Jamie stands in line at the county welfare office once every month. She knows the routine. She takes a number, waits, answers the same questions with the same answers as she has always done before, and signs the same forms. It’s the same thing every time.
The woman ahead of her last time was arguing about benefits she’d just lost. The man behind her was talking about how his cousin gets more by not working than he gets working. Everyone in the room always knows the system is broken.
Jamie knows it’s broken too. She’s seen benefits spent on things they shouldn’t cover, and she’s watched people game the rules. She’s had caseworkers tell her one thing one week and the opposite the next, and she gets lots of benefits she probably doesn’t really qualify for. The system is slow, inconsistent, and full of waste. Nobody cares. Sometimes, if you give a good enough sob story, the caseworkers even help you get benefits you don’t qualify for.
When Jamie’s number is called, she always steps forward. The check always clears, and the benefits always show up. Without the money, she’s not sure how she’d make it through each month.
Jamie doesn’t defend the system. She complains about it as much as everyone else. But she also doesn’t lose sleep over what it costs. Capitalism hasn’t done much for her or her children anyway, so if taking welfare breaks the economy, maybe the next economy will do more for people like her.
When people talk about government waste or deficit spending, Jamie shrugs. Of course it’s wasteful. She’s got kids to feed, and no job skills. So what if she gets more than she should?
There are only about a million people in the United States like Jamie, getting welfare money, but there are over ninety million getting some kind of federal assistance, which is about a third of our population, and all of these programs are awash in waste, fraud, and abuse. The Congressional Budget Office claims there is about a half a trillion dollars a year in fraudulent Medicare spending alone every year, and before DOGE nobody was doing anything about it.
Milton Friedman broke down a big part of the problem into how government systems work, in terms of who is paying for things vs. who is getting them, and another big part of the problem is that some of the people writing these programs are actively seeking to destroy our nation so that they can ‘radically transform’ it into something else.
Ilhan Omar, as one example, wrote one of the bills that created one of the primary programs Somali residents of Minneapolis used to commit fraud, and saw her net worth rise to $25 million while that fraud was taking place, after her husband opened a fake winery that she has not been able to show sells any wine.
As another example, the FBI has released text messages and emails from Ukrainian officials, discussing how over a hundred million dollars of the aid sent to Ukraine during the Biden years, was then sent back to the United States and smuggled into Joe Biden’s reelection campaign coffers.
These kinds of things don’t even make the news and nobody is held accountable. Nobody really seems to care. The public seems to have accepted that the primary role of government is to fleece the people and to bankrupt the country. The public won’t care until it impacts us personally, and by then it will be too late.
Let’s start by looking at spending.
Milton Friedman broke spending into four types based on who it is that pays, and who it is that benefits.
The first type of spending is when you spend your own money on yourself. You bear the cost and receive the benefit, so you watch both the price of what the money is spent on, as well as the quality of whatever is purchased, closely.
That doesn’t mean that everything is expensive and high quality. Sometimes it means the opposite. I collect vinyl records, so I have a very high-end turntable, amp, and speakers. When my CD player broke, I got one at the Salvation Army. Why? Because it was a name brand vintage unit that was high quality when it was built, and I got it for fifteen bucks.
The second type is when you spend your own money on someone else. You still bear the cost, but you don’t receive the benefit, so while the cost of whatever the money is spent on remains important, the quality of what is purchased is less of a concern.
The third type is when someone else’s money is spent on you. You receive the benefit but don’t bear the cost, so you care a great deal about how good the purchase is, but you don’t really care how much it costs. Most people in this position would choose a Ferrari when a Ford would do.
I knew a guy in High School who got a new car for his sixteenth birthday. I don’t remember what kind of car it was, but it was something pretty cool. My friend however was from a very wealthy family and wanted a Porsche. He was not happy with the car his dad bought him.
This is the kind of spending socialism promises…
The fourth is when someone else’s money is spent on someone else. You bear neither the cost nor receive the benefit, so you have no vested interest in either the quality of whatever is purchased, or the cost.
Politicians promise the third kind of spending but we get the fourth, and voters will support all kinds of programs, whether they work or not, as long as they believe someone else will foot the bill.
We see this in polls. When Americans are asked if they support universal healthcare without discussing cost, support is high. When Americans are asked about universal healthcare paid for by ‘taxing the rich,’ support grows even further. When the same question is tied to specific taxes the poor and middle classes pay, whether payroll taxes, income taxes, a Value Added Tax, or some other kind, support drops quickly.
The Kaiser Family Foundation has repeatedly shown that “Medicare for All” polls well until the funding mechanism is specified, at which point approval collapses. Politicians know this, so they promise the spending only, leaving how we would pay for it up to someone else.
The truth is that while many Americans want universal healthcare, very few Americans want it badly enough to pay for it. They want the benefit, but they want someone else to take care of the costs. Nor is this kind of thinking limited to healthcare. Virtually all socialist propaganda promises the third kind of spending to the masses, even though if we are honest, socialist promises are not possible unless the poor and middle classes foot the bill.
The math behind “tax the rich” proves this point. The total wealth of U.S. billionaires is mostly illiquid and already tied up in productive assets, like farms and factories, that the public needs to survive. The truth is that if we took every penny every billionaire has, along with all of the money every billionaire makes, we could fund Medicare for All for roughly three months. After that we’d be out of billionaires and would need to tax someone else.
Even if we tax all of ‘the rich’ as much as we possibly can, the Tax Foundation and Penn Wharton Budget Model have both analyzed wealth-tax-style approaches, and found that they generate revenue far below the cost of large entitlement programs, even before accounting for behavioral changes, capital flight, and valuation issues. ‘The rich’ is just too small a base to cover the costs for all of these programs, and the rich already pay what by any rational measurement is their ‘fair share.’
In the United States, the top 1 percent of earners pay roughly 40 percent of all federal income tax revenue, while the top 10 percent of earners pay about 70 percent. The bottom half of earners, in contrast, contribute only two to three percent of all federal income taxes, and after credits are thrown in, many receive refunds that exceed their total tax payments, making their tax burden negative. The top 1 percent earn roughly one-fifth of total income, and the top 10 percent earn about 45–50 percent, so their share of the tax burden is a lot higher than their share of the income.
When people like Bernie Sanders talk about making the rich pay their ‘fair share,’ he doesn’t really mean that. He just means ‘tax them more,’ and more is not a number, but a direction.
People claim that tax cuts only help the rich, but the truth is that the federal income tax has become more progressive over time as rates have been cut, and not less. After Trump’s Tax Cuts and Jobs Act, for example, the share of income taxes paid by the top 10% went up, as did total tax revenues.
Independent analysis reinforces this conclusion. The Congressional Budget Office consistently finds that federal taxes have become more progressive over time when measured across income groups, even before accounting for those who get paid more in tax refunds than they paid in.
The Tax Foundation says the same thing.
If we think only in terms of what one person is paid and what they then pay in taxes, it looks pretty obvious that higher rates will lead to higher revenues, but as John F. Kennedy, and later Ronald Reagan showed, dollars are taxed each time they change hands. Just as a retail store might make higher revenues with lower prices and more sales, so too a nation might get more tax revenue with lower rates but a stronger economy, where money changes hands more frequently. In retail, we call this concept ‘turns,’ but in politics the same concept tends to get ignored.
And of course it does. There are two messages that sell politically. One is the rational “the system is broken in the following ways, and here is what I will do to fix it,” and the other is, “your lot in life is not your fault. I know whose fault it is, and I will make them pay.” Which is the easier sell is difficult to tell, but those who vote for the second message do everything they can to block any action from taking place on the first message.
Look at voter ID. The vast majority of the public wants that made law, including almost 80% of democrats, and yet Democrats in power block it at every turn. Why would they ever want to fix a system when they benefit from it being broken? It’s even worse in the EU. The EU has a lot more people who think like Jamie, from our introduction, than we do.
For the rich, rates above a certain level encourage tax shelters and off-shore accounts. Money then gets parked where it cannot be taxed, waiting for lower rates. When you lower the rates below that threshold, suddenly the same people decide to declare that wealth, and it gets taxed.
Rich people don’t just want money. They also want access to it, and with rates up to a certain point they are happy to pay taxes on their money. The trick to raising revenues is to keep the top rate just below that level.
We see the same economic behavior with criminals. If the cost of laundering money is below a certain threshold, criminals launder a lot of money. If the cost goes above that level, the same criminals bury money in the ground and wait for better laundering opportunities.
In both cases, people are willing to give up a certain percentage of their money for unfettered access to the rest of it, and while the mechanisms are different, the incentives are the same.
If we were smart, we would use tax rates designed to maximize government revenues over the long term. I’ve never seen a study of what the top marginal rate should be to maximize revenues, but the Laffer Curve suggests that tax revenues are highest when the government taxes neither too much, nor too little, and historically that has about 18% of GDP in the United States. When the government spends 40% (as it does today), the rest is eventually made up for through inflation.
18% is not a magic number. Really, it represents a government that is doing roughly what a government should, and not much else. I would suggest that our government is doing a great deal too many of the wrong things, and nowhere near enough of the right things, and that the spending side of the equation is probably just as important as the taxing side.
The point is that the “rich” are not a bottomless well. Much of their wealth is tied up in businesses, equity, and long-term capital investments. Aggressive attempts to take more, especially through wealth taxes or higher marginal rates, run into behavior changes: ‘the rich’ move capital elsewhere, they defer or reclassify income, and take other steps to avoid those higher rates.
Europe has found that there are only two groups whose behaviors do not change, and those groups are the poor and middle classes. As such, effective tax rates in Europe tend to be regressive, with the poor and middle classes bearing the burden. Effective rates actually go down in much of Europe (including the Scandinavian countries) as incomes rise, once all forms of taxation are taken into account.
In other words, the percentage of income a poor or middle class person is taxed will be higher in Sweden than the percentage of income a rich person pays, which is exactly the opposite of how it works in America. The United States, in fact, has the most progressive tax system in the world, today.
Barack Obama understood that his tax rate increases would lead to less – not more – tax revenue. He acknowledged that, but he said his rate increases were about ‘fairness’ rather than revenues.
People care about fairness but arithmetic does not, and if spending continues to grow, the burden has to expand downward onto lower-earning workers. That is why every high-spending country eventually taxes its lower and middle classes the hardest.
If we don’t tax the poor and middle classes directly for government largesse, we tax them through inflation, which is the most regressive tax of all.
Politicians pretend that they are taking from ‘the rich’ to support the poor and middle classes, but the truth is that the government supports the poor and middle classes with their own money, and since the government does this using only Milton Friedman’s fourth form of spending, this kind of ‘support’ costs a great deal more than would just letting the poor and middle classes keep their money in the first place.
The original Medicare program is a great example. Its costs flew through estimates within just a few years. In 1965, the CBO estimated Medicare would cost $9 billion a year by 1990, but when 1990 hit the cost was $67 billion.
Spending was not driven by estimates, but by usage, and once the people receiving the benefit did not pay the costs, usage exploded. Medicare is now both the most expensive item on the Federal ledger, and the fastest-growing. The only item on the budget that might catch Medicare is the interest on the national debt.
Some of the public will continue to vote against Medicare for All based on the economic reality of providing it, but most people do not know the economic reality and are happy to remain ignorant. For them, slogans suffice, and “Tax the rich,” and “Healthcare is a Human Right” make for great bumper stickers.
This is how people like Bernie Sanders, Alexandria Ocasio-Cortez, and Zohran Mamdani get elected.
Friedman’s point is correct: the third type of spending is politically attractive because it disconnects choice from consequence, and we will never solve our budget problem unless we connect those things together again.
And as said before, though we are promised the third type of spending, what we get is the fourth.
Unfortunately there is a sizable percentage of Americans who hate everything America stands for, and who want to see the ‘radical transformation’ Barack Obama promised in his 2008 inauguration. These people believe that freedom leads to oppression, and that equality can only exist, in any form, if it is enforced by the state. For such people, bankrupting the United States so that we can ‘radically transform’ it into something else is the goal, which brings us to our second problem.
Such people see the world through a lens, not of freedom and opportunity, but of haves and have-nots. Those who have wealth, a home, a nice car, or something else others don’t have, are looked on with at best suspicion, and at worst with open hostility.
Of course, they don’t give up their own stuff. Bernie thinks he earned HIS millions. It is only everyone else who is greedy.
Such people don’t necessarily know much about economics, or how complicated systems work, but they have absolute confidence in their own moral superiority and in the morality of the world they envision, which is one in which the supposed oppressors are brought to their knees and the supposed oppressed are elevated to whatever standard utopia demands.
It is hard to say that such people are evil. I suspect some of them are. I’ve read some of Karl Marx’ poetry, which is about praising Satan and burning down the world, so I don’t doubt that some who promise utopian visions know that utopia is impossible and that attempts to achieve utopia cause tremendous harm, but the masses who buy into utopian visions don’t necessarily understand that.
We all think from both logic and emotion, but most of us primarily use one or the other. I am very much more of a logical thinker, which is likely what drew me to IT and to lean manufacturing / systems thinking as a career.
Emotional thinkers CAN of course think logically, but they are easily swayed by perceived moral failings and can be resistant to logical claims that ‘imperfect but good’ may be the best we can achieve. They are also easily tempted by dishonest players to place, as AOC put it, being ‘morally correct’ ahead of being ‘factually correct.’
It is, of course, impossible to put being ‘morally correct’ ahead of being ‘factually correct,’ as without facts there is no way to determine what is moral, but if we ground ourselves only in assumptions and slogans, and not in reality, we can view systems, people, countries, etc., based only on their faults, comparing them not to other systems, people, countries, etc., but to some version of perfection in which ANY system, person, country, or whatever will fall short.
It is incredibly dangerous to compare things to perfection instead of to other things that actually exist, but much of the public does exactly that, and in their desire to see perfection, all they do is destroy.
It is also impossible to say anyone or anything is truly ‘good’ when comparing everything to perfection, as everything will always fall short, making anyone who is not listed as ‘oppressed’ INHERENTLY evil, and by extension excusing anyone labeled as ‘oppressed’ from whatever they may do, no matter how horrific it may be.
In this view, if I give a homeless man $100, I am evil for not giving more. If he punches me and takes my wallet though, he is simply acting out against his oppression.
Why would anyone with such a world view care about fraud, waste, and abuse? Aren’t the people stealing from us just taking what they would have if the system worked, according to this world view? They don’t want Jamie arrested for knowingly taking welfare payments she does not qualify for. To them, Jamie is a victim and a hero.
Jamie will be back in a welfare line next month. She’ll take a number, wait her turn, and step forward when she’s called. She’ll complain about the system, talk about how broken it is, and still rely on it, because for her, it works better than any other system she has tried.
And from where she stands, her behavior makes perfect sense.
She is not paying the cost, but she is receiving the benefit. The system rewards her for continuing exactly as she is, and it asks nothing of her beyond showing up and signing the forms. There is no reason for her to think about sustainability, and no reason for her to care who ultimately pays.
That is not a failure of character, or at least not entirely. It is the predictable result of a system built on separating cost from consequence.
Milton Friedman described that system decades ago. When someone else’s money is spent on someone else, discipline disappears. That’s not because people are stupid, and not because they are evil, but because the incentives make it the most likely result.
Scale Jamie up from one person to tens of millions, and you don’t just get waste. You get a political system built around promising benefits while hiding costs, and a voting population that responds by asking for more. The problem is not that people like Jamie exist. The problem is that the system is designed so that millions of people can think exactly as she does, and feel like they are the righteous ones for doing so.
Until costs and benefits are tied back together, nothing will change. The lines will get longer, and spending will continue to grow. Eventually the bill will be so large that not only won’t Jamie be able to pay, but nor will anyone else. Next comes default and ruin.
Sadly, a sizable percent of the public are cheering for that day to come.
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