I feel that was a mistake. I would prefer a nicely formatted web summary. I generally won't click on PDF links as they tend to be hard to read and usually overly wordy.
I am also less likely to read an original paper over a web article unless I'm particularly interested in the topic.
I understand the policy for linking to original rather than commentary but there is sometimes value in a 'dumbed-down' summary.
I'll take the other side: I think it's almost always better to link to studies rather than to secondary sources reporting on them. I haven't looked closely at the study or the Vox article yet, but my experience has been that there's a major mismatch between study and the commentary more than half the time and it's always the study that's closer to truth.
Well, they say to-mah-to in Australia. However, they also say po-tay-to. I don't know of anywhere that it is pronounced po-tah-to, but I wouldn't rule it out.
The problem isn't dumbed-down summaries, the problem is that the dumbed-down summaries, especially those produced by people other than the original author, are often straight up wrong. Reading just the abstract, or abstract + figure captions, is a good compromise in my book.
HN generally prefers the best popular article on a specialized paper, with a link to the paper in the comments. An exception is papers on specialized topics the audience here is largely comfortable with, such as computing.
I can't remember why we changed this one. It may be that we felt the Vox article was too baity, or perhaps that the HN discussion would be of higher quality if it were fed with vegetables rather than fruit. In any case it was more of an exception than the rule.
An anecdotal perspective to bring these conclusions a little closer to home- spend some time in outer borough NYC bodegas, there is a constant stream of people using food stamps to buy cigarettes, alcohol, and marijuana. 100% of people that I've spoken with (dozens?) who live or have lived in these areas have corroborated these observations.
As far as I'm concerned, even if these programs were free from abuse, they are payments for votes and programs like SNAP should be abolished -- that's what charities are for. The /only/ difference is that charities permit the liberty of donors whom may manage the fruits of their own labor.
NYC has a welfare problem, but it's not located in the outer bouroughs. It's in the primary downtown area, where all the banks have congregated. Entire blocks would have been wiped out and gone up for cheap rent in 2009 if everyone else wasn't forced to subsidize their bullshit lifestyles.
Open your eyes and look around.
Edit: FR balance sheet[0] currently records ~$4.45 trillion in made up, outstanding, welfare payments. Most of that was directly passed through the FR's dependent organizations, commercial and investment banks, and was initiated to save their system from complete implosion.
There are no instances of charity ever providing the basic needs of a nations poor since the advent of the nation state. Charities are much more ibefficient than government at curing starvation, lack of healthcare, etc. Nations that contain large percentages of hungry, homeless, and sick are almost always shitty. Making sure there aren't large numbers of extreme poverty cases makes us all better off.
AFAI am concerned, libertarians are free to replace most of government with charity and other voluntary associations as soon as they find a way around the free rider problem and assorted other coordination problems that isn't 1) government (we already have that!), or 2) obviously worse than government.
Those are certainly interesting observations, however the skeptic (Scientist? Rationalist?) in me immediately wants to ask "What percentage of the welfare recieving population is made up by those abusers?" and "Would people take notice or be able to notice those times when these benefits are used as intended?" Without some kind of answer to those questions, and probably others, the observations of you and those you know can't (well, shouldn't IMO) be used on their own as an argument against these welfare programs.
I haven't personally studied the literature, but this study is in line with what GiveWell has concluded, although they are more certain about cash transfers not being spent on alcohol and tobacco [0] than on it not displacing work [1]. This paper and GiveWell's research are based on some of the same studies, so this study's not exactly surprising or new information, but replication's always nice.
Are there any studies that reach "negative" conclusions on the impact of welfare systems? I thought surely there must be given how messy real world data is and how widely varied opinion is on the topic. A quick search only revealed more studies reaching similar conclusions to this one and the only articles speaking out against these programs were newspaper opinion pieces.
I wonder if at a certain level of development, the bottom is so low that welfare will make life slightly better but sustainable work and pay will sufficiently change the standard of living. Therefore welfare doesn't deter work because incremental standard of living (attainable only by working) is sufficiently divergent from the alternative of relying solely on welfare. I'd also wonder if by contrast in developed countries the standard at the bottom is sufficiently high or the next level up is not sufficiently different enough to encourage working to get there.
The Vox article mentions other studies in the US and Canada, particularly negative tax and earned income tax credit. I'm not sure those actually act as welfare or a one time economic stimulus. As a former recipient of earned income tax credit, 1. I definitely didn't plan for that income 2. It didn't change my work incentive (I was already working and low income) 3. I probably spent that refund almost immediately either on paying down a credit card, a car down payment, appliance, etc.
Earned income tax Had no effect on my desire to work or to increase my income; the fact that I worked full time and had a low income was incentive enough. The earned income tax was kind of like a bonus on an otherwise hard existence.
I suppose what is important here though is the question, do the program's incentivize people to move out of poverty and remove the need for future subsidization? If my hypothesis on upward mobility is correct then government welfare programs don't really do much to move people out of poverty, they are really economic stimulus and you know, keeping people from starving and freezing to death. If we wanted to address the question of deterring work, I'd suspect a lack of upward mobility is enough to deter work toward the bottom.
This is the reason a lot of economists think it would be better to implement the earned income tax credit as a wage subsidy rather than a tax credit. Instead of a getting a big lump sum at tax time, you'd get a bigger paycheck: kind of like a negative tax withholding.
That would make sense if it is intended to be welfare.
I could honestly say when I was getting a bigger tax refund than what I paid in taxes, I really didn't know what it was or understand why I was getting it and when it would go away. As a once a year thing that I didn't understand, it had little influence on my thinking about work and I certainly didn't think about it as welfare.
As a more frequent payout I'm certain I would have gave it more thought and it would have an influence on thinking and behaviors. As a working person I'd likely have considered it welfare and would have given it consideration as my pride and ego would have to grapple with that.
Perhaps I'm not reading the right sources, but I never see anybody talk about how much work it is to get benefits, at least in the U.S. Once the county welfare office is involved in your life, you have a demanding new boss, always demanding paperwork -- forms, paystubs -- and phone calls to straighten things out when the paperwork goes wrong. It's not like somebody shows up out of the blue and gives you an envelope full of cash every month.
I talk about it once in a while -- when I have time. I am homeless and had food stamps for a time. Then someone in the welfare office dropped the ball and they got cancelled. I reapplied and someone else dropped the ball. I have a compromised immune system. Not only did it take scads of time while getting me nothing, it made me ill to spend half the day in a crowded welfare office waiting room surrounded by poor people, who tend to not be in the best of health.
After the second time they dropped the ball, I didn't bother to go back. My income is gradually going up. I would get less help than I used to. I do freelance work, so my income is erratic, which doesn't play nicely with their forms. Etc.
I began looking for other solutions.
I am sometimes upset that I am not getting the food stamps. My situation is still dicey and it is still a scramble every month to get enough resources to eat every day. But I am not going to go spend all kinds of time trying to chase the few dollars they would give me, getting sick over it, and worrying about the possibility that they will feel I am committing fraud or something because my income is erratic and some months I have enough and some months I don't (or whatever the hell problem they might have with me).
So I do sometimes talk about it. But not a whole lot, for various reasons.
I'm in Canada and a friend of mine was working in a government call centre; her job description could be summarized as 'deny people benefits in 9 minutes or less'. Her role as enforcer of state brutality eventually led to clinical depression and she quit. She couldn't handle turning down people who were more often than not in dire straights.
Thanks for filling in the other side of the picture. I'd never considered that bad guidance wasn't the result of incompetence or malice on their part, but that the phone workers might actually be incentivized, even required, to lie.
Interesting study. It is kind of a reinforcement to the progressive policymakers' point of view that cash programs work and even there will be people who cheats the system, they will be whatever the system you choose.
I feel curious about what conclusions would obtain from a similar study in European countries, which are well-known by their welfare programs.
We already know how to design a program that won't discourage work. It's called a basic income. Everybody gets it regardless of whether they're unemployed, making minimum wage or Donald Trump. You can't lose the benefit by making more money so there is no even theoretical disincentive to work.
And of course the money comes from taxes which come predominantly from upper income people, so even though the government is writing a check to Donald Trump, it's not half as big as the one he's writing to Uncle Sam, whereas the reverse is true for lower income people.
I've never understood why this is not a more popular idea. I'm a Bernie-supporting lefty liberal weenie and yet all my hardcore small government libertarian friends agree with me on this one. They tend to characterize basic income as, "I oppose wealth redistribution on principle, but since it's never going away, we might as well have the least shitty version possible." How has this not gotten done?
Basic income is very cheap to administer — removing huge staffs and lengthy, error-prone processes disliked by libertarians and liberals alike – and it avoids the perverse incentives which do things like punish parents for getting a job which pays enough that they lose childcare support but not enough to come out ahead after replacing it. The other big win is that if it doesn't require a visible symbol, you avoid the cognitive trap where someone sees someone using food stamps to buy a steak and spends the next 20 years yelling about how wasteful welfare is (and, of course, never once asking how much it cost per calorie).
Because we are not going to call a universal basic income "welfare." Rather, we are going to call it "The America Permanent Fund" and loudly brag about how it's just a copy of the wildly-popular Alaska Permanent fund, that literally nobody has opposed ever.
I'm going to go out on a limb and say that has less to do with nomenclature and more to do with oil, rather than working Alaskans, paying for the Permanent Fund. Plus there can't be too many people aiming to go through life living solely off the Permanent Fund.
Well, the libertarians wouldn't support it as an addition to the current welfare state, and the liberals wouldn't support it if it was conditional on dismantling Social Security, Medicare, etc. If we were building something from scratch, we might be able to get to a basic income, but right now, there's too much disagreement about the proper size of the welfare state to make any sweeping changes to its structure.
A workable implementation will probably end up somewhere in between—many programs might continue to exist, but the number of people they support would decrease, as would the level of support.
If the basic income was set somewhere near the Federal Poverty Level (FPL) for an individual, it would be ~ $1000 / month [1]. (This is just for a rough sense of scale. I don't actually think it's a good idea to specifically aim to match that number, but I suspect we shouldn't go much above it. That's a longer discussion, though.) That wouldn't completely cover Social Security for everyone—the average monthly retirement benefit is ~ $1300 [2]—but it would cover a large chunk. Further, the minimum eligibility level for Medicaid is 133 % of the FPL [3], so if we'd like to maintain our current standards, provision of a roughly FPL basic income won't obviate Medicaid for everyone. (Medicare's qualification criteria are primarily age based, so the number of eligible beneficiaries would be unchanged by the existence of the basic income.)
So give people a one-time option when the program is introduced to choose either social security or the basic income. And of course for anyone more than a few years from retirement age, the basic income will be the obvious choice because it begins paying immediately, so social security will de facto phase itself out over time. But then you can trivially sell it as "no changes to social security."
That would serve a somewhat different purpose than Social Security—a lower income throughout life rather than a higher income in retirement.
Regardless, though, it seems like there should be relatively elegant options for achieving both objectives with one system if we want to. Perhaps just increase the basic income after some age. (That sets off some warning bells in my head, though—it could be a step toward complexity and means testing.)
Yep. That's roughly the upper limit of the range that I think would make sense for a nationwide basic income, and even that wouldn't fully cover Social Security or lift everyone out of Medicaid eligibility.
(I don't think it would make sense to actually start that high—I would experiment with lower levels, and on more local scales, to try to understand the economic effects. Even so, I wouldn't be surprised if the maximum benefit to the full economy and to general well being occurs for a Federal component of a basic income near the FPL, though.)
I don't think that's quite right. The liberal crowd I run with sees basic income as a replacement for Social Security, or, another way of putting it, "Social Security for all" (rather than just for the old) in the same sense that Bernie's proposed single payer medical system would be "Medicare for all" as he puts it, rather than just for the old.
Yes, but expanding Social Security to cover everyone (huge budget increase) is very different from shutting down Social Security and using the savings to pay part of a basic income (budget neutral). Even if the liberals and the libertarians use the same words, they mean different things by them.
Eliminating SS and replacing it with UBI is not budget neutral unless we're operating from the assumption that it's okay for UBI to be below subsistence levels. Nobody I know, libertarian or otherwise, sees that as viable. We all agree that UBI would need to replace Social Security in that it pays out just enough to live on.
You'd obviously have to cut a lot more than just SS in order to pay for a reasonably-sized UBI (that's why I said "pay part of"). But in any case, SS is probably a bad example, since it's already just a cash transfer (albeit a regressive one). If you paid for "Social Security for all" by cutting Medicare and the rest of the welfare state, I think most libertarians would go for that.
Well we need to take into account a transitional program. We can't eliminate SS instantly, it has to be done over generational time as part of a transition program. The SS program would taper off over time as it's slowly replaced by UBI.
I envision a system like this:
Person A has just graduated from high school and has never worked right when the UBI program goes into effect. He never pays into SS and receives only UBI for life and will never be eligible to collect SS.
Person B has worked under the existing system for n years and has paid into SS a significant amount. He stops paying into SS now and begins receiving UBI as well. When he reaches retirement age, he collects either SS or UBI, whichever is greater, based on the points he earned from paying payroll taxes.
Person C is a current typical retiree. He continues to collect SS, as it pays better than UBI since he paid so much into it from his payroll taxes.
This UBI system would pay out less benefits than someone with maxed out SS benefits gets today, but we wouldn't have the payroll tax anymore. Instead, the UBI program would be funded through income tax.
This would cost significantly more than today's wealth redistribution programs even added together (setting aside Medicare/Medicaid which are kind of a separate issue), so it would certainly require higher taxes to support it.
If basic income was implemented, then it would have to be much smaller, than current welfare payouts (because there would be 15 times more people who collect it).
Lefty liberals would not agree with the decrease of the payout for such transition, so there is no transition.
Basic income does of course still discourage work: for instance consider the case of someone who would starve without having job but doesn't with basic income.
But of course encouraging work is not really the ultimate goal, so this is unrelated to whether basic income is a good idea or not.
This is exactly the issue of decreasing marginal utility of money. If your income is $0, then the utility you get from an extra $1 is huge, because it keeps you from starving. If you have a $10k / year basic income, then the utility you get from that next dollar is much smaller. But this effect on work is likely to be much smaller than the effect from the high effective tax rates that you get from mean-tested welfare, especially at typical first-world standards of living.
I wouldn't say that discouraging work is totally irrelevant either. The reason that first-world standards of living are high is that lots of people are performing (often unpleasant) tasks for complete strangers, in exchange for similar favors from other strangers (i.e., working for money). Decreasing the number of people willing to do that is (all else equal) a bad thing.
Basic income is a special case of negative income tax. The current welfare system resembles a negative income tax that has a very high marginal tax rate on low income earners (because welfare is means-tested).
But because budgets have to balance, the current system has the advantage that it can have lower marginal tax rates on higher income earners.
Whether it makes sense to impose an especially high marginal tax rate on poorer people (and a lower marginal tax rate on richer people) is a complex question. But to claim that basic income solves the problem of incentives is wrong. Basic income just moves the disincentive effect to a different segment of workers.
Maybe, but at what level does the disincentive effect become significant for high-income workers? It seems like at the highest levels of income, spending money is just a way of signalling and keeping score.
Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination.
It's a complex issue. But it's something that needs to be made explicit in any discussion, not swept under the rug. I'm not saying I'm able to resolve this issue myself, but I think that basic income advocates need to be challenged whenever they use misleading argumentation, even if they are ultimately correct.
At any income level you can make arguments why their work output would be more/less sensitive to taxation. We are talking about a difference in a difference (how much one group changes their work in response to tax, vs another) and not absolutes, which complicates matters. E.g. poor people need the money more, so maybe they are less responsive to marginal tax rates.
Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination.
Pollution taxes are a good idea for their own sake, but they will only cover a tiny percentage of basic income or welfare.
> But because budgets have to balance, the current system has the advantage that it can have lower marginal tax rates on higher income earners.
That isn't a very strong argument. Assuming the basic income and associated taxation is calculated to approximate the same level of redistribution of wealth as the existing welfare system, the amount a person making a given level of income would have to have their taxes increased by in order to balance the budget is only equal to the amount they themselves would receive from the basic income but would not have qualified for in a means tested welfare system. For high income earners that amount is negligible because the basic income constitutes such a small proportion of their total income, and even then it has no effect on their effective tax rate (i.e. net transfers with the government; taxes paid less basic income), only that small change to the marginal rate needed to keep the effective rate the same.
And in particular what is really happening is that the disincentive (which is created by any taxation for any purpose) is being spread more evenly throughout the population, which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it.
Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that.
And in particular what is really happening is that the disincentive (which is created by any taxation for any purpose) is being spread more evenly throughout the population
Agreed, which is why I object to your statement that: We already know how to design a program that won't discourage work. It's not that basic income discourages work more or less, but that it evens out the marginal tax rate. This might be a good or a bad thing, but your original post contains no argument either way. You run a very strong risk of the reader misinterpreting what you are saying, and believing that there will be a uniform improvement in incentives across the whole population.
which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it.
I think the main argument behind the current system is that low income people need the money, and therefore are less affected by the marginal tax rate.
Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that.
Either "basic income" should be used to denote a flat tax plus basic income, or a varying marginal tax plus basic income. Your first post implies the former to the exclusion of the latter. I think you are changing the definition because it's important to you that basic income "win", but really there are two separate issues, which are negative taxation vs welfare, and fixed vs varying effective marginal tax rates. Each of these issues should be decided independently on their own merits.
(reply in place of broken edit functionality)
Actually I think the main reason why we have a high marginal tax rate on low income people, is a deeper reason which is that incentives on the bottom end are more "expensive" because they propagate upwards. E.g. to incentivize a person earning $10000 a year, you need to give then $X for every dollar they earn, but then these affects the after tax earnings of everyone earning above $10000 a year. Sorry if this is vague but this comes from various results/methods in mechanism design theory. Unfortunately as is often the case, the advocates of basic income (not you in particular) are too political, while the economists don't chime in on political matters when they should.
I think you're overthinking this. If you want to give a benefit to low-income people, then either you phase out slowly and it costs a lot, or you phase out quickly and you have high effective tax rates. And the people passing the laws probably pay a lot more attention to total budget cost than to the effects on effective marginal tax rates, so you end up with a lot of programs that have fast phase-outs.
The budget has to balance, so the question is not how much the system costs, but what are the incentive effects on the (wealthier) people who pay for it. If you agree with me that phasing the benefit out slowly "costs a lot" then you actually agree with my reasoning.
Maybe I'm just misunderstanding, but you're talking as if the current system was consciously selected because of some inherent advantages it has over the alternatives. I don't think that's really true, and I would argue that the high marginal tax rates on low-income people are less the result of a careful analysis of trade-offs, and more the result of a flaw in the incentive structure for law-makers (on-budget costs look worse than off-budget costs).
> It's not that basic income discourages work more or less, but that it evens out the marginal tax rate. This might be a good or a bad thing, but your original post contains no argument either way.
Because the marginal tax rate is a separate thing. You can raise the money however you like. Tax the rich, tax the poor, tax securities derivatives, print lots of money, it's a separate consideration. What a basic income does is dramatically simplify the welfare system so that when you balance the other side of the ledger you can better see what you're looking at.
It may then also make sense to simplify the tax system and impose a uniform rate on everyone (because the level of redistribution of wealth can now be trivially set by adjusting the amount of the basic income), but there is no inherent reason why any other method of raising the money could not be used instead. Even in that case a basic income is preferable to the existing system of ad hoc means tested welfare programs.
> I think the main argument behind the current system is that low income people need the money, and therefore are less affected by the marginal tax rate.
There are three points here.
First, if these people need the money so badly, is it really good policy to be imposing high marginal tax rates on them, regardless of whether they'll bear it because they have to?
Second, the people we currently take benefits away from are not the lowest income people (who do qualify for the programs), they're the low-middle income people who only just barely don't. If the true consideration is to collect from people who will most be forced to work anyway then shouldn't we be sticking it to the even poorer people who have even less choice? (Of course this runs right back into the first point.)
And finally, if these people need the money so badly then preventing them from earning as much by working legitimate jobs that report their income will cause more to turn to off-the-books income like dealing drugs and stealing in order to make ends meat. Presumably that isn't the work we want to maintain an incentive for.
If, in your definition, basic income is neutral on what the marginal tax rate is, then your statement "We already know how to design a program that won't discourage work. It's called a basic income." doesn't make sense. You are trying to have it both ways, making claims about basic income, but when I challenge one, redefining basic income to be broader, while ignoring the fact that the original claim only makes sense for the narrow definition.
> If, in your definition, basic income is neutral on what the marginal tax rate is, then your statement "We already know how to design a program that won't discourage work. It's called a basic income." doesn't make sense.
Of course it does, because it's in the context of receiving the benefit. Since receiving the benefit is unconditional, it doesn't cost you money/benefits to take a job or work more hours, unlike with means tested programs which do exactly that.
How the government comes up with the money to pay out the benefit is a separate question because you can do it in any number of ways. Imagine the government pays for the basic income by conquering foreign lands and seizing their resources. Unambiguously no disincentive to work for all the citizens.
Obviously in the real world the money is going to come from taxes. But taxes are separate. All transfer programs require taxes, on top of the effects created by the program itself. Because the method of taxation that has zero effect on the incentive to work is the mirror image of the basic income: Everyone pays the same fixed dollar amount in taxes regardless of income. Using that method of taxation to fund a basic income converts it from a transfer payment to a no-op.
So if your point is that you cannot have a transfer payment without creating a disincentive to work for someone, that is correct, because that is what a transfer payment is: In order to take from those with more and give to those with less, you have to condition at least one of the taking or the giving on the existence of some threshold level of wealth.
But the difference between the program and the tax that pays for it is still quote important, because the people they affect are not necessarily the same people. For example, suppose you want to fund some transfer program using a tax exclusively paid by the top 1% of income earners. Everyone in the bottom 99% therefore does not pay the tax at all and is not directly affected by it. But now the separate choice comes between whether the program is a traditional means tested welfare program or a basic income. The means tested program will provide a disincentive for the 99% to work because the government will claw back some significant portion of the money they earn; the basic income will not, even inclusive of its funding source, because it is not funded by them.
Basic income also reduces incentives to work for people who aren't currently on welfare. Me and most of my family would probably just move to rural Wisconsin and fish, snowmobile, netflix and play video games for the rest of our lives.
Unless the basic income isn't enough to live on, which would mean more welfare would be needed for those who can't work or can't find a job.
I very much doubt you could afford a snowmobile on such income, you would still need supplemental income to be able to afford most of those things you're talkng about.
So if anything maybe some people who now work full time, would work part time. And those who currently work but can barely scrape by would actually be able to live decently which IMO would have a tremendous effect on people's productivity.
This is binary thinking. On the margin, a small basic income (not enough to live on) would still have a lot of small effects. For example, a couple might find it more affordable to get by without both people working, if they could almost afford it before. Or, people might be more willing to take a lower income job like teaching. It also makes rural areas with a lower cost of living somewhat more desirable, if you can find a job.
1. Better income for adults means lower crime rates. A minimum wage job qt $7.25 plus $1,000/month grosses $27,080.
2. A Basic Income improves the outcome of children in poor families. Two minimum wage-earning parents plus $1,000/month per adult yields $54,160: Reduces divorce rate, reduces domestic violence, enables residence in a better neighborhood and attendance to better schools.
3. An improved outcome for children also means lower crime rates.
4. Lower crime rates improve real estate values. Anecdotally, from 1998 to 2006, East Palo Alto median home prices increased from $190,000 to $650,000 (342%). Over the same time period, the total crimes reported dropped from 550 to 350 (was over 900 in 1988) [0]. (note that the median home price has not further increased since 2006).
5. There are about 3,600 detached single housing units. [1]. With a little arithmetic, the total increase in the value of the real estate owned by those owners was $1,656,000,000.
6. A basic income of $1,000 per month for East Palo Alto over those 8 years would have cost $1,824,000,000.[1]
7. Property tax receipts increased somewhat. The county gets 1% annually, but due to prop 13, that will take a long while to fully materialize.
8. Sales tax receipts would likely increase as the population would have $228,000,000 more to spend each year.
So, if it is true that a basic income would reduce crime and lower crime rates improve real estate prices, then part of the economic analysis of a basic income needs to factor that in.
The thing that discourages work is (mostly) not the cash grant itself, but the high effective marginal tax rate you get from phasing it out as the recipient earns more. The negative income tax and the earned income tax credit (which is almost the same thing) should actually encourage work among those with low incomes, because the more you earn, the larger the credit.
V. CONCLUSION
In recent years, there has been a large growth in safety net programs across the developing
world. If anything, we might expect this trend to increase as countries become richer: Chetty
and Looney (2006) show that social insurance as a fraction of GDP rises as countries get richer,
suggesting an that safety nets may be increasingly important as countries grow.
18
As safety nets have increased, so has the debate about whether they simply discourage
work, enabling a “lazy poor.” Aggregating evidence from randomized evaluations of seven cash
transfer programs, we find no effects of transfers on work behavior, either for men or women.
Moreover, a 2014 review of transfer programs worldwide by Evans and Popova also show no
evidence—despite claims in the policy debate—that the transfers induce increases in spending
on temptation goods, such alcohol and tobacco. Thus, on net, the available evidence implies cash
transfer programs do not induce the “bad” behaviors that are often attributed to them in the
policy space.
I personally know two people who abuse the welfare system and a study whose name starts with "Debunking the Stereotype" sounds like it's throwing any objectivity out of the window right at the beginning - not to mention they analyse data only from six third world countries. Inapplicable to richer countries with generous welfare benefits.
To be fair, systematic data on experimental transfer programmes aimed at the extreme poor in developing countries is no better than random anecdotes for confirming or debunking stereotypes of lazy welfare recipients in developed countries with well-established welfare states. This study tells you a fair bit about extreme poverty relief schemes and precisely nothing about how the welfare state affects or doesn't affect people's behaviour in Western Europe and the USA.
Lack of negative behavioural effect from conditional handouts as low as $4 per household per month really doesn't tell you much about the effect of subsidies designed to permit an at least borderline-adequate Western standard of living.
They're trying to fix different issues with different sized budgets.
I don't think he's suggested anything of the sort; tried to discredit the study, yes, but he hasn't characterised his anecdote as a "study" much less an authoritative one.
> I personally know two people who abuse the welfare system
So? You performed what Daniel Kahneman has called "question substitution": replacing a difficult to answer question - "do welfare plans encourage exploitation" - with a simpler one: "are there people who exploit welfare systems".
> sounds like it's throwing any objectivity out of the window right at the beginning
Says the person who draws conclusions based on anecdotal evidence. My money is on the study with data, not the random internet person who actively looks for arguments supporting their existing beliefs.
"actively look(ing) for arguments supporting their existing beliefs" is exactly his complaint against the original study, hence the complaint about the name; and that's probably true. Would the authors have been open to the possibility that their data demonstrated welfare recipients to be lazy, greedy users? Would they have dared to publish their research in the event that their data supported such a conclusion?
It seems unlikely, and career suicide in any case.
Funny word that "encourage", right? In modern English it can mean anything from "allows something" to "literally tells you to do something".
My conclusion was that the welfare abuser stereotype absolutely does exist in reality and there are people who do become lazy because of welfare benefits on "1st world" countries.
Additionally, it was more of a huge scepticism than a "conclusion" and even that was supported by two additional arguments, not just that anecdotal evidence.
There was this interesting article in Finnish news about a week ago[1 - finnish obviously]. Kela (the Finnish social security agency) conducted a study which showed that underuse of social security costs them more than abuse.
Almost half of the people who would be entitled to some benefits do not apply for them, due to various reasons such as social stigma, lack of knowledge or because they consider all the paperwork too much work. As a result, many people end up with more serious problems (debt, evictions, medical issues, social exclusion) that the state ultimately ends up paying for.
They found that abuse of the benefits exists, but is not very widespread.
> Funny word that "encourage", right? In modern English it can mean anything from "allows something" to "literally tells you to do something".
If only there was a context within which I was using these words that made it blatantly obvious which of these uses applied here, like a link to a paper/article discussing if welfare programs made people lazy.
Also, you don't quite grasp what "anecdotal evidence" means in a scientific context.
Why don't you tell us how they abuse the system, and we can talk specifics?
I've seen people buy bottled water with food stamps, but it's crass to assume they don't have a good reason when we know nothing about their situation.
Until you explain, I think it's fair to give your acquaintances the benefit of the doubt.
What do you mean? They simply aren't looking (well, they pretend they are) for a job and they are living of welfare money. It's not exactly hard to abuse it in a lot of countries, really.
82 comments
[ 2.8 ms ] story [ 134 ms ] threadI am also less likely to read an original paper over a web article unless I'm particularly interested in the topic.
I understand the policy for linking to original rather than commentary but there is sometimes value in a 'dumbed-down' summary.
HN generally prefers the best popular article on a specialized paper, with a link to the paper in the comments. An exception is papers on specialized topics the audience here is largely comfortable with, such as computing.
I can't remember why we changed this one. It may be that we felt the Vox article was too baity, or perhaps that the HN discussion would be of higher quality if it were fed with vegetables rather than fruit. In any case it was more of an exception than the rule.
As far as I'm concerned, even if these programs were free from abuse, they are payments for votes and programs like SNAP should be abolished -- that's what charities are for. The /only/ difference is that charities permit the liberty of donors whom may manage the fruits of their own labor.
Open your eyes and look around.
Edit: FR balance sheet[0] currently records ~$4.45 trillion in made up, outstanding, welfare payments. Most of that was directly passed through the FR's dependent organizations, commercial and investment banks, and was initiated to save their system from complete implosion.
[0] http://www.federalreserve.gov/releases/h41/current/h41.htm
Good effing luck!
[0]: http://www.givewell.org/international/technical/programs/cas...
[1]: http://www.givewell.org/international/technical/programs/cas...
The Vox article mentions other studies in the US and Canada, particularly negative tax and earned income tax credit. I'm not sure those actually act as welfare or a one time economic stimulus. As a former recipient of earned income tax credit, 1. I definitely didn't plan for that income 2. It didn't change my work incentive (I was already working and low income) 3. I probably spent that refund almost immediately either on paying down a credit card, a car down payment, appliance, etc.
Earned income tax Had no effect on my desire to work or to increase my income; the fact that I worked full time and had a low income was incentive enough. The earned income tax was kind of like a bonus on an otherwise hard existence.
I suppose what is important here though is the question, do the program's incentivize people to move out of poverty and remove the need for future subsidization? If my hypothesis on upward mobility is correct then government welfare programs don't really do much to move people out of poverty, they are really economic stimulus and you know, keeping people from starving and freezing to death. If we wanted to address the question of deterring work, I'd suspect a lack of upward mobility is enough to deter work toward the bottom.
I could honestly say when I was getting a bigger tax refund than what I paid in taxes, I really didn't know what it was or understand why I was getting it and when it would go away. As a once a year thing that I didn't understand, it had little influence on my thinking about work and I certainly didn't think about it as welfare.
As a more frequent payout I'm certain I would have gave it more thought and it would have an influence on thinking and behaviors. As a working person I'd likely have considered it welfare and would have given it consideration as my pride and ego would have to grapple with that.
After the second time they dropped the ball, I didn't bother to go back. My income is gradually going up. I would get less help than I used to. I do freelance work, so my income is erratic, which doesn't play nicely with their forms. Etc.
I began looking for other solutions.
I am sometimes upset that I am not getting the food stamps. My situation is still dicey and it is still a scramble every month to get enough resources to eat every day. But I am not going to go spend all kinds of time trying to chase the few dollars they would give me, getting sick over it, and worrying about the possibility that they will feel I am committing fraud or something because my income is erratic and some months I have enough and some months I don't (or whatever the hell problem they might have with me).
So I do sometimes talk about it. But not a whole lot, for various reasons.
Public assistance in this country is given up so grudgingly, and often so incompetently, as to be actively counterproductive.
I feel curious about what conclusions would obtain from a similar study in European countries, which are well-known by their welfare programs.
And of course the money comes from taxes which come predominantly from upper income people, so even though the government is writing a check to Donald Trump, it's not half as big as the one he's writing to Uncle Sam, whereas the reverse is true for lower income people.
If the basic income was set somewhere near the Federal Poverty Level (FPL) for an individual, it would be ~ $1000 / month [1]. (This is just for a rough sense of scale. I don't actually think it's a good idea to specifically aim to match that number, but I suspect we shouldn't go much above it. That's a longer discussion, though.) That wouldn't completely cover Social Security for everyone—the average monthly retirement benefit is ~ $1300 [2]—but it would cover a large chunk. Further, the minimum eligibility level for Medicaid is 133 % of the FPL [3], so if we'd like to maintain our current standards, provision of a roughly FPL basic income won't obviate Medicaid for everyone. (Medicare's qualification criteria are primarily age based, so the number of eligible beneficiaries would be unchanged by the existence of the basic income.)
[1] http://aspe.hhs.gov/2015-poverty-guidelines
[2] https://www.ssa.gov/policy/docs/quickfact/stat_snapshot/
[3] http://www.medicaid.gov/medicaid-chip-program-information/by...
Regardless, though, it seems like there should be relatively elegant options for achieving both objectives with one system if we want to. Perhaps just increase the basic income after some age. (That sets off some warning bells in my head, though—it could be a step toward complexity and means testing.)
(I don't think it would make sense to actually start that high—I would experiment with lower levels, and on more local scales, to try to understand the economic effects. Even so, I wouldn't be surprised if the maximum benefit to the full economy and to general well being occurs for a Federal component of a basic income near the FPL, though.)
I envision a system like this:
Person A has just graduated from high school and has never worked right when the UBI program goes into effect. He never pays into SS and receives only UBI for life and will never be eligible to collect SS.
Person B has worked under the existing system for n years and has paid into SS a significant amount. He stops paying into SS now and begins receiving UBI as well. When he reaches retirement age, he collects either SS or UBI, whichever is greater, based on the points he earned from paying payroll taxes.
Person C is a current typical retiree. He continues to collect SS, as it pays better than UBI since he paid so much into it from his payroll taxes.
This UBI system would pay out less benefits than someone with maxed out SS benefits gets today, but we wouldn't have the payroll tax anymore. Instead, the UBI program would be funded through income tax.
This would cost significantly more than today's wealth redistribution programs even added together (setting aside Medicare/Medicaid which are kind of a separate issue), so it would certainly require higher taxes to support it.
Lefty liberals would not agree with the decrease of the payout for such transition, so there is no transition.
But of course encouraging work is not really the ultimate goal, so this is unrelated to whether basic income is a good idea or not.
I wouldn't say that discouraging work is totally irrelevant either. The reason that first-world standards of living are high is that lots of people are performing (often unpleasant) tasks for complete strangers, in exchange for similar favors from other strangers (i.e., working for money). Decreasing the number of people willing to do that is (all else equal) a bad thing.
But because budgets have to balance, the current system has the advantage that it can have lower marginal tax rates on higher income earners.
Whether it makes sense to impose an especially high marginal tax rate on poorer people (and a lower marginal tax rate on richer people) is a complex question. But to claim that basic income solves the problem of incentives is wrong. Basic income just moves the disincentive effect to a different segment of workers.
Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination.
At any income level you can make arguments why their work output would be more/less sensitive to taxation. We are talking about a difference in a difference (how much one group changes their work in response to tax, vs another) and not absolutes, which complicates matters. E.g. poor people need the money more, so maybe they are less responsive to marginal tax rates.
Also, there are some taxes where the disincentive effect is beneficial. Basic income funded by a carbon tax seems like a good combination.
Pollution taxes are a good idea for their own sake, but they will only cover a tiny percentage of basic income or welfare.
That isn't a very strong argument. Assuming the basic income and associated taxation is calculated to approximate the same level of redistribution of wealth as the existing welfare system, the amount a person making a given level of income would have to have their taxes increased by in order to balance the budget is only equal to the amount they themselves would receive from the basic income but would not have qualified for in a means tested welfare system. For high income earners that amount is negligible because the basic income constitutes such a small proportion of their total income, and even then it has no effect on their effective tax rate (i.e. net transfers with the government; taxes paid less basic income), only that small change to the marginal rate needed to keep the effective rate the same.
And in particular what is really happening is that the disincentive (which is created by any taxation for any purpose) is being spread more evenly throughout the population, which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it.
Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that.
Agreed, which is why I object to your statement that: We already know how to design a program that won't discourage work. It's not that basic income discourages work more or less, but that it evens out the marginal tax rate. This might be a good or a bad thing, but your original post contains no argument either way. You run a very strong risk of the reader misinterpreting what you are saying, and believing that there will be a uniform improvement in incentives across the whole population.
which all else equal can be expected to have less effect on behaviour than concentrating the effect on a subgroup which will then be much more compelled to react to it.
I think the main argument behind the current system is that low income people need the money, and therefore are less affected by the marginal tax rate.
Moreover, how the taxes are collected is separate from the basic income. If we find that it is for some strange reason better to charge a higher marginal rate to lower income people than higher income people then we can have a basic income and yet still do that.
Either "basic income" should be used to denote a flat tax plus basic income, or a varying marginal tax plus basic income. Your first post implies the former to the exclusion of the latter. I think you are changing the definition because it's important to you that basic income "win", but really there are two separate issues, which are negative taxation vs welfare, and fixed vs varying effective marginal tax rates. Each of these issues should be decided independently on their own merits.
Because the marginal tax rate is a separate thing. You can raise the money however you like. Tax the rich, tax the poor, tax securities derivatives, print lots of money, it's a separate consideration. What a basic income does is dramatically simplify the welfare system so that when you balance the other side of the ledger you can better see what you're looking at.
It may then also make sense to simplify the tax system and impose a uniform rate on everyone (because the level of redistribution of wealth can now be trivially set by adjusting the amount of the basic income), but there is no inherent reason why any other method of raising the money could not be used instead. Even in that case a basic income is preferable to the existing system of ad hoc means tested welfare programs.
> I think the main argument behind the current system is that low income people need the money, and therefore are less affected by the marginal tax rate.
There are three points here.
First, if these people need the money so badly, is it really good policy to be imposing high marginal tax rates on them, regardless of whether they'll bear it because they have to?
Second, the people we currently take benefits away from are not the lowest income people (who do qualify for the programs), they're the low-middle income people who only just barely don't. If the true consideration is to collect from people who will most be forced to work anyway then shouldn't we be sticking it to the even poorer people who have even less choice? (Of course this runs right back into the first point.)
And finally, if these people need the money so badly then preventing them from earning as much by working legitimate jobs that report their income will cause more to turn to off-the-books income like dealing drugs and stealing in order to make ends meat. Presumably that isn't the work we want to maintain an incentive for.
See my other post for answers to the rest.
Of course it does, because it's in the context of receiving the benefit. Since receiving the benefit is unconditional, it doesn't cost you money/benefits to take a job or work more hours, unlike with means tested programs which do exactly that.
How the government comes up with the money to pay out the benefit is a separate question because you can do it in any number of ways. Imagine the government pays for the basic income by conquering foreign lands and seizing their resources. Unambiguously no disincentive to work for all the citizens.
Obviously in the real world the money is going to come from taxes. But taxes are separate. All transfer programs require taxes, on top of the effects created by the program itself. Because the method of taxation that has zero effect on the incentive to work is the mirror image of the basic income: Everyone pays the same fixed dollar amount in taxes regardless of income. Using that method of taxation to fund a basic income converts it from a transfer payment to a no-op.
So if your point is that you cannot have a transfer payment without creating a disincentive to work for someone, that is correct, because that is what a transfer payment is: In order to take from those with more and give to those with less, you have to condition at least one of the taking or the giving on the existence of some threshold level of wealth.
But the difference between the program and the tax that pays for it is still quote important, because the people they affect are not necessarily the same people. For example, suppose you want to fund some transfer program using a tax exclusively paid by the top 1% of income earners. Everyone in the bottom 99% therefore does not pay the tax at all and is not directly affected by it. But now the separate choice comes between whether the program is a traditional means tested welfare program or a basic income. The means tested program will provide a disincentive for the 99% to work because the government will claw back some significant portion of the money they earn; the basic income will not, even inclusive of its funding source, because it is not funded by them.
Unless the basic income isn't enough to live on, which would mean more welfare would be needed for those who can't work or can't find a job.
So if anything maybe some people who now work full time, would work part time. And those who currently work but can barely scrape by would actually be able to live decently which IMO would have a tremendous effect on people's productivity.
Or if you've saved almost enough, otherwise.
1. Better income for adults means lower crime rates. A minimum wage job qt $7.25 plus $1,000/month grosses $27,080.
2. A Basic Income improves the outcome of children in poor families. Two minimum wage-earning parents plus $1,000/month per adult yields $54,160: Reduces divorce rate, reduces domestic violence, enables residence in a better neighborhood and attendance to better schools.
3. An improved outcome for children also means lower crime rates.
4. Lower crime rates improve real estate values. Anecdotally, from 1998 to 2006, East Palo Alto median home prices increased from $190,000 to $650,000 (342%). Over the same time period, the total crimes reported dropped from 550 to 350 (was over 900 in 1988) [0]. (note that the median home price has not further increased since 2006).
5. There are about 3,600 detached single housing units. [1]. With a little arithmetic, the total increase in the value of the real estate owned by those owners was $1,656,000,000.
6. A basic income of $1,000 per month for East Palo Alto over those 8 years would have cost $1,824,000,000.[1]
7. Property tax receipts increased somewhat. The county gets 1% annually, but due to prop 13, that will take a long while to fully materialize.
8. Sales tax receipts would likely increase as the population would have $228,000,000 more to spend each year.
So, if it is true that a basic income would reduce crime and lower crime rates improve real estate prices, then part of the economic analysis of a basic income needs to factor that in.
[0] https://www.law.berkeley.edu/files/EPA_Main_Report_Final.pdf
[1] http://www.bayareacensus.ca.gov/cities/EastPaloAlto.htm
Mods, please add 'anecdotally' to the spell check dictionary
V. CONCLUSION In recent years, there has been a large growth in safety net programs across the developing world. If anything, we might expect this trend to increase as countries become richer: Chetty and Looney (2006) show that social insurance as a fraction of GDP rises as countries get richer, suggesting an that safety nets may be increasingly important as countries grow. 18 As safety nets have increased, so has the debate about whether they simply discourage work, enabling a “lazy poor.” Aggregating evidence from randomized evaluations of seven cash transfer programs, we find no effects of transfers on work behavior, either for men or women. Moreover, a 2014 review of transfer programs worldwide by Evans and Popova also show no evidence—despite claims in the policy debate—that the transfers induce increases in spending on temptation goods, such alcohol and tobacco. Thus, on net, the available evidence implies cash transfer programs do not induce the “bad” behaviors that are often attributed to them in the policy space.
Lack of negative behavioural effect from conditional handouts as low as $4 per household per month really doesn't tell you much about the effect of subsidies designed to permit an at least borderline-adequate Western standard of living.
They're trying to fix different issues with different sized budgets.
So? You performed what Daniel Kahneman has called "question substitution": replacing a difficult to answer question - "do welfare plans encourage exploitation" - with a simpler one: "are there people who exploit welfare systems".
> sounds like it's throwing any objectivity out of the window right at the beginning
Says the person who draws conclusions based on anecdotal evidence. My money is on the study with data, not the random internet person who actively looks for arguments supporting their existing beliefs.
It seems unlikely, and career suicide in any case.
My conclusion was that the welfare abuser stereotype absolutely does exist in reality and there are people who do become lazy because of welfare benefits on "1st world" countries.
Additionally, it was more of a huge scepticism than a "conclusion" and even that was supported by two additional arguments, not just that anecdotal evidence.
Almost half of the people who would be entitled to some benefits do not apply for them, due to various reasons such as social stigma, lack of knowledge or because they consider all the paperwork too much work. As a result, many people end up with more serious problems (debt, evictions, medical issues, social exclusion) that the state ultimately ends up paying for.
They found that abuse of the benefits exists, but is not very widespread.
[1]: http://yle.fi/uutiset/sosiaaliturvan_alikaytto_tulee_meille_...
Edit: fixed typo edit2: really fixed typo
If only there was a context within which I was using these words that made it blatantly obvious which of these uses applied here, like a link to a paper/article discussing if welfare programs made people lazy.
Also, you don't quite grasp what "anecdotal evidence" means in a scientific context.
Really? Please explain.
And what I meant was that the two questions are very, very close. Does alcohol encourage alcoholism?
I've seen people buy bottled water with food stamps, but it's crass to assume they don't have a good reason when we know nothing about their situation.
Until you explain, I think it's fair to give your acquaintances the benefit of the doubt.