginning of the End United States has Basic Government at federal level from 1789 – 1848 Common resources are managed locally Department of Interior (corporate-welfare) created 1849

“Basic Government” and the “Welfare-State” Data: US OMB 2015

Reform of the Welfare-State to Restart Growth

Reform of the Welfare-State with a Basic Income for Everyone U.S. Government expenditures 23% of the economy Therefore extent of market is 77% Welfare state 14.5% of economy Reform expands the extent of market price system to 91.5% Assume “new normal” growth is 2%. With reform we expect a new rate of 2.4%, an increase of 20% (1) (1) 77% / 2% = 91.5% / x, where x = 2.4%, and, (2.4% – 2%) / 2% = 20%

Reform of the Elitist Utilitarian Welfare-Warfare State with a Basic Income for Everyone Civilian Conservation Corps 1933 – 1942 creates “citizen–soldiers” (Suzik 1999) Aid to Families with Dependent Children 1935 through today creates “obedient citizens” (Russell 2010) “Obedient citizen-soldiers”

Reform of a the Welfare-State to Restart Growth “As O’Rourke has pointed out, there can’t be any poor people in the United States. His proof is that if we take the total amount spent on poverty programs and divide it by the number of people in poverty, the income per capita is above the poverty line. QED. But the money is not reaching the poor.” Munger, Michael “One and One-Half Cheers for a Basic Income: We Could do Worse and Already Have,” The Independent Review 19 (4):

Reform of Welfare-State through a Basic Income to Restart Higher Levels of Growth and Ameliorate the Rule of Law The Anti-Federalist also warned that the Constitution would turn patriots into partisans and demagogues appealing to emotion instead of reason The Other, us versus them

Degeneration and Rent-Seeking in Republicanism Republicans and Democrats Both parties expand size and scope of government and each claim that the other is abusing the U.S. Constitution R: Oil and Gas (liability limits) D: Clean and Green (subsidies and trade barriers)

Rent-Seeking in American Republicanism Democrat Party politicians (cities) pander with food stamp (social welfare) and Republicans (rural areas) pander with agricultural subsidies and trade barriers (corporate welfare)

From Patriots to Partisans Food stamps and agriculture subsidies are on the same legislative agenda, so both Parties always vote for the bill despite the hypocritical antagonistic rhetoric

Reform of the Welfare-State to Restart Growth *Replacing the elitist utilitarian welfare state (for some people) with a Basic Income (for everyone) is a more just society * Would encourage entrepreneurial behavior and economic growth as reduces down-side risk

Reform of Welfare-State through a Basic Income to Restart Growth and Ameliorate the Rule of Law A corollary, we recommend federal tax code reform, another source of great rent-seeking in the U.S. economy A single income tax rate for everyone, shown to be 23%, the U.S. Government’s share of the economy

Reform of the Welfare-State to Restart Growth *Or we can remove all social and corporate welfare and have a single, same for everyone, tax rate of 8.5% (Basic Government’s share of the economy) *Optimal is some planned transition from here to there