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Unbundle the Welfare State



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The New York Times has done a long article about how tea-party types actually rely on government benefit programs, extensively and increasingly. This is a key progressive political argument, and it has engendered a lot of blogospheric commentary. (Some of the best is Will Wilkinson from a libertarian perspective, and Mike Konczal from a progressive perspective.)

Much implicit fun is had in the article at the expense of people who own small businesses or work construction, and self-identify as conservative and as self-reliant — but nonetheless get large government payments for disability support, school lunches, and expensive surgical procedures. Wilkinson is much more humane than the NYT reporters in his reaction to what he calls “ordinary folks who would rather go without government assistance, but are anxiously baffled about how they would manage without it.”

Partially, of course, this bafflement is willful blindness. Like all of us, the people in this story justify their receipt of benefits by focusing on those conceptual parts of these programs that they feel they have earned, without focusing on all of the implicit transfers going on beneath the surface. But these bundled, subterranean (or really, just very complex) transfers of value make this avoidance of reality far easier to do. The various programs of the welfare state serve, purposely or not, to baffle people in just this way. 

This unease is evidence of a problem with the programs, not the people. I think it might be valuable to unbundle these programs in order to enable us to reform and modernize them.

I argue in an upcoming book that each of the major programs of the welfare state — Social Security, Medicare, Medicaid, public education, unemployment insurance, welfare, etc. — is actually composed of up to five theoretically independent components. First, they often provide a true safety net: a fail-safe provision of consumption of important goods that represents some roughly agreed-upon minimum baseline of existence for any member of the society. Second, they incorporate some element of risk-pooling. Third, they may redistribute wealth beyond what the first two goals require. Fourth, these programs also may require recipients to behave prudently. Fifth, the government may provide relevant goods or services directly. 

Take Social Security as an example. It combines the first four elements: (1) guaranteed provision of some old age income; (2) protection against unforeseen setbacks that might prevent any one of us from having enough money or relatives for subsistence in old age; (3) redistribution through implicitly progressive benefit schedules; and, (4) the requirement that recipients behave prudently by avoiding some consumption today to provide funds for retirement.   

Why not have three separate programs?

First, have a government-sponsored defined-contribution pension program, within which individuals must contribute a reasonable proportion of income (though some flexibility even in amount should be allowed) to an array of retirement investment vehicles to which they hold property rights. As I’ll argue at length in the book, worrying about whether we want to call these highly-regulated private savings accounts, or Social Security accounts within a flexible government program, is mostly a question of semantics. 

Second, much as it does for people of all ages, the government should offer a separate program that provides a safety net for those who end up penniless or nearly so in old age without either private savings, savings under this defined-contribution version of Social Security, or relatives who will offer support. Unlike such a safety net provided to those during working years, it should not have a work requirement. It should also not attempt to replicate the income of those who have prudently saved for retirement, but instead be a true minimum safety net.

Third, if desired, there should be a separate explicit income-redistribution program for the elderly. Whether the government should engage in pure redistribution of wealth for reasons of equity, justice, or other moral concepts beyond the requirements of welfare-system programs is an enormous philosophical question. In practice, the answer partially depends on the specific beliefs and attitudes of the people in any given society. Certainly in contemporary America support for such an idea is limited — this is part of the unease that the people in the NYT story express. But to the extent such redistribution is desired, it should be done explicitly, and outside the vehicle of the welfare system. 

I believe that the same basic approach can be taken to each program in the welfare state. My hope is that this would help to redesign them to be appropriate for the world of 2012–2042, rather than the world of 1935–1965.



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