This is a good point. The counter-example for the welfare state is the absence or lower levels of it, rather some idealized utopian society with no social problem. To my knowledge, Western European countries which have high levels of gov't social welfare spending i.e. in the vicinity of 25-30% of the GDP have fewer social problems than countries with lower social spending (below 20 % of the GDP), such as the US.
However, the effectiveness of specific social welfare programs is difficult to measure because of the lack of clearly defined standards and criteria, and more importantly, complexity of social problems. For example, it would be unreasonable to expect, say, a school or a social welfare agency, to soleve multiple problems associated with poverty. Thus, the persistence of effects of poverty do not necessarily imply a failure of public education system or social programs. Arguing otherwise is tantamout to claiming that hospitals fail because they have more sick or dead people than, say, private homes.
Having said that, I do belive however, that the US approach to public welfare has a major flaw. It is conceived primarily as a an emergency assistance instead the procurement of public goods. That is - aid to children at risk instead of decent public education for all, transportation for the poor and people with special needs rather than decent public transit for all, shelters for marginal elements instead of public housing for all, etc.
The betrayal started not with Reaganite rolling back of the New Deal but the New Deal itself - which was based on the capitalist/neoclassical premise that the private provision of necessities of life is the norm - while public goods are but failures of the private markets.
wojtek