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Tags: social welfare | taxes | crowdfunding

The Rise of Crowd Funding Teaches Us About the Social Welfare State

The Rise of Crowd Funding Teaches Us About the Social Welfare State

By    |   Thursday, 28 March 2019 12:49 PM

The recent partial government shutdown a few months ago gave rise to many popular press articles telling the stories of displaced federal workers turning to crowdfunding websites to replace their missing paychecks.

While many feel this is no different than standing on an internet street corner digitally begging for money, there is a more important debate to be had.

Is crowdfunding the new socialism, or is it a triumph of the free market?

The requests for money on the various crowdfunding websites can be roughly divided into two categories: ones seeking business capital, and ones asking for personal, or social welfare needs. The ones looking for business funding are really no different, albeit smaller and less sophisticated, than offerings by investment banks when taking companies public. They seem not so much to be begging as they are just scaled down efforts to raise capital by offering returns to potential investors.

However, the other broad category, the one where individuals request donations to help with personal needs such as missing government paychecks, medical costs, housing aid, and even education expenses, is not as clear cut as the business funding variety.

Essentially what the requesters are saying through these posts is that the social welfare state has failed them.

The government, with its thousands of social programs ranging from unemployment insurance to Medicaid, to low income housing, to educational grants, isn’t providing enough. If it was, there would be no need for these requests. The mere existence of these hundreds of thousands of requests is stark evidence that the social welfare system has failed a large segment of the population.

The system in America as it has existed for a century is one where increasingly tax collections are spent on providing social welfare services. In fact, entitlements such as Medicare and Medicaid, Social Security, and housing and food programs comprise over half all federal spending. Even still, hundreds of thousands of people are turning to “digital begging” to meet their basic needs, and now even to replace their paychecks. This certainly is an indictment of the effectiveness of socialism.

The concept that those that are better off should help those who are less fortunate is the foundation of a social state.

In the United States this happens by fiat — taxes. The financially successful portion of the population pays significantly more in taxes, and the less fortunate receive social welfare assistance from this government-baked tax pie. And while in the purest sense this isn’t socialism because there is negligible public ownership of the means of production, it nonetheless is a social welfare state — Democratic Socialism as Bernie Sanders calls it. But using crowdfunding to meet personal needs and cover missing paychecks is exactly the same concept, just without the government’s tax and spend power. It’s voluntary socialism!

Crowdfunding in this case is the transfer of wealth voluntarily from those more fortunate to those less so. Viewed in this light, crowdfunding is actually a free market solution to the failure of forced tax based socialism. Donors view each request and make a free decision on which are worthy of their money and which are not. The market decides the value of each person’s social need and provides for it accordingly. It is actually Democratic Socialism at its finest — a society free to vote on the worthiness of its own welfare.

Through this lens, crowdfunding for personal needs isn’t begging, it’s socialism distributed by Adam Smith’s invisible hand in a marketplace.

Absent a free market, socialism doesn’t fare too well — just look at our current social welfare state based on forced taxation and government distribution of pay and benefits. Hundreds of thousands of individuals and families still need assistance, and all the while the government is spending 60 percent of its entire tax base failing to provide it.

This voluntary digital socialism is, above everything else, validation of a market based solution to what many currently throw forced socialism at. The partial government shutdown turned federal workers to the market to pitch their financial needs directly to the public, like others have previously done with healthcare expenses, housing assistance, and the like. Crowd funded socialism works because it exists in a free market.

Kevin Cochrane teaches economics and business at Colorado Mesa University in Grand Junction and is a visiting professor of economics at the University of International Relations in Beijing, China. He is a regular contributor to several national publications including the Washington Times, Washington Examiner, and American Thinker. He previously was the economic correspondent for both CBS and NBC TV affiliates in Southern California. For 27 years he formerly was a senior banking executive with a major NYSE listed bank holding company and the CEO of a national multi-bank operating company. To read more of his reports — Click Here Now.

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Crowd funded socialism works because it exists in a free market.
social welfare, taxes, crowdfunding
Thursday, 28 March 2019 12:49 PM
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