Well good afternoon ladies and gentlemen. I believe we're scheduled to Conduct this session from three till three forty five. Is that what your schedule says? All right. We're on the same page so I'd like to get started now many of you have Read Various writings by Murray Rothbard and if so you've almost certainly run across a Term called the welfare warfare state Murray coined this term in the late 1960s and Since that time many Rothbardians have adopted it and used it as a way of Characterizing the kind of political economy that exists both in the United States and a number of other countries around the world It's interesting to to compare different names that people give to this Raining political economy For many years, I've used a term that I borrowed from a student of mine Charlotte twight Which she first used back in the 1970s in a book she wrote before she was my student And that is the term participatory fascism and so I'm very fond of that term, but but welfare warfare state is a is a good term to and More literal in some ways Now if I were have if I had been sitting with Murray when he concocted this term I might have actually advised him to turn it around because in my mind the warfare state is Is something that precedes and Actually embodies the welfare state the welfare state sounds Soft and cuddly as compared with the warfare state that sounds hard and vicious But as I emphasize in my talk yesterday The warfare state is a is one in which The government goes to war not only against the foreign enemies, but also against the people it purports to be Protecting and representing and the welfare state, although it sounds warm and cuddly and helpful and Generous all those things that progressives associate with it Is in a sense impossible unless the government first goes to war against the people In order to have the means To pay for the benefits that government dispenses under the umbrella term welfare state the government must first steal or extort The money in order to make these payments or purchase these benefits in kind so so the warfare state and the welfare state are intimately related and If one looks at the history of The development of the welfare state one sees a series of episodes in which that connection is quite clear And I'll discuss some of those instances in this session now Many people especially those who haven't studied the welfare state very much Tend to associate it with the with the new deal in the United States with government policies adopted by the Roosevelt administration during the Great Depression of the 1930s If one does that one is starting off his understanding on completely the wrong foot and It in a sense gives far too much credit or blame to Roosevelt and the Rooseveltians then they deserve they were carrying out policies and Using ideas that had been around for some time already and they were in many cases simply expanding or adopting Models that had been in use sometimes for 50 years or more Somewhere in the world sometimes in this country sometimes only in other countries but Another idea that that lay people often have is that until the war the welfare state was created People who are destitute were helpless They they had no one to to assist them in in hardship or when they were sick or too old to work or otherwise unable to care for themselves and This is the the worst kind of myth It was never ever As far as we know anything about human beings Never the case that people who were too old to care for themselves or too sick Or hurt and unable to take care of themselves were simply abandoned and thrown to the wolves That it's not the nature of human beings So when people were in hardship, where did they get their help? Well, they got it mainly from their relatives from their kinfolk they got it from neighbors from people who belong to the same church or Other private association they were connected with So people use their civil associations and their familial associations as sources of assistance during times of hardship and There was nothing extraordinary about this but people didn't think For centuries of the family as a welfare institution. That is just what families did People cared for their relatives Well, the family has weakened over time and that was one of the reasons why proponents of the welfare state thought that we needed a welfare state that they argued very often that the Family relationships that people had depended upon earlier were no longer reliable that families were too unstable They were too split up by migration or other Movements that tour family members apart from one another and made it more difficult for them to look after each other and so the state and in a sense They thought had to step into the gap but as it turned out even if that were to some extent the case Once the state started stepping in to fill the gap It also had the effect of crowding out the remaining voluntary efforts to take care of people It then became easier for relatives to say oh my brother's in trouble, but I don't need to help him The state will help him My parents are too old to work, but I don't need to care for them because the state will give them a pension My cousin is sick. I don't need to care for him because the state has sickness insurance health insurance and So even if the argument had some validity in the first place Once the welfare state was created and began to operate it had the effect of crowding out voluntary efforts Now obviously it never completely crowded those efforts out Because a great many of them still occur today. There are many many private organizations of various kinds some church related some related with to unions and Ethnic associations and a whole variety of groups that help their members out in times of hardship But it's also still the case that family members assist one another and the family remains the most important social unit You see this for example in the extreme cases like the countries that adopted communism The communists tried to eliminate all intervening Organizations all these private organizations that had grown up over the centuries Including those associated with the churches. They tried to destroy they tried to create a situation in which individuals were connected to the mighty nation state And nothing stood between the two And that included the family because the communists did such despicable things as encourage Family members to act as informants to the police against one another And this is one of the most horrifying aspects of life under communism I've spoken to Number of people who lived in central Europe or in Russia About the fact that you couldn't trust anybody except your closest family members One woman I knew used to describe how she and her mother and father lived in an apartment would go to the side of the apartment To talk about certain things because they knew that on the other side of the apartment was a neighbor who listened to them Through the wall with a stethoscope Imagine living like that This is horrifying Of course, this happens now to us without the stethoscope because we have the NSA and the FBI and all the rest of these electronic snooping agencies that watch our every move and Don't require the presence of a human being to act as an informant We're all informing on ourselves if we have a phone in our pocket And yet we're so accustomed to this technology that doesn't occur to us that We're in almost the same position as people lived in under communism in the USSR Watched at all times monitored our words recorded our messages recorded our mail photographed our checks and credit card Transactions transactions photographed and recorded and placed in gigantic databases linked to one another so that whenever Some authority wants to call up information on us one or two clicks tells him everything there is to know about us That's a horrifying world and we're living in it right now, but that's an aside Meanwhile back at the birth of the welfare state We can actually go back to the 16th century in England Because we're talking in this session about the United States and the origins of this country lie in the English Colonists who came here in the 17th 18th centuries and set up colonies that later formed the United States of America When these English people came over they brought with them the full set of English customs and practices and one of those customs was the system of poor relief that we can trace back to Several statutes enacted in the 16th century first under the tutors and especially under Elizabeth the first the Queen of England for a long time in in the 16th century These laws can be traced further back to to labor shortages after the Black Death to the Existence of many beggars wandering around in England and other parts of Europe without employment Some of these people unable to work some unable to find work but reduced to begging and There was little tolerance for begging in England and Probably little tolerance on the continent as well, but at all events in England beggars were were treated as criminals basically, they were punished and They were sometimes killed for a second offense Gradually the severity of the system lightened somewhat, but it remains severe to the very end The idea was that the people didn't want to support anyone Who wasn't working to support himself if it were at all possible for that person to work to support himself Now under the system of poor relief in England there were two two different kinds one called indoor relief and another outdoor relief In outdoor relief a person lived somewhere on his own but could receive food and perhaps some clothing from the local Parish officials the whole system was organized at the parish level The parish of course is an ecclesiastical unit of jurisdiction, but but in England there was a state church So the civil government and the religious government were actually one in the same and many state functions were carried out by the by the church authorities or by churchmen themselves indeed the whole system of poor laws as it came down after the 16th century was an upshot of Henry the 8th Declaring the Church of England independent from the Catholic Church headed by the Pope in Rome and when he did that he plundered the church and That included plundering the monasteries and the monasteries had been the principal Dispensers of assistance to people who were unable to take care of themselves. So He had destroyed these these previous providers of help and so something had to be Divised to put it put in place of the old monastery system. So what was put was the parish system of assistance operated by churchmen and local officials and Funded by a local tax, which was usually called the the poor rate tax on People's land values for the most part People didn't like paying the poor rate and they wanted to keep it as low as they could and one way to do that was to Keep the number of poor people being cared for as low as possible And they thought the best way to do that was punish people who were asking for assistance make it even risky for them to come forth and Ask for assistance Sometimes people were whipped But at all events they they were never welcomed with open arms So if you ever think you'd like, you know some of these right-wing Republicans are callous about the welfare system Well, at least they don't any more proposed to to give floggings or Execute people who go on welfare. So that's some progress the The poor system came over to the United States Or to the colonies that became the United States in a little different form because the parish Organization of civil government didn't exist here organized churches didn't didn't exist everywhere and and at all events we had a more More reliance here on the civil government and less on church government So the the system of local relief such as it was and it wasn't much Existed at the county level and on an ad hoc basis at the municipal level cities and towns might if there were some extreme case of distress, you know, perhaps the The town had been flooded or Some terrible epidemic had struck or something out of the ordinary had taken place and a lot of people Needed help then a town might provide temporary meals or food stuffs But this was not something that was done routinely or chronically it was extraordinary and the counties became the units where destitute people were cared for and In this case, they were mostly cared for with indoor relief That is they they were sent to the county poor house as it was called And it must have been called that for a long time because when I was growing up my parents used to speak of The threat of going to the poor house So at least the term was still around Now is to put the fear of God in us to work You better get in gear. You'll end up in the poor house was the threat that But the counties did have these places where poor people were housed and taken care of and often these people were Were not even able to work at all. They were crippled. They were old they were mentally unfit Or in some other way just simply couldn't take care of themselves So so in some cases there wasn't any great question about whether they could support themselves or not They obviously couldn't and if they had no relatives about To support them or they had no friends or neighbors willing to undertake the task Then then they were not allowed to simply die Even if the government which wasn't interested in doing this had to be the ones taking care of care of them so This dying in the gutter story that we hear every once in a while At least as a term of speech is completely a myth. There was no abandonment of destitute people ever now in the Colonial period and into the 19th century The government didn't have much tax revenue at any level But it had one resource of immense value or at least potential value and that is it had a great territory The government of the United States when it was founded extended all the way to the Mississippi River and That was a big enough area right there To make the United States bigger than almost every European country it's a giant area and in 1787 that that territory was almost all uninhabited or very lightly Inhabited so what the government could do when it wanted to give people something It couldn't give them money because it didn't have much to give but it could give them land and So as a reward for veterans in the nation's wars Who were often paid very little for their service? They were commonly promised Land if they would serve and then if they completed their service Successfully they would be given warrants which were kind of claims to purchase a certain Purchase or actually receive without payment certain amount of land in Stipulated territories in the West so so that's one of the reasons I was Cautioning yesterday you have to be careful when you talk about the size of government If you look back in the early 19th century, it looks like the US government is not very big It doesn't have many resources at its disposal, but it had a continent So that was not nothing Particularly at a time when 80% of the people were farmers Or closely connected with farming for a livelihood So veterans pensions became quite common when the great war took place between the states of 1861 to 1865 It created a gigantic group of veterans The ones who had fought on the on the side of the Confederacy were just out of luck If they were wounded or disabled or later on became sick They had to use the usual resort to relatives friends and churchmen, but in the north where the Soldiers had always been better provided for the north was a wealthier area than the south at the time of the war The the veterans immediately organized a lobby called the Grand Army of the Republic the GAR and What these guys wanted was more lavish pensions for their service during the war and To an increasing extent they wanted pensions not only for themselves But for their survivors if they died before their wives they wanted their widows to receive a pension Sometimes they wanted their dependent children to receive pensions and so here we have over a million people With a strong political claim to fame For decades after that war the the republicans ruled national government almost without exception Only twice was a non-republican elected to the presidency That was the two terms and Grover Cleveland was elected But otherwise every every president of the United States from from Johnson on Onward up through McKinley. They were they were all former officers in the Union Army and Every election that took place in those days Involved the republicans Campanning on on the grounds that they were the party of loyalty. They were the party you'd save the nation against the rebels and This is what historians came to describe as waving the bloody shirt You know, don't forget us, you know, we were the guys who saved the day Back in that terrible rebellion When people just wanted to leave Can't have that so so the The the republicans were quite responsive to the GR's lobbying efforts and so responsive in fact that it became scandalous Large part of the federal budget was used to pay these veterans benefits and benefits to the family members of veterans and Many people who didn't qualify even though it was not hard to qualify They got included in the system through what was called private bills. This was an active Congress That's that said something like The government of the United States will provide a pension to John Doe of Tipton, Ohio For his service in the war Well John Doe might have been a guy who whose service in the war Extended no further than joining some military unit and then deserting but if he had a Friend in Congress He might be able to get a private bill and end up with a pension anyhow These these private bills are so outrageous That when Cleveland was president Cleveland was remarkable in that for a politician. He was astonishingly honest Now I emphasize he was still a politician So consider the standard I'm employing here, but he was remarkably honest and One manifestation of his honesty was that he vetoed hundreds of these private bills and of course that gained him the enmity of all Republicans who were using this great pension scheme as a vote-buying scheme about a 28% I believe it was of the entire federal budget in the 1880s and 90s went toward paying veterans benefits This was a welfare system. Okay. It was the first national welfare system in the United States Now it didn't include everybody. It was selective. It was only for veterans and their family members But nonetheless it was a big deal It was a large program with a large part of the entire federal budget and it Strengthened that model that already existed of providing benefits to veterans and Made it a kind of model from that time on up to the president of providing lavish post-service benefits to people who serve in the US military and the late 19th century Socialism was becoming quite an important political movement in Europe Especially in Germany probably more so there than anywhere else Remember Karl Marx was a German himself Even though he he lived in London for a long time But Marx and Engels German guys Spent a lot of time in Germany or with other Germans participated in the revolutionary events of 1848 which didn't get them anywhere but in trouble, but but nonetheless These socialists want to be revolutionaries We're having more and more success and in disseminating their views and getting people to become Socialists and form socialist political parties elect socialist members to some of the parliaments Including the parliament in Germany after Germany was united in 1870 and became a huge important nation state Instead of dozens of little German principalities so this new German state was a was a big boy on the block and Yet it had some challengers Particularly the growing socialist movement Otto von Bismarck Who was the brains of the outfit? The new German state had a plan and He he he thought about this and he said It's a mistake to go out and just shoot people down in the streets Because of the challenge they pose to the state that just might make them angry and and actually Encourage more people to join their cause if we act with too heavy a hand Let's co-op them Let's take their their argument away from them They argue that capitalism is cruel That it leaves people in distress That it breaks men down leaves them unable to work it Puts them in jobs where they get hurt and can't work it It leaves them in positions when they get old where they can't care for themselves anymore This we will provide benefits for these people will provide sickness insurance will provide accident insurance will provide old-age pensions in In other words will provide most of the things that we now call the welfare state as A coherent system the welfare state was Invented by the Germans of Bismarck's administration It worked Now the socialist movement continued to grow in Germany, but the reason we know it worked is that the Socialist movement of those days was international workers movement. It was a movement that told workers look you owe nothing to the state They're your enemy. They're the executive committee of the of the bourgeoisie There they're people they're people who are just trying to exploit you and Your true comrades your real brothers are the workers of other nations You know, you know the communist motto workers of all nations unite you have nothing to lose but your chains You know that Well a lot of Germans acted for decades if that as if they believe that but then came 1914 and in that case Good Socialists would have said Of course, we're not going to war against our comrades in France our comrades in England There are brothers you people in the German government are enemies But their socialism didn't go deep enough It was like the Missouri River a mile wide and inch deep So they marched off to war by the millions and lost their lives At the same time that socialist workers in France and socialist workers in England and other countries marched off to war and lost their lives fighting their comrades Tragedy This is one case where socialism actually looks good as an alternative to what people chose instead Which was military madness Meanwhile, however, Germany had become a great model for others including Americans and In the 19th century until the very end the United States didn't have anything you would call an Intelligentsia and class of intellectuals There there had been interesting people here who wrote things You know we had some good writers in the middle of the 19th century and even earlier So there were writers there were there were some smart people here and there who Who lived the life of the mind But there was no class of people you could point to and say that's the American intelligentsia In the same way you might have been able to point to a class like that in Germany or France but in the late 19th century some Americans started to want to have an Intelligencia they wanted to belong to it and they wanted to have one like the best one on earth Which was the German one the Germans had all these great old universities had been there for hundreds of years And they train people to an advanced level in liberal arts feels like history economics law and You could go to Heidelberg and you could get something called a PhD degree doctor of philosophy That was way up there You couldn't go anywhere in the United States and get a PhD degree until 1876 when the first PhD granting University was founded in Baltimore Called John's Hopkins University. I Should have worn my Hopkins tie for this lecture, but I neglected to do that That's where I got my PhD strangely enough But let me tell you when I think about myself along with the other Hopkins PhDs. I don't feel as if I'm in completely good company Woodrow Wilson was a graduate with a PhD from Johns Hopkins And some other unsavory people were also graduates of that distinguished University which now is distinguished by among other things being a chief contractor for the Pentagon as it has been for decades Lots and lots of money comes into Johns Hopkins from the Department of Defense It's not the only one mind you most major US universities play the same game But at all events Hopkins began grant granting these advanced degrees and then Harvard and Columbia and some of the others followed before long But meanwhile an aspiring young American intellectual really had to go to Europe and do the dirty work and Especially to Germany. So that's where they went. They marched off to Germany and at that time the German professors in fields like economics We're mostly members of what is Now called the historical school these these are of course the great enemies of the early Austrians the enemies particularly of Karl Minger The enemies of Bombard the enemies later of Ludwig von Mises They all wrote extensively against the German historical school to show how misguided its thinking was But besides being misguided methodologically the German historical school to which most of those German professors belong Was extremely statist? These professors actually looked upon the German state as almost a religious institution It was something that wasn't just useful or helpful or necessary and For defense purposes or some some other civil purpose the state was like the Hegelian embodiment of the of the highest will of the people What crap you know this used to be the highest order of thinking coming from these elevated German professors and Americans went over to Germany and absorbed this kind of thinking and came back to the United States and Said look if we're ever going to be a civilized country over here in the wilderness We have to do things the way the Germans do things And that includes being a having a welfare state They have a welfare state. Why don't we we've got these workers in factories getting hurt. Nobody takes care of them People get sick. They can't work people get old. They can't work. Look that doesn't happen in Germany the government needs to Start doing these things We need to follow the elevated example of the Germans Now you might think that kind of thinking Surely died out years ago but no In fact some of the progressives such as Hillary Clinton Very much subscribed today to the idea that if the Germans are doing it. We should be doing it, too Even in 2015 as The German welfare state is looking oblivion in the eye and The last generation on easy street is enjoying their vacations in Latin America and the Sun Their children their grandchildren aren't going to get those benefits because the state cannot any longer finance that kind of lush Transfer of income But the German model was a great inspiration to Americans One of the Americans who went over there was a man named Richard E. Lee And if you want to read a really good description of him and go read Murray Rothbard's a little vignette of E. Lee His name is spelled E. L. I He L why right Danny E. L. Y. I got that wrong E. L. Y. Richard E. Lee and There's a there's a wonderful essay by Rothbard called World War one as fulfillment. And if you just Do a search on World War one as fulfillment you'll get Direct links to to the essay. It's available from the Mises Institute's website and from other places But one section of that that wonderful paper deals with Richard E. Lee And E. Lee became almost a one-man welfare state crusader Who pushed in all directions for the government to become more expansive in providing benefits to people? He hated laissez-faire and At that time in the late 19th century there were still quite a few economists who followed classical economics. They were still using John Stewart Mills textbook and their classes, you know the height of classical economics or some of them had discovered neoclassical economics and the form of Marshall and and Jebens and and The other neoclassicals who came along in the late 19th century but E. Lee and his followers hated laissez-faire they hated just as the historical school in Germany hated Austrian economics in fact they there were the ones who called it Austrian economics these guys in Berlin and Heidelberg called it Austrian economics to emphasize What it was a work of a bunch of? baboons down there in Austria Outlanders, you know people who weren't in the civilized part of the German world Austrian economics It's like the guys at a harbour calling it Arkansas economics Which is kind of stupid when you think about it Vienna being you know arguably the most civilized city on earth in those days But that never stopped anybody who was intent on leveling an insult did it so anyhow the the the idea of these E. Lee followers was that laissez-faire economics classical economics neoclassical economics that was all wrong It was too abstract It it glorified markets when all they could see was market failure everywhere They look you know they could see nothing but poverty and destitution And of course there was plenty of poverty and destitution in the 1880s and 1890s anywhere you looked in the world there were poor people and a lot of them Because no economy in the world at that time was highly productive so productive they could provide a high level of living for every member of society So yes, there were a lot of poor people. There were people in destitution. No doubt about it But what we know in retrospect is that things were getting better for the masses not worse Wherever laissez-faire had a fighting chance and E. Lee and his progressive friends did not understand that well E. Lee and his Comrades have proved to be very influential. Let me give you just one example E. Lee trained a student at Hopkins called John commons and Commons became a very prominent American economist in the first part of the 20th century And after he graduated he went out and became a professor at the University of Wisconsin and Wisconsin became a kind of hotbed of the welfare state first devising measures to be used at the state level by the government of Wisconsin But always promoting these more widely so that others would adopt the same policies and perhaps even the national government would adopt them Eventually because some programs didn't work well at the state level like unemployment insurance If you required every employer in Wisconsin to provide unemployment insurance Well, that was just a good way to get employers to move out of Wisconsin and shift their production to some other state where they didn't have to fulfill that requirement So The progressives concluded we have to have a national unemployment insurance program Eventually they got one E. Lee gave rise to commons and commons trained a Man named Edwin Vitti W. I. T. T. E Vitti was not much of an economist But he knocked around and rubbed shoulders with politicians in Wisconsin and eventually he got himself appointed the chairman of a committee appointed by President Roosevelt in 1934 called the Committee on Social Social Security and he and that committee Wrote the legislation that became the Social Security Act and acted in 1935 the very hardened soul of the modern American welfare state so blame E. Lee Via commons via Vitti It's easy to trace and there's no doubt about it because we can see the influence passing from one of these to the other so This sort of thing was going on the Germans proved very influential in the creation of the American welfare state indirectly In the early 20th century some of the activity of the welfare status Took place at the state level and providing aid to widows and orphans This was a kind of expansion of the old poor law actually, but these programs became bigger better funded Better organized in almost every state by 1930 In the late 19th and early 20th century, we had a dual development on the ideological front first among clergymen of something called the social gospel and Of course Christians had always understood that caring for the poor was a duty. I Mean if you don't understand that you haven't even dipped into the Bible And before that before Christianity came into being caring for the poor was a duty of Jews So Christians understood that caring for the poor and for the other misfortunate people was part of their obligation and they had done that in many ways I mentioned the monasteries in England that that gave assistance to destitute people But this was this was a kind of function undertaken all over the Christian world So there wasn't anything odd about it and you might think okay. We've got that one covered What is this so social gospel movement? Well, this was a movement among people who were I Should say not really very fired up about theology They belong to churches that had become solidified and formalized in their rituals and their doctrine and They were the kind of Christians that basically just go through the motion on Sunday morning You know the kind it's easy to mock because they deserve mockery But these people they fell guilty about it apparently and so they They began to say you know what the church ought to be doing is not trying to save people's souls You know to be trying to save their bodies You know if people are hungry they need to be fed if they don't have adequate shelter and clothing They need to be sheltered in clothing This is the first obligation Christians should be attending to they shouldn't be worried about fine points of theology And so the social gospel became you know quite quite all the rage in some Protestant churches in the late 19th century some of their preachers became famous and Even more so in the early 20th century and this movement didn't die then it continued and it has a Strong presence even in many of the churches today okay, and It went hand-in-hand with progressive ideology The progressives who wanted to promote the welfare state who wanted to promote a more activist government at every level to Interfering the economy to assist the poor and to take all kinds of other measures some of them quite unsavory like eugenics racial discrimination Little things like that Now when the Great Depression came it was a tremendous boost to people who were thinking along these German progressive lines Even though many people then were in economic difficulty because the economy had collapsed and not because of any kind of structural flaws Nonetheless there were a lot of people suddenly plunged in into economic difficulty people unemployed many many more than ever before 1933 25% of the labor force totally out of work another 25% working part-time when they wanted full-time work So there's no doubt a lot of people were in economic difficulty So these friends of the welfare state said this is our chance This is our chance not just to relieve these people's immediate problems, which they did through agencies such as the federal emergency Relief administration the public works administration the works progress administration the national youth administration The Civilian Conservation Corps if you ever taken a course in US history You you know that part of the part of the problem you encounter is learning what all these acronyms stand for Because when the when the New Deal comes along it's acronym city So you got to learn what all these things stand for But more more than that was the permanent changes the New Deal wanted to make like the Social Security Act the Fair Labor Standards Act of 1938 provided for a national minimum wage a national maximum work week Initially 44 hours, but quickly scheduled to decline to 40 hours a week payment of 50% premium for work above The meant the maximum work week so overtime pay got paid at time and a half rates and Other provisions to provide what was called decent working conditions to forbid the employment of young children and so forth So this was applied nationally not no longer was it a haphazard state-by-state program and over time the Social Security Act kept getting revised I put in 1956 a disability insurance was added and the biggest addition of all in in 1965 Medicare and Medicaid were joined to the Social Security System. So when we put all these together we have The bulk in terms of money of the modern American welfare system so I Don't have time to flesh out the GI bill from 1944 was another enormous welfare system for veterans Providing all kinds of assistance to them including educational benefits unemployment assistance Training money to go to college or trade school And after that every American war has had a new GI bill so that now it's just considered derigure By American politicians that if they have a war they got to have a new GI bill So this keeps adding on and bulking up the welfare system What's the effect? Well, it has a multitude of effects But some of them are easy to measure because we can look at the amount of money consumed by the welfare system At least by parts of it Here I'm displaying welfare benefits relative to wages and salaries over a period of a little over 50 years and What you see there is that relative to wages and salaries welfare back in the in the 1960s was Was a very small element. It was It was about 9-10 percent Ratio at that time you see after the the great changes of the 1960s in the in the so-called Johnson programs and Some additions under Nixon even but mainly under Johnson. We have these new welfare state measures It begins to grow quicker Then it has ups and downs, but it has a tendency upward and it has an enormous surge just in the last few years Since the financial debacle of 2008 So now that ratio has gone from maybe nine or ten percent to 36% or even more if I could extend the data up to today Another measure real that that is it's corrected for changes in the price level Real federal means tested welfare spending means tested spending is that that it requires the recipient to qualify by having a low income Okay, or by having some other eligibility condition like it a Disability non means tested includes such things as old-age pensions You don't have to be poor to get a Social Security old-age pension if Bill Gates wants to take his Social Security pension when the time comes he'll he'll be eligible But not Carlos Slim He's a foreigner Well, what happens here it goes from almost zero in 1950 up to Getting close to a trillion dollars a year Now think about this that the entire GDP of the United States now Is about 18 trillion dollars So this is a very large amount of money and this is just the means tested part It doesn't include gigantic other parts that are not means tested Here's a real federal transfer payments of all kinds. So here we've got the Social Security back in there and everything it's whether it's means tested or not and we we measure this back here in and in 2010 dollars and we find that back in 60 It's a small amount and it grows rapidly and even more rapidly. It looks exponential, doesn't it? It looks as if you're going to fit a curve to it. It would be an exponential growth curve not a linear Curve to fit it as it certainly turns up in the past 15 years or so And here's another measure federal entitlement spending entitlement means all you got to do to qualify to receive these Benefits is it's show that you satisfy the eligibility requirements. It doesn't require that Congress provide funds specifically devoted to to fulfilling this need every year Congress just stands ready under existing legislation to fund every benefit under these These entitlement programs that people qualify for so if you're qualified for an old-age pension or disability payment or for for Medicaid assistance if you're qualified for Medicare Payments to your medical service providers and Medicare is Basically imposed on everybody 65 years old or older. It's almost impossible not to join And there's a heavy tax while people are working paid toward Medicare, but nonetheless this entitlement spending is has become more and more and more Tremendous part of the whole federal budget and I could keep giving you a series like that But there's a point to it all When you have something growing exponentially like that and it's already a big part of the government budget or a big part of the economy You know that that can't continue forever It just can't happen So what can't happen? Will not happen So we know that this kind of Change in the fiscal dimensions of the welfare system will stop We don't know the level at which it will stop and we don't know the exact details By which it will be compelled to stop I have a kind of general feeling that politicians will look as hard as they can to find ways to disguise what they're doing So they won't be punished by voters for withholding benefits But they have to withhold the benefits at some point because they have no choice So there are many ways that this system can crack up But it's going to crack up in one way or another it can't continue as it has for the past 50 or 60 years It's impossible So, you know, this is like a hopeful thing for some of us We look at these terrible government programs and we say oh god, you know, they're going to go on forever They're going to ruin the whole solar system well This time we know they won't Because they can't no matter how evil and horrible government officials are Even they cannot do the impossible So this will end, but it'll be very interesting for you young people to live long enough to see the exact details Of how it ends. Thanks a lot


in which case you might have to understand some more about this flow through entities and the consequences on things like health insurance. So health insurance premiums paid or reimbursed by the S Corporation are shown as wages on the form W-2 because S Corporation still has to pay wages in the form of W-2s to the employees. So the insurance plan must be established under your business. Your personal services must have been a material income producing factor in the business. If you are filing Schedule C or F, the policy can be either in your name or in the name of the business. That often times is like a sticking point that can be a little bit scary in terms of setting up the policy, what's the name that we should be putting on the policy to make sure that we're in compliance with our tax benefits. So if you are a partner, the policy can be either in your name or in the name of the partnership. You can either pay the premiums yourself or your partnership can pay them and report them as guaranteed payments. If the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premiums as guaranteed payments. This is getting a little bit into the weeds in terms of the bookkeeping for different types of entities, which I don't want to go into in too much detail at this point in time, mainly focusing in on a Schedule C sole proprietor business kind of situation. So if you are a more than 2% shareholder in an S corporation, the policy can be either in your name or in the name of the S corporation. So you can either pay the premiums yourself or the S corporation can pay them and report them as wages. So you have this kind of interplay in the situation with the S corporation note that instead of having the self-employment tax basically flow through to you, so you have to calculate self-employment tax, you're going to have to pay the social security and Medicare by basically treating yourself as an employee of the S corporation. And then you'll, and so that means you're going to have a W2 to yourself, basically kind of situation, which is a little bit different than possibly you would see obviously in a Schedule C where you don't pay yourself a W2 or even in a partnership or possibly again you may not pay yourself a W2, although you might pay other people, employees, W2s in those cases. So if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you. So you can deduct the premiums only if the S corporation reports the premiums paid or reimbursed as wages in box one of your form W2 in 2023 and you also report the premium payments or reimburses as wages on form 1040 and 1040 SR. So in those situations you can see that these pass-through entities are more complex in many ways, the S corporation possibly being more complex in some ways than even like a partnership type of situation. So these are things that you have to weigh out when you're deciding if you want to be an S corporation versus a sole proprietorship for example. So but if you were also eligible to participate in any subsidized health plan maintenance by your or your spouse's employer for any month or part of a month in 2023 amounts paid for health insurance coverage for that month can't be used to figure the deduction. Also, if you were eligible for any month or part of a month to participate in any subsidized health plan maintained by the employer of either your dependent or your child who was under age 27 at the end of 2023 don't use amounts paid for coverage for that month to figure the deduction. So now we've got this kind of interplay this kind of confusing interplay in terms of well what if you're in a situation where you have access to health insurance through an employer because you can see how this kind of grew out. What happened here is you're saying well health insurance typically is tied to an employee or employee situation the employee possibly having more favorable health care through the employer in part due to having group plans available and then well what if people don't have the capacity to participate in the group plans because they're self-employed well then the IRS wants to make this kind of deduction situation well what if you have you have the possibility to have access to an employer kind of plan will that restrict you from from basically doing your own health insurance and deducting it see these are the questions that you want to you want to go through and you can go through a questionnaire here here's the questionnaire self-employed health insurance deduction worksheet schedule one line 17 before you begin be sure you have read the the exceptions alright number one enter the total amount paid in 2023 for health insurance covered established under your business or the S corporation in which you were a more than 2% shareholder for 2023 for you your spouse and your dependents your insurance can also cover your child who was under age 27 at the end of 2023 even if the child wasn't your dependent but don't include amounts for any month you were eligible to participate in an employer sponsored health plan or amounts paid from retirement plan distributions that were non-taxable because you are a retired public safety officer which is a very special situation there number two enter your net profit and any other earned income from the business from schedule C typically or the K1 income that flows through from an S corporation or a partnership possibly or so from the business under which the insurance plan is established minus any deductions on schedule one line 15 and 60 don't include conservation reserve program payments so and then three self-employed health insurance deduction into the smaller of line one or line two here and on schedule one line 17 don't include this amount in figuring any medical expense deduction on schedule a okay caution so a qualified small employer health reimbursement arrangement a QSEH RA is considered to be a subsidized health plan maintained by an employer