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Last semester I created a flyer for my economics 300 class at which every American should have a look. My goal was to sum up the arguments in favor of the exsistance of the welfare state in the most simple and concise manner possible - not to brag, but I think I did a pretty good job at delivering an easy to understand explanantion (perhaps to easy and too accessible in retrospect). Again, the point was not to simply present the argument in favor of the welfare state. I though if the tone is informal, jargon-free and super-simple people might actually remember the jist of the text. Obviously the handout went along with a power-point presentation that contained more technical explanations and the empirical evidence one would expect in an upper-division class. For the next week, I am going on vacation of the East Coast, so I'll leave you with the handout (unfortunately the copy is saved on my lap-top, which is already buried in my carry-on, so I'm simply coping the text by typing, so pardon my spelling mistakes): Why do we need the welfare state? Well, ask yourself this: Should people go bankrupt to pay for health care? Should people struggle to get adequate housing? Should old age equal poverty? Should everyone be entitled to a standard of living at subsistance level? Should everyone be entitled to sick pay and not be bankrupted or impoverished by long-term illness? Should everyone be prepared for life by having at least secondary education? Should tertiar education be within each for everyone? Or should people struggle for this opprotunity? Should basic rights, like health care, be provided independent of socio-economic status? Is a poor/sick/uneducated person a free person? Doesn't liberty imply opportunity to live a fullfiling life?
Obvious, you might say, and the UN as well as the vast majority of social scientists would agree. But how should we pay for all that? Taxing the rich. Robert Reich proposes putting the top income tax rate back where it was in 1982 (ca. 50%) Why should people go poor, face financial ruin when they get sick, and fear for their pensions, when others own five mansions and make millions each year?
BACK SIDE: But why government? Why not just leave it up to the market? Well, the market is great; it is usually very successful in allocation resoucres. But it inly functions efficiently under the following circumstances: Perfect information. Consumers and suppliers must be well-informed about the nature of the product and prices. Information must be easily accessible and comprehensible. Furthermore, the time horizon must not be too long, as individuals need to have adequate information about the future in order to make efficient decisions about the future. Perfect competition in product, factor and capital markets. Individuals must be price takers with equal power. Complete markets. Markets that "would provide all the goods and services for which individuals are prepared to pay a price that covers their production cost." Missing markets arise when the market does not provide a certain good or service. For example the market cannot insure against the risk of inflation. Absence of market failures, which result from externalities, increasing returns to scale which cause firms to exit an industry and leave a monopoly in place, and the nature of public goods. "Public goods exhibit three technical characteristics, non-rivalness in consumption, non-excludability, and non-rejectability, which together imply that the market is likely to product inefficiently."
...This is not to mention the important issue of social justice! These criteria can help when wondering whether more or less government internvetion is neccessary for improving efficiency. Just ask, "how to the 'standard assumptions' hold?" Remeber, they nevery hold a 100%, so some intervention is always neccessary. Furthermore, anytime everyone is to have to access to a good, redistribution is neccessary (e.g. using tax money to fund food stamps). FOOTNOTE Critieria adapted from Barr, N. (2004). Economics of the weflare state. New York: Oxford University Press (USA), pp. 73-81.
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