Arnold Kling  

Learn to Love the Liberal Welfare State?

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Will Wilkinson makes the case.


Freed to be full-on social liberals, many libertarians are left sensing a much deeper cultural affinity for the left than the right. And this leads naturally to seeing more clearly their ideological affinities with welfare liberals. And then you read thinkers like Hayek, Friedman, and Buchanan, and you think: Oh, yes. This is extremely sensible. And now that the welfare-liberal elite has become rather more economically literate and is no longer sighing over five year plans, there is no reason to think they cannot find this sensible, too.

I agree that there is a bit of the bleeding-heart libertarian in a lot of us.

I just don't think that the contemporary American left cares for that sort of thing. Instead, I see an obsession with market failure and the need to centralize power. The basic approach is:

1. X is a crisis.
2. Collective action through government is necessary to solve X.
3. Collective action through government is sufficient to solve X.
4. Government needs more power in order to solve X.

You can let X be anything from the sub-prime mortgage problem to the uninsured to obesity. My view tends to be:

1'. X is being over-dramatized.
2'. Private initiatives are probably sufficient for dealing with X.
3'. Collective action through government to solve X will turn out much worse in practice than in theory.
4'. Government already has more than enough power to solve X. The problem is not lack of power--the problem is, well, see point 3'.

If being a liberal only meant signing on for some income redistribution, I wouldn't have a problem with it. It's the never-ending rationalization of more government power that is so unsettling.

Pointer from Tyler Cowen, who also joins Megan McArdle in pointing to an assessment of Hayek by Jesse Larner.


he makes a powerful and far-ranging critique of state control of economic life. At least as far as he takes the argument in this book, there isn’t much that thoughtful modern liberals or even democratic socialists who understand the power of markets would necessarily object to

Larner and others on the left are all for markets in theory, but not in practice. As economic historian Robert Fogel points out, the goods-producing sector of the economy is shrinking, while the growth sectors are leisure, health care, and education. The left concedes nothing to the private sector on health care and education, and with Social Security's age of eligibility not indexed for longevity, the increase in leisure also tilts things the left's way--toward a higher share of GDP going to taxes.

Finally, to the extent that the agricultural and industrial sectors of the economy remain important, the left has a rationale for managing those, too. Let X = Global Warming.

I could love a liberal welfare state. But that's not what the liberals are going to give us. They are going to give us convergence with China.


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CATEGORIES: Political Economy



TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/842
The author at The Distributed Republic in a related article titled Monetary Inequality vs. Functional Inequality writes:
    From a comment thread at Econlog, Grant writes: I care about inequality - I think it would be great if everyone on Earth had access to good food, water clothing, shelter, water and transportation - but I'm no left liberal. I happen to think the best way [Tracked on June 3, 2008 12:36 PM]
COMMENTS (29 to date)
Troy Camplin writes:

I find this equation with social liberals and liberals to be a shame, because the fact is that the reasons why libertarians are socially liberal is very different from the reason why liberals are. Libertarians are civil libertarians, while liberals are social Dionysians (in the worst misunderstanding of Nietzsche's term). True, some libertarians are socially liberal for the same reason, and only tacked on free market economics, but there are many of us who are classically liberal all the way in the sense of being socially tolerant. I don't have to be a dope smoker to support drug legalization any more than I have to be gay to support social tolerance for gays.

Franklin Harris writes:

I really think it comes down to this: libertarians who are irreligious or generally secular in outlook would much rather argue economics with our liberal friends over drinks than get into messy arguments about morality with conservatives, especially when you're arguing with them over drinks, because they're angry drunks. Plus, you still end up arguing economics with conservatives because of their cognitive dissonance regarding military spending, "energy independence," immigration, and, increasingly, trade.

It would be nice to think that liberals + economic education = libertarian, but while that's possible there are some underlying premises that liberals hold that just don't appeal to libertarians. Just one example: Liberals, as a rule, are really really bothered by economic inequality regardless of whether the status of poorest people is pretty good or improving. To many liberals, it is more important to soak the rich or achieve some other symbolic goal than to actually improve the lives of poor people.

Grant writes:

Kevin,

I don't think caring about inequality necessarily does it. I care about inequality - I think it would be great if everyone on Earth had access to good food, water clothing, shelter, water and transportation - but I'm no left liberal. I happen to think the best way to go about equalizing the world is freer markets and open borders.

I think its important to distinguish between monetary inequality and functional inequality. A S500 Mercedes is far more expensive than a Toyota Corolla; there is a large amount of monetary inequality there. But functionally, the cars aren't that far off. The Mercedes is more comfortable, but the Toyota is more reliable. Both do a damn good job at getting people from A to B, and in fact the Toyota may even be better at that than the Benz. In many state-run industries such as health care, the justice system and education, monetary inequality does lead to large disparities in outcomes, but in most cases I don't think thats true at all.

I would take the same position that Milton Friedman did, that markets are the best way to alleviate real inequality in society, and not any nebulous definition of "economic" inequality.

I'd still like to see something that shows how inequality across 300 million people makes some unhappy. People organize themselves into social groups based on socio-economic status. Why would it make some poor people - who's peers are generally all poor - unhappy that Warren Buffet or Vladimir Putin are rich? And if it does, should that externality be viewed as any more legitimate than a racist man who is unhappy because he has a black neighbor?

Jim writes:
I could love a liberal welfare state. But that's not what the liberals are going to give us. They are going to give us convergence with China.

I'm sure you just forgot to tell us your theory of why that hasn't happened in Scandinavia or Western Europe.

David N. Welton writes:

Come on, you can do better than waving the China boogeyman around. Ranting about the "liberals" and "ever expanding government" with Bush in charge is at best amusing, but not something to be taken that seriously.

As an "economically educated liberal" who is in favor of free trade and free markets, where I see the biggest differences are:

* Externalities and how to deal with them (laws/regulation vs do nothing). My guess is that in some cases, we're right, and sometimes, you are, but that there is no overriding rule that is always true. If there were, it would be easy, but instead, it takes smart people to look at each case, and try things out to see what works.

* Redistribution: I don't think it's civilized to let people die of hunger or other easily preventable problems in a wealthy country, and it takes some redistribution to avoid that. Where to draw the line is something that should be an ongoing discussion. Also, there should be enough redistribution to give everyone's children some shot at success.

Personally, I think it's easier to convince those on the left of the efficacy of free markets than it is to convince the folks on the right that, for instance, gay people aren't ruining their marriages by their very existence.

reason writes:

I smell a straw man.

(And I think you are all too ready to make your own views more harmless and flexible than they really are.)

Troy Camplin writes:

Historically, it has been the redistributionists who have caused people to starve, while free market systems that leave people alone have fed its people. Free markets have also historically distributed wealth more equally than in any other system, while not punishing people for working hard and for making the kinds of innovations which create wealth in the first place. Of course, anyone with a brain knows this, meaning those on the Left who claim to want people to be better off and treated more fairly clearly do not actually want these things, since they are opposed to the only system that will give them what they claim to want. That being the case, they must be up to something else.

Horatio writes:

Maybe Arnold was a bit too liberal with his use of hyperbole, but being reduced to Scandinavian or Western European standards of living would still be a big hit for most Americans.

Although us real liberals find much common ground with the left and right in this country, the left remains the greater evil simply because their laws are more difficult to avoid. Gays can continue their lifestyles in private and college kids can smoke pot in their apartments with little chance of getting caught. However, if you stop paying into social security or start selling bacon dogs in LA and you will be thrown in jail rather quickly.

brian writes:

Grant says...

"I'd still like to see something that shows how inequality across 300 million people makes some unhappy"

As a utilitarian liberal, the point (for me at least) isn't that inequality across people makes some people unhappy. The point is that we can make people on average better off in terms of utility by redistribution. There are unrealized gains from redistributing income when marginal utilities of consumption are not equal across all individuals. Put another way, the Pareto efficient outcome that markets achieve (by the First Welfare Theorem) is not necessarily the social-utility-maximizing one. Taking a dollar from Bill Gates and giving it to a homeless man intuitively benefits the homeless man more than it hurts Bill Gates: the man on the street can eat for a day, while Gates won't even notice the difference.

Thus, if this transfer does not take place, we are not getting the most out of our resources. Of course, making this transfer has efficiency/resource costs unless we use can tax based on income potential (which isn't usually feasible), so we have to balance these costs and benefits. Unfortunately, this is an issue that markets cannot themselves fully resolve.

brian writes:

Re: Troy.
Most people on the left that I know are not inherently opposed to free markets. They just recognize that markets are not a panacea. Indeed, without regulations such as well-defined property rights, markets couldn't exist!

As an aside, many on the right oddly oppose marketizing many aspects of society. For example, libertarians and conservatives would prefer the current communist-style system of free access to the resources of clean air, whereas people on the left want to define property rights for these goods and subject them to market forces.

Many people on the left, including a sizable proportion of the Democratic Party, want to harness the market, but that requires regulations, most importantly ensuring property rights and resolving costly information problems.

I'm currently reading Barack Obama's book, and every couple pages he damns the failing government and praises the free market, citing "the failures of liberal government" and the fact that "government at every level had become too cavalier about spending taxpayer money" (p. 31). He attacks the prescription drug bill as "combining the worst aspects of the public and private sectors" with "bureaucratic confusion" and "an eye-popping bill for taxpayers" (p. 23). A summary of Obama's economic views can be found in the prologue of his book: "I believe in the free market, competition, and entrepreneurship, and think that no small number of government programs don't work as advertised. I wish the country had fewer lawyers and more engineers..." and he goes on like that. My impression from his book suggests that the right's perception of Obama and the left is very misguided. They don't hate free markets; they want to harness them.

brian writes:

Horatio writes:
Maybe Arnold was a bit too liberal with his use of hyperbole, but being reduced to Scandinavian or Western European standards of living would still be a big hit for most Americans.

GDP (PPP) per capita:
Norway: $53,037
USA: $45,845
Sweden: $36,494

Source: IMF

Norway has higher GDP (PPP) per capita than the USA. Going to Norway's standard of living would be a 15% boost over the US, though you're right that Sweden would be a step down.

David N. Welton writes:

@Troy - could we please move beyond "left == communists"? It doesn't make for a very interesting discussion. I think everyone realizes that some form of capitalism, be it US, Hong Kong, Swedish, French or Japanese is, if imperfect, the best system we have so far.

@brian - Norway has a bunch of money from oil, so numbers for Sweden or Denmark are better.

@Horatio - "Gays can continue their lifestyles in private" - have you really considered what you're writing? I don't consider my relationship with my wife to be a "lifestyle" that I should be forced to hide. It's an integral part of who I am, and the same thing should apply to other people too, as long as they're not hurting anyone.

@brian (first comment) - it's nice to see someone getting it right!

KipEsquire writes:

@Brian 7:42 --

There are unrealized gains from redistributing income when marginal utilities of consumption are not equal across all individuals.
But, since interpersonal utility comparisons are impossible as a simple axiom of human existence, your entire theory of political economy is based on a conception of reality that simply does not exist.

Thanks for playing, and we have some lovely parting gifts for you...

Horatio writes:

Brian
Norway: $53,037

Much of this is oil money and most Norwegians get very little of the value of that oil. You need to look at taxes as well. Beyond a certain level, the programs government pays for with tax money create less value than what that money would create in the non-coercive sector of the economy. Many government programs destroy value.

Welton
have you really considered what you're writing? I don't consider my relationship with my wife to be a "lifestyle" that I should be forced to hide. It's an integral part of who I am, and the same thing should apply to other people too, as long as they're not hurting anyone.

I am not defending restrictions on gay rights, I am just pointing out that the illiberal laws of the right are easier to circumvent.

hutch writes:

brian at 7:42:

"Unfortunately, this is an issue that markets cannot themselves fully resolve."

no one expects "the market" to resolve these issues; we expect people, acting individually, to resolve them. You gave the example of Bill Gates. He gives a heckuva lot of money away and resolves a lot of issues because of it. The Bill and Melinda Gates Foundations sits on an endowment of over $35 billion and, if I remember correctly, that doesn't include the money that Warren Buffett said he would give it. We don't need government to reditribute money for us because we do it ourselves without any coercion.

liberty writes:

Not to mention he wouldn't have that money in the first place if we allowed government more room to coerce. How many Bill Gates' and Warren Buffets do you see in Sweden?

First wealth is created, and in so doing this raises everyones standard of living (by reducing prices and raising wages, hence increasing purchasing power), and then those people are free to also give some away. Americans are more (voluntarily) charitable than Swedes too.

brian writes:

KipEsquire:
I dispute the impossibility of interpersonal comparisons. For example, would you say that torturing Jill is worse than pricking Jack's finger? If so, you're making an interpersonal comparison, and a legitimate one in my opinion.

I agree with John Harsanyi's view that interpersonal comparisons are necessary, and most people rightly feel perfectly comfortable in making them. Harsanyi argues that if we make allowances for personal tastes and avoid the arbitrary assumption that people with identical observed characteristics harbor hidden unobserved differences in fundamental mental reactions, then we must conclude that interpersonal comparisons are possible. He also takes a contractualist stance with the same results.

Besides, if you really are committed to not making interpersonal, then you cannot legitimately oppose shrinking government, since it has winners and losers and is thus not a Pareto improvement. So if you truly believe that, then you have no consequentialist grounds for opposing the liberal view anyway.

brian writes:

liberty and hutch:

You're absolutely right about public charity crowding-out private charity, but empirical estimates suggest that it is far from a one-for-one crowd-out. On related note, economic models that aim to explain why people voluntarily give to charity (such as models positing inter-related utility functions) show that there is a collective action problem that leads to consistent under-contribution to charity relative to the social optimal due to the free rider problem

David N. Welton writes:

@liberty:

Not quite Warren Buffet, but this guy is pretty wealthy however you measure it:

http://en.wikipedia.org/wiki/Ingvar_Kamprad

Grant writes:
As a utilitarian liberal, the point (for me at least) isn't that inequality across people makes some people unhappy. The point is that we can make people on average better off in terms of utility by redistribution. There are unrealized gains from redistributing income when marginal utilities of consumption are not equal across all individuals. Put another way, the Pareto efficient outcome that markets achieve (by the First Welfare Theorem) is not necessarily the social-utility-maximizing one. Taking a dollar from Bill Gates and giving it to a homeless man intuitively benefits the homeless man more than it hurts Bill Gates: the man on the street can eat for a day, while Gates won't even notice the difference.
The problem I've always had with this logic is that it seems to ignore incentives. What incentives were required for Bill Gates to produce the value he did? Bill Gates was in an extremely unique position of having purchased DOS from someone for very cheap; its very possible no one else could have done what he did when he did it.

Employers tend to pay employees as little as they can get away with. If some employees make "too much" and have their income redistributed by the state, at the margin this means less people would be willing to work in those jobs. Of course in many cases the wealthy aren't that concerned with salaries, but in many cases they also give larges sums of money away to charities.

Of course, this ignores other benefits of high-status job (such as, well, high status). I don't think monetary benefits are any less fair than status benefits, its just that governments hasn't figure out how to tax status yet.

I'd also agree with the other poster in saying we can really only guesstimate inter-personal utility. Some things are a no-brainer (e.g., people are more concerned with having food than a Porsche) but others aren't (a lower-paying, fun job vs. a high-paying one of drudgery?).

hutch writes:

brian,
how do we know what the socially-optimal level of wealth redistribution is? who, or what, decides it? I, for one, am very skeptical that some group of economists, socialogists, etc armed with models and the like can accurately determine that level. Further, even if we could determine that level, do you think politicians would stop redistributing when that level was reached? I don't.

brian writes:

hutch:

I personally do not know the answer right now. It varies depending on the situation and variables involved (for example, pre-tax inequality and elasticity of labor supply), so it is impossible to give a timeless answer. Answering such a broad question is certainly difficult, but we should not be deterred from answering a question simply because it's hard.

I haven't done the empirical work to give you an answer, but usually in policy we judge the effects of changes on a marginal basis (e.g. "what will be the effects on individuals involved from a particular change in policy?") which is a much easier question to answer than trying to go back to the drawing board and redesigning the whole of society. Just as individual utility-maximizers can optimize through an exercise of utility "hill-climbing," through this method so can we when setting policy.

And I hear Grant's concern about incentives; when calculating whether an additional dollar should be transferred from Gates to a poor man, we need to incorporate the incentive effects of doing so. But the beauty of economic analysis is that it takes these incentives into account. These concerns about incentives are what led to, for example, the EITC, which aims to encourage work while making transfers instead of discouraging it.

If you want a numerical answer, then I am afraid I don't have the answer on hand for you. I'm afraid I'm not going to take a couple of weeks to do the analysis to produce an answer for you; I have better things to do with my time. However, if I were somehow entrusted with the job of setting policy, I'd be sure to do just that.

Finally, in answer to your last question, lets say the optimal level is b. Without any intervention is point a, and unscrupulous politicians send it to point c. If we are truly stuck at either point a or point c, and we can't constrain politicians to somewhere in between, then the question is akin to the question of an optimal cap level for a cap & trade system. Point a causes deadweight loss, and so does point c. The question is which causes less DWL, and this is the answer we should go with.

Troy Camplin writes:

Never said Left = communists. Left also = fascists. Left also = welfare statists. Left also = various socialists. I've noticed that all of these groups are primarily interested in shoring up as much political power as humanly possible. They just have different tactics and timelines for doing so. Some are more patient than others. Some want to get to socialism in 1st gear, others in 5th. Sure, they will pay some lip service to free markets, since their efficiency is demonstrably true, but the fact is that power is what they are after. Every one of them. They all think they are smarter than everyone else, and that they have the answers to everything. And when they pass a law to fix a minor problem, only to make the problem worse, and then pass another similar law to get more power to "fix" the problem, they are showing themselves for what they truly are: power-hungry. Their actions demonstrate this fact.

Steve Sailer writes:

The fundamental division that's emerging is between the realists and the anti-realists, like Will Wilkinson. The former are interested in incremental reforms and improvements, while the latter are interested in asserting their moral superiority over the realists because We.Have.Principles! What precisely those principles should be isn't totally agreed upon by the anti-realists, but they can all unite in despising any realist evil enough to violate the norms of political correctness.

In public, anti-realists outnumber realists by one or two orders of magnitude.

hutch writes:

brian,

first of all, if a group of politicians (from both sides of the aisle) are going out trying to redistribute wealth, shouldn't they already be working toward this socially optimal level? Wouldn't you think they shouldn't be going out taxing here and subsidizing there all willy-nilly? Shouldn't they be working toward a goal? You shouldn't have to spend two weeks doing empirical research to figure this out because our political forefathers should have already done it and are going about their redistribution business with that in mind. But it appears that those who we have already entrusted to set policy and do that work apparently have not. How come? Is it because we're so far from the optimal that we don't need to spend time figuring it out? Or is it because politicians redistribute without care as to what's socially optimal, only what's politically optimal?

second, and more important, is that my contention is that I don't believe that you or anyone else can empirically determine a socially optimal level of wealth redistribution. Some guys awhile back had a hard time figuring out the optimal amount of socks and bread, which to me seems like a much easier task. Are you that much smarter or are your models that much better or your data that much more robust? Isn't this the "fatal conceit"?

reason writes:

Why do people (even the otherwise clear headed Brian) have such difficulty confusing the mean and median?

reason writes:

Grant,
you are quite right to point out how inefficient the rich are at consumption. Odd given how efficient they are at production.

WVCreeks writes:

KipEsquire, despite what they teach you at the George Mason School of Glibertarian Conclusions, any normative theory of economics requires interpersonal comparisons of utility. Even if you just say a dollar for Bill Gates is the same as a dollar for Joe Sixpack, you're making an interpersonal comparison of utility. Common sense says you'd be wrong if you said it, but I don't object to you saying it. I just object to you being such a prick about it.

And right=fascist is at least as common as left=fascist. But the whole right vs left think is just a distraction. Statist vs libertarian is what matters, but in the real world you give some ground where the state has comparative advantage in solving a problem, and there are checks and balances. Like, for example, in U.S. environmental policy.

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