Bryan Caplan  

Are We Stuck With the Great Society?

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A few months ago, Northwood University invited me to speak on, "Are we stuck with the Great Society?"  This would probably sound like a strange topic to most Americans.  To ask, "Are we stuck with Disneyland?," presupposes that Disneyland is bad.  Similarly, to ask, "Are we stuck with the Great Society?," presupposes that the Great Society is bad. 

Fortunately, I agree that the Great Society has been a terrible mistake, so it was an easy - and fun - talk to write.  Most of the central arguments foreshadow what I'll be saying in Poverty: Who To Blame.  For now, enjoy the slides.




COMMENTS (37 to date)
Aidan writes:

[Comment removed pending confirmation of email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Vlad writes:

Isn't the whole primary argument against our current means-tested welfare programs that they end up disincentivizing hard work by means of creating an ultra-high marginal tax rate for the poor?

http://mises.org/daily/3822

[direct url substituted for roundabout url--Econlib Ed.]

Jameson writes:

So I gather the answer is "yes."

Brian writes:

In your talk you point out that policies are often enacted for emotional, not rational, reasons. While this is true, it overlooks the fact that the some policies can have rational reasons at the time they were enacted, even if those reason cease to be valid later on. In the case of Social Security, poverty among the elderly was a serious problem and SS helped to alleviate that. Whether the policy was optimal or not, it was certainly a rational approach to a real problem. But given increased longevity and smaller families, SS has ceased to make much sense for most people. Consequently, although SS remains popular for mostly emotional reasons, it may be possible to means test it or even eliminate it for some people based on its poor fit with current retirement needs.

AS writes:

Vlad - It's a trade-off: I think the clear benefit of reducing spending outweighs the alleged cost of distorting incentives, by a very large margin. I'm sure if you plug in parameters into a model you could calculate the optimal policy.

Tom West writes:

I think Bryan strongly discounts the benefits of security to the vast majority of humans.

Much of the point of preserving the Great Society is that it provides the insurance of the last resort, and simply the knowledge of the existence of this last resort makes people happier.

I see an analog in Canadian vs. US style health care. Despite the fact that an American with medical insurance probably gets marginally better care than a Canadian, I see even insured Americans constantly worrying in a way that is seldom found in Canadians.

"What if I lose my job and with it my insurance?", "What if my kids can't find a job with insurance?", etc, etc.

Even if they're not ever likely to face the scenario, the fact that there's no ultimate insurance eats away at their happiness.

So, even those who are better off than the Canadians end up less happy.

So, unlike Bryan, I see these program, despite the fact that the supporters will almost certainly never need them, are happier for their existence. In which case it's entirely rational to support them.

After all, the goal isn't to have the most "stuff", it's to be happiest. "stuff" is a good driver of happiness, but the further away we get from subsistence, the more attractive security becomes.

It's why wealthy societies almost always purchase more government.

AS writes:

Tom - Your argument is built on quicksand. You assume government can provide a better safety net than individuals. Many individuals would be "happier" if they could opt-out of the FICA tax and benefits and plan their own retirement. Why not just let people choose whether they want to participate in the public safety net? If people are truly happier under it then you would get 100% participation with voluntary membership. By relying on coercion, you overrule the individual liberty to express his own preferences and maximize his own happiness. Coercion can only diminish happiness.

sourcreamus writes:

Since your talk is at a university if you are going to be speaking to college students you may want to emphasize the generational transfer effects of money from poor young workers to older and rich retirees.

Tom West writes:

AS, if you could toss the "last resort" away, then it's not the last resort.

I quite admit it's freedom reducing. My thesis is only that regardless of the actual outcome, most (if voting patterns are any judge) people feel happier when they believe they have a "last resort" safety net. The actual quality of the safety net is more or less immaterial to the happiness it produces.

And yes, this is based only on my experience that the Americans of my acquaintance seem less happy with their superior (albeit much more costly) health care than Canadians, leading me to believe the concept is more important than the execution.

Also, yes, it does leave the people for whom the actual outcome is more important than the concept out in the cold. But they do seem to be a minority.

N. writes:

Tom West --

In that case, let truth triumph over the happiness of the majority.

Floccina writes:

Tom West makes a very good defense of teh welfare sate but...

1. Why, unlike me, do most people not show by there actions that they care much for security? They do not pay off their homes as fast as possible. They do not save much of their income.

2. Why would a minimal safety net not suffice?

wd40 writes:

It is quite possible that most people in advanced countries would not want to deny indigent people medical care, food, or shelter even if it were the case that it was the individual's "fault" for not saving enough for such eventualities. As a result, we have charitable giving and government policies (such as requiring hospitals to treat people even if they do not have the wherewithal to pay for their care). Social security and Obamacare are ways of making irresponsible people more responsible by forcing them to contribute to the cost of their own care upfront, thereby partially relieving the rest of us from the burden of rescuing them in the future.

ConnGator writes:

Typo on page 6:

"don’t have unprotected sex under you’re ready to support a child"

Also, I would change t.v.s. to TVs

Maniel writes:

Prof. Caplan,
One additional “glimmer of hope,” if I may: young people – those now being sheered to the benefit of old people – might become aware of their collective (pun intended) plight and rise up to give voice and vote to “opting out,” part of Ron Paul’s 2008 campaign. This is no more than a “glimmer” since government favors once granted – in this case, as you say, to everyone, but to the elderly above all – are virtually impossible to rescind and, as in the case of Obamacare, must be financed by someone. As you are well aware, receivers are persistent in defense of their favors while givers (taxpayers and the young and unskilled for whom jobs never appear) are largely unaware of their sacrifices.
One irony: for some of your audience, college students from upper middle class families, the intergenerational wealth transfer will eventually be reversed by mortality. However, since children of government workers are likely to belong to that group, I don’t see a new death tax on the horizon.

Malcolm X. Goofball writes:

[Comment removed for rudeness.--Econlib Ed.]

Eric Hanneken writes:

Medicare and Social Security are unsustainable; eventually the government won't be able to borrow enough to pay for them. We're not stuck with the Great Society.

Jay writes:

Agree with sourcreamus, just show a graph of the amount of median wealth (not income) held by different age brackets and ask if it is wise to write (and vote for) the ACA and distribute SS/Medicare as we do.

Tom Jackson writes:

Dr. Caplan's assumption is that everyone can avoid poverty by getting a job. Is that still true when automation seems to be taking away many jobs, and is likely to take away more? I don't have an opinion one way or the other, I'm just asking and hope someone can answer.

Harold Cockerill writes:

We are dealing with three problems.
1-Government programs can deliver short term security but in the long term destroy opportunity.
2-The free market can't guarantee short term security but is unmatched at delivering long term prosperity.
3-Too many voters opt for short term security.

Zeke writes:

@AS:

You are forgetting administrative costs. The government would need to (a) identify that only the people supposed to be getting the means tested benefit qualify and (b) prosecute those attempting to defraud the system, because fraud (1) should result in retribution and (2) prosecution is a deterrent.

Now, if you switched to some kind of guaranteed income approach, those administrative costs still exist (especially the second one), but the cost should in theory be significantly lessened. Moreover, you can make the penalties really high without being accused of trying to hurt the poor.

If you add in these marginal administrative costs, you might find a GI approach better.

@ Tom West

I find it perfectly reasonable that ax ante behind a veil of ignorance, society might choose to have a safety net. With that said, the design and size of that safety net would probably lead to discord -- some folks are more risk-seeking than others and some might prefer higher long-term growth compared with short-term stability. So, I don't think a priori, we can establish that safety nets are something citizens would choose, because there is a difference between safety nets in general and specific enacted safety nets.

I think this theoretical problem intrudes into living human beings. I view a social safety net as maybe not a terrible idea -- some safety is nice. But I think it entirely too high, too large a drag on growth, and poorly designed. Therefore, I oppose substantially all as-applied safety nets. Even though I might like safety nets theoretically, I think any safety net in practice is doomed to be poorly designed.

Moreover, this as-applied safety net is necessarily redistributive. Giving endowment effect, the happiness derived from the people knowing a safety net exists may actually be wholly offset by the people whose money is taken to pay for the safety net. Further, potential happiness lost from slower growth due to a bad safety net must be computed in this makeshift utilitarian calculation. It seems far from obvious to me that safety nets increase total happiness, even when accounting for marginal diminishing returns to income (i.e. the reason people buy insurance).

joeftansey writes:

@Zeke,

With that said, the design and size of that safety net would probably lead to discord -- some folks are more risk-seeking than others and some might prefer higher long-term growth compared with short-term stability.

It's worse than this. Not just one's disembodied risk-preference, but your whole view on what life is. It's entirely possible that I would choose to occupy a random body in a society that outright executed the bottom 10% for purely aesthetic reasons*.

It's just toxic living in a society with people on welfare. They wind up feeling insecure and isolated because no one needs them for anything. This permanent stress destroys their soul, and they become bitter and gelatinously fat. You can't be friends with them, you can't marry them, etc. They even cause problems in public areas, like roads and parks, where their self-destruction and laziness spills over and harms the rest of us.

Knowing that you can't count on your neighbor sucks at a deep, primal level. I would rather live in a poorer society and feel kinship than have material wealth.

This is what I see from behind the veil of ignorance. Permit me to speculate that others would disagree...

*I don't think anyone reasonable should feel burdened by the economic weight of welfare payments. Even regular middle class desk jockey who works a 9-5 excel spreadsheet job can support many people.

Tom West writes:

Moreover, this as-applied safety net is necessarily redistributive. Giving endowment effect, the happiness derived from the people knowing a safety net exists may actually be wholly offset by the people whose money is taken to pay for the safety net. Further, potential happiness lost from slower growth due to a bad safety net must be computed in this makeshift utilitarian calculation.

I think that's definitely the strongest argument that can be made against my claim.

As far as a utilitarian calculus, one could add a status component to happiness, where status is *not* zero sum. If I earn 110% of my neighbor, then his happiness is -1, and mine is +1, but if I earn 4 times what my neighbor earns, then his happiness might be -4, but mine is -1, because I can't enjoy my earnings guilt-free.

However, that's probably going too far afield.

David R. Henderson writes:

Great slides, especially the 4 pictures of the woman who has "first-world problems."

AS writes:
I quite admit it's freedom reducing. My thesis is only that regardless of the actual outcome, most (if voting patterns are any judge) people feel happier when they believe they have a "last resort" safety net. The actual quality of the safety net is more or less immaterial to the happiness it produces.

Tom, you assume all people are identical. Voting patterns only imply that a majority (>50%) of voters are happier with the public safety net. It does not imply that everyone is happier with the public safety net. Why should the majority get to impose their own preferences on a minority? Why not allow people to choose whether to participate? Then everyone gets to choose the system they prefer best and truly maximize happiness. Majority voting only maximizes happiness for the median voter, not everyone.

Tom West writes:

As, very true. I do try to use "most people" rather than "people" to indicate that yes, it's majority, not universality. (And sometimes, just a majority of the politically active, not all people).

And yes, agreed, majority rule doesn't maximize for everyone. I do believe in it (the worst of all systems, except for all the others), but since I'm often in the minority, I'm quite aware that it's costs.

However, to restate what I said in a comment above, the trouble with the majority allowing one to opt out is that it's no longer a "last resort". i.e. I can still dig myself into a hole that the I can't get out of.

In other words, we can't allow anyone that freedom because I (or my kids) may use it in a way I regret. One might also add in the "I'll feel bad when people misuse the freedom and regret it later".

This is, of course, an over-simplification, but I think it encapsulates at least a significant amount of the sentiment that underlies current support for the Great Society programs.

ThomasH writes:

To each his own in what interests you, but in terms of improving lives by eliminating dead weight losses, I'd think the question of "Are we stuck with the corporate income tax?" or "Are we stuck with no carbon tax?" "Are we stuck with no congestion pricing?" or "Are we stuck with zoned for low residential density?" would be hugely more important that a few people working a bit less hard than they might because of Food Stamps/SNAP or Medicare/Social Security benefits, especially if we deduct the administrative and privacy invasion costs of of making sure that only the "deserving" poor received assistance.

zeke writes:

@ Tom West

I think that is the problem with "happiness" analysis of social security programs. There is no obvious answer which method would make people happier. Therefore, I resort to my priors, which is some combo of freedom and growth maximizing.

Of course, you might have different priors and we only move this argument to who has the better priors.

AS writes:
However, to restate what I said in a comment above, the trouble with the majority allowing one to opt out is that it's no longer a "last resort". i.e. I can still dig myself into a hole that the I can't get out of.

Tom - if an individual chooses to forego their "last resort", that is their choice. You can't choose for them. That would be coercion. Your case only makes sense if you consistently know what's best for others. Among those who opt-out, some may do so "mistakenly", but some would still do so "optimally", and their choices should be respected. For example, someone with enough wealth or income stability might optimally opt-out of FICA and self-insure, then allocate their savings in a manner they prefer best. Depriving individuals of that free choice because of the hubris of social planners is the road to serfdom.

Blair writes:

Hi Bryan,

Means testing has been used to great effect in Australia. I wouldn't quite go as far as to say "Australia's low tax egalitarianism confounds the world", like the Centre for Independent Studies, but it's worth a look: https://www.cis.org.au/images/stories/policy-magazine/2010-summer/26-4-10-david-alexander.pdf

I would argue that it needs to go further - to look at greater asset testing - as we have a lot of retirees blowing all of their non-property assets so they can go on the age pension.

Pajser writes:

I think that the main argument for redistribution is diminishing value of wealth. $100 on top is worth less than $100 on bottom. It is strong argument which can be - maybe - relativized with some negative effects of redistribution, like "distortion of incentives." But how much it can be relativized? It requires careful utilitarian calculation. As GDP growth in Soviet union was faster than world average - it seems that even very egalitarian distribution doesn't have strong negative effect on economy.

Tom West's arguments have some weight; equality is psychologically important. People are happier if they are equal or near equal. Not only happier - they communicate better. However, I don't think that aspect is the most important.

I reject idea that redistribution (like tax) is coercion. Every property is coercion. If Smith owns the car, then everyone except Smith is coerced that he doesn't use it. If state redistributes Smith's car to John, then everyone - except John - is coerced that he doesn't use it. Redistribution is only redistribution of property, including redistribution of coercion. It is not new, additional coercion.

Caplan's lecture is weak. If he wants to claim that there is too much redistribution, he must show some utilitarian calculation. He doesn't have that. The claims like "redistribution shouldn't be done only for benefit of absolutely poor, not relatively poor" are not supported by any reasoning.

AS writes:

Pajser - You're confused. Private property is not coercion. Private property is derived from one principle: you own what you create. Nothing coercive about that.

Soviet Union lagged behind the rest of the West. I'm not sure where you get your data from.

Zeke writes:

@Pajser:

The point has already been addressed. Sure, everyone has diminishing marginal returns to utility, but appropriating someone's property and providing it to another may on net create disutility due to endowment effects, not to mention growth impacts. Moreover, this policy you advocate assumes somewhat a linear diminishing marginal return. That might not be true.

Tom West writes:

Zeke Of course, you might have different priors and we only move this argument to who has the better priors.

AS That would be coercion. Your case only makes sense if you consistently know what's best for others.

Maybe I'm not making myself clear. Contra Bryan, I think people *are* voting their self-interest, and have very little problem if such self-interest involves coercing others. They are not "doing what's best for others", they're doing what's best for them, and the coercive aspects are immaterial, and often not even understood as coercive.

(Thus, Zeke, priors and "best" are immaterial. It's only which policy has the most voters who feel the same way that dictates policy.)

In fact, I'd wager that (within reason) most voters can't even tell the difference between policies that coerce others and policies that don't. Policies are supported entirely on the spectrum of "do they give me what I want".

With respect to SS, ask, and most would probably say that they people are going to be coerced into accepting a voluntary or coerced into a mandatory system. Both are equally coercion. (I can hear heads exploding already.)

One can despair, but I have to say, that despite not being a Libertarian, I consider that one of the more valuable social services that Libertarians provide is to make people understand that certain elements of their supported policy *are* coercive. Being left-ish, that doesn't utterly condemn it (for me), but it is a negative, and should never be ignored.

michael pettengill writes:

The basic problem with the argument that "The Great Society" is bad and should be eliminated by "rational voters" is that the "rational voters" most in agreement with that point of view are the most dependent on the welfare for the old and most opposed to welfare for the young, and have supported undermining the welfare for the young in order to expand the welfare for the old.

Republicans are the most dependent on Social Security and Medicare, and have done a great deal to undermine the welfare for the young, slashing the subsidies they got for college drastically in the past three decades, for example, while drastically increasing Medicare coverage.

The Republican dependency on Social Security and Medicare is clearly illustrated in their plan to cut the benefits in the future to cut taxes immediately.

If these programs are as bad as claimed and as unnecessary as claimed, because the old conservatives are wealthy and don't need them, then Social Security and Medicare would be severely means tested immediately and taxes cut only after the Federal debt is paid off in libertarian Ryan's budgets.

Instead, the libertarian plan is cuts way off in the future, like the cuts in Medicare payments put in law in the Clinton years then delayed repeatedly during Bush's terms, and now repealed and replaced with a new plan of delayed cuts that won't happen if the Republican backing doctors feel too much pain.

While lots of doctors complain that Medicare is too burdensome and the payments are too low, virtually none practice on a cash basis, even as conservatives, libertarians, Republicans represent a majority and should be happy to pay cash for all medical costs.

Besides, why isn't Africa flooded with doctors and other medical providers? Almost no one has insurance and thus pays cash in a free market, making Africa the ideal example of the benefits of no "Great Society".

Pajser writes:

AS - even if we accept the principle "you own what you create" (I do not say I do), the property is still coercion. Definition of coercion is "the practice of persuading someone to do something by using force or threats." If you created the car, and I'm not allowed to touch it, I am coerced to stay away from car. You may argue that it is justified coercion (I do not say it is), but coercion it is. It is not voluntary.

Soviet Union didn't lagged behind the West. For instance, USSR had 28% American GDP/capita in 1913, and ended at 31% of American GDP/capita. At they peak, in 1975, they had 38% of US GDP/capita. Maybe one could give them few percentage points for effects of WWI, civil war, WWII? Sure, one can speculate that it is generally easier to progress if one starts poor. But, if USSR is compared with world average or Latin America average which were almost exactly the same in 1913, USSR was about 35% wealthier by 1990. The data is from "Historical statistics of the world economy" by Angus Maddison.

Zeke: yes, it is not true that diminishing returns are linear, it is only rough, but I think generally valid observation.

AS writes:

Growth rates are not comparable between countries starting from different places. The Asian tigers grew very quickly because they started from nothing but now their growth rate is plateauing as they approach US levels. If you want to compare USSR growth to another country, compare it to the Asian tigers. The USSR also faked a lot of their data -- I'm not sure if the stats you're using take that into account. The fact that their growth rate even slowed down after reaching the 38% peak and fell back to 31% is further evidence that they failed.

You cannot seriously present a case for communism here of all places.

Pajser writes:

AS - I would compare USSR with Asian Tigers if I want to prove that they had, say, the most efficient economy in the world. I do not claim that much. I claim only that they had good economy. (I think that Yugoslavia might be comparable even to Asian Tigers.)

If Soviet GDP/capita fallen from 38% to 31% of USA in period 1975-90, it is not much of evidence that their economy failed; it is only evidence that their growth was slower than growth of USA. In period 1913-75 and whole period 1913-90, American growth was slower.

Comparison with world average is more important.

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