Tag Archives: costs

Do Basic Income Proposals Make Any Sense?

As much of the developed world struggles to address the growth of income inequality, several countries have considered proposals for a guaranteed basic income. There are a number of variations, but the basic idea is that government would eliminate the various forms of social welfare that are currently in place, and would instead send each citizen an annual amount sufficient to cover basic living expenses.

Most of us understand that without economic freedom, guarantees of personal, political and religious freedom aren’t worth much. If your day-to-day existence is consumed with the struggle for survival, the fact that you have freedom of speech is small comfort.

A practical argument for a guaranteed income is efficiency—there would no longer be a need for the massive bureaucratic apparatus currently required to administer social welfare programs, no need to determine eligibility under the different standards for different programs. (Many years ago, conservative economist Milton Friedman proposed something similar: a “negative income tax” that would require payment from those earning above a certain amount, and send remittances to those below that threshold.)

Social science scholars see other benefits. As automation steadily displaces what were once middle-class jobs, receipt of a stipend sufficient to cover basic living expenses would allow people to go back to school, or to train for alternative employment, or work part-time. It would give new mothers—or fathers—the option to take time off to care for newborns; it would similarly facilitate caretaking for gravely ill spouses or parents.

We also might expect that with a lessening of abject poverty, a number of the social ills that accompany privation would improve.

As positive as all that sounds, however, there are reasons why efforts to implement a guaranteed income have fared badly. In Switzerland last year, a basic income proposal on the ballot was overwhelmingly defeated; in 2013 ,the German Parliament debated a similar proposal and rejected it.

The first—and most obvious—negative is cost. Although economists argue about the actual net cost, after savings from eliminating our current expensive patchwork of social programs—any such approach would clearly require tax increases. In the United States, where taxes have become a dirty word even when they are earmarked to support basic services, this fact alone probably presents a politically insurmountable barrier.

Economists and others also question whether receipt of a guaranteed income, no matter how modest, would reduce the incentive to work. There is very little empirical data on that issue; however, there was an interesting experiment in Manitoba, Canada, during the 1970s, called Mincome. It was intended to assess the social impact of a guaranteed annual income, including whether it would cause such disincentives, and if so, to what degree. Apparently, only new mothers and teenagers worked substantially less. Mothers with newborns stopped working because they wanted to stay home longer with their babies, and teenagers worked less because they weren’t under as much pressure to support their families, which resulted in more teenagers graduating. However, participants knew the project was not permanent, and it is impossible to know whether—and how—that knowledge affected the results.

There are a number of other legitimate concerns about so drastic a shift in the way we discharge our obligations to our fellow-citizens.

Given American cultural attitudes that valorize work and demean those who rely on public assistance, it’s safe to say that the United States is unlikely to institute a guaranteed income program (it certainly won’t happen in my lifetime). But even if guaranteed income isn’t the answer, it is worth asking what it should mean to be a member of a political community. What are the reciprocal obligations of the citizen and the state?

What do we owe the nation, and what do we owe each other?

If membership has its privileges, what should those privileges look like?

 

 

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The Cost of Saving Money

Last year, In the Public Interest released a report that highlighted a harmful but frequently overlooked way in which our tax dollars are fueling income inequality.

Every time a city or state outsources a public service to a low-wage contractor, the community loses. Taxpayers have to make up the difference in the form of nutrition assistance, healthcare coverage, and other programs designed to help people working for minimum wage and living in poverty. The report included examples from across the country, including public servants in Costa Mesa and Fresno, CA, who either lost their jobs to – or were at risk of being replaced by – low-wage contractors.

There are a number of problems with government outsourcing–aka “privatization”–and a copious academic literature documenting those problems. When government provides services through surrogates–via third-party contracts–it needs different management skills (skills that are relatively rare in government agencies, meaning oversight is hit or miss). Mayors and governors often give in to the temptation to reward their cronies with lucrative contracts. (Indeed, privatization has become the current form of patronage). And the promised savings are rarely realized, even without accounting for the problem identified by the report.

There are certainly times when outsourcing makes sense, but far too often the decision has been made on the basis of a near-religious belief in the superior performance of the private sector. As this report suggests, those perceived “efficiencies” can end up costing us in less visible but no less expensive ways.

There really is no such thing as a free lunch.

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It Really Sucks to be Poor

It costs a lot to be poor. Just a few examples:

A recent report released by the Office of the Inspector General (OIG) of the U.S. Postal Service reports that 68 million Americans — more than a quarter of all U.S. households – have no checking or savings accounts.

How do people get along in a society where payments are made by check, or increasingly, electronic transfer? How do the (growing numbers of) people scraping along paycheck to paycheck access short-term loans when they hit a rough spot?

Evidently, by spending a lot more than the rest of us.

According to the report, these households collectively spent about $89 billion in 2012 on interest and fees for non-bank financial services like payday loans and check cashing. That works out to an average of $2,412 per household. The average underserved household spends an astonishing 10 percent of its annual income on interest and fees — about the same amount they spend on food.

As Senator Elizabeth Warren wrote in a column commenting on the report, “The poor pay more, and that’s one of the reasons people get trapped at the bottom of the economic ladder.” Poor people disproportionately rely on the check-cashing stores, pawnshops, payday lenders, and other predatory financial services that took customers for $89 billion in interest and fees in 2012.

But poor people have to contend with more than just predatory lending; they have fewer options across the board.

A few days ago, I wrote about the connection between poverty and marriage; it appears that despite the undeniable correlation between the two, we had the cause and effect backward. Poverty prevents many poor single moms from marrying in the first place. Subsequently, I found research (from professors of psychology and and organizational management) demonstrating that poverty also makes it harder for poor couples who are married to stay that way.

The problem is not that poor people fail to appreciate the importance of marriage, nor is it that poor and wealthy Americans differ in which factors they believe are important in a good marriage. The problem is that the same trends that have exacerbated inequality since 1980 — unemployment, juggling multiple jobs and so on — have also made it increasingly difficult for less wealthy Americans to invest the time and other resources needed to sustain a strong marital bond.

Poor people divorce at a rate that is thirty percent higher than their wealthier peers, with all of the emotional and financial distress that divorce brings in its wake.

Back in 2001, Barbara Ehrenreich wrote Nickeled and Dimed: On (Not) Getting Along in America, in which she documented the difficulties faced by low wage workers–  the added costs for shelter (the poor often have to spend much more on “rent by the week” fleabags than they would pay to rent a decent apartment because they can’t afford the security deposit and first-and-last month rent payments) and food (the poor often live in “food deserts” and have to buy food that is both more expensive and less healthy).

Let’s not even get into medical and dental care. That’s a subject for an entirely separate diatribe. (Folks who can’t afford regular, preventive care end up very sick in the ER, costing everyone more money.)

If we really expect poor people to “pull themselves up by their bootstraps,” maybe we should help them afford the bootstraps.

 

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I Just Don’t Understand

There are a lot of positions conservatives take that I understand, although I disagree with them. There are sincere anti-abortion people who believe life begins at conception, for example. Belief in “fiscal responsibility” leads many people to draw (bad) analogies to household budgets and disputes over what sorts of behaviors actually are fiscally responsible.

I even understand–I think–where less intellectually respectable positions come from. The desire to roll back women’s rights to birth control, equal pay and similar markers of equality, the hysterical response to same-sex marriage (or even equal civil rights) for GLBT folks, the punitive attitudes toward immigrants and similar attitudes are pretty clearly part and parcel of a profound unease with contemporary realities, and a desire to return to a (largely imaginary) past.

But what in the world motivates opposition to mass transit?

A couple of years ago, Chris Christie–the Republican Governor of New Jersey–killed one of the most important transit projects in the country: a tunnel that would have linked his state to Manhattan and relieved the congestion that currently chokes both. At the time, he claimed his reasons were financial–that New Jersey’s share of the costs were simply too high.

Yesterday, it turned out he was lying.  Not mistaken, not misinformed. Lying.

I hope everyone reading this will click through and read the whole report. This is absolutely bizarre behavior, but what makes it worse is a passing reference in the article to the fact that opposition to mass transit has become part of the conservative “creed.”

Why in the world would someone have a philosophical opposition to transit? I certainly understand believing that a particular project is not well thought-out, or too expensive or otherwise flawed, but opposition to all mass transit? To suggest such a belief sounds paranoid.

The tunnel Christie killed is desperately needed, and had been planned for many years. It would have relieved congestion and helped the environment (okay, I realize that conservatives also reject science and the fact of climate change, but still). If built on schedule, it would also have created jobs at a time when those jobs were desperately needed.

I thought Christie was stupid and short-sighted for pulling the plug over up-front costs that would be recouped (many times over) over the long-term. But stupid and short-sighted are explicable; flat-out lying in order to justify an otherwise inexplicable decision is beyond my ability to understand.

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The Shadow Government

A fair amount of my academic research has addressed issues of government privatization–or more accurately, contracting out. (Privatization, as Morton Marcus frequently notes, is what Margaret Thatcher did in England: selling off government enterprises to private sector owners. In the US, privatization means providing government services through for-profit or nonprofit contractors–a very different thing.)

My research has convinced me of three things: 1) while contracting may be appropriate under some circumstances, it is not the panacea that so many politicians seem to think. Sometimes it makes sense, often not. 2) the cost savings that are touted by privatization advocates are largely mythical, the result of omitting the cost to government of contract management–or the even greater costs of failing to manage those contracts. And 3) far from shrinking the size of government, as proponents contend, contracting actually expands both the size and scope of government, while at the same time making that expansion less visible and government less accountable.

Two recent studies confirm those latter conclusions.

A few weeks ago, the Government Accounting Office released the results of its investigation of contracting costs. It found that contracting was often more costly than providing the same services in-house. And just a few days ago, during a debate over a proposed federal contracting rule, the number of of federal contract workers–people working full-time for the federal government who are contract workers rather than federal employees–was estimated at approximately 7.1 million. That’s in contrast to the full-time civilian federal workforce of 2.1 million.  The Economic Policy Institute estimates that 43% of all employees who do the government’s work are employed by contractors. (It further estimates that 20% of that 43% are paid “poverty wages.”)

It isn’t only the federal government, of course. When you add the “shadow” employees working under contract for state and local governments, estimates of the number of contracted government employees run as high as 17 million. It’s impossible to know for certain, because there is very little data available that would allow governments to monitor these workers, and considerable resistance from the business community to the Obama administration’s recent efforts to collect and analyze such information.

It’s very difficult to hold government accountable when you can’t see government at work. Contract workers need to come out of the shadows.

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