Who should receive handouts?

Who should receive handouts?

Are handouts a bad thing? It depends. Suppose we have a country where there is an archipelago of very small businesses, some of which survive through tax and social security evasion. Imagine also that there are large companies that have gotten used to working with scandalous profit rates, which do not exist anywhere else in Europe, and that, suddenly, a crisis breaks out that threatens to wipe out many of them. In such a situation, the necessity of handouts becomes, I think, self-evident. However, the way these handouts will be distributed is not self-evident: It could be conservative or progressive.

A progressive policy would be to avoid using handouts to support unsustainable businesses and unsustainable jobs and give them instead to the people who worked in them. This would help them retrain while supporting their families until they find new work, possibly with better pay, in the viable, dynamic part of the economy. Or the government could help only these unsustainable businesses that are willing and able to reorganize or merge to become viable.

What would be a conservative policy? It would be to preserve profiteering, by aiding bankrupt companies in the name of social cohesion.

It would be much better to help employees who were working in those businesses get back on their feet by leading – as a government – an ambitious plan to upgrade employment in a more productive and resilient economy.

If support policy is used as a bridge for the productive reconstruction of the economy, for the transition from a traditional model of twin deficits, dramatic over-indebtedness and cheap labor, to another, modern one, with a stronger productive base (instead of a monocultural economy) with high productivity and expensive wage labor, then the crisis would indeed turn into a great opportunity.

If, on the contrary, you throw money out the window by handing out benefits with clientelistic criteria, preventing the open bankruptcy of a multitude of (already bankrupt) businesses, while forcing employees to remain tied to them, you prevent economic growth. And even if, as is usually the case with abundant state support, you cause an increase in the country’s GDP, this is temporary and, from the point of view of economic growth, almost indifferent. Taxpayers’ money will be wasted. That’s the bottom line: It will be a lost opportunity.

Of course, handouts are also required in other extraordinary and difficult situations, when, for example, energy prices soar. And here, there are two policies to choose from: One is to support only those who are in real need. The other is to distribute money to everyone, both to the haves and the have-nots, which means that (a) less money is left for the economically vulnerable and (b) the waste of energy continues, since those who must limit their consumption – the haves – are subsidized not to. Finally, it is one thing to support the vulnerable and another to waste money to secure votes. One example of the latter is the market pass – the allowance for buying food to which 8.5 million Greeks are “entitled.” This measure does not show the extent of poverty, but the extent of tax evasion: For three years now, billions of euros have been handed out to taxpayers in the form of one-off payments, without any filters to exclude tax evaders who declare the minimum income but own luxury cars and homes, without the tax authorities catching them. So not only are we confirming that Greece remains a tax evaders’ paradise – we also subsidize them.

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