Principles of Welfare

My post on teen pregnancy and the discussion in the polygamy and welfare thread about polygamist Mormons’ welfare collections are both good springboards for writing about welfare policy in general, something I’ve wanted to do for a while.

Welfare is basically a collection of money transfer programs from the government to people the government deems to need assistance. It usually connotes assistance to the poor, but social security is the most common and most costly form of welfare

The best way to abstract welfare principles is via John Rawls’ theory. Justice as fairness is pretty intricate, but the part of it that applies here is simply a pair of principles for politics:

1. Liberty: government policy should never deprive people of basic civil liberties. In a welfare context, this rules out welfare schemes that impose any kind of puritan morality on the poor, such as the requirement that single mothers receiving TANF benefits not live in with boyfriends.

2. Equality: subject to the constraints of principle #1, government policy should aim for maximum equality; inequality is only permissible if it improves the economic situation of the poorest members of society.

It’s principle #2 that’s interesting from a welfare point of view. It’s possible for a government to say that nobody can receive more than $15,000 per year or $10,000 plus the cost of housing, whichever is lower. That will certainly be more equal than paying $3,500 a month to an unemployed engineer or retired businessman. But paying the engineer so much less in welfare than what he made when he was employed will wreak havoc on his life, which will make him likelier to find an unskilled job rather than wait a few months until he can find an engineering job.

It’s in society’ interest that middle-class professionals take jobs commensurate with their skills, because that increases economic productivity. Some welfare to the middle class is then good, even though the poor need it more.

Social security – that is, pension, survivors’ benefits, and disability benefits – is a bit more problematic. There’s no overriding interest that says a retired businessman who used to make $130,000 a year should get more than a retired retail worker who used to make $20,000 a year. Personal comfort could be a good excuse, but it doesn’t increase the poor’s quality of life. It encourages home ownership, since by retirement one no longer has to pay mortgage, and a higher saving rate among the middle class. In an American context, increasing the saving rate is a good thing, since Americans only save 2-3% of their income on average, whereas a healthy level of saving is close to 10-15%.

Next post I’m going to actually hash out the details of a workable welfare system based on Rawls’ principles. As I like to say, the supreme principle in liberalism is really that of evidence and real-world workability.


8 Responses to Principles of Welfare

  1. Yoram Gat says:

    Trying to find a just welfare policy doesn’t make sense in isolation. Why would you focus on trying to achieve fair retirement benefits distribution between the businessman and the retail worker, after having let them live in an unfair situation (6.5x income disparity) for the bulk of their lives?

    This may be the more accurate supreme principle for liberalism: that of working earnestly to fix some secondary problem, which is relatively politically safe, while ignoring the primary, politically dangerous, much larger problem.

  2. Alon Levy says:

    Before retirement, the caveat to the principle of equality applies. It’s necessary for society to have doctors, lawyers, scientists, and entrepreneurs; paying everyone the exact same wage discourages talented people from pursuing careers in medicine, law, science, and business. The only way to sustain a completely equal society is by Soviet-style coercion, and even that breaks down after a while. Of the extant states in the world, that one that has maximized the quality of life of its poorest population is not Cuba, but Norway.

  3. Yoram Gat says:

    “Norway is better than Cuba” is a pretty weak argument for someone who says his supreme principle is that of evidence. Talking about “Soviet-style coercion” as the alternative to a society with unlimited income disparities is, how shall I say, facile.

    If we were to believe that income disparity generates increases in quality of life, which seems to be your point, then our model should be Namibia, with Gini index 70, or Botswana or Sierra Leone (Gini index 63), rather than Norway (25) or Denmark or Japan (24).

  4. Alon Levy says:

    Yeah, but we’re not to believe that. We’re to believe that societies that follow regulated capitalism, with a Gini index around the 25-30 range, do better than societies that follow socialism and reduce their Gini index to the teens (as the Eastern Bloc countries did) and societies that follow unregulated capitalism and increase their Gini index into the high 30s and beyond.

    By the way, the statistical database you’re using for income equality is for shit. Most countries I’ve checked against intra-national research, which tends to be more accurate, have different Ginis than what the UNDP says. The USA’s Gini is .466, not .408; Singapore’s is .52, not .425; Japan’s is .314, not .249. I’m not sure the UNDP’s statistics about the shares of national income by decile are correct, but if they are, then the countries with the richest bottom decile have income disparities greater than a factor of 6.5.

  5. Yoram Gat says:

    We’re to believe that societies that follow regulated capitalism , with a Gini index around the 25-30 range, do better than […]

    Sure, but why stop there? Since Norway and those other highly HDI ranked countries are generally the (non-ex-Soviet) countries with the lowest Gini index (and lowest top decile to bottom decile ratio) today, the natural hypothesis is that for “regulated capitalist” countries, the lower the Gini index the better, and that public policy should aim for lowering the income disparity to below Norwegian levels.

    Wouldn’t that be dictated by the supreme rule of evidence, rather than repeating the almost comically absurd “talented doctors are in it for the money” dogma?

  6. Alon Levy says:

    No, it wouldn’t. Sweden already started seeing problems with malingering, high unemployment, and ballooning deficits when its government grew too big. Today’s Sweden, which has a Gini index of .25, is doing better than 1992’s Sweden, which had a Gini index of .21. Norway, whose Gini index is apparently closer to .3 than to .25, is doing even better (the relevant column is “after-tax income per consumption unit,” apparently).

  7. Yoram Gat says:

    Developing a .3-Gini-index-sweet-spot theory based on a couple of data points does not conform to the supreme rule of evidence but to the supreme rule of prejudice.

    Anyway, your ideal, Norway, has a 90th percentile to tenth percentile income ratio of about 3, which I would consider marginally acceptable.

  8. I heard about this, but your post is the best explanation of it. Most other blogs I have read don’t know what they are talking about. However, I must say that your blog is very informative…I am subscribing to your RSS feed right now! Thanks!

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