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NRO’s domestic-policy blog, by Reihan Salam.

Tax Extenders and the Never Enough Principle



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In William Voegeli’s Never Enough, the author asks a simple question: does the welfare state have a limiting principle? In a review essay, Fred Siegel captures the book’s thesis:

 

If the outcomes disappointed, Progressives could always claim good intentions. This now hoary claim received its classic formulation in FDR’s 1936 “Rendezvous with Destiny” speech to the Democratic National Convention. “Divine justice,” he insisted, “weighs the sins of the cold-blooded and the sins of the warm-hearted on different scales. Better the occasional faults of a government that lives in a spirit of charity than the consistent omissions of a government frozen in the ice of its own indifference.” But as the writers of The Federalistclearly understood, self-interest so overwhelms evidence that no program will be deemed an unambiguous failure as long as it provides employment for those who work in it. That last category—those who work in government—has proved crucial for the Progressive project.

Neoliberals such as Charles Peters of the Washington Monthly tried in the 1980s and ’90s to provide liberalism with a limiting principle. For Peters, neoliberals were Democrats who were “against a fat, sloppy and smug bureaucracy.” “We want a government,” he insisted, “that can fire people who can’t or won’t do the job.” For a time President Clinton straddled the line between neoliberals and statist liberals, explaining that “more government is not an aim in itself.” But the Clinton presidency, for all his electoral success, was for liberals merely an interregnum. Clintonism was denounced for failing to expand the welfare state, which was deemed the true purpose of an increasingly liberal Democratic Party. After Clinton, Voegeli explains, liberalism returned to the belief that “every genuine need corresponds to a right to have that need addressed.” Or in other words, “every problem deserves a program,” and since there is no end of problems, there must be an ever expanding public-sector work force. In the first decade of the 21st century, public-sector workers, with their propensity to expand the state out of their own self-interest, became central players in the Democratic Party.

This came to mind as I’ve read some of the commentary on the failure of the tax extenders bill. Ezra Klein wrote the following:

But the tax extender bill failed in the Senate today. It only got 57 percent of the vote. If there’s anything encouraging here, it’s that Olympia Snowe is making noises about a standalone vote for unemployment benefits. But there’s really not much that’s encouraging here, and that’s particularly true if you’re a small business that can’t find a loan, or an unemployed person who can’t find work. As far as the Senate is concerned, the recession is over. The election has begun.

Of course, there will always be an unemployed person who can’t find work. There will always be small business that can’t find loans. And there are many other difficulties and disappointments that hard-working, blameless people will have to contend with. The appeal of a society in which “every genuine need corresponds to a right to have that need addressed” is obvious — yet the danger is that such a society will not prove sustainable over the long-term.

A decade ago, Uri Gneezy and Aldo Rustichini published a pathbreaking paper, “A Fine is a Price,” that Clay Shirky cites in his new book Cognitive Surplus. Here is the abstract:

The deterrence hypothesis predicts that the introduction of a penalty that leaves everything else unchanged will reduce the occurrence of the behavior subject to the fine. We present the result of a field study in a group of day-care centers that contradicts this prediction. Parents used to arrive late to collect their children, forcing a teacher to stay after closing time. We introduced a monetary fine for late-coming parents. As a result the number of late-coming parents increased significantly. After the fine was removed no reduction occurred. We argue that penalties are usually introduced into an incomplete contract, social or private. They may change the information that agents have and therefore the effect on behavior may be opposite than expected. If this is true, the deterrence hypothesis loses its predictive strength, since the clause ‘everything else is left unchanged’ might be hard to satisfy.

Basically, there had been an implicit understanding that when parents arrived late to the day-care center, they were imposing on the employees. The introduction of a fine — a kind of coercive measure — badly undermined this understanding. And one imagines that a similar logic obtains with an entitlement: the idea of a reciprocal obligation can be undermined when we receive an unconditional transfer. 

To be sure, all of this is subject to empirical investigation. The problem is that we don’t have very good tools for understanding policy outcomes due to the fact of causal density. That means we ought to tread lightly in this space, and rely on experimental knowledge and decentralized approaches to the extent possible.

The mere fact that some of us believe that there ought to be a limit to transfers doesn’t necessarily mean that we don’t care about small business owners who can’t secure loans or the unemployed or public sector employees who’ve lost their jobs. My father was a public sector employee who lost his job when I was a young teenager, and my parents had to find a way to keep the family afloat. I wish that we didn’t assume that the conclusions we reach on public policy questions are about caring vs. not caring. 



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