Thursday, August 25, 2005

Will the welfare state grow?

Tyler Cowen ponders the future:
Imagine that nanotechnology, or some other version of The Next Big Thing, came to pass. The bounty of nature would be replaced by the bounty of science. Might our economy look a bit more like the welfare policies of the Gulf states, albeit with greater diversification? Won't we massively expand our welfare state? Since the whole point is not to work, no one will complain much about the high (implicit or explicit) marginal tax rates. The rush will be to get in, not to leave town.
First, will we most want leisure when the great technological windfall comes? Or will we so crave the newest toys that we will work overtime to get them? In other words, do you want the vacation, or the big screen HDTV? Maybe instead of spending our windfall on a bigger welfare state, the middle class will demand and get tax cuts so that they can more easily afford their mortage payments for their smart mansions that come with robotic butlers. You may think such materialism is beneath you, but if all your peers have smart mansions, or your children demand to know why they don't have robot butlers to bring them breakfast in bed like all their friends do, then would you really be able to resist the temptation? My bet is that you would get the mansion and, if you feel guilty, that you'll give some money to charity.

Second, unlike the oil wealth of the Gulf states, the premise of a technological "free lunch" is dubious. Look at the big three U.S. automakers. Back in the day, they could afford generous wages, pensions, and health benefits. Now, they struggle to compete against foreign automakers who compensate their workers with much less. As for the more recent IT revolution, have we not already experienced outsourcing scares? Technological windfalls are temporary; it is innovation that is sustainable. Thus, if we get a technological windfall and take the Western European route of more leisure, less stuff, and higher taxes, then eventually we will watch freer economies surpass us. If our primary concern becomes leisure, then this won't really bother us, but how much leisure we will choose is precisely what is in doubt.

I'd hate to have to choose between crass materialism and a bigger welfare state, because I really don't care for either. I think we spend too much time and money on things already. Our savings rate is currently down to zero. As for charity, even most Christians in America don't come close to tithing. And I worry about the deline in social capital documented by Robert Putnam. Of course, I also loathe middle class entitlements. For no other cause is more wealth forcibly confiscated. Meanwhile, its effects on its so-called beneficiaries include an eroded work ethic, an utter dependence on the state, and the inefficient service the comes with state control and/or subsidies. Perhaps this is just my version of utopia, but I think the economic arrangement we should strive for is one including a strong work ethic, frugal consumption, wiser use of leisure time, high savings rates, minimal dependence on the state, and very generous private charity.

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