Universal Basic Income Recycling

A recent post, prior to the rebirth of MaxSpeak.

UBI will never happen. The justifications for the UBI — which are implicit critiques of the U.S. welfare state — are badly screwed up. My objection to UBI is not about work incentives. It is that UBI advocacy radically misunderstands the problems of anti-poverty assistance and the nature of the current system. Dylan Matthews, who does good work, has another view.

More devolution; I celebrate and cite myself

endofwelfareSo I wrote a post on devolution and forgot to mention that I actually edited a book on the subject. Which sums up my skills at self-promotion.

Jonathan Chait has a useful post on Ryan and notes something else I forgot — that block grants can be used to substitute for own-source state government funds. Suppose you are spending $10 million for job counseling, and your state’s food stamps cost the Feds $10 million. If food stamps are instead provided to the state government as a block grant, they can use it to fund their job counseling and save themselves the ten million bucks. The food stamp recipients still get job counseling, but no food stamps.

Even with full substitution, the Feds are still out the ten million. I maintain that even with no substitution, the level of the grant would still erode over time, given the likely formula devised and the political dynamics of the Congress. That’s the whole point — to reduce Federal spending. It’s also why I find this statement by JC baffling:

The most encouraging thing about Ryan’s plan is that it is not a plan to cut funding for programs benefiting the poor. Instead, Ryan’s poverty plan would keep that overall level constant while shifting funds from some categories to others.

The entire history of block grants argues otherwise. There’s more in my book.

The inescapable arithmetic of anti-poverty aid

Anti-poverty programs are said to be ill-conceived because they make the choice of not-working more lucrative than employment. The poor are thereby ‘trapped’ in aid programs, against their own best interest. Rep. Ryan means to free them from this cage by eliminating such programs and providing the money to state governments in one lump sum. In my previous post I explained why this is a formula for diminishing the funds available, but put that aside for now. This week we will deconstruct the poverty trap claim. The unsubtle implication of this claim is that the current design of anti-poverty programs is at the root of poverty itself. Anti-poverty programs induce people to choose welfare over work and content themselves with poverty-level standards of living.

To start we need a basic, number-light picture of how the alleged ‘trap’ operates. Every anti-poverty aid program can be described as some maximum or standard benefit at zero income, and some “take-away rate” as income increases (an exception is the Earned Income Tax Credit, about which more later). The take-away rate is also known as a benefit reduction rate (BRR) or an implicit marginal tax rate (MTR). If the BRR is zero, it’s not an anti-poverty program; it’s for everybody. If the BRR is negative (benefits increase with income), it’s socialism for the rich. A number of provisions of the individual income tax actually fit the latter description.

Suppose a person receiving aid faces a minimum combined effective ‘tax’ on earnings of the benefit reduction rate plus the payroll tax (7.65%). Suppose the aid is $10K at zero income. Under the current minimum wage of $7.25, a full-time job gets you $14,500 a year, before tax. Suppose the BRR is 25 percent. Then after-tax/after-BRR income for 2000 hours of work is $9,765 — less if you include any costs of working (child care, transportation, work clothes). Less still if you owe any income tax. So work doesn’t appear to pay; you are ‘trapped’ in the aid  program. How to fix this?

One resort is to free you from dependency by eliminating the aid program. Now it’s either work or starve. Are you better off? Maybe no, but maybe yes. Your income is certainly reduced, perhaps a great deal. But once you are working, you might be fortunate enough to enjoy wage increases that eventually put you over $10K, after-tax and after-BRR. In that event, being deprived of the benefit could make you better off, eventually.

The force of this argument depends on the individual being too stupid to see the longer-term benefits of work. She has to be shoved into the workforce. She needs tough love.

But suppose jobs are not available, or they do not provide an upward wage path? In that case, the individual’s choice of welfare over work is the smart decision. Whether the poor are smart or dumb in conservative commentary tends to vary depending on the argument. Since a commitment to work is assumed to pay off eventually, the default assumption about the poor is that they are stupid and myopic. If it is conceded that work doesn’t pay, the grounds shift to that of moral condemnation.

If work doesn’t pay, however, we have bigger problems. The sad trends in stagnant wages have been well-documented. Capitalism isn’t working so well for a lot of folks. The irrationality argument has less currency. Moral condemnation then comes to the fore, mixed in with race prejudice and crank social science alleging pervasive pathologies of the underclass.

There is another option to fix the trap. The BRR could be reduced. This slows down the phase-out of aid as earnings grow. But the inevitable consequence is that the program costs more. Under a lower BRR, more benefits are available for any given income level covered by the program, and a wider range of income expands eligibility for benefits.

The only way to hold spending down with a lower BRR is to reduce the starting point for benefits at income zero. The fundamental trade-off is you can attenuate the effect of the poverty trap with a lower BRR and no reduction in benefits at increased budget expense, or you can reduce both benefits and the BRR in budget-neutral fashion. But you cannot reduce the BRR without either increasing costs or reducing benefits. A lower BRR either costs some aid recipients or it costs the government. The Ryan report is explicit that reducing the maximum benefits available is not a good idea:

But lowering the effective marginal tax rate at the bottom of the income scale by reducing the amount of aid would mean deep cuts for the most vulnerable. (Page 10)

This problem, however, is not solved with a block grant. The same trade-off presents itself if you send any program to state governments, social workers, Catholic Charities, or Santa Claus. There is no avoiding it. A commitment to budget neutrality, much less spending cuts, means that fixing the ‘trap’ with a lower BRR must reduce benefits for those who are stuck, for one reason or another, at the lowest income levels. If we are in the business of providing cash assistance to those with low or no income, there is still a decision to make about how much aid goes with what level of income.

The Ryan remedy for this dilemma is to “customize” assistance to the individual. How exactly this solves the problem is left to the imagination. A work requirement is irrelevant — if you are suffering from the effects of the BRR, you are already working, since for the poor the BRR is triggered by labor earnings. Only if the customization puts you on a wage path that transcends benefit phase-outs is the problem solved. But if such a wage path is available (see ‘capitalism isn’t working,’ above), the BRR is irrelevant in the first place.

With the benefit of this basic arithmetic, we can better evaluate claims about the poverty trap and relevant reforms. About which more tomorrow.


Devolution Number Nine

Paul_Ryan_s_Secret_Poverty_Plan_-e60e252a2f805fd2cf047534c7e1d642Rep. Paul Ryan (R-Crazy) has a new plan to fight poverty. There is actually a chapter on criminal justice that is worth some attention. Why is there a piece on criminal justice in an anti-poverty report? C’mon, you know! Also there are pieces on job training, regulation, and education.

My interest is in the chapters on the Earned Income Tax Credit and the safety net, but the common theme throughout the report is to convert Federal programs into block grants. A block grant is a fixed pot of money provided to a state or local government for broadly-defined purposes. Ryan’s report is at pains to assert that the conversion would not entail spending cuts. This could not be further from the truth.

The story goes back to the days of Richard Nixon. I told it here. I was not the first to figure out the deal. The short version is that a program or programs converted to a block grant is being set up to wither away. Block grants are designed through formulas to grow slowly or not at all, despite the likelihood that whatever the included programs were aimed at typically costs more to deal with every year. There are also two malignant political dynamics at work. One is that Congress doesn’t like to spend money without a say in what happens to the money. Block grants transfer control to state governments. They have the fun of spending the money, Congress has the fun of raising the taxes to pay for it. The other is that the more vague — “flexible” — the purposes of the grant, the less focused is its political support.

State officials are always happy to play this game because the money is front-loaded. In the initial years the grant is close to what they were getting before, and by the time the grant shrinks, they will be out of office anyway.

The transfer of program responsibility from the Federal government to the states is known as devolution. It is the standard way of attacking domestic spending for social purposes, going back to Richard Nixon’s dismantling of the original, more interesting War on Poverty launched by Lyndon Johnson.

Monday I will go into the plan’s specific anti-poverty provisions.


Guess I’ll have to dream the rest

ObamaRally_012814-thumb-640xauto-10055The election of John McCain or Mitt Romney would have been a disaster. The election of Barack Obama, for whom I voted in both the primary and two general elections, has been a disaster of lesser order. A valid criterion for evaluating Obama is not “Things could have been worse,” or Republicans would have been worse. That is always true. It is too low a bar from any progressive standpoint. The right counter-factual is what he could have done, not some utterly miserable alternative. Nor would I give credit for what should have been minimally expected of him, such as supporting an increase in the minimum wage, extension of unemployment benefits, defending voting rights, or appointing moderate liberals to the Supreme Court. He deserves points for doing things that are difficult, that force him to stretch, not things that are politically obligatory.

Before I launch into my screed, I should acknowledge the main things Obama can take credit for. I’m using the Washington Monthly’s list as a reminder/cheat sheet, though some of what they classify as achievements I would describe as blunders or atrocities. Even comical, in a macabre way.

1. The original stimulus. It was too small, but it was probably the most he could have gotten. It was too heavy on tax cuts, which have less juice.

2. ObamaCare. This is a flawed program, but it is still better than nothing. It’s helping millions of people.

3. Wall Street reform, in the Dodd-Frank legislation. This was also flawed, but my go-to guy on this issue thinks it’s a net positive. This is too complicated to elaborate on in this post.

4. Saved the auto industry.

5. Advanced gay rights, directly in the military and indirectly in the states.

Rather than go negative laundry list, I’d come back to what I see as the main issue. What is the purpose of the Democratic Party? Has the president articulated it? Has he organized on its behalf? I understand he can’t just enact whatever he likes by force of will or oratory.

The purpose of the Democratic Party is to provide for an ample welfare state; to domesticate the lawless, out of control wealthy; to clear a path towards environmentally sustainable economic development; to defend civil liberties; and to judiciously restrict American meddling in the affairs of other nations.

The weapon of first resort for these projects is the president’s own rhetoric, which is obviously under his complete control. If nobody even breathes the reforms we need into words, there is no hope for any adoption by Congress.

You cannot prepare the public for an ample welfare state by upholding the false god of deficit reduction, by alluding to non-existent problems in Social Security, by floating bogus pro-manufacturing tax cuts, by upholding bankrupt nostrums about using “the market” to fix health care and public education, by glossing over the failure of welfare reform, by promoting the Horatio Alger myth, and by pretending that $787 billion was an adequate stimulus package.

You cannot curtail the depredations of great wealth by allowing the miscreants of Wall Street to roam free, immune from accountability, in the wake of their orgy of corrupt practices. You cannot fail to use the crisis as an opportunity to educate the public and ram through legislation, rather than tell bankers “I’m standing between you and the pitchforks.”

You cannot move us towards a sustainable economy and avert catastrophic climate change while boasting of record extraction of fossil fuels, the expansion of off-shore drilling, and bogus ethanol or ‘clean coal’ subsidies.

You cannot defend civil liberties by allowing the burgeoning national security state free reign to ignore the privacy rights of individuals, to concoct fake terrorist plots, to deport record numbers of undocumented immigrants, and to execute American citizens without benefit of due process.

You cannot advance a vision of restraint in foreign policy by prolonging what will prove to be the fruitless occupation of Afghanistan; by deploying the indiscriminate use of lethal force that victimizes innocent people; by grossly exaggerating threats of Iranian nuclear power; by fomenting destabilization in the formerly socialist countries bordering Russia; and by giving the state of Israel a blank check for abuse of the Palestinians.

I’d like to note that in matters of civil liberties and national security, the president’s malfeasance in terms of actual policy, or lack of policy, is entirely of his own making. He can’t blame the Republican Congress for matters over which he has legal authority and actual control.

Now you could say none of this should have been expected of Obama. I might have expected too much myself. I thought he might have a liberal heart. He doesn’t. If somebody becomes head of Exxon, dude is gonna drill for oil, not plant flowers. That’s irrelevant. This is what we need a Democrat to articulate and to organize for. Presently the Democratic Party organization is nothing more than a fund-raising/vote mobilizing machine. It wants electoral power, but it is not interested in advancing democratic political participation. It sends you junk mail asking your opinion so it can use your answers to send you more junk mail later that has been tailored to your answers, to ask for money. They’ve got this down to a science.

A truly democratic organization would be a place where people could go any time to socialize and chew the fat about issues, in conversations as equals. Instead we have election campaigns where all the positions are pre-ordained and supporters are driven like draft horses. We have ludicrous “town halls” that are mere platforms for politicians to pontificate, to always control the microphone, and to reserve for themselves the last word. We have elaborately scripted conventions while protesters outside are penned at a remove into “free speech zones,” if they are not just beaten by police acting on orders from liberal mayors. This is your Democratic Party! 

Obama might have initiated a change in course. After the 2008 election he owned the base. He could have mobilized it. But that’s not who he is. His chief operatives, the windows to his soul, are openly contemptuous of progressives. They have gone on to work for an assortment of scumbags, for retrograde causes. There is nothing new here. Could it have been different?

Here is Tom Frank’s take. I’ll let that stand on its own but respond to my friend Kevin Drum, writing for Mother Jones. Kevin defends the president by noting, accurately, the sadly passive state of public opinion. We all failed. Obama could not have sold out an upsurge that never occurred. This is perfectly consistent with my argument: Obama abdicated a leadership responsibility. As for how great the economic policy was, such that no upsurge was needed, there are actually good arguments that bailing out the ‘too big to fail’ bankers was neither optimal nor necessary. Moreover, the weak recovery implies enormous, possibly persistent economic costs. Kevin seems to think that you can’t accept compromises if you uphold ambitious goals. But of course you can. Republicans in the Senate do it all the time. In fact, sometimes they get just what they want.

Kevin suggests we have a collective failure and it’s unfair or inaccurate to pin the blame on the president. This is actually what an Obama organizer said to me years ago. You want more, go organize for it. Well fuck you, Obama organizer. To whom much is given, much is expected. We gave you the goddamn White House. We had a right to expect more.