The welfare state and moral hazard

Nima Sanandaji explains for National Review Online readers one of the welfare state’s unintended consequences.

At a time when the American Left wants to introduce Swedish-style socialism into the U.S., we should remember that generous welfare states pose a moral hazard. Their well-intentioned policies undermine individual responsibility and create a welfare-dependency trap. This is confirmed by history as well as by current developments in Sweden, where cheaters are targeting the country’s welfare system. …

… [F]or the welfare state to function properly, it is not enough that most individuals pay their taxes. Neither does it suffice for most individuals to follow the norm of using welfare services only responsibly — that is, of not claiming more than they need or are entitled to. For the welfare state to be viable in the long term, the vast majority of individuals must abide by the social contract.

A small-government system relies on its citizens to follow a basic social contract: Do not harm others or their property, and abide by the laws. A government system with generous welfare and transfer programs also relies on its citizens to do that and more: to refrain from overusing benefits.

From the individual perspective, as transfer schemes become more generous and taxes are raised, it becomes increasingly lucrative to sideline the social contract, and so incentives in the form of monetary transfers can, and often do, undermine the motivation to depend on the fruit of one’s own labor.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

Reader Comments