We often hear low tax, small government, big profit, free market types bemoan the social deadweight of supporting the poor. There is a sense that the handouts and entitlements bestowed on this portion of the population is an inexcusable waste, an economic drag, and a bad investment for the country. Even a short survey of blogs, chatrooms, news articles, and conservative radio will demonstrate that this narrative is so pervasive amongst some demographics that you can taste it thick on the air.
But what really is “wasted” money? What really constituted a social and economic drag, dead end, or black hole? When wealth is wasted or lost, where does it go?
Consider what wealth, and a healthy economy, means to a society rather than to an individual. The health of an economy is a lot like the health of a person. What is means to be “healthy” is difficult to pin down exactly. Are you healthy if you can run a 5k? Are you not healthy if you aren’t flexible enough to do the splits, or strong enough to bench 200 lbs? These are not easy questions to answer, but what we can say about health is that whatever healthy may be, profuse bleeding is NOT healthy, and neither is an infection or continuous vomiting. Likewise it can be difficult to say exactly what a Healthy Economy is, but it is much easier to point at what an economical healthy country should not have.
A strong economy has something to do with having as small a percentage of the population as possible living impoverished. A healthy economy is related to having a large demographic with the expendable capital to invest, either in themselves, their country, or businesses. A healthy economy is often related to education, a smooth gradient of classes, social mobility, and even the average physical health of the population. A population which can pursue these standards with relative measures of success can be considered as having a healthy economy. The more of these metrics that fail, the closer that society comes to having what we would consider a poor economy.
All of this requires wealth of one sort of another to be plied towards the objectives. Wealth that is taken out of this loop can, as far as an economy is concerned, be considered lost, dissolved, or truly wasted.
This is where the Scrooge McDuck problem arises. For those not familiar with Scrooge, he is a crotchety old man living on a hill who, despite being unimaginably wealthy, is incredible miserly, counts every penny, and stores his massive amount of accumulated wealth in a giant vault on a hill top, purely for the pleasure of being able to visit the value and swim in his money as one would a pool of water.
This is obviously a crude caricature, but it illustrates an important point. That money in the tower, being locked away and untouched, is as lost as wealth possibly can be.
The common criticism of hand-outs for the poor is shown as an application of a double-standard in this case. Many will begrudge the monthly handouts to the poor, citing it as a financial loss and economic drag because the recipients are unlikely to repay society in any meaningful way for the expense, the wealth is wasted and lost on them. But the entire welfare population of a major city could never aspire in their wildest dreams to suck as much wealth out of the economy as one Scrooge who refuses to spend or invest.
As stupendous quantities of wealth flow upwards, and end up locked in vaults on the tops of hills, it is a misleading narrative to look at fiscal hard times and pretend the problem is the single mom and her $500 a month food stamp allotment, and not the wall street tycoon making ten times that amount per hour and hoarding it.
As far as the economy is concerned, money taken out of the system is lost, weather it is spend on a hobo’s soup, locked in a trust fund, or funneled into an overseas account. It is pure fantasy to imagine the Hobo’s soup is the greater of these two drains.