Here's Why the U.S. Spends More on Social Needs Than You Think

I am working through Lane Kenworthy's latest book Social Democratic America right now and will write a review of it soon enough. Here I just want to highlight one thing Kenworthy mentions in chapter four about total social spending in the United States.

When we talk about social spending in the US, we tend to refer to gross public expenditures on social programs, e.g. Medicare, Social Security, food stamps, and so on. Using this metric, we conclude that the US spends far less on social insurance and social income than other rich countries. And indeed, if you compare gross public expenditures on social spending as a fraction of GDP across OECD countries, the US shows up way down the list.

While this metric is useful for a number of things, it only provides a partial picture of the overall amount of social expenditures the US and these other countries undertake. In the US in particular, we lean heavily on employers to undertake massive amounts of expenditures on what are essentially social insurance schemes: health insurance, pensions, and so on. We don't just lean heavily on this private safety net. It is actually an intentional part of public policy and a great deal of tax law is dedicated to bringing it into existence. When we take account of all social expenditures, both public and private, a different picture emerges.

In terms of gross public social expenditures as a percentage of GDP, the US ranks 24th out of 26. But in term of total social expenditures as a percentage of GDP, the US ranks 5th. Notably, the US is spending more of its GDP on social expenditures (which again include things like retirement security, income security, unemployment benefits, health insurance, and so on) than such notables as the Netherlands, Denmark, Finland, and Norway.

The problem is not that we lack social expenditures; rather, it is that our social expenditures are structured so poorly. The famed social democracies tend to concentrate their social expenditures in state-run universal programs, which makes a lot of sense for a lot of reasons. Putting those expenditures in the hands of employers, as the US does, diminishes their value as insurance (because they come and go with employment) and also directs them primarily towards the middle and upper classes. Those employed in low paying jobs do not get access to the private safety net at all and the tax benefits that really set the stage for the private safety net disproportionately flow to the rich.

So the next time you read a story about the inequality-reducing, poverty-reducing, security-enhancing social programs of northern and western European nations, just remember that we could easily have that here. We don't lack in social expenditures, we just undertake them in the worst possible ways.