Lake Wobegon Economics and the Welfare State

Remnant Review

“Well, that’s the news from Lake Wobegon, where all the women are strong, all the men are good looking, and all the children are above average.” — Garrison Keillor

To understand why the welfare state will continue to expand its operations until such time as the Great Default ends it, we must understand Lake Wobegon economics. It is the widespread belief that, with respect to paying the bills run up by the welfare state, everyone will pay less than his fair share.

This was described well in 1974 by James Dale Davidson. I remember the night I saw him on the Johnny Carson show. I still do not know how anyone with so serious a message got on the show. It was probably this show.

Carson asked him to describe how Congress spends money. He said it was like a credit card with no limits. The voters hand this card to all members of Congress. Davidson asked the viewers to imagine what would happen under these repayment conditions? At the end of the year, all of the bills run up by the Congress would be paid equally by each Congressman’s district. It didn’t matter how much each district received; all of them would pay the same amount. The impulse would be obvious: every Congressman would spend as much as he possibly could in a quest to get more for his district from the federal government than his district paid into the federal government. There would be no restraint on spending. He then said this is close to how Congress operates.

Today, the size of the federal deficit testifies to the accuracy of Davidson’s hypothetical scenario.

This is Lake Wobegon economics in action. It is going to bankrupt the West’s national governments at some point. They are all going to default. The voters will not call a halt before this day of reckoning because they are true believers in Lake Wobegon economics.

WOMB TO TOMB

The phrase “womb to tomb” has been used all my life to describe the modern welfare state. The phrase is incorrect. The era of the welfare state in the United States is (1) from age six until graduation day at one end of the demographic spectrum, and (2) age 63 to death at the other end.

Womb. Some demographic group has to pay to keep the welfare state going. This is not people under the age of 18. It is obviously not people who have retired. Therefore, by definition, the phrase “womb to tomb” is misleading. It is womb to early adulthood, and then retirement to tomb.

Yet even this is too strong. We do not have universal free daycare in the United States. So, the welfare state begins at approximately the age of six, when most children start going to public schools. It ends when the student takes his final degree in the educational system. For about two-thirds of the students, this will be around age 18. For the rest, it may extend for another five years. About half of all college freshman graduate with a B.A. degree in six years. Then, for a relative handful, comes graduate school.

So, from the point of view of government support of an entire generation, we are talking about a welfare state funding the lives of people from age six to about age 18, and funding another third of that age group until the age of 22 or 23.

At that point, college graduates are supposed to enter into the workforce, and they are supposed to make enough money so that they can support everybody behind them, and everybody over the age of 62. In other nations, the age distribution will be different, but this is pretty close to it.

Winners. The major beneficiaries of the welfare state from age six to graduation are local government employees through high school, and state government employees through college. The educational services that are actually delivered to the students through upper division in college are probably worth less than 10% of total expenditures. If we count Salman Khan’s Academy as a legitimate and effective source of education, which is delivered free of charge to over 26 million enrolled students, then the entire public school system above the fourth grade to high school graduation is mostly wasted. This money goes to bureaucrats who are the primary beneficiaries of the wealth transfer. The great beneficiaries are the administrators. Then come the teachers. Then come janitors, school bus drivers, and support personnel.

In other words, with respect to the educational expenses, most of these expenses are not given to the poor; they are given to the middle class. The welfare state system, age six to age 18, is built in the name of the poor, but the great beneficiaries of the entire educational system are middle-class people who have gone through certain bureaucratic hoops. Some of them are upper middle class in terms of income.

The growth of compulsory education after World War II has been the main source of the wealth transfer through high school. Above that, it was the G.I. Bill of Rights, which expanded primarily tax-funded state universities. Again, as we can see with online education, something in the range of 95% of the entire collegiate educational expenditures benefit the tenured bureaucrats who have gained their offices through bureaucratic survival. The benefits are not going to the students or their families. We know that the first two years of college are essentially wasted academically. The students don’t learn much of anything. The net returns on the collegiate educational experience is limited to those students who make it into upper division, and who then graduate.

So, with respect to where the money goes, the welfare state prior to graduation is primarily a transfer of wealth from taxpayers to bureaucrats. The net return for the alleged beneficiaries is in the range of 10% of the wealth extracted from the taxpayers.

Today, students can gain access, free of charge, to most of the classroom lectures by the professors at the world’s most prestigious universities. They are on YouTube. For almost no extra money, all of the other colleges could post the lectures of their professors within four years.

Parents are paying for grading. Computers can grade most of the exams until the junior year in college. This is what Khan Academy does. In colleges, Scantron machines grade the true/false and multiple-choice exams. That is what the college entrance exams use. So do CLEP, AP, and DSST exams through the first two years of college.

By now, all this information is easily available, but the general public is unaware of it, and the general public does not care.

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