The Free-market Welfare State

Today I’m proud to release my latest paper for the Niskanen Center, “The Free-Market Welfare State: Preserving dynamism in a volatile world.” You can find it here.

The paper proposes a set of principles for a “free-market welfare state” research and reform agenda, based around a simple but provocative thesis: America’s historical combination of free-markets and limited income security is fundamentally unstable. Either we get better at complementing markets with comprehensive income and re-employment supports, or the forces of creative destruction will generate anti-market backlashes with lasting political consequences:

The fallout from China’s entry to the World Trade Organization (WTO) in 2001 is a clear case in point. Cheaper imports benefited millions of Americans through lower consumer prices. At the same time, Chinese import competition destroyed nearly two million jobs in manufacturing and associated services—a classic case of creative destruction. Yet rather than help those workers adjust, our social insurance system left them to languish. In the regions of the United States most exposed to import competition, Social Security Disability Insurance (SSDI) was more than twice as responsive to the economic shock as unemployment insurance and Trade Adjustment Assistance (TAA) combined, even though it is one of the most restrictive disability programs in the developed world. Indeed, while critics of the welfare state often argue the United States spends a trillion dollars a year on social programs, only about a quarter of this comes close to anything resembling cash or quasi-cash income support—about the same annual amount spent subsidizing employer-based health insurance.

Read the rest at