Government spending, as you'll find in any macroeconomics textbook, raises
the interest rate, which results in decreased private investment. As
investment decreases, long term growth decreases.
As a result of this decreased long term growth, the welfare of the poor
might look something like this:
(Only the shape of this graph is relevant; I cede that these numbers can't
be proven as it is impossible for a given state to try two policies
simultaneously and compare.)
| / /
| | /
| / /<----- welfare
| |/
| *
Average Income | /|
of the lowest | / /
statistical |/ |
quartile $ / <----- non welfare
(adjusted for | |
inflation) |/
-----------------------------
Time
Note that while under the welfare system, the poorest citizens are at first
richer than they were under the non-welfare system (denoted by $ on the
graph), after a given period of time, these two lines intersect. (The
point marked w/ a * on the graph.) From this point forward, welfare isn't
even better for the poor. Meanwhile, of course, everyone else has been
suffering from decreased growth and decreased disposable income.
Also note that if welfare were to be abandoned, the poor would immediately
lose the quantity $ from their inflation-adjusted income; while this would
eventually be more than offset by increased growth, when the poor take a
hit it's rare they will simply be able to dissave a bit or decrease
consumption of luxuries. This money will likely come out of the
food/health budget; it would also lead to a rise in homelessness as the
poor find themselves unable to pay rent/mortgages, and a possible short run
decrease in growth as some poor will find themselves (suddenly) unable to
work at all. Again, while this loss would EVENTUALLY be offset, the short
term losses could be tremendous.
Welfare is good for the poor in the short run, it is bad for everyone in
the long run. Abandoning welfare is quite bad for the poor in the short
run, but good for everyone in the long run.
-TAKE MY ADVICE-
-I NEVER USE IT ANYWAY-