How welfare impacts on the poor

Attached is a post by James Kwak. It strongly rejects a comment by Caplan and Beaulier that Behavioral Economics will Undermine the welfare state by expanding the set of choices.

Caplan and Beaulier believe that poor people are more inclined to make irrational judgments because their judgment biases are more extreme and their self-control problems more severe than those of the rest of the population. Giving them more choice will simply give them more opportunity to hurt themselves.

They argue that poor people are more likely to exhibit heavy alcohol use, to suffer from obesity, more inclined to smoke, commit crimes and use illegal drugs and to have earlier children while in their teens.

The issue, as Kwak sees it, is simple: is the so-called bad judgment of the poor “causing” obesity, crime, drug-taking etc. or is it the result of poor education, the high cost of eating healthy food, limited care options, worse health care options etc.? In other words, are poor education and health the product of inequality and won’t a reduction in inequality (e.g. via social security) improve poor people’s welfare? (This is apart from the fact that things like unemployment insurance and EITC increase the incentive to work).

It is a well argued piece but perhaps taken a little too far. For example, are education levels entirely a product of poverty or are they more gender-based?

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14 Responses to How welfare impacts on the poor

  1. paul walter says:

    Thanks Prof Argy for link. When we blue collars all got booted out with deindustrialisation we were told we would be reeducated and retrained for work in the new knowledge economy, etc.The bosses werent rying to cheat us, it was just a redeployment.
    What’s happened is that now that deindustrialisation has occurred, the system wants to renege on the welfare aspect, returning the saved money from a truncated welfare system to big capital for offshore investment.
    The disintegration of theindustrial left means there is no more force to back social wage/infrastructure claims against the claims of now more powerful economic groupings who actually want dumbing down and mediocre education as part of a (remocval of)a social wage concept for the masses.

  2. Patrick says:

    Hmm. I agree with Kwak, in that I find the idea of irrationality, as bandied around in this kind of discussion, quite surreal. Surely if Freakonomics shows us anything it shows us that ‘irrationality’ is almost always ‘rational action according to different preferences, information and discount factors and rates than mine’.

    Of those, discounting perhaps accounts for most ‘irrationality’ – if I discount my prospects of getting a graduate job by a factor of .95, corresponding roughly to the percentage of people I know who don’t have graduate jobs, then I may make ‘irrational’ choices about school.

    So I agree that ‘on balance [behavioral economics] cuts in favor of the welfare state‘, and even more that

    At most, even if we accept the first clause of Caplan and Beaulier’s sentence for purposes of argument, it should affect the way we deliver welfare benefits, not their existence or size (which should be determined on other grounds). If the problem is choice, then we should just reduce choice. For example, we could eliminate every single welfare program and replace all of them with (1) Medicare for everyone and (2) a flat $10,000 (indexed) cash payment to every person in the country. (If you want to switch to a flat tax or a consumption tax to raise the necessary revenue, I’m willing to take that trade, as long as nothing eats into (1) or (2).) That way we would achieve the social goals of welfare with none of the choice problems Caplan and Beaulier complain about. Even leaving aside my fantasy, we should be happy about things like unemployment insurance and the EITC, which both give you an incentive to work

    (how could any non-radical-purist-libertarian not agree with the EITC?)

    But they might be understating that design problem! In particular, ‘behavioural economics’ shows us that ‘poor people’ will actually make very rational judgments according to their inputs and do things like ignore their ‘evident’ self-interest in getting a job and pursuing a noble state of eudamonia in favor of staying on welfare. That implies that we need to change the inputs, which leads you to 0-2yo care (which leads you back to Plato).

    An additional aspect of this is demonstrated by the way in which Kwak is highly attentive to the teachings of behavioural economics insofar as they justify things like a universal mandate for health insurance or social security, but glides over (admittedly, perhaps only because he didn’t think it relevant to the context) the implications of even plain economics for health care providers and politicians.

  3. Patrick says:

    What’s happened is that now that deindustrialisation has occurred, the system wants to renege on the welfare aspect, returning the saved money from a truncated welfare system to big capital for offshore investment.

    That’s a very parochial and elitist worldview there, Paul, aren’t you in favour of helping the poor? The poor in poor countries, even their middle classes, are much poorer than you or just about anyone (besides Aborigines) here.

  4. Ken Parish says:

    I worked in the welfare sector many years ago when I first graduated. One of the more remarkable phenomena I came across repeatedly was the propensity of welfare families to have huge hire purchase debts that they had spent on acquiring brand new colour TVs, video recorders, lounge suites from Waltons (invariably submerged in piles of dirty clothing) etc. At that time I was living in a share flat with a black and white TV acquired from a Vinnies op shop, and saving for a deposit on a house. No doubt such phenomena flow in part from poor education but perhaps both Kwak and Caplan/Beaulier have a point.

    Moreover, most likely behaviours like poor judgment, lack of self-control, inability to postpone self-gratification and the like partly stem from the lack of role models of more productive behaviour in the surrounding family and community environment. I’m sure there’s lots of literature on this, as Don Arthur could tell us if he had time. Socialisation is a much more pervasive and powerful form of learning, and much harder to change, than formal education, as anyone working in Indigenous communities quickly learns

  5. conrad says:

    “in that I find the idea of irrationality, as bandied around in this kind of discussion, quite surreal”

    One of the curious things about this literature is that there’s a massive divide between the psychology and the economics people (it’s one reason I find it interesting). There’s no base assumption of rationality in the psychology — the types of complex decision making people to do is basically considered an epiphenomena of more generally thought (and not necessarily conscious and explicit thought), and most studies looking at it find that people are in fact extremely poor at evaluating statistical information when there are multi-sources of information (no surprise really). Indeed, even the idea that people are trying to make conscious judgments a lot of the time wouldn’t be accepted, so the language itself used in the article is somewhat misleading, because it seems to assume that there is some sort of continuum between rational and irrational judgments when the type of information used for these judgments may be entirely different. Poor people, for example, may have less ability to make complex statistical judgments based on multiple potentially conflicting sources of information, but their choices in other domains may be similar. In addition, I don’t see why people assume that the the types of negative outcomes you find in low SES groups are the result of the same mental process.

    Speaking of poor ability to evaluate and weight evidence properly, I always love this one in these sorts of arguments: “Poor people are more likely to have sex earlier and have children while in their teens”. Why people are obsessed with the tiny number teenage mothers beats me.

  6. Patrick says:

    Actually, on KP’s comment, I attended a talk by some sort of neurologist (at least he claimed to be such) who said that TV and computers (as well as the generally safe life most of us lead) actually help cause ‘lack of self-control, inability to postpone self-gratification and the like‘ since the instant gratification they offer numbs the ‘risk-reward’ calculations we otherwise learn to do and literally retards the growth of the relevant parts of our brain.

  7. derrida derider says:

    Caplan and Beaulier’s stuff is typical mean-minded, selfish and (most irritating of all) intellectually facile crap, posing as “social science”. That’s all we seem to get from the Chicago and Virginia schools these days – a sad decline from the days when both those faculties had an innovative and diverse culture that valued hard thought and hard empirics, however distasteful individuals’ personal values might be.

    I really don’t think we need to add more to Kwan’s demolition.

  8. Liam says:

    Ken at #5, there’s one great piece of capital-L Literature that deals with just that question.

    When you are unemployed, which is to say when you are underfed, harassed, bored, and miserable, you don’t want to eat dull wholesome food. You want something a little bit ‘tasty’. There is always some cheaply pleasant thing to tempt you. Let’s have three pennorth of chips! Run out and buy us a twopenny ice-cream! Put the kettle on and we’ll all have a nice cup of tea! That is how your mind works when you are at the P.A.C. level…

  9. Indeed, Liam. And I can’t help but add this paragraph from Mister O.:

    I doubt, however, whether the unemployed would ultimately benefit if they learned to spend their money more economically. For it is only the fact that they are not economical that keeps their allowances so high. An English-man on the P.A.C. gets fifteen shillings a week because fifteen shillings is the smallest sum on which he can conceivably keep alive. If he were, say, an Indian or Japanese coolie, who can live on rice and onions, he wouldn’t get fifteen shillings a week — he would be lucky if he got fifteen shillings a month. Our unemployment allowances, miser-able though they are, are framed to suit a population with very high standards and not much notion of economy. If the unemployed learned to be better managers they would be visibly better off, and I fancy it would not be long before the dole was docked correspondingly.

  10. harleymc says:

    They argue that poor people are more likely to exhibit heavy alcohol use, to suffer from obesity, more inclined to smoke, commit crimes and use illegal drugs and to have earlier children while in their teens.

    Wow that’s a helluva lot of middle-class prejudices on display.
    Let’s pull some of these apart;
    use of illegal drugs / commit crimes – sniffer dogs are common on public transport and public spaces, they are rare in Beemers, on the stock exchange and at the polo club,
    obesity, recent studies have been overturning the conventional wisdom that being overweight leads to worse health outcomes than ‘normal’ BMI,
    having children when young beats the hell out of being childless due to leaving it too late.
    There’s also an assumption in some of the responses to this article that the only poor in society are unemployed whereas there are millions of working poor.

  11. Douglas Clifford says:

    “The modern conservative is engaged in one of man’s oldest exercises in moral philosophy: that is the search for a superior moral justification for selfishness.” : John Kenneth Galbraith

  12. observa says:

    “The superior moral justification for liberal selflessness with other peoples’ money is obvious until it runs out, whereupon they engage in one of man’s oldest exercises, the printing press.” :observa

  13. Patrick says:

    like most things Galbraith said, very clever but so stupid. How is that Soviet-industrialist machine working out?

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