Thanks to Mike M for posting the following Youtube clip (audio) in the comments of this post. It features a discussion between a caller, Lucy, and hosts on a radio talk show.
In many discussions on welfare I’ve run into the argument from supporters that nobody would choose the paltry sums and stigma of welfare over working. I didn’t realize it before, but they were arguing from their personal preference bias. What they really meant was that they would not make that choice.
They failed to account that not everyone is like them and everyone doesn’t face the same opportunity costs.
Lucy says she and her family live off welfare. According to her, she receives various forms of welfare totaling about $1,300 per month. Her parents were on welfare. She doesn’t begrudge those who work, that’s their choice, and she doesn’t see herself as a bad person for depending on the system that is there to help her.
She mentions that if she takes a job, she’d have to pay for daycare for her three kids and lose some of her welfare benefits. She’d be worse off. Incentives matter.
Lucy also does us a favor by asking an insightful question.
What if someone offered you a million dollars, no strings attached?
Lucy’s question gets us over the hump of the personal preference bias. Suddenly the unimaginable situation where somebody chooses welfare over work is replaced with something that my discussion partners can more readily identify with.
A million dollars would be hard to turn down, even if it was coming from other taxpayers. It probably wouldn’t be too hard to convince yourself of the good you could do with it. And, maybe you could. Who knows?
But, that’s not the point. The point is that incentives do matter. We should NEVER forget that.
Saying that you believe nobody would ever choose something that you don’t think you would choose (though you might if you faced similar incentives) isn’t a good argument. It just shows that you haven’t thought about it beyond your current situation.
Near the end of the audio, one of the hosts also makes an insightful comment about incentives. Lucy’s million dollar question sinks in for him. He asks, If your money was cut off, would you go to work? Lucy replies, Yes, I’d have to.
He then says:
…the government puts a gun to my head with the promise of imprisonment if I don’t pay taxes. Does anybody put a gun to your head to take that money?
Lucy answers, Nope. With this he brings the distorted incentives of punishing producers and rewarding non-producers to life.
I would have asked a follow-up questions. Are there any expectations attached to receiving this money? Likely answer: Other than having low or no income, nope.
Which gets to a subtle and unhealthy incentive distortion in society.
There seems to be a condoned attitude where the producers can be roughed up. Pay your taxes. Don’t complain. Complainers are greedy and soul-less.
But, as Lucy, confirms, such treatment of the recipients on the other side of the transfer payment is not condoned — even when they happen to be in situations like Lucy’s where they appear to be smart and capable, but unwilling to carry their own weight.
It’s as if expecting them to be grateful and to say thank you is too much to ask. As if saying ‘thank you’ would be demeaning.