Archive for the ‘welfare policy’ Category

Many people are concerned about income and wealth inequality. I am not concerned about economic inequality as such; I care about absolute poverty (how many people live in misery because of wretched physical conditions), and I care about a broad distribution of opportunity (everyone’s having a “fair shot” at economic success), but I don’t see it as a problem if someone earns vastly more money than someone else, just as I don’t see it as a problem that poorer people tend to have more leisure time than richer people. Only those consumed with envy could see economic (or leisure!) inequality simpliciter as a problem, right?

But I actually don’t think people on the left care about economic inequality or leisure inequality or inequality of looks or appealing personalities or anything else of value, in themselves, either. They care about economic inequality because they think it has negative consequences, particularly for political inequality, and because they think it is a symptom of some deeper problem. I disagree on the first count and agree on the second. Let me explain.

Does Inequality Have Bad Consequences?

The fear of the left is that in an unequal U.S., the rich will “buy” politicians to do what they want. As a result, we will get more pollution and more redistribution that flows from the middle class to the rich. The so-called “oligarchy study” (the term “oligarchy” never actually appears in the paper) went viral recently, showing that the preferences of wealthy Americans (and organized interest groups) matter for policy change in the U.S., while, controlling for the preferences of wealthy Americans, the preferences of other Americans make little difference. But wealthy Americans and average Americans actually have similar views on most issues, and where they diverge, the wealthy often have clearly superior views: less likely to loathe immigrants and gays, to fear free trade, to oppose marijuana legalization, and to be narrowly ideological. In addition, the wealthy tend to be more skeptical of taxation and welfare programs than the non-wealthy — your views on whether that difference is problematic may vary according to your views of the welfare state.

Still, let’s assume that the influence of the wealthy on U.S. politics is baleful; does that mean that growing economic inequality would reinforce that baleful influence? It remains unproven whether more inequality will mean that the rich pay more in campaign contributions and get more out in policy terms. The most likely explanation for why the rich are influential is simply that they have similar levels of education and status to politicians and move in the same social circles and care about the same sorts of things. Studies looking at how campaign contributions “buy access” to legislators generally come up with very weak results. To take just one policy example, federal air pollution regulations have always ratcheted up, and air quality in the U.S. is vastly improved relative to 50 years ago, in part due to regulation and in part to technological changes. Rising inequality certainly doesn’t seem to explain these trends.

A bigger problem with the U.S. political economy (more…)

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In my last post, I said “total net social spending” included net public spending and mandatory private social spending. In fact, it includes voluntary private social expenditures as well. The U.S. has by far the highest voluntary social expenditures in the OECD, so if you subtract those out, the U.S. net public and mandatory private social spending figure is no longer second in the OECD (and thus almost certainly the world, as poorer countries have smaller welfare states), only just about average.

But what does voluntary private social spending include? One big component is employer-provided health insurance. It seems to me that should be included in the size of the U.S. welfare state, even if it is not directly provided by the government, because the government subsidizes it (through the tax code), and because that spending is a substitute for government spending in other countries. If we exclude it for the U.S., we are not comparing like with like, since several other countries provide health insurance mainly or exclusively through the state. Put another way, if the U.S. provides so much social welfare privately, the need for the government to provide it is less. The U.S. welfare state is average-sized in spite of the fact that the private welfare system is enormous.

Now, does that mean the U.S. spends vastly more on the poor than most other OECD countries? Not necessarily. The majority of social spending in the U.S. does not go to the poor – but neither does it anywhere else. The elderly soak up a huge portion of social spending in almost all advanced industrial societies. Indeed, one way to measure how redistributive the U.S. welfare state is is to subtract the “post tax and transfer” Gini ratio from the “pre tax and transfer” Gini ratio. Of course, this is a static measure that does not take into account possibilities for mobility from one income level to another, and the extent to which “poverty traps” can contribute to lost mobility. Still, it’s a suggestive measure.

Using data from World Development Indicators Standardized World Income Inequality Database, I find that the tax and transfer system in the U.S. shaves only 0.08 points off the Gini ratio, a standard measure of income inequality (“1″ means most unequal, “0” perfectly equal). In most other countries, the number is much higher. In Sweden, it is 0.20. In Italy and Germany, is 0.21. Only Switzerland showed (slightly) less progressive redistribution.

So while the U.S. has one of the very largest welfare states in the rich world, it also has one of the least progressive welfare states in the rich world. By the standards of anti-inequality preferences, that’s a terrible record of inefficiency.

Updated with correct source for my data.

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The United States has long had a larger welfare state than most other Western democracies. Surprised? You may not be aware of the new research on “net social spending.”

Net social spending includes not just government expenditures on social programs, but also tax credits for social purposes and, as a debit, government taxation of social benefits. It turns out that many of the so-called “generous” European welfare states tax social benefits at a high rate. Meanwhile, the United States uses the tax code to help the poor, through the Earned Income Tax Credit. We should also include mandatory private social payments, which are not directly paid by the government.

Using the OECD data, I have plotted total net social expenditure over time for 26 rich countries (click the image to zoom in).

the united states has a bigger welfare state than most other democracies

As of 2009, the United States had the second largest welfare state in the world, at 28.8% of GDP. Only France, at 32.1%, had a bigger one. Moreover, while all advanced industrial societies show a growth in the welfare state from 2005 to 2009, due to economic conditions, the U.S. also had a big runup in welfare spending between 1999 and 2007. In 1995, U.S. net social spending stood at just 22.7% of GDP, although even that figure was higher than those for Denmark, Canada, Italy, Norway, Australia, Ireland, and South Korea. So far as we have data, the U.S. has always had a larger-than-average welfare state.

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In the 1986 State of the Union address, Ronald Reagan proclaimed:

“My friends, some years ago, the Federal Government declared war on poverty, and poverty won. …Federal welfare programs have created a massive social problem. With the best of intentions, government created a poverty trap that wreaks havoc on the very support system the poor need most to lift themselves out of poverty: the family. Dependency has become the one enduring heirloom, passed from one generation to the next, of too many fragmented families.”

Many of  welfare reform experiments were initiated at the state and federal level during Reagan’s presidency, and by 1996, Aid to Families with Dependent Children was eliminated and replaced by Temporary Assistance for Needy Families. The number of people on welfare fell dramatically (no surprise, given the time limits) and given the strong economy, the percentage of the population in poverty fell from 13.7 percent (1996) to 11.3 percent (2000). From that point on, the percentage of the population below the poverty rate continued to increase, reaching 12.7 percent in 2004 and exceeding 15.1 percent by 2010. It currently hovers around 16 percent. For those interested in the trendline on poverty, National Journal has a useful infographic on the “War on Poverty 50 Years Later.” A wealth of data can be found in the Census Bureau’s Income, Poverty, and Health Insurance Coverage in the United States. (more…)

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Ezra Klein (Wonkblog) has a brief interview with Georgetown’s David Super on how poorly programs for the poor have functioned (and how good HealthCare.gov appears by comparison).  The alternatives discussed include outsourcing to private contractors (bad) and implicitly providing more resources (good).

One alternative that is not discussed:  providing benefits through a fractional negative income tax (NIT). If one assumes that the government has some responsibility for providing for the poor, the NIT has a number of advantages. It minimizes administrative costs and complexity, government paternalism, and the disincentives to work. Milton Friedman—credited with first bringing the NIT into the policy debates—does an excellent job of explaining the basic features of the proposal in a 1968 episode of Firing Line.


For those interested in placing Friedman’s fractional negative income tax proposal in the larger context of social policy, a useful resource is a recent intellectual biography of Milton Friedman by William Ruger. Those unacquainted with the negative income tax—and some of the difficulties that are intrinsic in the proposal—might enjoy the overview by Jodie Allen at the Concise Encyclopedia of Economics.

Given that President Obama is emphasizing the issue of income inequality, both parties seem convinced that we need significant tax reform, and there is a fair amount of experience with the Earned Income Tax Credit, perhaps there will be a window of opportunity to revisit the NIT.

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Roger Koppl argues this week at ThinkMarkets that “Income inequality matters.” He thinks it matters so much that he says it twice. He believes “Austrian,” pro-market, economic liberals should be speaking up more on this “central issue.” I think Koppl could not be more wrong. The issue deserves all the inattention we can muster for it.

The problem I think is not Koppl’s motives. He rightly says that we should “watch out for ways the state can be used to create unjust privileges for some at the expense of others.” He is certainly right about that. He argues that unjust state policies may be skewing market results in such a way as to increase inequality. He may be right about that. But he is wrong in suggesting that we ought therefore to be paying attention to income inequality. We ought therefore to be paying attention to those policies. Whether they produce greater inequality is neither here nor there.

Koppl gives four examples: (i) policies that privatize profits and socialize losses, (ii) bad regulation, (iii) collapse of the rule of law, and (iv) public schools. I can certainly join Koppl in a hearty wish that we not only attend to these unwarranted policies, programs, and tendencies, but that we do so with a degree of urgency prompted, in part, by their effects on the poorest and most vulnerable among us. But talking about inequality is precisely a distraction from doing so.

In a great paper of a few years ago, Harry Frankfurt argued that “Egalitarianism is harmful because it tends to distract those who are beguiled by it from their real interests.”* Frankfurt thought that focusing on equality was actually pernicious because it distracted us from attention to real harms, of which inequality is at most an indicator. And he was right. It may well be that, for example, the evisceration of the rule of law results in greater income inequality. But it also might not. Whether or not it does so, however, it is unjust, and it deserves our attention. Similarly for the increase in moral hazard and regulation, to say nothing of the deplorable system of public education. All of these need attention, and one prime reason they do so is because of their effects on those least capable of circumventing their evils. If we care about the poor, what we ought to care about is bad policy, not indicators that may or may not have anything to do with policies that are making people worse off. As long as we are worrying about income inequality, we are worrying about the wrong thing.

* In “The Moral Irrelevance of Equality,” Public Affairs Quarterly, April 2000.

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A common libertarian and conservative response to questions about how beneficiaries of government programs will carry on after the removal of their subsidies is that charity should take care of them. This answer is often overly glib, even when combined with the observation that a lower burden of taxation might foster more giving (charity is already tax-deductible after all). Charity will always be insufficient to meet basic human needs, and in the absence of government programs, some people will fall through the cracks. (In the presence of government programs, some people will fall through the cracks.)

This aspect of charity is a feature, not a bug. Charity suffers from the same problem that government welfare programs do: the Samaritan’s Dilemma, as economists call it. The more you help those in need, the more need there will be, because people’s behaviors will change as they come to expect assistance. To the extent that libertarians and conservatives oppose welfare programs because of “dependency” issues, they must also oppose charity for the same reason. Of course, charity is superior to government programs in at least two respects: lower administrative expenditures and, more importantly, greater respect for the moral autonomy of the donor. To the extent that we can reduce extreme human deprivation, many of us will think it worthwhile to do so even if it somewhat reduces the productive efforts of those less deprived, whether through charity or through government assistance. Nevertheless, it is possible for charity to be excessive.

To see the point, consider the argument I made that libertarianism does not preclude mandatory health insurance for children. (more…)

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Policy wonks and pundits are waiting in anticipation for tomorrow’s decision on the Affordable Care Act (I know it was one of the first things that crossed my mind this morning as I prepared for the day).  Although social scientists may not be too good at making predictions, I think most of us could  have long ago written the talking points for both sides of the dispute with great accuracy. But what of the public at large? Will the decision factor into their decisions in November? Will the Democrats and Republicans be able to use tomorrow’s decision effectively as a rallying point? I have my doubts.

The newly released NBC/WSJ poll has several questions on the SCOTUS and the Affordable Care Act.

From what you have heard about Barack Obama’s health care plan that was passed by Congress and signed into law by the President in 2010, do you think his plan is a good idea or a bad idea? If you do not have an opinion either way, please just say so.

  • Good idea: 35%
  • Bad idea: 41%
  • Do not have an opinion: 22%
  • Not sure: 2%

I am not certain how the Obama administration will spin a defeat at the Supreme Court (should it be handed a defeat). The obvious take is to present the Supremes as activist and counter-majoritarian. But in a world where only 35 percent think the Affordable Care Act was a “good idea,” will this spin have much traction outside of the 35 percent, who are likely already strong supporters of a second term?

If the Supreme Court rules that the health care law is unconstitutional meaning that it will not be implemented would you be pleased, disappointed, or would you have mixed feelings about it?

  • Very pleased: 27%
  • Somewhat pleased: 10%
  • Somewhat disappointed: 5%
  • Very disappointed: 17%
  • Mixed feelings: 39%
  • Not sure : 2%

Once again, how do you frame a defeat? 37 percent would be pleased, 22 percent would be disappointed, and those who would be pleased appear far more passionate about the issue. But overall, “mixed feelings” carry the day.

Now, if the Supreme Court rules that the part of the health care law called the individual mandate, that requires everyone to either have or buy health insurance is unconstitutional and will not be implemented, do you think this will help you and your family, hurt you and your family, or not make much difference either way?

  • Help: 18%
  • Hurt: 25%
  • Not make difference: 55%
  • Not sure: 2%

This may be the most interesting result. The vast majority of Americans get their healthcare through employers, Medicare or Medicaid. They are already covered and, as a result, they may feel that they don’t really have a dog in the fight when it comes to the personal mandate.

Bottom line: although those with hard positions will praise or curse the outcome, for most voters, I assume the response will be: Meh!

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I agreed with the first half of Jessica Flanigan’s essay on “A Feminist Libertarian Dilemma,” but then nearly choked on my invisible coffee when I read this:

Bleeding heart libertarianism doesn’t rule out public policies that help women with families succeed in the workforce, like affordable public childcare, subsidized family leave, elder care, or a universal basic income.

So how exactly does bleeding-heart libertarianism differ from mushy-pated, Swedish-style social democracy?

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Paul Krugman (NYT) turns to the article that we have been discussing on Pileus (here and here) and Monty addressed in an insightful post on Ace of Spades.  Krugman has never really acknowledged the reality of a looming entitlement crisis (indeed, it often appears that there can be no program large enough, no deficit large enough, no marginal rate high enough). So instead, he turns to the irony of the situation: those in the red states have a higher dependency on the social safety net than those in the blue states, yet they gravitate toward small government rhetoric and the GOP.  The question is: why?

Unsurprisingly, the focus turns to a few well-worn explanations.  One might argue (following Thomas Frank) that the plutocrats, who promise Jesus and deliver tax cuts for the rich, simply manipulate the red state rubes. Alternatively, one might argue (following Suzanne Mettler) that people would love the state if they only understood all the good things it does for them (e.g., many Social Security and Medicare recipients deny that they have used government programs).

Yet, the NYT article that has been the subject of conversation does not provide much support for either of these theses. Social issues rarely find much of an expression in the vignettes and those interviewed seem quite aware that they are using government programs. Their discomfort comes from the fact that they are ideologically opposed to these programs despite the fact that they see no options outside of the safety net. They are, to quote the title of one of my favorite James Buchanan essays, “afraid to be free.” Perhaps it is with good reason, as suggested earlier, given the erosion of civil society institutions and norms of self-help and communal responsibility.

Krugman rightly chastises Mitt Romney for his lack of frankness when addressing the issue of entitlements (e.g., Romney attacks Obama for failing to embrace entitlement reform and then, without a pause, attacks him for slashing Medicare). But I think he fundamentally misunderstands the broader situation:

The message I take from all this is that pundits who describe America as a fundamentally conservative country are wrong. Yes, voters sent some severe conservatives to Washington. But those voters would be both shocked and angry if such politicians actually imposed their small-government agenda.

Perhaps, does this sad state of affairs speak to their conservatism? I am skeptical.

Let me draw a quick example: all of us have known people with severe substance abuse problems. In some cases, it was simply a product of choice; in other cases, they had sought refuge in intoxicants following some significant crisis. They clearly understand the evils of dependency and they are painfully aware of the ways in which their addictions undermine their ability to live a flourishing life. At the same time, after years or decades of abuse, they find the idea of going into rehab unbearable. Some rightly anticipate that the act of regaining sobriety could imperil their very lives. At the very least, it would disrupt their social relationships and daily activities. Given the damage already done, they may wonder whether the benefits of sobriety would be higher than the costs.

Does this mean that they should be avid supporters of universal intoxication? Not to my mind. It means that are in a tragic and untenable situation, often with the assistance of myriad enablers.

A few readers might object to drawing parallels between welfare and addiction. But recall that even the father of the modern welfare state, Franklin Roosevelt, saw the connection when he noted in his 1935 SOTU address that “continued dependence upon relief induces a spiritual disintegration fundamentally destructive to the national fiber. To dole our relief in this way is to administer a narcotic, a subtle destroyer of the human spirit.”

A few years ago, a good friend was dying. Decades of alcohol abuse and heavy smoking had taken their toll. After a stroke, the doctors told me that their immediate concern was not the effects of the stroke but the severity of the withdrawal symptoms. Soon thereafter he was diagnosed with terminal lung cancer.  Our last meeting occurred in a bar, where he sat with a beer in one hand and a cigarette in another. Filled with cancer, he took a draw on his cigarette, smiled, and said: “These damn things killed me.”

Of course, this was not a new revelation for my friend. He was brilliant, witty, and had made comparable comments in the past when the future was still unclear. Nonetheless, the pain of withdrawal would have been far too great for him to take the steps that would have extended his life.  One might have assuaged his concerns by explaining that the chemical effects of the drugs he consumed had a positive impact on the pleasure centers of his brain. One might have encouraged him to simply celebrate addiction.

He never would have bought it.

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Florida recently passed a law requiring welfare recipients to be tested for drugs and throwing them off welfare if they test positive. Governor Rick Scott justified it as saving taxpayers’ money and discouraging drug use. It turns out to be costing taxpayers more money than it saves them, because hardly anyone tests positive. This isn’t conclusive proof, by the way, that the law isn’t discouraging drug use – after all, prospective welfare recipients could have modified their behavior after the law was passed – but it’s strongly suggestive that it is not, for low-resource citizens tend to have higher levels of political ignorance, and it would not be surprising if many of them did not know of the new law before applying.

Even if the law were working as intended, I think it would still be unjust. As Mike Riggs points out in the first link above, the law does not test corporate welfare recipients for drugs, only poor people. The fact that this is a government benefit does not mean that the government is justified in attaching any conditions it wants to it. Would it be justified in requiring every public school student (and parent??) to be tested for drugs? Would it be justified in requiring strip searches of welfare recipients? Drug testing is invasive and should always bear a significant burden of proof when conducted by government. In my view, while private employers have every right to test their employees for drugs, the bureaucratic, “zero tolerance” culture of drug testing has gone too far and should not be further encouraged.

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