Greedy Goblin

Friday, February 25, 2011

How welfare makes workers poor

The PuG update:"Simple in concept but more difficult in execution, Chimaeron is a gear check boss." Both on healers and DD. What shall one do if due to no attendance rules he must go with a healer and a DD barely in LFD-accepted gear with greens, another healer without epics and any raiding experience and half raid who never done the boss we firstkilled last week only?
The trick: 4-healers. Safe P1 and everyone has full HP before P2. Also, mages cast mirror image when targeted and IB. The dumb hydra kills images one by one. Does your "freindly social guld" lacks gear for him? Join us! Just read the rules!

Blog info: Don't miss Monday's post when something really interesting will arrive. I promise it will hit harder than the original Undergeared post. No, it's not some real-life philosophy, it's hard data from the game, destroying the most dear myth of morons, slackers and their social supporters.

Most low-earner, but hard-working people don't see (and no one explained to them) how the welfare leech make them poor. They say: "my tax is low, and while I'm not happy paying the state even a penny, if I would pay zero, it wouldn't help me much. I would save a couple hundred bucks a year. The big difference would be if that billionaire wouldn't be such a greedy bastard and would pay me 5K more.".

Right-wing publicists answer some techno-blabla about "salaries are also affected by the forces of supply and demand" or "we must remain competitive with China where the salaries are much lower" or "the huge tax we must pay forces us to economize" or something like that. The blue collars don't understand it and take it as bullshit. The right-wing in turn call them dumb six-pack Joes.

The problem is not that the above is "too technical". The problem is that it's wrong in the sense that it's not answering the blue-collar's question: why am I poor? "Six-pack Joe" is right that it's not tax making him poor and tax cut wouldn't help him. The right-wing and libertarian anti-tax movements fail because they cannot offer solution to the worker class. They are poor and don't want to be, especially in the country that they carry on their back with hard work.

The blue collars are right that they would be poor even if they would pay no tax and the welfare of the inactives would come from some magic source, like some foreign country would pay for it. It's not the little tax they pay make them poor. It's the welfare itself.

There are countries where the median income is $1-2000. In Hungary where I live, it's about $7K. German pensioners who have low pension in Germany, often move to Hungary and live like high-middle class from the same low pension that Germany sends them. How?

To be rich, you don't need money. You need products and services. You need a home, you need food, you need health care, you need transportation and so on. In such countries you can buy these goods for cheap. How? Because the producers of these have no better options. I can build a good house from $20K as I can hire hard-working masons and carpenters who work for $4/hour.

Can you do the same? No, because if we would transfer the same masons to your country, they would receive $3-4000/year welfare so they would refuse to work for lousy $4/hour.

The blue-collar $20K earner is probably above the median. Every second person earns less than him. However he cannot benefit from it, as these people won't work for him. If he needs a baby-sitter, he must compete with $100K earners for the limited baby-sitter supply. He supposed to be in the middle of the food chain, in the middle of the status ladder. He is called "middle class" for a reason.

But welfare simply eliminates the people below him from the work market, making him the poorest. If welfare would be removed even if the taxes are not changed, he would instantly be much richer as (some of) the former welfare leeches would offer him services and goods for very low price. He could afford from the same money to employ gardener, baby-sitter, cook, shopping boy, maintenance guy. He could get his home and car maintained from a couple hundred, saving him buying a new one. He could have hand-made clothes fitted to his body. He could eat in restaurant every day or get cooked food from cheap basic materials at home from his cook. His town could afford to employ streetsweeps, street-gardeners, graffiti-hunting security guards, day-care workers and so on. He would live like he should: in a clean and tidy neighborhood served by servants.

Also, the social status of the blue-collar would sky-rocket. Currently he is just another poor guy living nearly on the same standard as the inactives. But if the inactives would gain no benefit, they would stand out of the neighborhood. The worker guy would be the dream of the inactive girls, the man who has his own home and decent food every day. The worker woman would be the one who wears handmade clothes instead of Salvation Army stuff like the inactives. "My mom and dad both have jobs" would be a source of pride for kids as it would mean decent clothes, computer at home, vacations sometimes and so on, while the other kids wear and eat the (surely healthy but boring) stuff the child care services provide and electronics would be only seen in school.

For a social "poorness" is relative. My granddad's favorite memory was that he had the first TV in the village. I saw it in an old photo. It was smaller than my backup screen that collects dust, it was monochrome and blurry to the limit of usefulness. But it made him the most envied guy in town for months. Making others poorer makes a social rich instantly. He would no longer has to keep up with the Joneses. He would be the Jones!

Welfare simply inflates salary. Salaries should not be measured in $. It should be measured by welfare units. If we would write a zero to every dollars, the blue-collar would make $150K, without being any more rich than yesterday. If the ratio of his salary : welfare would increase, that would make a difference.

No comment:


Azuriel said...

Of course, once welfare is eliminated the population of people looking for work skyrockets and Mr. Blue-Collar is out of a job because there are 50,000 people willing to do the same work he did for less. And since welfare is gone, he is double-screwed.

Meanwhile, in every single scenario the rich become richer - they can hire cheaper labor AND the relative value of their money increases.

Misanthrope said...

A fine example of the UK system:

A BABY machine mum - pregnant with her 17th child - is raking in more than £600 a week benefits and admitted last night: "They pay me too much."

To a certain extent I agree that welfare is a big problem, but in the past I myself have had to rely on welfare after being made redundant from my job. It is meant to be designed as a temporary safety net, but it is not used that way.
I now pay 99€ per year to employment insurance fund. Due to a work furlough of 1 year I claimed 70% of my monthly salary. With a few adjustments I lived very well and also learnt how to live much cheaper, a habit I continue now I am working again.
I really don't understand how the insurance fund can make money - in total I have paid them a few hundreds and they paid me over 15k...

Squishalot said...

Your argument would work if people on welfare somehow earned more than working people. But your argument breaks down here:

"But welfare simply eliminates the people below him from the work market, making him the poorest."

Even with welfare subsidies, the person who works and earns more will always be ranked higher in wealth than the person who works less (unless the tax system is completely screwed up, but the tax system should be structured in this manner anyway).

The problem with welfare is that the marginal benefit of working is lower than if welfare didn't exist. The effective marginal tax you pay at low income, because you're coming off welfare, is actually significantly higher than the marginal tax for people on 100k+. So the gap between the welfare leech and the low-income worker is small, but not negative.

The problem with a zero welfare system is that the inactives generate trouble for the rest of society when they don't have basic needs met because they're broke. In the same way that you want higher tax payers to 'buy off' the working class, welfare is what the working class use to 'buy off' the inactives.

Anonymous said...

100% dead on target. I thought I had "made it" when I graduated law school and landed a 100k+ a year job at a white shoe invesment bank in NYC.

but I always felt poor with my shitty UES second ave. apt. compared to those on madison and park, my "cheap" omega seamaster compared to the pateks and AP royal oaks, dinners at houstons (chain) instead of per se or daniel or nobu. and my relatively low status stressed me out so much I needed an one hour massage weekly at $150.

I lost my job when the investment bank went under and I couldnt find other work. My father found me a position in asia(I was born in taiwan, family moved to USA when I was 5 years old) and I was reluctant at first because I thought NYC/USA was where all the good opportunities were but I finally caved after facing the prospect of moving back home and living in my mothers basement.

I live a life on half my NYC i-bank salary in "3rd world" asia (vietnam, indo, china) that I could only have dreamed of in the USA. and a massage with extras is 20 USD. I even upgraded to a much hotter girlfriend because the competition is nonexistent compared to new york, even though new york has most of the worlds most beautiful women.

I cant imagine ever going back to the USA now, even at double the salary.

Anonymous said...

An important related problem is the minimum wage. It is effectively a form of welfare, represents a deadweight loss absorbed by the economy and increases unemployment. It can also create a black market of cheaper (typically illegal immigrant) labor which is often mistreated.

Removing welfare might well 'leave them to die in the streets' as comments earlier in the week claim, but eliminating the minimum wage will give many of them a job.

Anonymous said...

@Squishie: you are assuming the only utility is salary. But getting paid 10% less for working 100% less represents a lot of utility in the form of free time. assuming you could still meet your basic needs with 10% less welfare can be a strong incentive.

Samus said...

Perhaps things are different in more socialized countries, but I think there are some misconceptions about how welfare works in the States.

Here are the demographics of people on welfare in the U.S.:

75% of people on welfare here are children. The vast majority are single-parent families. There are specific criteria to qualify for welfare, you cannot simply "go get free money" because you just don't feel like working. The stonemason in your example would not qualify.

The total number of people on welfare is under 5 million, or 1.5% of our population (and going down). The monthly benefit is $154, and the total payout in benefits is under $10 billion (versus a GDP of $14 trillion). This is not a program which has the drastic economic impact you imply.

Anonymous said...

Samus, it is very different in many European countries. There is also a lot more to it than just welfare.

For example, in Norway, the number of people on social assistance is ~3% of the population and the average monthly payout is a bit over $600. But that is just one source of money. Every family with a child gets another ~$160 per month per child, plus a subsidized kindergarten spot until they begin in school.

Then there is unemployment which pays something like 85% of your salary (up to a cap which most don't reach) for 500 days.

A generous sick leave. A generous pension plan. A huge public sector with almost guaranteed employment for life with little performance incentive.

Yet it is regularly among the top 3 richest countries in the world and the top 3 in income equality.

You decide the impact of being a top 10 (or close to, depending on the year) oil producing nation for many years has on these numbers.

Squishalot said...

@ Anonymous: I agree, but there are enough social problems that come with being unemployed that it's typically not that good a deal. All my point is is that your middle class worker will always have more material possessions and be able to afford more than the welfare leech.

Broxxigar said...

Your ideas would be ok if the world was a place habitated by businessmen who play fair. Wich is not. Probably they're bussinessmen because they didn't play fair first (not in a goblin way, but in a slacker way). Sometimes welfare is an adjustment to the irregularities made by the "rich" and elit classes.

If you eliminate welfare and the "safe net" from the poor, you should find some mecanism to force them to play fair. If not, you will find Azuriel' scenario, where "Mr. Blue-Collar is out of a job because there are 50,000 people willing to do the same work he did for less. And since welfare is gone, he is double-screwed." One mecanism would be to convert blue collars into little bussinessmen, so the employers would find more competition.

PS: Sorry for my bad english

Yaggle said...

Not everything is black and white. A small amount of welfare is okay, too much is bad. It comes down to whether there is too much in your country. Here in U.S.A., I don't believe there is too much welfare, nor do I believe that taxes are too high. But maybe in yours, there is too much welfare and taxes.

Xenxu said...


I am most sure your numbers are not quite accurate. Are you including every source of hand outs, or just the entities of the government explicitly titled "welfare"?

I.E. I made ~17k this last year, and had no tax liability. I receive 5k in earned income credit, which is straight cash welfare.

This is a huge source of welfare across the country.

I am a welfare leech, be sure to count me!

Bobbins said...

The wealth of nations develope over many years. The richest within our societies are only able to become as 'rich' as they can because of the legacy of past ages. The population of a country has an obligation to divide the resources amongst the population in a fair manner. Welfare/taxation may or may not be that way.

Anonymous said...

i believe you said you would never let members raid with you if they didnt have gear enchanted or gemmed correctly. whats the deal? you going soft on the rules?

Gevlon said...

@Anonymous: he told in advance that he is not raid ready and we had no other options besides calling the raid (someone DC-ed). It was the good call.

Braille said...

I've seen you mention the libertarian and tea party position a couple times recently, and even link to the wikipedia page on it, but I'm not sure you understand what they are after.

I listen to some radio talk shows that support this line of thinking, and your post here today (as well as a few others recently) would fit right in on those talk shows.

Take a look at the summary line from the wiki page again:

"It endorses reduced government spending, opposition to taxation in varying degrees, reduction of the national debt and federal budget deficit, and adherence to an originalist interpretation of the United States Constitution."

Reduced government spending and reduction of the debt and deficit are part of the primary reasons these movements exist. I can't tell you how often these talk shows rail on our governments about overspending on welfare specifically. Here in California, we have about 1/3 of the entire USA's welfare recipients.

The level of government support for leeches here is absolutely outrageous, and it's one of the many reasons I agree with the tea partier's cause.

Samus said...


Well the link I gave was from the Department of Health and Human services, so I should think it would be accurate. I believe you are correct that it simply includes the program explicitly called "welfare," not all forms of leeching.

However, the discussion is not about the money wasted on leeching, it is about the economic impact of welfare and the incentive to not work. You may be a leech yourself, but since you do work, you are not the type of leech being discussed here.

The most fitting kind of welfare leeching for this discussion is probably unemployment. This causes people who would normally be forced to take a lower salary position to hold out for a "good" job. For example, someone who used to make $60k at their last job would not take a $30k job and would instead hold out for several months for another $60k job. The effect depends on how long unemployment benefits last. Another commenter said 500 days (in Norway), that is clearly way too long.

Wilson said...


The article you cite says that the woman is being investigated for fraud.

As far as unemployment goes, that is how insurance works. Some people receive more than they put in (at least in the short term), some receive none. If your house burns down the day after you purchase a policy, then you are (from a cash flow standpoint) a winner. If your house never burns down, you are a loser.


I wonder if you realize that the people you hear on talk radio are paid to make provocative statements. They are not paid to do fact checking. In fact there is no penalty for completely making shit up. They are not news reporters - they are entertainers. The fact that so many are saying things you agree with just means they are telling you what you want to hear.


Unemployment benefits (as it works in the US) is not leaching. It is an insurance program, with your premium paid directly by your employer. It is part of your compensation package, just not a part handed to you as cash. If you are laid off, you are entitled to unemployment benefits because you have already purchased them. It is no different than auto or any other kind of insurance.

If you're going to call anything that benefits you and is connected to the government leaching, then you might as well call driving on a public road (as opposed to building your own) leaching.

Campitor said...

Please lets not forget the "welfare leeching" done by the coporations such as the various financial institutions who recieved government bail out money to keep their business afloat. Also oil companies recieve government subsidies for "research and development" for more efficient ways to burn petrol products or to discover alternative fuel sources. And state govenments give "tax rebates" to companies who relocate to their state. Welfare is welfare regardless if given to the rich or to the poor.

Everyone always thinks of the poor but no one denounces the subsidies given to the rich.

Anonymous said...

Have you heard of the idea of the basic income?
You mention in your post Salvation Army etc. so you admit that there will be (and has to be) some kind of support for poor people. The question is, how can it be organized so it has minimal negative effects on wages or motivation to work? And how big should it be?
In Germany, our welfare is based on the principle that it is disrespecting the honour of a human to let him live without the nesseccities of life so he can be part of the society. The amount is about 800€/month now.
As you pointed out, this discourages taking a job with a lower wage than that (it also encourages illegal employment/crime in the low wage sector).
The basic income avoids this by providing every single citizen with the basic amount you need to live a respected life, regardless of your "activity". This means if the basic income was 800€, and there is a job that pays 200€/month, you would consider taking it, since you would have 1000€ then instead of 800€. There are a lot of other good arguments for this of the ethical, social and philosophical kind, i dont want to list them all now. Its also very nice to have if you are not in a classical employment situation, which less and less people find themselves in nowadays. Of course you have to have a good tax system that doesnt take half of the 200€ earned away (while leaving the 800€ alone), also you should change the tax on the rich so they pay 800€ more to not give them even more money.
What are your thoughts on this?

Anonymous said...

Welfare equates the working class. I have seen a diagram which showed that people earning from 0 to ~60k USD end up with around 30-35k if social benefits and taxes are taken into account.

So yes, this is definitely a system that can be abused (why work if you can sustain your family only by reproducing?), and this is not the abusers' fault, but the system's.

So, welfare makes some people poorer and some people 'richer' than they could be by themselves. But that is pretty marginal in my view. What really makes people poor is the unjust distribution of resources (not just material, intellectual property also), and the ability of people to make money off of socially improductive/counterproductive activites. Welfare just dampens the effect of this.

You completely disregard a few relevant things in your discussion, like the effect of automation. Automation displaces the worker, who is also the buyer, excluding him from the system even if he is not an M&S by 'nature'.

This is an exstensive topic and I yet to see a consensus, but let me suggest you the Zeitgeist movies, esp. the 2nd and 3rd one.