Work Ethic, the Welfare State and the Income Gap

by James A. Bacon

Once again, Bacon sallies forth into the debate over the rising income gap… The latest piece to catch my eye is a new paper, “The Swedish Model Reassessed: Affluence Despite the Welfare State,” by a Finn, Nima Sanandaji, and published by the Helsinki-based Libera Foundation (which, as far as I know, is not funded by the Koch brothers, although you never know for sure, because they do have a global reach!)

Sweden is American lefties’ favorite country because it is living proof that the socialist welfare state works. The Swedes, for all their high taxes and wealth redistribution, have maintained a high standard of living. However, Sanandaji argues that the Swedish model worked briefly only because it was living off the prosperity created by decades of entrepreneurial, wealth-creating capitalism, a strong work ethic and a value structure that inhibited Swedes from gaming the system.

By the early 1970s, the socialist welfare state reached its apogee — and economic growth slowed dramatically. By the 1990s, the Swedes realized the system wasn’t working and embarked upon a dramatic about-face. While taxes remain high and the labor market rigid, Sweden enjoys among the greatest economic freedoms of any country in the world. The private sector is highly competitive and globalized, school vouchers create competition between schools, the national pension system has been partially privatized and tax rates have been cut. As a result, economic growth has rebounded.

The most intriguing aspect of Sanandaji’s paper is the emphasis given to social norms. Until recently, Sweden was one of the most homogenous societies on the planet. “For a long time, the religious, cultural and economic systems in Sweden fostered strong norms related to work and responsibility,” he writes. “Since the norms relating to work and responsibility were so hard, Swedish citizens did not usually try to avoid taxes or misuse generous public support systems.”

But as Swedes came to feel increasingly entitled to generous government benefits, those norms declined. In 1981-84, almost 82% of Swedes said that “claiming government benefits to which you are not entitled is never justifiable.” In a 1999-2004 survey, the percentage had declined to 55%. Since the partial rollback of the welfare state, that sentiment has moved back up to 61%.

Sanandaji cites Swedish scholar Assar Lindbeck’s theory on the self-destructive dynamics of the welfare state: Welfare erodes norms relating to work and responsibility. As dependence upon welfare state institutions increase, the work ethic declines… and dependency increases.

Now, let’s bring that back to the ongoing discussion over the income gap in the United States. We are approaching nearly a half century of the Great Society. We’ve had two or three generations of Americans born into welfare-state dependence. Has there been erosion in the work ethic? Many would say that, yes, the work ethic is weaker across the board, affecting all strata of society. (I know how hard my wife and I try to instil a work ethic in our 13-year-old son — trust me, it’s hard work!) But I would hypothesize, subject to empirical verification, that the erosion of the work ethic has been most acute among those raised in the multi-generational culture of poverty, e.g., a culture of welfare dependence. Insofar as the lowest-income Americans regard financial support from the government as a right and entitlement, they feel less motivated to make the sacrifices needed to acquire an education, work hard and find better jobs and make more money.

If the bottom 20% of American tax filers are earning no more in inflation-adjusted dollars than they were 30 years ago, it’s not because America’s market-based economy is inherently biased against the poor. (The crony-capitalist system that we are embracing may favor the rich, but that’s a different issue.) Tragically, the disparity in income is used to justify even more of the wealth redistribution schemes that helped create that disparity. But the redistributionist schemes will only perpetuate the culture of dependency and poverty.

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26 responses to “Work Ethic, the Welfare State and the Income Gap”

  1. How can you favor the rich without being biased aainst the poor?

  2. well… how about this? Is a progressive tax system biased against the rich?

  3. “But the redistributionist schemes will only perpetuate the culture of dependency and poverty. ”

    I don;t see how conservatives expect to have it both ways. In arguing about the increasing income and wealth inequality the bloggers over at Carpe Diem have argued that the income inequality is trumped by income mobility. 45% of people in the lowest incme group in 20071were not in that group by 2007.

    Cox and Alm’s findings were supported by a U.S. Treasury Department study that used an entirely different data base, income tax returns. The U.S. Treasury found that 85.8 percent of tax filers in the bottom income quintile in 1979 had moved on to a higher quintile by 1988 — 66 percent to second and third quintiles and 15 percent to the top quintile.

    If that is the argument to be used in refuting the existence or the presence of the income gap, then how can they ALSO believe in the idea we are perpetuating a culture of poverty and dependence?

  4. “If the bottom 20% of American tax filers are earning no more in inflation-adjusted dollars than they were 30 years ago, it’s not because America’s market-based economy is inherently biased against the poor. ”

    Maybe not, but you cannot make that comment and ALSO believe that the job creators deserve so much money because they are the ones making society better off.

  5. “In looking at those at the very bottom for the period covering 2004 through 2006, the U.S. Census found that only 2.8% of the entire adult U.S. population were counted as being continuously in poverty during that time (despite 12.7-13.3% of the entire U.S. population being counted as being below the poverty line during that period.) For most people, it’s a very temporary condition.”

  6. I give the Republicans credit for coining the term “job creators” but I’m a skeptic that every person who earns 250K or more is a boni-fide “job creator”

    not that I think we should tax the bejesus out of someone who makes money hand over fist but does mot “create jobs”…. but the whole idea that “job creators” should be exempt from taxes… is laughable but like I said it’s a good spiel … and so far it “works” for the Republicans.

  7. I don’t doubt your statistics, poverty is a temporary condition for most people.

    What I would add is that what we are witnessing now, and what people are realizing, is that they are not as far from being poor as they once thought.

    The Tea Party and Occupy Wall Street folks are examples of this, they are just attacking the problem from two different ends. The Tea Party thinks it’s the government’s fault they are almost broke and the Occupy Wall Street folks think it’s the rich people’s fault.

    If you loose your 75k/year job and the best thing you can find to replace it is a 40k/year job then you probably feel like you have become poor, despite what the government says.

    You will have to drastically downsize/change your lifestyle because you can’t afford to maintain the current one. To do that costs money….the house you can no longer afford will have to be sold (probably at a loss), the other debts you have taken on take up more of your disposable income, etc. etc. – It’s a viscous cycle.

    While it may be a lesson from the school of hard knocks, it’s still a reality if your moving DOWN the income scale. Which, BTW, is what is happening to the the Tea Partier’s and the OWS people simultaneously.

    Hell, maybe their both right.

  8. I’m not able to completely calibrate how the two groups compare and contrast but I tend to think that the OWS believe that gov has been bought and is owned by the rich whereas the tea party folks think the govt is out to take their money.

    Many in the OWS group want the govt MORE involved in healthcare while the TPs want govt out of it (except forMedicare).

  9. We are operating under a rhetorical fantasy when it comes to talking about job creation. I think the true situation looks like this:

    1) A new company does create jobs, by definition.
    2) Many new companies fail, hich costs jobs.
    3) Many new companies have only one or two workers.
    4) On average new comapnies have to succeed ten or mor e years before they actually start hiring (become more than 10 employees)
    5) Many new companies have no intention of expanding or innovating, they are content to survive and be self directed.
    6) The fast majority of emplyees in the US are employed by only around 1600 large corporations.
    7) If a new company does employ significant new people it may well happen when they are bought out by a large corporation.
    8) If you look at Google, Yahoo, and Amazon combined, they employ fwer people than we need to add jobs for – every year.

    Deespite all this the Republicans have successfully sold the idea that small business are our jobs salvation, and if we just stop taxing them to death we will have plenty of jobs – starting tomorrow. This ignores the fact that it takes years for those new companies that a) survive, and b) wish to grow, to become actual employers.

    This is all lost on poor and unemployed conservatives who continue to vote Republican.

  10. I reiterate my question from above: which conservative spiel are we to believe?

    1) Income inequality is not a real problem because it is more than compensated for by income mobility: most poor people do not stay poor.

    2) As dependence upon welfare state institutions increase, the work ethic declines… and dependency increases. Redistributionist schemes only perpetuate the culture of dependency and poverty.

  11. it’s not just the poor. The middle class has just as much or more of an entitlement mentality. The biggies for the middle class are mortgage interest deductions, kid deductions and college loans.

    those above the middle class are looking for whatever tax shelters are available to them to minimize their tax liability.

    the current size of the 1.5 trillion deficit is not going to be erased by taxing the poor.

    everyone is going to have to take a haircut – and everyone is arguing that the other guy should get the haircut.

    we have an irresponsible ethic now days that permeates much of society no matter the demographic.

  12. Groveton Avatar

    Just saw another resume this morning from a woman who needs a job.

    Bachelors and Masters degree in accounting. CPA. 10 years solid work experience.

    Had been happily working as the regional accounting manager for a professional services company’s north east region. All operations for that region are performed for American companies or subsidiaries of foreign companies working in the NE United States.

    Her job is being outsourced to India.

    Will my small but fast growing company create a job if I hire her?

    Libtards beware: This is not about taxing the rich.

    Contards beware: This is not about people having an entitlement mentality.

    This is about a group of corrupt cowards working at 1600 Pennsylvania Avenue and on Capitol Hill.

    We might have been able to lift up 130M Mexicans by outsourcing to Mexico and turning a blind eye to illegal immigration.

    We will never be able to lift up 2+B Indians and Chinese by doing the same.

    We are watching a nation commit suicide and the Kevorkians in our political elite are doing this with impunity.

  13. so Bacon is talking about who should be taxed (or not) and Groveton is talking about jobs for people who ultimately would pay taxes instead of needing entitlements.

    here’ s my shtick:

    1. are jobs that are being outsourced going to people who have better skills and education than our folks ?

    2. assume they’re NOT – that the reality is that some jobs have been made much simpler by automation/computers so that folks with LESS education and skills who will work cheaper can now do those jobs.

    3. are there jobs in companies like Groveton’s that DO REQUIRE higher skills/education that are hard to find qualified American candidates?

    4. (this is a lay-up) – how well are Americans competing education-wise with their overseas competitors ?

    5. – do we really want the lower-paying, lower-skilled jobs in this country as the core of our economy?

    6. – if 70% of our kids graduated with a globally-competitive education (instead of the 30%) – would the lady applying to Groveton’s company have other options? 🙂

  14. Groveton Avatar


    The Indians are plenty smart and plenty hard working. They are good people who I have always respected.

    The problem is that outsourcing is arbitraging America’s way of life. We threw off the yoke of British colonialism almost 200 years before the Indians did the same. We established the infrastructure for managed capitalism almost 100 years before the Indians did the same.

    The Indians have closed the gap. Meanwhile, technology has made long distance communications and collaboration both sophisticated and cheap.

    Now what?

    The liberals think that it’s only right that America’s cures the world’s historical wrongs by turning a blind eye to illegal immigration and opening the doors to broad legal immigration. Liberals also believe that American workers should receive a vast array of social benefits which are unheard of in the developing world. Finally, liberals believe that American companies operating in America should adhere to conservation regulations and laws that would make any Indian laugh. The inevitable destruction of the middle class through outsourcing does not concern the liberals. They will “tax the rich”.

    The conservatives believe that free enterprise should be unfettered including a full and unregulated ability to globalize. Didn’t Schumpeter tell everybody that free market economics is a matter of creative destruction? Meanwhile, the conservatives are adamant that the United States maintain its military leadership in the world. They seem unable to link a vibrant economy to the ability of a country to afford a world class defense. With the echoes of, “Mr. Gorbechev, tear down that wall!” still ringing in their ears they have developed amnesia as to how quickly the Soviet Union fell once its wobbly economy finally tipped over.

    The two side remain locked in an ideological stalemate while the United States is speeding to her doom. Each side has a large cadre of useful idiots only too willing to continue the stalemate with mindless banter.

    Politics in America has stopped being a means to and end (i.e. a better America) and become a spectator sport.

    Just once I’d like to get Eric Cantor and Nancy Pelosi in a room. I’d feed them some truth serum and ask them what they personally plan to do after the collapse of the United States.

    1. Hole up in a gated community somewhere in Henrico or Marin County?
    2. Take their ill-gotten gains and flee to another country?

    Or, is it possible they are so stupid that they don’t see this coming?

  15. Groveton Avatar

    “ We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises … I say after eight years of this Administration we have just as much unemployment as when we started … And an enormous debt to boot ! ”

    These words were spoken 72 years ago before the House Ways and Means Committee in May 1939 by Henry Morgenthau, Jr. — close friend, lunch companion, and loyal Secretary of the Treasury until 1945 to President Franklin D. Roosevelt — and key architect of FDR’s New Deal.

  16. I’d feel a whole lot better if the “conservatives” who claim they are fiscally responsible would deliver the goods along with their other ideas for cutting entitlements, having a strong military and outsourcing.

    why do we get half a loaf … ?

    I have a hard time buying the conservative “ethic” when they fail at job 1 – keeping the budget responsible. whatever else they blather about loses it’s punch when they’are financing everything on the chinese credit card.

  17. Groveton Avatar

    And I have a hard time buying the liberal “ethic” that is the government only spends more then everything will get better.

    The government has been spending more and more of America’s GDP for years and nothing has gotten better.

    Obama’s half-assed approach has been tried before and has failed before. That’s what Roosevelt insiderHenry Morgenthau said when he apologized for the last “spend like a drunken sailor” episode in 1939.

    After a failed spending of about $850B on prior stimuli Obama wants another $450B.


    Thank God there are enough Republicans in Congress to stop this latest round of idiocy.

    Cut the budget AND raise taxes? Fine.

    Raise taxes WITHOUT cutting the budget? No chance.

  18. Groveton – taxes are the lowest they have been in 60 years. The DOD budget has doubled since 2000. How would you like to pay for it?

    or… if you believe like the Republicans say that we have a spending problem – where are you cuts that total to 1.5 trillion?

    this is what I’m talking about.

    you guys talk the talk but then you run away from the walk the walk.

    if you think too much is being spent – I don’t want to see you pointing fingers at the Dems/libtards.. I want to see YOUR PLAN to achieve balance.

    there is no leadership here.

    it’s all about blame… and a staunch refusal by those who claim to be fiscal conservatives – to actually demonstrate HOW to be fiscally conservative.

    This all started under Bush when he said we had no choice but to go to war and we also had no choice to not pay for it.

    ever since that time the so-called conservatives have made nothing but excuses about actually proposing a real balanced budget.

    they simply do not have the courage of their so-called convictions.

    we can blame libtards til the cows come home but where is the leadership?

  19. The process is flawed as it tolerates and, even, encourages over-spending. Require a 55% majority to pass a congressional budget. Liberals will be able to stop conservative favorites. Conservatives will be able to stop liberal favorites. Spending and the deficit will fall. So will lobbying expenses.

  20. I would have absolutely no problem totally exposing the tax&spend crowd for what they are but the folks who say they are fiscal conservatives themselves are being hypocritical.

    I expect people who say they are fiscal conservatives to provide their plan for balancing the budget and when they do that – it will expose the tax&spend folks.

    but you know what – those folks who claim they are fiscal conservatives – they’re hypocrites… they talk-the-talk but they won’t walk-the-walk.

    who is worse – people who don’t claim to be fiscal conservatives following their typical and expected practices of tax & spend or the folks who say they don’t do that and advocate for balanced budgets?

    If you advocate for a balanced budget – you need to present a plan for doing that.

    I think it is totally bizarre that the folks who claim to be fiscal conservatives but won’t provide a balanced budget plan – say that it’s up to the tax & spend crowd to do that?

    Since when?

    how can one be a fiscal conservative.. but provide no leadership on the issue and then blame the tax&spend folks?

  21. Groveton Avatar

    Corporate income tax collections have declined consistently over the years, from 5.9 percent of GDP in 1952 to around 2 percent in the mid 2000s. The financial meltdown of 2008 reduced corporate income tax collections in half to 1 percent of GDP.

    This is the government you worship and adore, LarryG.

    Bought and paid for by corporate campaign contributions.

  22. Politics in America has stopped being a means to and end (i.e. a better America) and become a spectator sport.


    You mean the goal ought to be higher net social value? A better America? Egad, what socialist claptrap

  23. re: Ron Paul’s plan – does indeed balance the budget and he deserves credit for doing what no other Republican save for Paul Ryan has done.

    but virtually no other Republican has signed on to Paul or Ryans proposals nor will they sign on to either budget commissions proposals.

    they have signed on to no plan.

    they blather on about a “spending” problem but that’s where they stop.

    this is no plan that Republicans will sign on to – least of all Ron Pauls plan which cuts DOD back to 2000 levels.

    at the same time they will not back ANY Plan they will not agree to the President’s proposals either.

    so Groveton – what “works” for you is not “working” for the folks who say they are fiscal conservatives – and it’s not like it’s Obama’s problem because this same group could not bring themselves to a balanced budget during the Bush years either even though they inherited a budget that much nearer to balance.

    I really don’t care about what people think is “best”. It’s like arguing what you think is “best” for your own home … but then you have to deal with the reality of your own budget and choices have to be made.

    If someone wants to play the fiscal conservative side of the street – they have a responsibility to do more than lip service and blaming others that have never said they were fiscal conservatives to begin with.

    we are where we are right now – because the folks who say they are fiscal conservatives have utterly failed to perform their self-avowed role.

  24. I really don’t care about what people think is “best”.


    Well, there is the problem in a nutshell. There must be some objective “best” available net public benefit (GIVEN THE CURRENT AND RECENT CONDITIONS) , but all we argue about are subjective ones.

    The net public benefit could be measurable, if we decided to do it, and then you would not have to worry about what people think is best: working toward the actual best would be hard enough.

  25. well no. In your own household budget do you really practice what you preach?

    I doubt it.

    You look at how much money you got and you know you cannot spend more than that without serious financial consequences downstream so you make hard choices that you probably know are not the “best”.


    do you actually sit down and try to figure out the “net” benefit?

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