Saturday, March 19, 2016

Daniel Sharpiro — What is “the welfare state?” Thoughts on Matt Zwolinski’s recent post


Daniel Shapiro and others seem to conflate state welfare (transfer payments) with a welfare state. They are different.

The welfare state is in many ways the opposite of the market state. 

The market state assumes that the state is a "nightwatchman" whose job is ensuring security of person and property and the sanctity of contracts. It has no further intrinsic function than to allow individuals to maximize utility as they see fit as long as they "do no harm" in doing so.

The welfare state is based on the purpose a modern liberal state constituted by the people with whom sovereignty resides that is, the common good.  The modern liberal state is brought into being for the common good. 

This is encapsulated in the preamble to the US Constitution:
We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.
The US Constitution and the constitutions of other modern liberal states empower the state to meet these goals.
 
The welfare state is a social, political and economic system based on institutional arrangements determined freely by the governed, in whom sovereignty ultimately resides. Popular sovereignty which is exercised by voting in free elections for candidates of the citizens' choosing. In this way, the citizenry gets the government it deserves.

In a modern liberal state, the citizens have generally exercised their political sovereignty in ways that support the common good through means that include state welfare (transfers). This is a prerogative of citizen sovereignty acting through the institutional arrangements of the social, political and economic system. It is part and parcel of the liberal order, which is oriented toward the common good.

There is nothing illiberal about a welfare state. But there are many things that are potentially illiberal about a market state, which is not organized based on the common good or public prose. In addition, markets may lead to privilege and power accruing from wealth and the accrual of wealth through economic rent, that, without actual merit or with respect to just deserts. Furthermore, a market state is also vulnerable to becoming a corporate state owing to economies of scale and the concentration of capital it produces.

Bleeding Heart Libertarians
What is “the welfare state?” Thoughts on Matt Zwolinski’s recent post
Daniel Sharpiro

17 comments:

Matt Franko said...

"empower the state to meet these goals."

You are treading on VERY thin libertarian ice here Tom...

Tom Hickey said...

Well, libertarians are fundamentally opposed to "the state," including the modern (Westphalian) state that is the culmination of the the concept of the Western state since the Roman republic. The Greek city states were not really large enough to count and they were also subject to the same issues. There has always been a hierarchical state of some sort whether it be monarchical or oligarchical. Both are variations of tyranny wrt to governance of the people, by the people and for the people — which has just about never existed in pure form. As Aristotle noted, that would require periodic selection for office by lot.

So we are left with dealing with the modern liberal state as what we've got. There seems to be little doubt that the modern liberal state is more liberal than the basically feudal systems that preceded where being a lord meant having one's own gallows. The Enlightenment moved beyond that and WWI crystallized it in the West,

Strict libertarianism of either left or right is therefore moot at his stage of development other than as an ideal to be aimed at.

So the question is really whether the modern liberal state is more or less liberal if it adopts social welfare programs. Those on the right say more illiberal, while those on the left say not. The right generally hold that the individual is supreme and "there is no such thing as society" (Thatcher). The left holds that modern societies are tightly knit social, political and economic systems defined by cultural and historical factors and institutional arrangements, legal arrangements being key.

On this analysis, left libertarians have no issue with the wielders of popular sovereignty freely choosing to adopt policy that promotes the common good as the basis for a modern liberal state, even though they object to the modern liberal state as being overly hierarchical and not sufficiently consensual.

To hold otherwise is to claim that government of the people, by the people and for the people is constrained by so-called liberal principles, for example, objecting to the tyranny of the majority. But modern liberal states have already constrained the majority constitutionally by establishing in law universal rights that protect minority interests. The left would argue that these rights need to be strengthened and extended, e.g., right to health care, education, etc., and the right to a job in a monetary economy where income is vital.

The Founding Fathers were manifestly NOT libertarians. They created a strong state and provided checks and balances to constrain its power under the rule of law. However, they did "empower the state" to meets its goals in the US Constitution and founding institutions. The intent seems to be clearly about harmonizing the common good with individual liberty. As a result, the adoption of state welfare is consistent with the liberal character of the state.

Ryan Harris said...

"The Founding Fathers were manifestly NOT libertarians. They created a strong state and provided checks and balances to constrain its power under the rule of law."

I don't think the pre-amble was meant to grant power or create a vision of a state outlined by Sharpiro.

I snagged this from Heritage, an organisation that has an anti-federalist bent:

"The Preamble was placed in the Constitution more or less as an afterthought. It was not proposed or discussed on the floor of the Constitutional Convention. Rather, Gouverneur Morris, a delegate from Pennsylvania who as a member of the Committee of Style actually drafted the near-final text of the Constitution, composed it at the last moment. It was Morris who gave the considered purposes of the Constitution coherent shape, and the Preamble was the capstone of his expository gift. The Preamble did not, in itself, have any substantive legal meaning. The understanding at the time was that preambles are merely declaratory and are not to be read as granting or limiting power—a view sustained by the Supreme Court in Jacobson v. Massachusetts (1905)."

I think most of the legislation that promotes "common good" arises from the broad power granted to congress by the vague commerce clause.

Tom Hickey said...

That is correct, Ryan. The preamble is preliminary and not actionable legally. But they all signed a document with the preamble attached, which implies that they probably read and no serious objections were raised to it.

I find it important for two chief reasons. First, it is a short general summary of Enlightenment liberal political theory. Secondly, it is an abstract, as it were, of the document that flows, which establishes the institutional arrangements of the newly founded state as "the law of the land."

The other matter of importance is that the FF were not democrats but republicans, excepting maybe Tom Paine. They would have equated "government of the people, by the people and for the people" as mob rule. Paine probably would have, too. With reason, since most were not educated at the time. So while they endorsed (limited) popular sovereignty, they put constraints on it to ensure that "those who own the country govern the country" (attributed to John Jay). Popular sovereignty was restricted at the time. Women did not have the vote, then, for example.

I am not sure whether there was ever an issue over state welfare with respect to states, and the issue really didn't arise until the New Deal. But the basis was found in the Constitution for it then and some on the right have been challenging it ever since. But a lot of other things they find objectionable are specifically enshrined in law in the Constitution, the right to coin money and the right tax. From the MMT perspective the US Constitution is out of paradigm wrt taxation and spending, since it assumes that tax revenue is spent.

There is no legislative general welfare power in the US Constitution. The tax and spending power has been interpreted to allow taxation and spending for the purpose of general welfare. This was later interpreted to include social programs involving state welfare (New Deal).

Taxing and Spending Clause.

General welfare clause

In a sense, the current kerfuffle over the public debt and balancing the budget is an extension of a much older debate about the role of government and its powers wrt to the federal government and the states. This is especially significant since most people believe that both the federal, state, and local governments are equally currency users.

One of the reasons is that the FF disagreed among themselves over many issues. Had one party or another been too insistent on a particular construction in a disputed area, the document would never have been signed. So ambiguities were sorted out later and different parties to the debate subsequently cite the earlier points of view. The Bill of Rights was appended to get final agreement.

On the other hand, the arguments were often largely relative to the federal government and the states. The Constitution of Massachusetts did have a general welfare clause, for example. Many of the issues of the day were more related to protecting the powers of the state from federal encroachment.

Note that from the MMT perspective the US Constitution is out of paradigm wrt taxation and spending. On the other hand, a significant amount of spending on general welfare is by state and local government and being currency users they must either tax or borrow to fund themselves.

The upshot is that there is not going to be much light thrown on this debate until the parties are in paradigm with MMT on monetary economics and public finance.

Auburn Parks said...

Tom

I have to disagree with you on the constitution being out of paradigm wrt MMT. The govt is is free to operate without a central bank which is tk say that for much of our history the final means of settlement were not explicitly govt ious. Whereas today its the opposite case.

From an accounting pov the govt cant borrow its own ious (only between govt depts like the fed and Tsy). But it most certainly can agree to borrow bank ious and settle the payment in some other form than govt ious (like gold or that man's deposits received by the Tsy as tax payments over time into that bank.

Auburn Parks said...

Moreover other than in the colloquial sense that we MMTers use the phrase in paradigm to distinguish people who understand fiat currency ops from those who don't.... There is no MMT paradigm in reality. There's just accounting and currency ops and institutions. MMT is really just a set of observations about the economy. That's the reason why posts like Wren Lewis's the other day bug me so much.

What is MMT about the fact that given the current institutional arrangements the govt determines its own interest spending? There is nothing theoretical about this observation. The fed is free to keep rates wherever they want at any point on the curve (the tsy-Fed accord of 1951 is not a binding law that prevents the Fed from setting the 10 yr rate explicitly)
And the Tsy is free to issue any maturities it wants.
Due ti these observations we can conclude that deficits don't crowd out investment (which in mainstream parlance means to drive up interest rates).
what exactly is MMT about this other than the fact that we acknowledge it and they don't?
What is MMT about the observation that commercial banks do not and cannot lend their reserves to non banks so there's no such thing as a money multiplier. And due to this observation we can conclude that QE was unlikely to stimulate bank lending in and meaningful way since banks aren't reserve constrained when the Fed maintains an interest rate target.
What exactly is a theory here? Every day the ny fed adds and drains reserves to hit its target (pre QE) and had been doing it fir decades.
What is MMT about these facts other than that we acknowledge them and others don't.
To me this is why its difficult to explain to people what MMT is.
What's MMT about the fact that Govt is not revenue constrained?
I could go on but won't

Tom Hickey said...

Yes, of course, Auburn. Many monetary systems are possible and the US Constitution did not specify one (although some claim that it does implicitly if not explicitly). I was referring to the presently existing monetary system.

The original instituitional arrangements were made subsequent to adoption of the Constitution. Had Alexander Hamilton not been he first secretary of the Treasury, things might have been different.

FDR specifically used the tax power of the federal government in creating Social Security as a paid in social insurance program rather than state welfare based on transfers. A lot of the argument now is around the insolvency of the program unless the tax that "pays for" it is raised, which some parties refuse to consider.

From the MMT perspective, under the present monetary arrangements, the federal government funds itself directly so another legal justification would have to be found for the federal welfare state and federally funded state welfare instead of the tax and spending power.

Of course, some would argue that the US must abandon the present monetary system under current law arguing that the Constitution is based at least implicitly on "sound money."

Matt Franko said...

Auburn I keep trying to tell you that this stuff is not easy to understand from a perspective like yours where you understand it systemically. .. The ones that dont get it, cant approach these policies like you can ie systemically. ..

Matt Franko said...

Their brains dont work like yours

Auburn Parks said...

Tom

No big deal i just disagree with the characterization of the constitution as out of paradigm. That's just my humble opinion

Tom Hickey said...

i just disagree with the characterization of the constitution as out of paradigm.

Existing programs and MMT policy proposals that count as state welfare would have to be funded by taxes, possibly tied directly to the spending if challenged as SS is to FICA.

So the MMT view that SS is not funded by FICA would make SS a transfer payment not funded by taxes and therefore not justifiable based on the general welfare clause that is tied to the tax and spending clause. It could therefore be overturned as unconstitutional. Maybe FDR knew what he was doing. His policies were actually being challenged legally at the time.

Right now, the MMT claim is that the US can always meet any and all of its obligations as the sovereign currency issuer, and taxation and borrowing are not needed to "pay for" this.

That is arguably unconstitutional under the above with respect to spending for welfare, which must be funded by either current revenue or borrowing against future revenue to fall under those clauses.

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence[note 1] and general Welfare of the United States;…."

If the only constitutional justification for federal welfare spending is tied to the tax and spending clause, then the MMT argument that welfare policy can be funded without corresponding taxation or borrowing seems to exceed the limits imposed constitutionally.

This also suggests that taxes and borrowing are required to fund both payment of the public debt and also defense expenditure.

I'm not sure how a liberal court would deal with this, but a conservative one take a restrictive position and require that benefits be funded by taxation/borrowing. That would require either increasing taxes or borrowing as the fund is depleted, or else cutting benefits.

But it seems to me that the FF were out of paradigm in drafting the US Constitution based on the MMT understanding, especially under the existing monetary system. In other words, they did not know what they were about.

A counterargument is that they were well aware of the difference between direct issuance and "sound finance" and were specifically ruling out direct issuance after the Continental by imposing "sound finance" constitutionally.

Matt Franko said...

I'd agree with Auburn on this one Tom I dont see the logic of people who say the constitution is not in paradigm...

Tom Hickey said...

Where do you think my argument is wrong?

Matt Franko said...

It says we can have taxes to pay for things ... or we can borrow... or we can coin money...

So it leaves options open...

MMT would be using the third option "coin money"....

Here is your para:

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;"

OK, it says we can establish taxes to pay for things... then:

"To borrow Money on the credit of the United States;"

OK, we can borrow money too... then

"To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"

So we also can coin money...

So we can either tax money, borrow money, or coin money.... pretty flexible terms...

I'd say MMT would use the third option, "coin money"...

Random said...

Platinum coin?

Ryan Harris said...

Good stuff on Taxing and Spending clause link, Tom.
Unrelated, but reading this stuff makes the mind race with possibilities to tax and regulate internet commerce to eliminate the negative-sum behavior that has created libertarian billionaires whose fortunes depend on jurisdictional regulatory competition and tax avoidance.

Tom Hickey said...

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;"

OK, it says we can establish taxes to pay for things... then:

"To borrow Money on the credit of the United States;"

OK, we can borrow money too... then

"To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"

So we also can coin money...

So we can either tax money, borrow money, or coin money.... pretty flexible terms...


You may be correct, Matt, but neither of us gets to say. The courts decide how the Constitution is to be interpreted. I am neither a historian nor a lawyer, let alone a constitutional lawyer, but my understanding of the general welfare clause and the way that courts have interpreted it implies connecting spending with taxation. This was an issue during the New Deal and the FDR administration was hampered by objections that went to the Supremes.

Perhaps someone out there is more knowledgeable on this?