A case study on how welfare fails

Welfare was near and dear to my heart. By being somebody with a big heart, I used to let my heart crowd out my brain. Therefore, I saw welfare as a way to help those that are less fortunate. However, after re-learning economics and studying the virtues of liberty and freedom, I realize that my faith was misplaced. It is with charity that we help the less fortunate. With welfare, we promote inefficiency and laziness and impede growth and creativity.

The Economist has a great article showing why Puerto Rico has failed to grow. Up until 1970, PR was growing at the same pace and vigor as the Asian Tigers. However, things started to deteriorate as welfare payments continued to invade the island from the do-good mainland Americans. The Economist describes PR's economy...

Puerto Rico's annual income per person was around $12,000 in 2004, less than half that of Mississippi, the poorest state. More than 48% of the island's people live below the federally defined poverty line. That poverty rate is nearly four times the national average, and more than twice as high as in poor states such as Kentucky, Louisiana, Mississippi and West Virginia

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Half the working-age men in Puerto Rico do not work. Officially, only 46% of those who are not pursuing a degree have formal jobs, compared with a United States average of 76%.

The Economist goes on to state the culprits...

Many things have gone wrong. Most important, however, is that the United States government assumed too big a role in the Puerto Rican economy, and its largesse enabled the commonwealth's government to do the same. Through hubris, clumsiness and sheer size, these governments knocked Puerto Rico off the promising path that it was following, and the island's economy is now lost in a thicket of bad incentives. Two federal intrusions stand out: an oversized welfare state, and misguided rules on business investment.

So why do welfare payments not work. Because of abuse of the system and the way it discourages hard work and promotes dependence on the government.

Puerto Ricans are eligible for federal disability payments, for example, through Social Security. Ms Enchautegui and Mr Freeman point out that, in the territory, federal disability allowances are much higher than the United States average as a share of wages and pension income. Unsurprisingly, therefore, one in six working-age men in Puerto Rico are claiming disability benefits.

Because Puerto Ricans are paid to do nothing, crime grows and unemployment persists. This makes Puerto Rico poor and dangerous.

PR's government also discourages the private sector by favoring certain investment over others. They also crowd out the private sector.

Puerto Rico's bloated government also bears much of the blame. Around 30% of the territory's jobs are in the public sector.

Speaking of PR's population, the mayor of Aguadilla states, “All they want to do is find security only. They have no ambition...Everybody wants to work for the government.”