Economy & Business

The Two Government Paternalisms

President Donald Trump speaks about trade at the Granite City Works steel coil warehouse in Granite City, Ill., July 26, 2018. (Joshua Roberts/Reuters)
Protective tariffs and entitlement programs are two sides of the same lousy coin.

One of the reasons we disagree about politics is that we disagree about what it is that government is there to do. Take the so-called Affordable Care Act’s attempt to mandate that individuals purchase health insurance. Conservatives hated the individual mandate. Why? Because we don’t believe in personal responsibility? Because we don’t understand that it is necessary if we are going to mandate that insurance companies cover preexisting conditions? Not really. The objection is that we do not think that it is the proper role of government to intervene in our private lives in that way, and we object more generally to the proposition that government should manage the health-insurance and health-care industries to begin with, except perhaps in the most general way. Our disagreements about how best to have government intervene in the insurance and medical markets echo a prior disagreement about whether it should do that at all.

There are many fault lines in our politics, and the conservative-progressive split is not the most important of them. The conservative-progressive split is in fact partly the product of other differences in belief, habit, and sensibility that inform our politics in fundamental ways that are sometimes difficult to talk about, because they are not as well-defined as variables such as party affiliation. For example, the issue of risk-aversion is almost certainly a very important driver of people’s attitudes about health care, work, regulation, welfare and entitlement programs, and much else. Groups that are reliable members of the Democratic coalition — African Americans, women, especially single women — are relatively risk-averse in financial matters. For example, black and female investors tend to choose more conservative, less risky investment plans than do white men of similar wealth and income. (Investing in safer, lower-return instruments probably is one reason black families sometimes end up with less wealth later in life than white families with similar incomes.) Women are less likely to relocate for jobs than men are. There isn’t anything wrong with risk-aversion, but it shapes our choices, and our choices shape our outcomes.

Another divide — one that interacts with risk-tolerance and risk-aversion in complex ways — can be found in our assumptions about the basic character of government and what its responsibilities should be. One school of thought (the one closest to my own) is the “Eisenhower’s sidewalks” view of government. (Some of you will have heard me tell this story before; please forgive the repetition.) There is a fable about Dwight Eisenhower’s time as president of Columbia; the story goes that he was presented with two different options for where to put the sidewalks in a planned campus expansion, and both options had advocates who believed that their preferred plan was obviously the right one and that the other one was obviously wrong. Eisenhower’s Solomonic solution was to leave the ground unpaved for a year, plant grass, see where pedestrians wore paths into the lawn, and then pave over those paths — putting the sidewalks where people were actually choosing to walk. In this view, government is not there to tell people how to live their lives but to facilitate, in certain defined ways, the lives people choose to live.

(There are many versions of that story, and I think that the NBC affiliate in Denver is trolling me with this headline: “‘Desired paths’ may be the key to sidewalks at some universities.” No kidding. It gets better: “The sidewalks at the University fo [sic] Northern Colorado, and several other colleges, were designed with students in mind.” Well!)

But the “Eisenhower’s sidewalks” school is not the only model. Some people believe that government should be a moral tutor, instructing the people in virtue and encouraging them to live virtuous lives, or mandating that they do: You will buy insurance; you will wear a motorcycle helmet; you will not say certain things. Some people with libertarian instincts nonetheless prefer this model of government, and so they reframe these preferences as questions of externalities. Externalities are a relevant consideration, inasmuch as the choices we make affect others both in indirect ways and in such direct ways as imposing costs on taxpayers. But that is a line of argument that can become expansive very easily: Should the federal government be limiting your salt intake or forcing you to go to the gym four times a week because Medicare exists?

If we are designing programs to assist people who are out of work, should we take into account those risk-averse populations? Should we design our programs in a way that accommodates their aversion to risk, or should we try to change it, to make them more risk-tolerant and enterprising? Should we design programs for people as they are, or design programs intended to make them more like we (who have the power to make these decisions) want them to be? Shouldn’t we want them to be better (as we define it) and nudge them in the right direction?

The conception of government as moral tutor is conjoined to the conception of government as caregiver. That’s the ancient paternalistic tradeoff: If you are going to live under my roof and eat my bread, you’re going to follow my rules. Some conservatives say: If you’re going to rely on food stamps, then the taxpayers are going to have a say in what kind of food you buy. Many progressives say: If your business is going to rely on taxpayer-funded roads, then the taxpayers are going to have something to say about how you run it.

Paternalism is like a lot of things in life: People enjoy the benefits but don’t want to pay the price. They may want a government that takes care of them in certain ways, but they do not want the paternalism that goes along with that. They want patrons, but they do not want them to be patronizing. Or, rather, they’d prefer that the direct paternalism they apply to others be applied to them only indirectly.

For example, everybody understands a welfare check as a handout. Because it is a direct handout, many people feel comfortable taking a paternalistic attitude toward the beneficiaries. Sometimes, that results in good policy, like work requirements, time limits, and other kinds of oversight. Sometimes, it results in bad policy, like forms of harassment and humiliation meant to make receiving welfare benefits less attractive, a project usually explained as a defensive fiscal measure or necessary to preventing the moral degradation of the beneficiary through excessive dependence. (Some of you will at this point note that the line between good paternalistic welfare policies and bad ones is not always easy to discern, because good policies such as work requirements can be implemented vindictively or incompetently.) That we take a less paternalistic view of those receiving benefits through Social Security and Medicare is partly a triumph of marketing — Americans remain convinced that Social Security is a kind of pension scheme that they have “paid into,” when it is in reality no such thing — but also a matter of radically different social attitudes toward the class of people who receive middle-class entitlements and those who rely on benefits for the poor.

It is remarkable that we take a paternalistic and often resentful attitude toward benefits paid out to poor people but an indulgent one toward benefits paid out to people who are not poor, or who are positively rich. Maybe we think the poor need our advice. But if Boeing and Nucor don’t need our advice, why is it they need our money?

Protective tariffs such as those enjoyed by the U.S. steel industry are functionally and ethically very much like an ordinary welfare payment, except that here the benefits are paid out to people who typically are well-off rather than to people who are poor. Protective tariffs limit competition in the market, which means that Americans pay an indirect tax in the form of higher prices in order to enable the enjoyment of higher profits for the protected businesses. In the case of steel, steel-consuming manufacturers and the end users of their products pay prices that are higher than necessary as the consequence of a policy intended to shelter a politically powerful industry from overseas competition. This is a wonderful thing for Nucor CEO John J. Ferriola, who was paid $15.6 million in 2018. That Americans are not out in the streets protesting this or demanding that we drug-test steel executives the way some states drug-test other welfare recipients is a classic example of the principle of concentrated benefits and dispersed costs. The costs of Nucor’s subsidies are so thinly spread out across the U.S. economy that very few people notice them. You may not notice the money involved, but John J. Ferriola does, and so do his shareholders.

Direct welfare benefits for the poor and policies intended to benefit U.S. businesses might be understood respectively as micropaternalism and macropaternalism. Open paternalism in general is not held in quite so much contempt by economists and policymakers as it once was. As Professor Simon Wren-Lewis of Merton College, Oxford, explains, scholarship from behavioral economics and other fields has called into question “the idea that a preference based measure of individual welfare can ever be a completely adequate measure of individual well-being.” (Imagine the Vox headline: “Studies say paternalism is good for you!”) This is not exactly shocking, of course: Economists also have brains and therefore know that people often pursue ends that are not actually good for them. Economists have traditionally limited themselves, for simplicity’s sake, to considering the rational pursuit of chosen ends, paying relatively little attention to the question of whether those ends are good. Another way of saying this is that policymakers and the scholars who support them must sometimes deal rigorously with the fact that it is not always good for people to get what they want.

Sorry, Ike, the pedestrians don’t get to decide where the sidewalks go. So, buckle up that seat belt and put down the Mountain Dew.

The politics of tribe are, inevitably, at work here. Many of those applauding the Trump administration’s asserting the power to dictate to U.S. manufacturers the terms on which they can buy steel get their dresses up over their heads about the relatively trivial matter of a New York mayor hectoring his constituents about the size of their soda cups. A great deal of U.S. domestic policy is deformed by the fact that the Ivy League lawyers who run the country have a conception of the good life that looks a lot like the life of an Ivy League lawyer, and they create programs to help people to live more like them. Which is one reason so much energy and intelligence has been wasted on largely imaginary problems such as food deserts, and why Harvard’s admissions policies are Topic A and the high-school-dropout rate in Milwaukee isn’t.

But the politics of the budget statement are at work here, too: Nobody would ever think of having the Treasury just send Nucor shareholders a check, even though that’s more or less what tariffs accomplish and are intended to accomplish. Government often mandates that employers provide their employees with certain kinds of benefits that might easily be provided by ordinary welfare programs — if doing so didn’t mean putting those benefits on the books and collecting taxes to pay for them, rather than keeping them on the private sector’s books and paying for them by indirectly taxing businesses and consumers with higher prices. If we wanted to improve the standard of living of people who make $12 an hour, we could pass a law saying they have to be paid $15 an hour (which may or may not have the effect we want; they may end up losing their jobs to automation, having their hours cut, etc.) or we could just do the obvious thing and send them money. It would be, in principle, only a matter of deciding what level of income would enable the desired standard of living and cutting them a check for the difference.

Of course, they might get that check and decide to reduce their work hours. Or they might spend the extra money on gin and cigarettes.

That’s why we tend to prefer paternalism of the macro variety — in the vast sweep of American life, a lot of those tricky little moral questions get lost and obscured. But they shouldn’t be. Senator Rubio’s friends in the sugar business are — the senator’s ridiculous talk of sugar as a “national security” issue notwithstanding — on the dole as much as the people who use food stamps to buy the sugar they produce. We should think about those similar programs in similar ways.

Macropaternalism often is sold as “economic patriotism,” by politicians, a way to protect “our” companies and “our” workers from foreign competition or other inconveniences. (That it inevitably gets paid for by other companies and workers, also “ours,” is studiously ignored.) This is an attitude typically exhibited by people who see the economy, and the world at large and the people in it, as a vast chessboard with chessmen who may be moved about strategically by the grandmaster. But that kind of chess is hard.

I wrote earlier that almost nobody notices the cost of steel tariffs. An ironic exception is steel companies themselves, which are massive importers of raw steel and scrap that they process into more refined products; Nucor is, in addition to being the largest steel producer in the United States, also the largest U.S. recycler of any kind. The big producers have been on balance a beneficiary of the tariffs, but those taxes have been a terrible burden on smaller and more import-dependent steel producers, one of which, Bayou Steel, went into bankruptcy on October 1. Protective tariffs and other forms of corporate welfare often are presented as a benefit to American workers, but hundreds are likely to lose their jobs from Bayou Steel’s collapse alone, and other such collapses are likely to follow. The president says trade wars are great and easy to win, but in truth attempts to manage something as vastly complex as the U.S. economy inevitably produce consequences that are unintended if not always unforeseeable.

And that is one little piece of evidence, among billions, for taking a less paternalistic and managerial attitude toward government and thinking of it as a convenience — not telling people where to go, but smoothing the paths they choose for themselves.

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