How in a country where most people don’t need a penny of income transfers to begin with, can we spend $1.5 trillion on income transfers and still have material want?

We like to think of ourselves as an innovation nation but our government is a warfare-welfare state. To build an economy for the 21st century we need to increase the rate of innovation and to do that we need to put innovation at the center of our national vision. Innovation, however, is not a priority of our massive federal government.

Nearly two-thirds of the U.S. federal budget, $2.2 trillion annually, is spent on just the four biggest warfare and welfare programs, Medicaid, Medicare, Defense and Social Security. In contrast the National Institutes of Health, which funds medical research, spends $31 billion annually, and the National Science Foundation spends just $7 billion.

That’s me writing at The Atlantic drawing on Launching the Innovation Renaissance. Here is one more bit:

Our ancestors were bold and industrious–they built a significant portion of our energy and road infrastructure more than half a century ago. It would be almost impossible to build that system today. Could we build the Hoover Dam today? We have the technology but do we have the will? Unfortunately, we cannot rely on the infrastructure of our past to travel to our future. Airports, an electricity smart grid that doesn’t throw millions into the dark every few years, ubiquitous Wi-Fi — these are among the important infrastructures of the 21st century, and they are caught in the regulatory thicket.

Putting innovation at the center of the national vision is not simply about spending more, it’s about how we approach all problems. Read the whole thing for more discussion of regulation and other issues.

Here is the link to his book on Amazon. Now, if we are going to have a government, I certainly would advocate one that is more in line with what Tabarrok implies. I would strongly, and I mean strongly, caution everyone that the most likely scenario that will come out of the work of Tabarrok is that the big tall bars on the right side of that chart will remain the same, and political and interest group pressure will be to ramp up the bars on the left – with no true reforms of the tax code, welfare state, or the educational or health systems. I put my odds at any meaningful increase in innovation funding at 10%, and I put my odds at doing it right at 0.1%.

Ask yourselves – when you learn that something like 1/3 of our students will graduate into full-time permanent jobs, while the rest volunteer, attend graduate school, work in low-paying non-profits, do Teach for America and other similar endeavors, do you think that none take advantage of these public programs. How do you think the voting public would respond to finding out that after enrolling in an elite college which spends $70,000 per year to educate students, that a non-negligible number of graduates end up doing this? How would the voting public feel if they knew this was a regularity for students who were obtaining generous financial aid from state and federal sources too?

I speak from having some pretty good inside information on usage. Would any readers view this as a problem? I ask because I find that I get seriously serious opposition to negative income tax-like proposals that I would prefer to see replace the entire welfare state.

Obama dropped almost all pretenses and made the progressive case against an American free market system, which he called “a simple theory … one that speaks to our rugged individualism and our healthy skepticism of too much government. … And that theory fits well on a bumper sticker. But here’s the problem: It doesn’t work.”

Well, it’s not like this is a surprise to anyone. The surprise is why anyone was surprised when the right levied these claims against him 4 years ago. Here is how I see it: if anyone in the free-market camp really truly wants to win the day, they will have to spend the rest of their lives educating people on the ethical foundations of markets, educating people on the inconsistencies and outright failures in the Progressive ideology, has to stop promising that markets are the greatest thing since sliced bread, and has to be vigilant to remind folks the lessons of public choice economics. And then after folks have done that, they can at least be happy knowing that they fought the good fight while their neighbors continue to steal the shirts off their backs.

But top income share increases have not translated into higher economic growth, consistent with the zero-sum bargaining model.  This suggests that the first elasticity is modest in size and that the overall effect comes mostly from the third elasticity.  Consequently, socially optimal top tax rates might possibly be much higher than what is commonly assumed.

Big surprise there. Let me remind folks – if you want to criticize market enthusiasts for arguing that social optimality of market outcomes is everything, then remind me why that same argument shouldn’t be applied here?

… in 1979, households in the bottom quintile received more than 50 percent of all transfer payments. In 2007, similar households received about 35 percent of transfers.

… Any private relief organization that gave only 35 percent of its transfers to the neediest households would be viewed as scandalously mismanaged. Donors would withdraw support and give their money elsewhere. It will be a great day when we can withdraw support for government and give make our donations to organizations that are better managed.

I’d like to see a Gini index calculated on the efficiency of government “charity” with a value of 1 for government that targets all charity to people who actually are in the needy class, and zero otherwise. However, I can imagine the rebuttal to the point above. Can you?

“Yeah, over that same time period wages for everyone have stagnated, so the charity needs to be spread a lot more widely than if Reagan hadn’t ruined the world.”

UPDATE: In tomorrow’s WSJ, here’s an editorial on how effective some private charity can be.