Poor Statistics, Poor Incentives, Poor People

Megan asks whether welfare reform is working.

First off, it has be pointed out that “poverty rate” is the most useless, contrived statistic in existence, other than perhaps “jobs created or saved.” This damned lie statistic says that no matter how well off you actually are on an absolute scale, you may be “in poverty” if other people in your country, at that time are doing better.

A person living in “poverty” in America 2009 is better off in nearly every way than the median U.S. income earner in 1959. But if we told people that, they might be less willing to give more have the gov’t seize more money to give those people.

Second, to amplify Megan’s point, people are going to make bad decisions. That’s unavoidable. People will, however, make fewer bad decisions if you create incentives for better decisions, and by the same token they will make more bad decisions if you subsidize bad decisions (Britain is currently experiencing the effects of not understanding this). It would be nice if every child could be raised by people who made good decisions, but giving more money to people who make bad decisions is not going to help society get there.

Finally, what we can do for the poor that would help is better incentives. For instance, the poor currently face a very large implied MTR because of payroll taxes, food stamps, and Medicaid. EITC is helping to some extent, but we should probably stop pretending Social Security is anything other than another welfare program, and start paying for it with a more progressive taxation model (which we are going to have to do anyway since the SSTF fiction must be paid from general revenue) while reducing other benefits or altering their means-testing.

Some of my conservative friends will not like this argument, but better incentives are the way toward a better society.


Posted

in

by

Tags:

Comments

4 responses to “Poor Statistics, Poor Incentives, Poor People”

  1. Kate Avatar
    Kate

    Not to mention, there’s no way right now that cutting expenditure will get the country out of trouble. The deficit is too big, and that doesn’t deal with the debt.

    There’s going to have to be a mix of across-the-board spending cuts and tax increases if there’s to be any hope of getting out from under the debt load.

    The fact that I wouldn’t trust the current set of bastards to cut a loaf of bread isn’t really relevant to the point. We’re way past what’s ideal and into the realms of “stuff that might maybe work if we’re lucky”

  2. Floccina Avatar

    we should probably stop pretending Social Security is anything other than another welfare program, and start paying for it with a more progressive taxation model

    I have been pushing this idea for years. http://un-thought.blogspot.com/2009/10/welfarize-and-minimize-social-security.html

    Most people interested in politics republicans and democrats hate the idea but people not interested in politics seem open to it. Conservatives hate it because they see it as unfair and democrats hate it because they see it eroding support for SS.

    Lately I have been telling people that because SS, Medicare and Gov. education are rob Peter to pay Peter programs that it is technically easy to solve the deficit problem but that it is politically impossible to address the problem until a real crisis hits.

  3. joshua Avatar

    Yep.

    I’m not sure I’m clear on one thing you said, though. You say the poor have a high implied marginal tax rate because of various benefits – I assume this is because if they make more money and they lose those benefits they have to pay for those things themselves, so they’re not really making more money.

    But how does making SS more progressive – if you mean eliminating the cap on higher incomes – fix that problem? I’m just not seeing how making things more progressive reduces those high marginal tax rates… I would think the only way to reduce that would be to make things less progressive. But it’s early morning and I could be missing something obvious.