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Free Money! No Strings Attached!
As many of you already know, economics — well, anything to do with math, really — is not my strong suit. I admit that up front. And welfare is about economics, so the fact that I think welfare is a disaster (having seen its manifestations play out, in caucasian shades of alabaster, lily and grayish-tan here in one of the least racially-diverse states in the Union) doesn’t mean I know how to fix it.
Welfare! That fluorescing, metastasizing collection of expansive and expensive programs originally intended to mitigate or eliminate the immediate and long-term effects of poverty in America. Here, as in the inner city, welfare has succeeded in ensuring that the basic needs of vulnerable Americans are being met, but the cost — not just in monetary terms but in blighted human lives — is high. A program intended to serve as a safety net has instead become a trap in which families remain enmeshed for generations.
Simply put, welfare too often rewards misbehavior and punishes those who attempt to make good choices, such as seeking entry-level or entrepreneurial employment, marrying the parent of one’s children, or moving away from economically depressed areas to cities or states where there are more jobs.
One solution could be to simply eliminate all welfare programs — AFDC, Social Security, disability, Medicaid, Medicare, fuel assistance, what-have-you — and let people either sink or get a job and swim.
This draconian measure is unlikely to be undertaken, even by the most heartless conservative. Even if some might be able to tolerate the spectre of ragged, starving adults staggering through the slums, we can’t let their kids go unclothed and unfed.
But I came across an idea here on Ricochet that was completely new to me. It is called the Guaranteed Basic Income (hereafter to be referred to as GBS) and is proffered as a substitute for as many welfare programs as we can think of.
What would happen if we replaced welfare with a single, annual tax-exempt payment of $20,000 to every citizen over the age of eighteen, with no strings attached? (NOTE: I chose $20k for ease of math; member Barfly tells me that it should be an amount a frugal person could scrape by on.)
Let’s imagine a welfare recipient — we can call her Fanta — single, eighteen years old, and does not yet have either a boyfriend or a baby. She lives in an inner-city neighborhood blighted by drugs, poverty and — why not? — racism. Jobs are few and far between, and those that exist do not pay well enough to be attractive when compared with welfare.
Under the present system, Fanta’s most rational, self-interested economic choice would be to get pregnant and go on welfare ASAP. Plenty of her friends and relatives have already taken this course, and are living comparatively well, from Fanta’s point of view.
If she decides to emulate them, the implicit message Fanta will receive along with her first check is: “We are giving this to you because you are damaged, defective, and/or a victim of forces you can neither control nor resist. You are incapable of determining the direction of your own life.”
Lucky for Fanta, she’s come of age under the GBI system. On her eighteenth birthday, she receives a check for twenty grand. Implicit message? You are receiving this check because you are a full, equal, free adult citizen of the United States of America.
Immediate objection! Why give Fanta money for not working?
Because we do it anyway and are extremely unlikely to stop doing it.
The real question is: what is the least-bureaucratic and most freedom-promoting way to give Fanta money? At present, any government “support” that Fanta will receive is processed, evaluated, and monitored by layers of social workers, program managers and assorted bureaucrats paid to enforce the byzantine rules and regulations that are intended to control how Fanta spends her money and therefore how she spends her life.
Eliminate all of that. One decent computer program could probably handle making a yearly, direct-deposit of 20k in every citizen’s bank account, including Fanta’s.
What could Fanta do with the money? If she was inclined to write the great American novel, compose experimental music, volunteer for a political campaign, or sit around on the couch watching Netflix, Fanta could pinch her pennies and live on it.
If she lived in an expensive city, she could pool resources with a few friends and live New Girl-style. Or she could move to a state or city with a lower cost of living. $20k is enough to buy a car in which to drive to, say, South Dakota with enough left over to pay the first months’ rent and security deposit on a new apartment.
Or, she could get a job. Even a low-paying McJob could make a big difference in Fanta’s standard of living, while allowing her to gain basic job skills and start on a resume. If she falls in love with a young man — as young women tend to — that young man would come with something more than sex appeal: he’d have his own $20. Naturally, so would all of Fanta’s other suitors, so it might behove Mr. Right to get a job and earn so he could look even better by comparison.
If they got married, they’d have $40k between them. If they decide they want to have a baby, the GBI might be enough to allow Fanta or her husband to stay home and take care of it, or it could pay for childcare while both parents continued to work.
What if Fanta is a drug addict and sticks the whole shebang into her veins or up her nose? What if she takes her $20,000 to Vegas and blows the whole thing in a single wild weekend?
Answer: Fanta has a problem.
She can ask her relatives for help. She can go to the Salvation Army. Both the family and the Salvation Army are, of course, free to demand very specific behaviors in exchange for aid, ranging from budgeting lessons to attendance at church services. But Fanta will only have to humble herself for a year: on her next birthday, our wastrel will have another chance, with a new check for 20k direct-deposited into her account.
The budget-busting part of this is, of course, that all Americans get the check. I know that sounds crazy… but I’d like to get rid of the condescending “Nanny knows best” implication that comes with more targeted government aid, and emphasize independence, agency and freedom. Ideally, those of us who don’t “need” $20k could be encouraged to think of it as money to be donated to charities and causes we care about but that — arguably—the government shouldn’t really be funding. (Big Bird?)
Published in General
I’ve endorsed a similar idea on other sites, and if my experience is any indication, you should prepare to be criticized by many.
One comment, I support this idea if and only if, it is tied to a flat-rate income tax starting at the first dollar of income. One of the biggest problems in our current welfare system is that marginal tax rates can exceed 100% for welfare recipients as they lose benefits as they earn income.
Any “progressivity” that the left wants in the tax system should be handled by the size of of the cash benefit and (the implied break-even point of income, below which your are a net recipient).
One common criticism that I’ve received is that this system does not provide enough support for people with severe disabilities. FWIW, I believe this criticism has some merit, though I’ve also thought that many people would wind up donating their grant to people in need, and private institutions can often help these people far more efficiently than the government provided programs do (though that statement itself is obviously controversial to people on the left).
For the most part it is because progressive tax systems are form of social engineering, and if you adopt this system, you are trying to simplify the government’s ability to social engineer society (and the cash grants inherently accomplish a lot of what progressive income tax rates are trying to achieve, so having both would be duplicative).
But also, we need every voter to be paying taxes. In our current situation, we have almost half of all households paying no federal income tax. As a result, they vote for as much federal spending as possible because they don’t think they will have to pay for any of it, which has VERY bad outcomes.
Great idea.
Really?!?!?!?
(see note re: gullibility on other thread)
welfare has succeeded in ensuring that the basic needs of vulnerable Americans are being met, but the cost, not just in monetary terms but in blighted human lives, is high.
That contradiction is a clear demonstration that the basic needs of vulnerable Americans are not at all being met.
The flat payment of $20k may be politically feasible, but that’s all it has to recommend it. One of the very serious failures of our current welfare system is the welfare cliff–even a pay raise, much less a better, higher paying job, can lead to a net reduction in total income through a reduction in welfare benefits. That “tax” can run over 45%. The $20k trick merely codifies the welfare cliff. And it builds in inflation. And it means, in the end, that employers will be able to pay $20k less to their employees than they might otherwise. (Of course, that last will have both good and bad overall cascade effects with unpredictable consequences.)
Better, though much more politically difficult is to come very close to eliminat[ing] all welfare programs, with some fillips. The big three, Social Security, Medicare, and Medicaid, are relatively straightforwardly taken off the Federal books and put in the hands of the individual citizen where they belong: privatize the first two and block grant the third to the States on a declining-to-zero schedule. Of course the Left will whine and lie–even Ryan’s saccharin vouchers for Medicare was to butcher grandma.
As to the rest: that’s what family, church, charity, local community are for. After that, and only after that, first from the lowest level of the hierarchy to the highest level, government should get involved. Contra Madison, even the Federal government has a role to play in welfare, but government should be the last resort, not the default.
Eric Hines
I was going to post this graphic earlier in this thread, but your comment almost requires it
The whole presentation is worth reading
KB:
Charles Murray proposed this guaranteed income (GI) idea, so you’re in good company.
How did you come up with the $20k figure? I majored in mathematical economics, so this is up my alley — your proposal would cost about $5 trillion a year. I think that the total for all federal, state and local spending is about $6.2 trillion. There is no way that we could afford $5 trillion, even if we cut all other welfare and entitlement programs.
According to Murray’s proposal, “a GI of $10,000 per year for all adults aged twenty-one years and older will cost no more than the projected cost of the current system as of 2011.”
But I think that Murray’s plan replaces welfare, Social Security, Medicare and Medicaid, and it also levies a surtax of 20% on incomes between $25,000 and $50,000 (which would be a significant work disincentive).
While it would be 110% politically unfeasible to replicate it wholesale, the LDS Church’s welfare program would be the best solution. Of course, there are a number of things that wouldn’t work in the context of a government program (for instance, it relies on the voluntary contributions of both time, money, and talents of the members), but the principles have been demonstrated to work: discipline, frugality, generosity, and industry.
-E
I’ve seen this before, but it’s a good reminder. How do other states fare under this kind of analysis?
-E
How do other states fare under this kind of analysis?
It varies with the inherent fiscal discipline of the State, but the cliff always is there, and it’s always significant.
Eric Hines
Yes really. We can’t win this without radical change accepted by many people.
That sort of thing doesn’t scale well, but then charity (as opposed to welfare) is best when it has local origins. Beginning local, it has the largest effect: with all (ideally) “locals” doing this sort of thing, there are fewer folks who fall through the cracks or who are left over after local resources are fully used and so need the assistance of the next higher community level.
Eric Hines
The program has the unusual quality of being extremely local and scale-able at the same time, although it has scaled organically over the last several decades.
The needs are assessed and addressed at the local ward (or congregational) level by the Bishop. He draws on the local members for time and money. However, many supplementary resources are made available through the general program as needed, such as storehouses, employment centers, etc.
As membership in an area grows, the ward boundaries are modified to maintain membership within a certain range, and new wards are created.
-E
Hey, AP!
How did you come up with the $20k figure? I majored in mathematical economics, so this is up my alley — your proposal would cost about $5 trillion a year. I think that the total for allfederal, state and local spending is about $6.2 trillion. There is no way that we could afford $5 trillion, even if we cut all other welfare and entitlement programs.
I made it up. I chose it because a.) I can do the math (“get married and have 40k!) and b.) it sounded like enough money to allow someone to live on it, but not well.
Yes really. We can’t win this without radical change accepted by many people.
This was the other part that appealed to me—how much fun it would be to roll out, how it would completely change the conversation. I had this fantasy of Marco Rubio walking into a high school math class in —oh, what the heck—inner-city Baltimore, and saying “Look, kids. What could you do with 20k a year?”
Would the fact that the money would be free to enter the economy in any way its owners chose be good for bid’ness or not?
Would it be a good thing if Walmart, or a start-up company could hire people for whatever the labor market would bear, and not have to futz with a minimum wage?
Incidentally, when I described this to my liberal friends and relations, their response was, uniformly, “but what if Fanta doesn’t buy healthy food?” What’s with the food thing?
Eric Hines: And it builds in inflation.
Why?
Also—does it make any difference that the money is portable? That is, that if apartments in Ferguson (no longer Public Housing) get expensive, Fanta can move someplace else rather than being tethered to her city, county or state?
Would the fact that the money would be free to enter the economy in any way its owners chose be good for bid’ness or not?
Keep in mind that before the money can enter the economy via this path, it must first be taken out of the economy–out of the hands of folks who had their own ideas of how to spend their money. And those folks whose money is being taken include the money’s new owners‘ prospective employer bid’nesses and/or educators.
Would it be a good thing if Walmart, or a start-up company could hire people for whatever the labor market would bear, and not have to futz with a minimum wage?
This would be excellent, but we don’t need a welfare program to achieve it.
Eric Hines
Eric, how does the welfare cliff figure in this proposal? The payment would be for all adult citizens, without regard to need or other income.
Yay! Barfly’s here!
It puts an artificial floor under costs. How inflationary are food costs, given farm price supports? How inflationary are gasoline costs, given mandatory ethanol content and subsidies?
Portability just spreads the costs around while diluting the local benefits. Fanta’s $20k, for instance, wouldn’t be getting spent in Ferguson, but in her new location.
That last is what voting with one’s feet is all about, and it’s entirely to the good, but that good is maximized when it’s done with private money, and not OPM. Some of those $20k, after all, originated in Ferguson, and with Fanta’s relocation, that Ferguson private resident- or business-originated money goes with her, to Ferguson’s government-driven loss and not from anything Ferguson did.
Eric Hines
It puts an artificial floor under costs. How inflationary are food costs, given farm price supports? How inflationary are gasoline costs, given mandatory ethanol content and subsidies?
Does the same thing happen with welfare payments—that is, if Fanta gets AFDC and spends it at the local convenience store on approved items? What does subsidized housing do?
In other words, would a GI lump-sum payment be inflationary compared to no government handouts, or would it be more inflationary than existing government handouts?
(Please assume when answering that I really don’t know these things—not trying to be a pain in the neck!)
It reverses it. Now there’s a $20k incentive not to work at all, just to freeload. As OP noted, the number was taken because it was felt that folks could live on it, just not comfortably.
There is a surprising number of people who will be satisfied with that whether from laziness or a belief in dropping out or any other reason. Either way, they’re doing nothing productive with the money.
Eric Hines
One thing I liked about the lump sum is that it represents not controlled income but capital—Fanta could use it as start-up money for, say, a food-wagon business.
Eric, I question your notion of “productive.” Anyone so slack as to take the 20 large and rot is best kept out of the way, by my reckoning.
I agree with you. I just don’t think you and I need to give him those stacks to rot. He can do that for free.
Eric Hines
There is a surprising number of people who will be satisfied with that whether from laziness or a belief in dropping out or any other reason. Either way, they’re doing nothing productive with the money.
Eric Hines
This is true—they could sit around and watch Netflix all day. But that’s happening now.
Is spending the money not doing something productive with it? That is, if Fanta decides her goal in life is to watch every episode of The Office five hundred times, doesn’t the money she must spend on rent, food, sweatpants, pj pants and flip-flops get out into the economy too?
People generally come up with projects, even if they aren’t necessarily jobs. Instead of NEA grants to already established (and, frankly, generally mediocre) artists, the 20k could support the next Jackson Pollock…and yes, the next velvet-Elvis genius too…
…would a GI lump-sum payment be inflationary compared to no government handouts, or would it be more inflationary than existing government handouts?
The first question is yes. On the one hand, any spending is inflationary, as it represents a demand for a good until the demand and supply reach equilibrium. The GI would be inflationary relative to nothing at all because the $20k would represent an artificial injection of the money–an artificially increased demand for the same quantity of good, leading to a higher price equilibrium.
I don’t have enough data to answer the second question definitively. From my perspective that outcome would be among the unforeseen consequences.
Keep in mind, too, I approach these things with a basic disdain for government welfare as a default position.
Eric Hines
To my mind the most destructive aspect of the welfare state is not what it does to the recipients, it’s the bloated class of useless drones that administer our Fearful New World.
Remember this: The progressive project is and always has been a transfer of wealth, status, and power from those who work at objectively measurable pursuits to those who do not.
The obvious answer to the progs’ assault on our way of life is therefore to impoverish them. The prospect of hordes of minor welfare bureaucrats losing their jobs should appeal to every productive person. Let them scrape by on the national allowance – they can shop at Fanta’s family’s bodega.