Welfare Option 5: Self-limited Free Services
Earlier, I mentioned how giving out things for free causes people to over-consume. When superhighways are toll-free, people move out to the suburbs. (This process slows down once traffic slows down due to excessive numbers of people commuting from the far out suburbs.) When restaurants offer all you can eat, people stuff themselves.
However, there are some services which are self-limiting. Consider a hospital that treats only rare diseases. Such a hospital could be supported by charity without giving to the undeserving. No one will be tempted to fake having such a disease in order to experience a treatment that will do them no good *[actually, Homer Simpson did fake leprosy to vacation in a leper colony in Hawaii, but he is a cartoon character]. Similarly, the government can be quite generous in its treatment of people in homes for the mentally retarded. Few people would choose to live in such a place in order to get a free meal and bed.
This idea can be applied even to services for the not so needy. For example, in areas where the population is not too dense, it is affordable to have public tennis courts. Tennis is fatiguing; people will limit their play without having to pay by the hour. Note that free tennis courts do require some overbuilding, else there will be lines, but the problem is bounded for low-density population centers. The same applies for public playgrounds.
Such self-limited services are generally within the budget capabilities of private charities and/or local governments. In the interest of choice, efficiency, and honest government, I would suggest that such services be in such hands; let the federal government worry about the big things.
A Cost the Poor Can Pay
It is possible to make services self-limited by imposing a price. If the price is one that the needy can pay, but the non-needy are generally unwilling to pay, this approach can be used to target the truly needy without having a system to track everyone's income. A common approach is to require waiting in line for long periods of time in order to receive free or discount services. This is a common method of rationing free health care services. It was an extremely common method to ration goods in the old Soviet Union. For those who have no job, time is of less monetary value, so this method is effective in filtering out the able.
Another example is a soup kitchen that serves up a long sermon before serving up food. Lazy hedonists will have an incentive to look elsewhere or even get a job.
A very powerful rationing technique is shame. This is one way in which private charity can be more selective than a welfare system and still reach the needy. Government handouts, especially from the federal government, are often viewed as entitlements. There is limited emotional cost to accepting such. To accept private charity is another matter. This shame factor also applies to a degree when the local government is the giver vs. some gigantic foreign bureaucracy. For those in true need, there is less shame, because there shouldn't be shame. For those who could get a job, this can be a powerful incentive to look for one. (But note that this is not a 100% effective filter; there are plenty of beggars on the streets who could work for a living.)
Finally, we have a price that the most hard core socialists can love: paternalism. I am fond of pointing out how much better the U.S. Food Stamps program works compared to the socialist approach of state ownership of agriculture. Socialized agriculture resulted in millions dying of starvation in the past century. Food Stamps have resulted in many fat poor people. The retort I have received from many hardcore leftists is that the U.S. poor are eating low-quality food. Very well, let us fix this. Suppose we make Food Stamps redeemable for only healthy foods. A simple objective test for what constitutes a junk food could be that anything that contains added sugar/sweeteners, partially hydrogenated oils, and/or nitrites cannot be purchased with Food Stamps. Given that nearly all grocery stores are computerized, this should be easy to implement.