David R. Henderson  

Response on Means Testing

Means-Testing and Status Quo B... Average Prices, AS and AD...

Bryan writes:

I'm a big fan of means-testing the welfare state, but many of my favorite people disagree. I've got a challenge for these hold-outs. Here goes:

Right now we already means-test a lot of programs, such as Medicaid, food stamps, and housing vouchers. Question: Should we make the entire population eligible for these programs, regardless of income and wealth? If not, why not? If you don't want to transform existing means-tested programs into universal programs, why don't you want to transform existing universal programs into means-tested programs?

The particular "favorite person" he links to is me.

First, thanks Bryan, I like that I'm one of your favorite people. Ditto.

Second, you're very clever. Because by starting off by calling me one of your favorite people, you made it easier for me to be less defensive. I would have carefully considered your argument anyway but you made it easier.

I held off in answering, mainly because I like to give other commenters space to comment without immediately posting. Also, I held out slight hope that a commenter or two would have the killer rebuttal to your point.

No such luck. So my answer is, as Leland Yeager once said in a class at UCLA when I rebutted something he said, "Touche." I don't want to see means-testing removed for those programs because I think my arguments I gave earlier are outweighed by the huge cost of expanding those programs greatly. I don't have a good argument and I think you have correctly identified something that I didn't even know was there: status quo bias.

Indeed, I went on a long walk this morning with an economically literate friend and, as I was telling him about your post, the dam broke and I started coming up with evidence for your point, evidence mainly from Canada in the 1990s. I'll post separately on that once I check a fact or two.

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CATEGORIES: Fiscal Policy

COMMENTS (4 to date)
Travis writes:

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Bob Murphy writes:

"Indeed, I went on a long walk this morning with an economically literate friend and, as I was telling him about your post, the dam broke and I started coming up with evidence for your point..."

Man economists really are heartless! You guys saw a dam break and you went right back to your conversation? What of the people living in the valley?!

Steve Miller writes:

Whatever the distortions at means-tested margins, it seems quite obvious that converting, say, Social Security and Medicare to means-tested programs would save trillions of dollars in the long run. The only argument against means-testing those programs come from two camps: 1) Those who want them to be popular, and thus available to *all* seniors, and 2) Anarchists who want the government to eventually be crushed under its own weight.

Please don't make me choose between continued widespread prosperity and the possibility of libertopian anarchy in 40-70 years!

Justin Martyr writes:

My problem with means-testing is that they create poverty traps via the high marginal tax rates. According to The Concise Guide to Economics (hat tip: here), a single mother with three children faces a 100% tax rate from $12,000 to $24,000 in pre-benefit income. Health care reform will only make that worse.

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