Unbundle the Welfare State
From the December 20, 2010, issue of NR.


Whether the government should engage in the fourth component — pure redistribution of wealth for reasons of equity or justice — is a thorny philosophical question. In practice, the contemporary American electorate has a very limited appetite for it. But to the extent that such redistribution is desired, it should be done explicitly and outside the other programs of the welfare system. 

Finally, when it comes to the fifth component — operation of a government bureaucracy to deliver goods — it is often useful to separate the specification of welfare benefits from their provision. For several decades, a goal of the libertarian Right has been to voucherize social programs so that the government provides the cash but allows private firms to compete in markets to provide the services. But this is not always as practical as it sounds.

School vouchers, for example, are premised on the idea that a marketplace for K–12 schools will both increase productivity (i.e., allow us either to increase the measured performance of schools at any given level of expenditure, or to achieve a given level of performance at lower cost) and provide a greater diversity of options to better meet different students’ needs. One can imagine a wide array of specialized schools — with an arts or a mathematics focus, for example. Further extension of this idea would upend the model of school as a building that students in homogeneous age groups go to each day. By the voucherizing logic, students (or at least families) know their own needs and can better meet them than the state can with its one-size-fits-all approach — a reason to allow trial-and-error learning, which will improve the overall system with time.

This sounds fantastic, and it is, in both senses of that term. It leads to the obvious question of why we should limit school spending to whatever some government entity decides to call “education.” If individuals are the best judges of their welfare, why not let them decide how to spend this money? Taking the logic to its conclusion, we should ask: Why bother even to have such categories as school subsidies, health-care subsidies, and all the rest? Instead, why don’t we estimate the costs of a safety-net income, plus the costs of buying catastrophic insurance, and provide that amount of money to everyone in our society? 

This idea has arisen again and again, on both the right and the left, beginning in the 1960s. Examples of such proposals include Milton Friedman’s negative income tax (1962), Robert Theobald’s guaranteed income (1966), James Tobin’s guaranteed income (1965), R. J. Lampman’s subsidy plan (1967), Edward Schwartz’s guaranteed income, the negative income tax proposed by President Johnson’s Income Maintenance Commission (1969), President Nixon’s Family Assistance Plan (1969), George McGovern’s $1,000-a-year plan (1972), and HEW’s Income Supplementation Plan (1974). The idea constantly resurfaces even today in academic discussions, and is being pursued seriously by the current coalition government in the United Kingdom. The key reason we haven’t implemented such a scheme in the United States is that we are afraid that many recipients would not work and then would blow the money on Cheetos, beer, and big-screen TVs. In more academic language, the moral legitimization of the welfare system requires that the recipients earn their benefits and use them in a way that comports with the idea of the good life held by the taxpayers who provide the funds. 

Though this logic is most relevant for safety-net functions, which tend statistically to have the most irresponsible recipients, it also applies to the provision of welfare benefits to the middle class under the rationale of risk-pooling and economies of scale. To return to the example of K–12 schools, the focus on true privatization has been both doctrinaire and artificial. If school choice ever grows beyond Tinkertoy demonstration projects, taxpayers will appropriately demand that a range of controls be imposed on the schools they are funding. Would we allow families to use vouchers to send children to schools that taught no reading or mathematics, but only bomb-making, or that offered lavish “support payments” to parents that were, in effect, bribes? No, we would inevitably — and justifiably — have a fairly detailed set of regulations, along with inspection, adjudication, and enforcement mechanisms. At that point, what would be the difference between such “private” schools and “public” schools that were allowed greater flexibility in hiring, curriculum, and student acceptance, and had to compete for students in order to capture funding? Little beyond the label. 

Publicly funded private schools is an oxymoron, but greater flexibility to meet different needs and to improve general performance through market competition can nonetheless be found in a public-school system involving parental choice and the freedom of schools to operate outside of collective-bargaining agreements and other restrictions. The most basic institutional requirements of a market would be present: consumer choice and widely distributed buying power on the demand side, capacity and flexibility on the supply side. 


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