I. DefinitionsUnlike the transfer of resources in the typical capitalist market economy—an explicit trade: “I’ll pay you this for that”—social welfare transfers in the form of education, health, social insurance, and cash and in-kind public assistance flow to citiz...Education as part and parcel of the welfare state Including public education as a welfare state program is—or should be—the least controversial departure from conventional practice, but is by far the most consequential. There are two reasons why inclu...Other social welfare state benefitsII. Welfare states enrich, not impoverish, nationsAll rich nations have large welfare statesGrowth rates in rich nations are higher now than in the pre-welfare state pastEducation and public health are very productiveEducationMarkets produce too little education, health care, and insurance because the benefits of education, health, and economic security spill over beyond the individual child and the child’s family to other members of society. Economists refer to this spill...Public health and health insuranceThe theoretical case for public health measures such as sanitation, inoculation, even isolation, and most generally, the prevention of infectious disease is identical in principle to the externality, or spillover, arg...Social insurance and income maintenanceThe majority of social insurance spending in most welfare states is for the aged unemployed and disabled (whom we concentrate on here). But before discussing the evidence for whether social insurance promotes or retards economic growth, it is worth no...III. The American welfare state is not unusually smallIV. Laggard in public relief and social insurance, but a leader in the provision of mass public educationRelief for the poorSocial insuranceIV. Summary and conclusion“Wealth and Welfare States: What Is the Real Story?” By Irwin (Irv) Garfinkel and Timothy Smeeding October 6, 2010 Irwin (Irv) Garfinkel is Mitchell I. Ginsberg Professor of Contemporary Urban Problems at the Columbia University School of Social Work and co-director of the Columbia Population Research Center. Timothy Smeeding is director of the Institute for Research on Poverty and Arts and Sciences Distinguished Professor of Public Affairs at the La Follette School of Public Affairs and Economics at the University of Wisconsin–Madison, and founder and director emeritus of the Luxembourg Income Study“Wealth and Welfare States: What Is the Real Story?” Many believe the following three statements to be true. The welfare state undermines productivity and economic growth. The United States has an unusually small welfare state. And, the United States is and always has been a welfare state laggard. This paper is based largely on our book entitled Wealth and Welfare States: Is America A Laggard or Leader? (Garfinkel Rainwater and Smeeding 2010) with some updated for recent events. The paper shows that all three propositions are false. All rich nations, including the United States, have large welfare states because the socialized programs that constitute the welfare state—public education and health and social insurance—enhance the productivity of capitalism and spur economic development. In public education, the most productive part of the welfare state, for most of the nineteenth and twentieth centuries, the United States was the world leader, but is no longer. Though few would argue that public education is not part of the welfare state, most previous cross-national analyses of welfare states have omitted education. Including education as part of the welfare state has profound consequences, undergirding the case for the productivity of welfare state programs and the explanation for why all rich nations have large welfare states, as well as identifying US welfare state leadership. In the first section of the paper, we discuss the definition and boundaries of the welfare state and the sources for our data. The second and third sections show that welfare states enrich rather than impoverish nations. The fourth shows that the contemporary American welfare state is not unusually small and that while the United States lagged in the provision of public relief and social insurance throughout most of its history, the United States was a leader in theprovision of mass public education. The fifth concludes with a brief summary of our analysis of the future of the American welfare state. We say less about public health and health care in order to focus on education here. Of course, almost everyone knows that the United States spends twice as high a share of GDP on health care than the average of the other nations here, with no firm evidence of better outcomes. The idea that the United States has always been a laggard in welfare state development is not only widespread and misleading, it is pernicious. Those who mistakenly believe that the United States has always been slow to develop social welfare programs are prone to dismiss the current lag in early education and child care with the argument that lagging may be a good thing. After all, if despite always being behind, the United States is the richest nation on earth, why worry about it? But if one of the main reasons why the United States is the world’s richest nation is that it has been a world leader in developing mass public education—and if it has now relinquished that lead—this is surely a cause for worry. I. Definitions All wealthy nations, including the United States, are welfare states—that is, they are primarily capitalist states with large, selective doses of socialism. What have been socialized are institutions that reduce economic insecurity. By its nature, capitalism produces too much economic insecurity. A hallmark objective of welfare state institutions is, therefore, to reduce economic insecurity. Education, health, insurance, and cash benefits (social insurance and public assistance) all reduce economic insecurity. Education and health increase human capital, making citizens more capable of dealing with the economic insecurity produced by nature and by themarket. Social and health insurance and public assistance also make citizens more secure by reducing the economic costs of insecurity directly. Unlike the transfer of resources in the typical capitalist market economy—an explicit trade: “I’ll pay you this for that”—social welfare transfers in the form of education, health,