Social Welfare Weight

You may have come across the economics concept of “social welfare deadweight”. If so, commiserations, you’ve been reading fake economics. In this article I will provide an MMT lens counter to that language framing and the whole concept. The one liner take-way is that social welfare is neither a cost nor a benefit, it all depends on the policy design.

Cretins running the government will likely mean terrible social policy, decent people running government will likely mean decent public policy. That is all there is to say. With an MMT lens — the number of the numeraire figures in the government budget are not important — what matters are real resource allocations and policy for or against worker share of their output, the rest is fine print.

Obviously, if we are all total ꕗꗇꕷꖡꗇ𐝥ꕒꕷ the “right” policy is less and less worker share of their own output, those lazy dogs, wtf aren’t they “saving up” like a proper civilized personage.

The framing of “social welfare as a dead weight” is one of the most deeply ideological and poorly examined assumptions in mainstream (neoclassical) economics. Let’s use an MMT and heterodox economics lens to reframe this concept and show how well-designed social welfare is not a dead weight — and can, in fact, be a form of productive public investment.

The “Deadweight Loss” Concept — Where it comes from

In orthodox economics, “dead-weight loss” refers to a loss in total economic efficiency — usually when prices are distorted (e.g., taxes, subsidies, minimum wages, welfare transfers). The idea is that welfare programs discourage work and production, leading to inefficiencies.

But this relies on very narrow assumptions, like (i) people are rational utility maximizers focused only on income, (ii) market outcomes are optimal by default, (iii) government spending is funded by taxes and crowds out private activity, (iv) welfare induces laziness (the “moral hazard” story).

None of this is empirically accurate — it’s ideological. It’s a model-world abstraction designed to preserve a market supremacy narrative.

An MMT Heterodox Reframing

*Short format: Welfare as an enabler, not a Burden.

From an MMT perspective, government spending is not constrained by taxes or other revenues. The revenues are in fact revenue — “return back to the issuer.” in the literal sense, not the exchange sense.

For a private business sales are ‘revenue’ in the ‘exchange-for’ sense: the businesses labour is swapped for currency. This is not so for a government that is a monopoly issuer of the tax credit.

What matters is whether spending uses real resources effectively and supports public purpose. Welfare transfer payments are one of the automatic stabilizers — the expand in downturns, contracts in upswings, buffering the economy.

From a functional finance lens (Abba Lerner):

The role of fiscal policy is not to balance the budget, but to balance the economy — at full employment and stable prices.

So social welfare is, (a) a stabilizer of aggregate demand, (b) a source of dignity and social cohesion, or at least the potential for some dignity, (c) an investment in long-run capacity, especially when it includes:

• Health care
• Education
• Childcare
• Housing
• Nutrition
• Disability or elder support

These are all things that increase human capability, which — if you want to be a crass econ nerd about it — is the primary productive resource in any economy.

Besides, are any of these public services really “welfare”? Or are they merely smart economic choices of good governance? If you like “welfare” then by all means consider this list all “social welfare”. No argument from me.

You can use whatever semantics you like I suppose. I prefer the “public services” language framing. Welfare should be on top of these, and kept to a minimum, not because it is bad to have social welfare programs, but because we should not need them in the fist place.

What perhaps might distinguish a “capitalist MMT ideologue” from a “socialist MMT ideologue” is debate over how to minimize social welfare. Here I am far more on the socialist side, not that this should worry you, just in case you wanted to know. I’m not writing about the “why?” of that today.

Welfare as “Social ROI” — not a cst, but a multiplier

Let’s spit put more of the crassness! Why not? The econ nerds gotta feed.

Economists like James Galbraith, Mariana Mazzucato, and dumb-dumb sociologist Guy Standing — none of whom understand MMT — have argued that:

• Social spending creates future productivity by reducing precarity, stress, and crime.
• Investing in children’s welfare, maternal health, education, etc. yields huge returns later.
• Even cash transfers often increase local economic activity, as recipients spend on local needs.

Despite getting monetary operations all wrong, I actually agree with those three nerds on these points. I think everyone can.

In MMT terms, if we’re not at full employment, then idle real resources exist — including unemployed people. If a welfare system enables those people to live, train, or care for dependents while society transitions or recovers, there’s no dead weight. In fact, there’s long-term gain.

However, I only care about the employment condition. When people are contributing fully to their community than that is enough. We do not need to define “full employment” in terms of capital equipment and energy maximization. Indeed it would be stupid to do so. Because no one truly knows what the Planetary Boundaries really are, so the wise thing is to operate society well within energy and capital equipment and materials full capacity.

Thus,

From a dirtbag MMT perspective, full employment only refers to optimal use of human labour.

That means totally minimizing the use of human labour. Produce what everyone needs for a decent life, and no more than that, but again, since no one can compute what that is, our government policy has to wing it a bit, and provide the appropriate buffers. The Job Guarantee is the appropriate buffer, not a regressive pittance of a UBI.

Why Does the “Dead Weight” Story Persist?

Well, just imho, the “welfare burden” narrative is a political tool, not an economic truth. It serves at least four decrepit ends in my view, (maybe more?):

• Justify austerity
• Discipline labour
• Shrink the public sphere
• Demonize poverty as a moral failure

It fits into the larger narrative that only “unobstructed markets” produce value, and that public support is inherently wasteful. But that’s an ideological commitment — not a logical one, and certainly not empirical.

If anything the reverse is true. Take the SPX as just one proxy for a successful market indicator. The SPX growth tracks government net debt, almost to a ridiculously strong correlation degree. While in statistics where there is smoke there is fire is definitely not true, you always have to wonder. Could it be that rising government debt promotes a stronger SPX?

I would say yes.

But is there any causal relation here? You may ask, but onyl a bunch of statistics can answer, and will never reveal metaphysical causality. But if you care to use some tools, like Granger estimates, then below are some raw -p-vlaues for you to lick up.

You can get the software for this from our git repo [here] sp500_v_usgovdebt.py (you will need to grab a FRED API key).

Does US Debt Granger-cause rising SPX?

Results for US_Debt Granger-causing SP500:
Lag 1:
  F-test p-value: 0.0000
  Chi-squared p-value: 0.0000
  --> Reject null hypothesis at 5% significance: US_Debt *does* Granger-cause SP500 at lag 1
Lag 2:
  F-test p-value: 0.0000
  Chi-squared p-value: 0.0000
  --> Reject null hypothesis at 5% significance: US_Debt *does* Granger-cause SP500 at lag 2
Lag 3:
  F-test p-value: 0.0000
  Chi-squared p-value: 0.0000
  --> Reject null hypothesis at 5% significance: US_Debt *does* Granger-cause SP500 at lag 3
Lag 4:
  F-test p-value: 0.0000
  Chi-squared p-value: 0.0000
  --> Reject null hypothesis at 5% significance: US_Debt *does* Granger-cause SP500 at lag 4
Lag 5:
  F-test p-value: 0.0000
  Chi-squared p-value: 0.0000
  --> Reject null hypothesis at 5% significance: US_Debt *does* Granger-cause SP500 at lag 5
Lag 6:
  F-test p-value: 0.0000
  Chi-squared p-value: 0.0000
  --> Reject null hypothesis at 5% significance: US_Debt *does* Granger-cause SP500 at lag 6

Testing if SP500 Granger-causes US Debt:

Results for SP500 Granger-causing US_Debt:
Lag 1:
  F-test p-value: 0.0000
  Chi-squared p-value: 0.0000
  --> Reject null hypothesis at 5% significance: SP500 *does* Granger-cause US_Debt at lag 1
Lag 2:
  F-test p-value: 0.0013
  Chi-squared p-value: 0.0012
  --> Reject null hypothesis at 5% significance: SP500 *does* Granger-cause US_Debt at lag 2
Lag 3:
  F-test p-value: 0.0204
  Chi-squared p-value: 0.0178
  --> Reject null hypothesis at 5% significance: SP500 *does* Granger-cause US_Debt at lag 3
Lag 4:
  F-test p-value: 0.1142
  Chi-squared p-value: 0.1020
  --> Fail to reject null hypothesis: SP500 does NOT Granger-cause US_Debt at lag 4
Lag 5:
  F-test p-value: 0.0799
  Chi-squared p-value: 0.0673
  --> Fail to reject null hypothesis: SP500 does NOT Granger-cause US_Debt at lag 5
Lag 6:
  F-test p-value: 0.0692
  Chi-squared p-value: 0.0551
  --> Fail to reject null hypothesis: SP500 does NOT Granger-cause US_Debt at lag 6

So a significant bias for US Gov Debt $\rightarrow$ SP500 health, with a 4 to 6 month lag.

If this does not seem intuitively obvious “about right” to you then you need to hastag Learn MMT. 🤣

Better Framing: Welfare as Economic Infrastructure

We should reframe social welfare as:

• Preventative macro policy (stabilization and resilience)
• Social insurance (risk-sharing across time and population)
• Public investment (in human and community capacity)

A good one-liner from an MMT lens might be:

“Social welfare isn’t a burden on the economy — it’s a foundation for a fair economy. When the government spends to ensure basic well-being, it’s not draining the productive sector — it’s sustaining and enabling fair capacity.”

Or more provocatively:

“The only dead weight is an economy that lets real resources — especially people — go to waste.”

Bonus: Job Guarantee as a Bridge Between Welfare and Work

The MMT style base case Job Guarantee can be copnsidered a direct response to this “dead weight” framing. The Transition Job provides (1) a buffer-stock of employed labor instead of unemployed labor. (2) Offers transition work, purpose, and local value. (3) Anchors the currency and wage floor without coercion or exclusion. (4) In principle forever eliminates the bitter struggle for survival.

This replaces the atrocious framing “welfare vs. work” with public option for employment for public purpose, and further exposes how false the deadweight idea really is.

Basically, in summary, even if we ignore all the social pathologies of unemployment, or MMT base case (most braind dead simple policy option) has econ-nerd advanatges evena neocliassical could comprehend:

1. Social welfare stabilizes demand.
2. It enhances human capacity and reduces future social costs.
3. It can be a pro-green-growth, pro-equity, and inflation-sensitive part of fiscal policy.
4. And crucially: it doesn’t need to be “funded” by taxes, or ratehr, is never funded by tax payments.

A 5. on this list woudl go on for a while with all the pathologies of unemployment that get wiped away, liek generational poverty running through families, depression, anxiety, suicide adn all the rest.