Byron Schlomach

World Bank Study: Freedom Boosts Economies

Posted on May 25, 2011 | Author: Byron Schlomach
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In a happy coincidence, I saw a new World Bank study on entitlements and economic growth on the same day a lawsuit against cuts to Arizona’s Medicaid benefits was filed. The World Bank study provides evidence that while reinstatement of the Medicaid benefits might help some right away, in the long run it would likely hurt us all economically, including the people the lawsuit seeks to help.

The plaintiffs in the lawsuit want to restore Medicaid spending on adults with incomes above the federal minimum and up to the poverty level. Arizona has covered these individuals under a voter initiative passed in 2001. A tobacco tax was supposed to cover the expense, but it has never come close to funding the population covered by the initiative, requiring general funds to make up the difference. The legislature reduced this expense in an effort to balance the state’s budget.

The World Bank study looks at 100 nations over the last 30 years. It finds that economic and political freedoms, where individuals decide how to earn and spend their money, boost economic growth. Entitlements—tax-supported benefits like health care and welfare—either do not enhance economic growth or negatively affect it.

The lesson is that while social spending might be based on good intentions, entitlement programs can harm both those who make social spending possible and the recipients. As the author of the World Bank study put it, “For developed countries, [the study’s results] suggest that prioritizing economic freedom over social entitlements could be an effective way to reform the welfare state and make it more sustainable and equitable in the long run.”

In other words, deregulation, low taxes, and limited market interference make a society more prosperous, which ultimately reduces the need for social spending.

Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.

Learn More:

Goldwater Institute: Put Arizona on a Real Budget: New Spending Limit Can Restore State’s Fiscal Health

World Bank: On the Relevance of Freedom and Entitlement in Development

KTAR: Lawsuit challenges AHCCCS cuts as unconstitutional

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