When you hear the phrase "big government," what comes to your mind? Anti-poverty programs that lavish benefits on the poor? Millions of lazy clerks doing meaningless jobs? Overpriced military hardware?
In fact, none of these stereotypes explains where your tax dollars are going. Most government spending goes to programs that are popular with the middle class--public education, Social Security, and Medicare. Collectively, I refer to those areas as the Welfare State.
It is impossible to reduce the size of government without making some basic changes in the Welfare State. We can have permanent tax cuts only if we change the Welfare State. If we keep the Welfare State as it is, we will have to pay more in taxes in the future to maintain it.
Many economists would support increased taxes to pay for the Welfare State. However, I believe that the Welfare State works poorly. Rather than focus on alleviating poverty, the Welfare State reshuffles money among various middle-class constituencies. Many of the beneficiaries are better off than the people whose taxes pay for the Welfare State. The Welfare State also does a poor job of promoting learning and saving--the most important factors in economic growth.
The rest of this chapter looks at the Welfare State. I start with a radical alternative that I call "bleeding-heart libertarianism." I then look at the problems with each of the components of the Welfare State: Social Security; Medicare; and public education.