The welfare state serves several functions. On the one hand, it promotes the economy by generating economic demand. On the other hand, it promotes stable rule by compensating for losses associated with the economy. The possibility of constructing a functional explanation of the welfare state on the basis of these functions is discussed here only briefly. The main emphasis will be on the conflicting tendencies created by the welfare state and their impact on the capitalist economy.

The welfare boom

Even after concerted attacks on it, welfare spending remains a significant part of the United States economy. President Carter's last budget, the one for 1981, made income maintenance 43 percent of the federal budget. President Reagan's budget for 1985 set aside $374 billion for income-maintenance programs. This was 42 percent of a total outlay of $926 billion. Income maintenance is made up of direct payments for benefits to individuals and does not then include budgeted purchases by the government itself of goods and services for the welfare areas of education and health. This sum for income maintenance was 10.5 percent of the roughly $3.5 trillion gross national product (GNP) of 1985. Reagan's cuts in housing, food stamps, family aid, and job training had been offset by the absence of cuts in the basic retirement program.

Nonetheless it is undeniable that, beginning in the late 1970s in the United States, the share of welfare spending in the economy stagnated.