Edward Glaeser on Consolidating U.S. Social Transfers

by Reihan Salam

While discussing how congressional Republicans might position themselves in the fiscal cliff negotiations, Edward Glaeser suggests that the GOP call for the consolidation of federal social policies:

The U.S. has six large programs — Temporary Assistance for Needy Families, Medicaid, food stamps, housing vouchers, unemployment insurance and the earned-income tax credit — spread across four Cabinet departments and the Internal Revenue Service.

Every one of the six plans encourages recipients to earn less, because aid levels are tied to income. Although the adverse incentives in an individual program are moderate, collectively they can represent an effective tax rate far exceeding 50 percent. (How this works: The federal housing vouchers follow a 30 percent rule — you spend 30 percent of your income on housing if you have a voucher. If your income goes up by a dollar, 30 cents of it goes for increased housing payments. With food stamps, for every extra dollar you earn, your allotment goes down by 30 cents. Putting the two programs together adds up to a 60 percent tax on earnings.)

The six programs should be better targeted, to provide more effective aid for the disadvantaged at less cost. Rather than extending unemployment insurance, which encourages long jobless spells, current recipients should receive a fixed payment for a limited duration that they will receive as long as they either look for work or find a job. Consolidation will also highlight the total amount of U.S. welfare spending, and will force serious thinking about the trade-offs between different types of spending. [Emphasis added]

We have briefly discussed the virtues of lump-sum unemployment benefits in the past. One of the greatest advantages is that lump-sum payments give workers the freedom to take a longer amount of time to find more remunerative or engaging work, which can pay long-term dividends.

Moreover, Glaeser makes a compelling case that consolidation will encourage efficiency by reducing the “kludginess” of our approach to social transfers, to borrow a term from Steven Teles’s recent essay on “the American way of policy.” Teles writes that the complexity of U.S. social policy has a number of baleful consequences, e.g.:

The habit of finding sneaky ways to advance public goals in a political environment suspicious of government has also had a corrosive impact on liberalism. Searching for obscure mechanisms to plant public activism in rocky institutional and cultural soil, liberals have developed a habit of dishonesty and evasiveness rather than openly making the argument for a muscular role for government. This is why so few of liberalism’s successes build a platform for new rounds of reform.  

And so consolidation could benefit liberals — by making social policy more effective — while also benefiting conservatives — by making social policy more effective but also by using transparency to encourage cost-consciousness.