A million dollar question

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.

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Incentives matter: Work and welfare edition

The Wall Street Journal has a must-read interview with Bob Funk, CEO of Express Employment Services — a $2.5 billion employment services agency. There’s also a good companion piece, Won’t Work for Food Stamps.

Funks covers some key points from a report his company plans to publish on Monday called, The Great Shift.

Here are snippets:

[Funk believes] “anyone who really wants a job in this country can have one.” With 20 million Americans unemployed or underemployed, how can that be?

To land and keep a job isn’t hard, he says, but you have to meet three conditions: “First you need integrity; second, a strong work ethic; and, third, you have to be able to pass a drug test.” If an applicant can meet those minimal qualifications, he says, “I guarantee I can find employers tomorrow who will hire you.”

He thinks the notion of the “dead-end job” is poisonous because it shuts down all sense of possibility and ambition. One of his lifelong themes, Mr. Funk says, is that “a job—any job—is by far the best social program in America and the ladder to success.”

The primary jobs problem today, Mr. Funk says, is that too many workers are functionally unemployable because of attitude, behavior or lack of the most basic work skills. One discouraging statistic is that only about one of six workers who comes to Express seeking employment makes the cut. He recites a company statistic that about one in four applicants can’t even pass a drug test.

“In my 40-some years in this business, the biggest change I’ve witnessed is the erosion of the American work ethic. It just isn’t there today like it used to be,” Mr. Funk says. Asked to define “work ethic,” he replies that it’s fairly simple but vital on-the-job behavior, such as showing up on time, being conscientious and productive in every task, showing a willingness to get your hands dirty and at times working extra hours.

He fears that too many of the young millennials who come knocking on his door view a paycheck as a kind of entitlement, not something to be earned. He is also concerned that the trendy concept of “life-balancing” is putting work second behind leisure.

Funk admits to a prejudice (emphasis added):

“I guess I’m a little prejudiced to the immigrants and especially Hispanics,” he says. “They have an amazing work ethic. They don’t want handouts and are grateful to have a job. Our company has a great success rate with these workers.” This focus on work effort is seldom, if ever, discussed by policy makers or labor economists when they ponder what to do about unemployment. To most liberals, the very topic is taboo and is disparaged as blaming the economy’s victims.

The author of the WSJ piece includes some eye-opening stats to back Funk’s claims. There are 47 million people receiving food stamps, 14 million people collect disability benefits and with unemployment insurance extended to 90 weeks, Funk calls these:

…[the] vast social welfare state programs that have become a substitute for work. There’s a prevalent attitude of a lot of this generation of workers that the government will always be there to take care of them. It’s hard to get people to take entry-level jobs when they can get unemployment benefits, health care, food stamps and the rest.

The companion piece shows the sharp rises in such social welfare programs. The cost of food stamps has more than doubled since 2008 to $83 billion and one in seven Americans receive food stamps. The government spends ‘roughly $40 million a year…to convince to enroll’ in food stamps.

The difference between poverty and destitution

Dan Mitchell comments and expands on Thomas Sowell’s latest column. Both are well worth reading.

I just had to include this passage from Sowell:

“Poverty” once had some concrete meaning — not enough food to eat or not enough clothing or shelter to protect you from the elements, for example. Today it means whatever the government bureaucrats, who set up the statistical criteria, choose to make it mean. And they have every incentive to define poverty in a way that includes enough people to justify welfare state spending. Most Americans with incomes below the official poverty level have air-conditioning, television, own a motor vehicle and, far from being hungry, are more likely than other Americans to be overweight. But an arbitrary definition of words and numbers gives them access to the taxpayers’ money.

Good links

From Sheldon Richman’s, So What if Freedom Isn’t Free?  (Thanks to Mark Perry, Carpe Diem)

Freedom may not be free, but lots of things aren’t free. Food isn’t free, but farmers aren’t drafted. They farm voluntarily. It is true that we are taxed to support certain (but not all) farmers, but not because we wouldn’t have food if farmers weren’t subsidized — even if the farm lobby and its congressional agents have convinced most people that is the case. The fact is, we could have ample supplies of food — not free but at low cost — in a completely voluntary marketplace.

The next time someone says, “Freedom isn’t free,” you might simply respond, “What’s your point?”

Shameless” society update from Jeff Jacoby, Is this any way to help the poor? (Thanks to Don Boudreaux, Cafe Hayek)

It wasn’t so long ago that such a degree of dependency would have been inconceivable. In 2001, according to federal data, 17.3 million people were receiving food aid. In little more than a decade, the food stamp rolls have almost tripled.

That didn’t happen by accident. Under the last two presidents, increasing food stamp enrollment became an explicit government goal. George W. Bush sharply expanded eligibility, rebranding food stamps as “nutritional assistance” instead of welfare. States were encouraged to sign up more recipients — a ball the Obama administration took and ran with. The Agriculture Department promotes food stamps through radio ads and “public service” announcements; billboard-style ads appear on city buses. To attract even more participants, the department advises local welfare agencies to “host social events where people mix and mingle” — show them a good time, and try to get them on welfare.

I forget who asked this question, but it’s a good one. If government welfare works shouldn’t we see less of it over time, not more?

Shameless Society

Ours’ was once a society that expected able-bodied folks to carry their own weight and not be a burden on others. And, it didn’t take much to be considered able-bodied.

Depending on others was looked down upon, shamed. Putting up a genuine effort to take care of your responsibilities earned you respect and dignity, and those marks of character use to carry some clout.

This seems to have changed over the past few decades. The standard seems to have gone from ‘able-bodied’ to ‘no fault of your own.’ If an intellectual from an elite university, or politicians seeking re-election can make a plausible sounding argument that passes the 5 second sniff test that some poor sap wound up in a bad position ‘through no fault of their own,’ then it’s ‘our’ job to help him out.

I say 5 second sniff test, because if most of us thought about the poor sap who lost his job ‘through no fault of his own’ two years ago, hasn’t found another job and has a family to feed and a house payment to make for more than 5 seconds we might start asking questions. Has he had any job offers? How many resumes has he sent out? Did he save an emergency fund? Has he tried to take a lower paying job to make ends meet? Does he have any other skills? Did he really need to buy a house with a mortgage payment so large that he couldn’t afford to pay it if he lost his job? Did he need to take out the home equity loan to remodel the bathroom? We might start to think of this poor sap who is in a tough spot ‘through no fault of his own’ as an ‘able-bodied’ person who maybe does deserve some of the fault.

Reading this exchange between university professors Bryan Caplan and Bill Dickens (the latter was the former’s Econ 1 teacher) troubles me.

Caplan steadfastly holds that a major cause of poverty is irresponsible behavior, that correcting this behavior is a good way out of poverty and rewarding this behavior is not a good way to stop it. Rather, that’s a good way to get more of it.

That part of the exchange I had no problem with.

It’s Dickens response that troubles me. First, I find its high fallacy and emotion content unbecoming of a university professor. Second, he goes out of his way to make excuses for irresponsible behavior. One example:

I must have spoken with, in the neighborhood of, 100 welfare recipients when I was working on the reform… Overwhelmingly those on public assistance were full of regret and/or a sense of hopelessness that they are fated to their condition. They know they should have worked harder in school, they know they should be working to support their family, they know it would be better if their children’s father was there to help support their kids. There is no shortage of hectoring from society, welfare caseworkers, family members, and the media.

From Caplan’s response:

I don’t think they’re sorry for their behavior.  I think they’re sorry they’re experiencing the predictable consequences of their behavior.  I see them the same way I’d see a serial adulterer enduring a hellish divorce: “Sure you’re sorry.  Sorry you got caught!  Sow the wind, reap the whirlwind.”

I’d add that there’s also no shortage of folks like Dickens who psychologists from circa 1980 would call enablers. While Dickens sees plenty of ‘hectoring from society’, I see plenty of people telling them it’s okay. It’s not their fault. Society has just left them behind. We have a safety net to help. Please, feel no shame.

I don’t have much problem with social safety nets, with the exception that they tend to devolve into dependency reinforcement programs, rather than true anti-poverty programs.

We don’t have real safety nets. Real safety nets would look more like this. Do you want to receive unemployment benefits? Report to your local Parks & Rec guy on Monday and spend 8 hours cleaning parks. We’ll help, but we expect you to do something productive in return.

Do you want welfare? How about a drug test? Did you get a free visit to the emergency room? There’s plenty of work to be done at the hospital. Maybe you can scrub a floor. Want a student loan? Sign up for a degree program that leads to a paying job. But how will we know if it will or not? By looking at whether past students who took loans out for the same program paid their loans back.

In the old days, if you were down on your luck and needed a free meal, you at least offered to wash dishes. Now, it’s okay to get a free meal and simply ask for more.

One of the most destructive things that has happened in our society has been removing shame, which has devalued dignity. Why work to earn respect when you can get by without it? Sure, there are some parts of society where the shame and dignity feedbacks are still vibrant, but they’re dead or dying in many parts controlled by government, which is around 40% of the economy.

Later in Dickens response, he suggests that Caplan spend time with some poor people. I’d recommend the same thing for Dickens. Except, this time, don’t do it while working on the President’s welfare reform task force. Interact with them on a regular, day-to-day basis. Go to the billing departments of hospitals. Become a checkout clerk at a grocery store. See what is bought by folks with government assistance. Go visit some folks receiving Social Security disability. Or, when they are getting a payday or title loan. The stories I hear from folks in these areas would have been considered shameful by most not long ago.

I hate to throw the baby out with the bath water. There are people who still value dignity who are helped by these programs and eventually work to become self-sufficient. It’s much more palatable to me to at least attempt to direct and limit these programs for such folks. That should be what it’s about, right?

That was the whole idea of the ‘able-bodied’ standard. Get off the dole if you can so we have enough to help the ones who really need it.

Daniel Hannan addressed this in his book, The New Road to Serfdom, as well. I wrote about here. I quote myself and Hannan from that post (his is the double indent):

Then Hannan goes on to analyze why the 1996 welfare reform in the U.S. was successful.  He gives several reasons, but one of the most important was localism in the administration of welfare.  Ultimately, the reform pushed welfare administration from a centralized federal level, to a local, in some cases, sub-state level, which has many benefits.  This is probably one of the best:

…localism under-girds the notion of responsibility: our responsibility to support ourselves if we can, and our responsibility to those around us–not an abstract category of the “the underprivileged,” but the visible neighbors–who, for whatever reason, cannot support themselves.  No longer is this obligation discharged when we have paid our taxes.  Localism, in short, makes us better citizens.

Personal Preference Bias in the Bubble

In a recent blog post on EconLog, economist Bryan Caplan articulates an excellent example of the personal preference bias that keeps many people from accepting that government redistribution and welfare programs can have negative outcomes (and outcomes exactly opposite of what is intended).

In the blog post, he ties together the three books Charles Murray has written on poverty, Losing Ground, The Bell Curve and Coming Apart.

Murray doesn’t just explain poverty; he explains elites’ failure to understand poverty.  Elites live in a high-IQ, low-impulsiveness Bubble.  When they introspect, they correctly conclude that the welfare state has little effect on theirbehavior.  They then incorrectly infer that the welfare state has little effect on anyone‘s behavior.  If elites understood the world outside their Bubble a little better, they would have foreseen – and largely avoided – the welfare state’s negative effects on work and family.

Daniel Hannan on Welfare

I highly recommend reading Daniel Hannan’s book The New Road to Serfdom: A Letter of Warning to America.  The fluency and adeptness at which he analyzes government and makes international comparisons is well worth it.  I’ve learned a great deal so far.  There will be more to come in that regard in future blog posts.

Hannan can also turn some nice paragraphs on domestic issues like welfare (emphasis mine):

It is a stock phrase of virtually every European politician, regardless of party, that “a society is judged by how it treats the worst off.”  Plainly, then, there must be something selfish — and possibly racist — about a people who keep voting for a system that treats the most needy so pitilessly.

It rarely occurs to critics that there might be better ways to measure the efficacy of welfare state than by size of its budget.  Indeed, in a truly successful social security system, budgets ought to fall over time as former recipients are lifted into better and more productive lives.

This, of course, was the original rationale for welfare.  But it has been almost entirely forgotten in Europe, where dependency has become structural.  Benefits that were intended to have a one-time, transformative effect have instead become permanent, as recipients arrange their affairs around qualifying for subventions.  Millions have become trapped in the squalor of disincentives and low expectations.  In Britain, which is by no means as badly off as many EU members, the annual welfare budget, including the lump sum payments that, as in the United States, are called “tax credits,” comes to more than $200 billion a year.  Yet this huge contribution has little impact on either poverty or inequality.

These are good points.  As we keep chugging ahead with ballooning government deficits “that can’t be cut because they’re someone’s entitlement,” nobody seems concerned with why many of these entitlements have grown so large.  Why these programs that were intended to ‘get people back on their feet’ don’t quite seem to do that.  Why they become permanent fixtures and grow.

Then Hannan goes onto to analyze why the 1996 welfare reform in the U.S. was successful.  He gives several reasons, but one of the most important was localism in the administration of welfare.  Ultimately, the reform pushed welfare administration from a centralized federal level, to a local, in some cases, sub-state level, which has many benefits.  This is probably one of the best:

…localism under-girds the notion of responsibility: our responsibility to support ourselves if we can, and our responsibility to those around us–not an abstract category of the “the underprivileged,” but the visible neighbors–who, for whatever reason, cannot support themselves.  No longer is this obligation discharged when we have paid our taxes.  Localism, in short, makes us better citizens.

I thought this passage was powerful for a couple reasons.

First, there’s the suggestion that we ought to be responsible for our own affairs, if we can.  We seem to have a low standard of this these days.

Second, Hannan points out that we tend to act a bit more compassionate for those around us when we haven’t simply done our part by paying taxes.

In the past, families, friends and neighbors would watch out for each other.  If you needed a place to stay while you got back on your feet, you could count on a family member to provide that for you.  And, you’d probably make yourself useful around the house so that family member would know you appreciated their help.

Or maybe your neighbors would invite you to share some meals.  And you’d do the same when they needed it.

Not that this doesn’t happen now.  But, there seems to be no shortage for the attitude that it’s okay to let these responsibilities slip “because we paid or taxes.”

I’ll cut you some slack if you disagree.  But, I’d just ask that you watch for it.  It’s not always readily apparent.  Furthermore, think about what you’ve done to help a family member, friend or neighbor and why.