The goals of the welfare state seem laudable: to help the poor, to protect against severe economic hardship and to ensure access to essential health care. But good intentions don’t always make for good policy. There is an intense debate about how large the welfare state should be, a debate that partly reflects differences in philosophy but also reflects concern about the possibly counterproductive effects on incentives of welfare state programs. Disputes about the size of the welfare state are also one of the defining issues of modern American politics.

There are two different arguments against the welfare state. One, described earlier, is based on philosophical concerns about the proper role of government. As we learned, some political theorists believe that redistributing income is not a legitimate role of government. Rather, they believe that government’s role should be limited to maintaining the rule of law, providing public goods, and managing externalities.

The more conventional argument against the welfare state involves the trade-off between efficiency and equity. As we explained earlier, the ability to pay principle—the argument that an extra dollar of income matters more to a less well-off individual than to a more well-off individual—implies that the government can help the poor at relatively little cost to the well-off. But this redistribution of income from well-off to poor requires that the well-off are taxed more heavily.

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As a result the desirable goals of the welfare state must be balanced against the efficiency costs of high tax rates on the well-off that reduce their incentives to work hard or make risky investments. Such reductions make society as a whole poorer, and at extreme levels hurt even those they were intended to help. So in choosing the size of the welfare state, the government must make a trade-off between efficiency and equity: a richer society versus a fairer society.

One way that governments seek to reduce the cost of the welfare state is by means-testing benefits. But even this is not a perfect solution: unless means testing is carefully designed, poor families can face a large fall in their effective income when their income rises to the level at which they are no longer eligible for benefits. This reduces their incentive to work. This feature of means-tested benefits, which makes a family worse off if it earns more, is known as a notch. For example, one 2005 study found that if a family of four, with two adults and two children, raised its income from $20,000 a year—just above the poverty threshold in 2005—to $35,000, it would find almost all its increase in after-tax income offset by loss of benefits such as food stamps, the Earned Income Tax Credit, and Medicaid.

What do modern politicians on the left (more liberal) and right (more conservative) disagree about? In the modern United States, they mainly disagree about the appropriate size of the welfare state. The debate over the Affordable Care Act was a case in point, with the vote on the bill breaking down entirely according to party lines—Democrats (on the left) in favor of the ACA and Republicans (on the right) opposed.

You might think that saying that political debate is really about just one thing—how big to make the welfare state—is a huge oversimplification. But political scientists have found that once you carefully rank members of Congress from right to left on past legislation, a congressperson’s position in that ranking does a very good job of predicting his or her votes on future legislation.

The same studies that show a strong left–right spectrum in U.S. politics also show strong polarization between the major parties on this spectrum. Forty years ago, there was a substantial overlap between the parties: some Democrats were to the right of some Republicans, or, if you prefer, some Republicans were to the left of some Democrats. Today, however, the rightmost Democrats appear to be to the left of the leftmost Republicans. There’s nothing necessarily wrong with this. Although it’s common to decry “partisanship,” it’s hard to see why members of different political parties shouldn’t have different views about policy.

Can economic analysis help resolve this political conflict? Only up to a point.

Some of the political controversy over the welfare state involves differences in opinion about the trade-offs we have just discussed: if you believe that the disincentive effects of generous benefits and high taxes are very large, you’re likely to look less favorably on welfare state programs than if you believe they’re fairly small. Economic analysis, by improving our knowledge of the facts, can help resolve some of these differences.

To an important extent, however, differences of opinion on the welfare state reflect differences in values and philosophy. And those are differences economics can’t resolve.

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