Guidebolt

Welfare

2018.03.09

How should government ensure the minimum essentials of life to its people? Great answers around broad economic policy adopt a consequential perspective. What matters is what happens. Consider the sustainability of benefits and the timing of side-effects.

Someone has to provide the essentials of life. Essentials are first priority for basic survival that allows people to function properly- mentally and physically. Whether enough is produced is one challenge; how well they are distributed is another. Ideal prosperity is the long-term enjoyment of a good life by all people. Broadly, any divergence between current circumstances and ideal prosperity is an opportunity that can be explored. One of government's responsibilities is to prevent and fix market failure. So the government is the right entity to help produce or distribute essentials to the part of the population that lacks essentials. Government intervention must tread wisely by considering the merit and bounds of the cost-benefit ratio, opportunity cost, budget constraints, market impact, psycho-social incentives, work-distribution fairness, and other long-term considerations.

The government is just people; a group of employees and volunteers who have the social trust, political authority, and military power to collect taxes, enact laws, enforce order, manage infrastructure, deliver public services, and issue special commands. The mission of the government is vested in the expectations of its people, recorded in the principles of its constitution, and fulfilled by the official responsibilities, practical skills, and tentative intentions of its authorities. While government authorities have special privileges, they otherwise operate quite similarly to private citizens for economic interactions.

The people who lack essentials are in various circumstances. Some can or cannot try; some do or do not try. People fluctuate over time across different states of mind and body. At any given point in time, some are helpless, exhausted, misguided, unskilled, or lazy. Ideal prosperity requires even the capable and lazy to survive, so it is sensible for the government to provide for all who lack essentials. After all, some of the lazy may become diligent and eventually secure a good life independently. However, the government must budget its limited resources with an order of priority across different people. The government should assist its own citizens first, for they are the productive taxpayers and intentioned decision-makers whom the government represents. The elderly, handicapped, and sickly should be assisted before the able-bodied and misguided; the former is helpless while the latter has means to work and secure income.

Government has many ways to help its people secure essentials. The government can donate money (welfare deposits), issue credits (food stamps), pool insurance (employment insurance), offer income for labor (government employment/temp work), offer free items (homeless shelters), offer discounted items (low-income housing), offer price-controlled items (utilities), regulate private prices (rent control laws), reduce private prices indirectly (research, infrastructure, subsidies, tax credits, anti-trust laws), create income for labor indirectly (business-attracting taxes and regulations), and convince businesses to produce essential goods in the first place (business-attracting taxes and regulations). A corrupt, deluded, or desperate government may conduct asset seizure, ransomed kidnapping, excessive fines, and unreasonable price mandates on wealthy households and businesses. By breaking civil expectations intensely, the government may gain short-term wealth but incite capital flight, sow long-term distrust, discourage entrepreneurship, and weaken international relations.

The reality of production is that someone or some group has to control the means of production, be it private individuals or government authorities. The classic problem with bad state-run businesses is that their management is corrupt with no sense of urgency, merit, cost-efficiency, competitive performance, or personal risk. The classic problem with bad private businesses is that their management is greedy with no sense of fairness, demanding unreasonable prices and wages when competition is thin and people are desperate. People have common and unique tendencies that are brought out by the environments and incentive structures of state and private operations. The situation is further complicated when government authorities set policies without understanding the true dynamics of business. An expensive product may need a high margin because the monthly sales potential is low; this is the price pattern that niche markets must pay in order to keep producers in business. Overall, the truth is that people with competence and integrity will make things work whether they are in government or business. Speed and efficiency tend to come better from the private sector because they have more freedom to make big decisions and experiment with optimizing changes; completeness tends to come better from the public sector because they have more flexibility to pursue net loss programs affecting infrastructure and under-served people.

Government assistance for essentials generally falls into 3 categories: free stuff, lower prices, and new jobs. Of these, free stuff offers the most immediacy and certainty; lower prices still require people to exchange money they may not have, while new jobs require people to apply for the position without guarantees. Free stuff generally falls into 3 categories: free money, free credits, and free items. Free money is easy to give and flexible to spend, but hard to track its usage by drug addicts, criminals, and welfare abusers. Free credits (ex. food stamps) are integrated programs with private distributors; credits guide better spending and incentivize recovery out of welfare into independent income that can make luxury purchases. Free items are distributed with rationing limits after being produced by the government or purchased from fair private suppliers; direct items somewhat sacrifice consumer choice depending on the number of goods offered in aggregate, but can simplify receiving benefits with a direct distribution process (food banks, soup kitchens, libraries, homeless shelters). All these options are usually structured into different programs with different eligibility criteria, benefit limits, and oversight.

Good government programs are designed with a clear intent behind eligibility and benefits. For assistance with essentials, only people with low income and low wealth should be eligible, as they truly lack the means to buy essentials from the market. The handicapped are expected to continue receiving benefits as long as they are impaired. Long-term benefits are also provided to the elderly, who are not only debilitated in part but also granted society's understanding for retirement, as they have already endured and worked through their core years. For unemployment relief, people are expected to seek work or train skills in demand. Current programs, such as Social Security in America, provide income for the elderly and handicapped. Canada and America have employment insurance (EI), which provides income for those who become unemployed through no fault of their own (competence filter) and after participating in EI for a sufficient employment period (diligence filter). America also has SNAP (Supplemental Nutrition Assistance Program) that provides monthly food credits for low-income citizens. Futuristically, with the onset of structural unemployment from rising automation and productivity, modern culture has been enamored with long-term proposals such as universal basic income which are worth considering.

Universal basic income (UBI) is actually a great example for understanding welfare economics. The commonly proposed design of the UBI program is free money of X amount every month to every adult over Y years of age. Suppose that it's $1 per month with a threshold age of 20 and the program will reach 250 million people with a base cost of ~$250 million, excluding the employees required to register participants, manage the system, oversee its financial transactions, and catch program abuse. Overall, a 300~500 million dollar budget is relatively affordable for a major program. But that's only for a trivial monthly income of $1. Modern welfare programs are already incredibly expensive within federal budgets. In America, Social Security and Medicare take up over 60% of national government spending. Where does the money go and how much of it is wasted? Most of the money for Social Security actually goes directly as basic income to its intended recipients and the program employees. The initial impression of UBI is that it's simply not affordable.

UBI's wide eligibility covering every adult is reasoned to improve the administrative cost efficiency of welfare programs. But it's important to note that government employees are people too. They receive income to buy essentials in exchange for managing the program while building career skills. For this reason, the idea that UBI will remove the "inefficiency" of programs like food stamps remains somewhat unconvincing. Normally, limited government resources would be budgeted to provide essentials only for those who lacked essentials. The budget cost and benefit dilution of giving free money to those who don't need it wildly overshadows the inefficiency of current programs. Specifically, the general US Social Security program had 67 million beneficiaries at the end of 2017, a quarter of all adults; even with a 30% reduction in administrative costs, the cost of Social Security would still triple to over 100% of the federal budget if expanded to universal distribution. Based on historical statistics and behavioural economics, welfare is a net loss government program so universal distribution cannot be expected to bring in more tax revenue than it uses. The one advantage of universal distribution is that it covers more low-income people who would otherwise be rejected erroneously during selective distribution; that said, handling the sheer volume of most of the population is sure to bring in its own category of errors. Overall, selective basic income has more effective costing and the best structural potential to be excellent across all key metrics when operating with competent administrators and an efficient application procedure.

Selective basic income already exists in America, providing monthly $500~1500 money for the elderly and handicapped; $200~500 food credits for low-income households. Rent control regulation and low-income housing provides further indirect assistance on the order of hundreds of dollars per month. Direct food handouts and shelter services catch the desperate and homeless. Now, if the government could afford it, should they provide basic income to all low-income households? Finland and Canada are currently running basic income pilot experiments that will finish in 2019/2020, targeting unemployed citizens and random citizens in certain suburban regions respectively. The elevation of the income floor is a positive goal, covering cracks in the modern safety net system.

Eligibility only for low-income, low-wealth citizens ensures that essentials are budgeted to those who truly need it. This type of basic income program can be effective and fairly accepted in social culture with a low enough monthly amount. At $1, noone will care. At $10, beneficiaries will appreciate it for a nice single purchase. At $100, beneficiaries will suddenly have a lot of positive options open up while the economic culture generally remains the same. It's the right order of magnitude to seek paid shelter with family, friends, and acquaintances. It's enough to buy a set of clean clothes, bags, and tools. It affords a transit pass, car fuel, and a plethora of supplies. It's a solid stipend for recovery, but on the flip side enough to sate a long-term lifestyle near the poverty line. At $1000, a periodic and long-term welfare lifestyle is possible and economic culture is finally shook with some market impact on labor and entrepreneurship. Some people are able to better care for their families, but others regress as their bad habits and lifestyles are funded persistently and wastefully. It's the order of magnitude where people of all ages start thinking that this is the utopian income of a post-scarcity world and commit to a life of frugal hedonism and personal pursuits. At $10K and above, economic culture firmly shifts into welfare dependency with considerable inflation and reduction of the labor participation rate. The equilibrium of prices and purchasing power destabilizes. That about covers the assessment of practical and hypothetical basic income options.

Tax reduction is essentially free money to employed households; as their monthly withholdings decrease, their effective take-home pay increases. The United States passed a tax reform around year-end 2017 that increased the median household's monthly income by $100~200 starting in 2018. It spurred a series of $1000 bonuses from public companies to frontline employees. While it did not lift the income floor for the unemployed, the reform did converge the economy into the lowest unemployment rate in 17 years and the lowest unemployment benefit claims in 45 years. With renewed vigor in the American business environment, domestic and foreign private sector investment and massive infrastructure funding are set to propel trillions of dollars across the economy. Also note that a complementary general solution for lifting the income floor is to offer employment with a low skill floor and guided training program, such as for basic military recruits. The government must assign enough focus to invigorate the private sector with an excellent business environment in order to generate more natural tax revenue (as opposed to tax rate increases which has velocity of money side-effects), provide essentials indirectly (jobs and purchase chain reactions), and sustainably fund net loss programs like infrastructure maintenance and welfare.

What can people and the government do to prepare for the future? To start, nations need more sweet technologies and superb people with power in the private and public sector. They have to work together. Automation is only going to be handled well if good, powerful people from different industries design their part of the economy with general circulation patterns of business and charity that mesh together with money and special credits to form a sustainable, complete economy. In practice this means lots of good and decent jobs, solid welfare for those who need it, and amazing products and services. It's next-generation economics fueled by big data and incredible productivity where smart business owners, professionals, and government authorities see the economy for what it is and control their side of it, voluntarily collaborating to keep the economy excellent and provoke healthy competition without encroaching on others' freedoms. Fundamentally, this system requires people with power to really understand the economy and consumers to pay a lot more attention to their purchasing decisions, because it stops working if people keep buying from stupid, careless, or malicious businesses that disrupt the excellent-economy demand flow and suck money into a vortex (but consumers can't be blamed if the alternative products suck). But that's fine because by that same mechanic their demand can be moved again somewhere better. It's a weird battleground where the good guys have to get everything right, but that's typical for business. Brand loyalty, velocity of money, demand consistency, non-cash savings rate, and online information confidence are going to matter a lot.

Civilians have practical options to help provide essentials and boost the economy. Charity and volunteering can be great. With government power, weed out corruption, cut wasteful spending, and straighten out budget priorities so money can be spent more efficiently on people who need help. With entrepreneurial aspirations, build a business and create jobs and pay taxes. As a consumer, spend your money quickly (but smartly and to good businesses) and when you save money over your emergency fund put it into non-cash assets (within risk tolerance).