The U.S. welfare system is very generous (but not to poor people)

According to Will Wilkinson, "the U.S. welfare system is very generous". And compared to the welfare states of most African countries, that’s obviously true. But Wilkinson is comparing the US to the Nordic nations. So what’s going on?

It all starts with a Freakonomics post by University of Arizona economist Price Fishback:

Ask anyone. Who spends more on social welfare: the U.S. or Sweden and other Nordic countries? Nearly everybody will say Sweden. But the answer, at least as of the mid-2000s, might surprise you.

Fishback argues that it’s misleading to look at gross spending on social welfare. He argues that we ought take taxes into account as well. Nordic countries tax recipients of social welfare payments at a higher rate than the US. And on top of this, they levy higher consumption taxes.

After adjusting for the differences in taxation to get net public social spending relative to GDP, Fishback then suggests that we compare the net amount the US spends per capita with that of the Nordics. He concludes that:" If the adjustments for purchasing power are correct, net public social expenditures by government in America in 2003 ranked roughly in the middle of the Nordic countries."

So does this mean that the US is as generous to the poor as countries like Sweden and Denmark? No. Nobody who’s looked at the data is saying that. Even Wilkinson notes that Americans below the 10th percentile do much worse than their counterparts in the Nordic countries.

To understand what’s going on, here are two things you should read — Lane Kenworthy’s post on Social spending and poverty and this comment by Peter Whiteford on Matt Yglesias’ blog.

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Geoff Robinson
11 years ago

if the US faces a need for fiscal consolidation the problem is that the social benefits to be cut won’t be those that favour the wealthy. 1983-96 Aust Labor could implement restraint with equity there is little prospect of this in the US.