What is income support for?

Debates over income support are never ending. And part of the reason is that people have different ideas about what they want the income support system to achieve.

When it comes to income support payments for people below retirement age who are capable of paid work, there are at least four different visions. Each represents a goal for reform of the income support system. And each is constrained by its own set of trade offs.

Four visions

1. Work enforcement: Most people accept that government has an obligation to prevent citizens from dying of starvation or exposure. However, supporters of the work enforcement model insist that income support must never become an alternative to paid work.

In this model the income support system should be designed to enforce participation in work. The government must move recipients into work, not because it will save money, but because voters see work as a moral obligation.

The best known proponent of the work enforcement model is American political scientist Lawrence Mead. Mead argues that financial incentives are not enough to get people off welfare and into work. In a recent paper for the Institute of Economic Affairs he considers policies for jobless men arguing that:

… work programmes for men should be mandatory and paternalist – requiring participation and using case managers to enforce it. They should focus on placing men in available jobs, even if low-paid, rather than training them for better positions. Since training programmes for this group have evaluated poorly, the best way to raise wages is through wage subsidies. To achieve work, especially for ex-offenders, it may be necessary to create jobs, as employers willing to hire these men may be insufficient.

The model doesn’t enforce work in order to make recipients better off or to save taxpayers money. As Peter Saunders of the Centre for Independent Studies explains: "Liberals believe that, rather than relying on handouts from others, self-reliance is virtuous and should therefore be encouraged wherever possible".

2. Small government: Some libertarians worry more about the growth of government than about the behaviour of the non-working poor. While they too accept that government ought protect citizens from destitution, they argue that the welfare state is far larger than it needs to be. Much of the spending goes to middle class families who don’t need help, and far too much goes into supporting the bureaucracy.

Economist Milton Friedman suggested getting rid of most of the welfare state and replacing it with a Negative Income tax, a means tested cash payment with no strings attached. The poor would have the incomes they needed to live and taxpayers would save money.

Another libertarian, Charles Murray worries that Mead’s work enforcement model will become more and more intrusive and controlling. With an army of case managers and a growing network of work programs, a recession could tip the system over the edge into something he calls "custodial democracy".

In an opinion piece for the Los Angeles Times. Murray suggested scrapping the major institutions of the welfare state: "If we simply divided up the money we are spending anyway and gave it back to people in the form of cash, we could provide everyone with the resources for a decent standard of living, including money to pay for healthcare and save for retirement".

Murray’s plan would abolish scores of costly government programs including those designed to subsidise agriculture and prop up failing corporations. As Dalton Conley explains:

Murray’s new New Deal would replace all safety-net programs with a flat $10,000 annual per-person grant. Murray does away with welfare (that is,Temporary Assistance to Needy Families), food stamps, Medicaid and Medicare, and even Social Security. He also dumps agricultural subsidies and other forms of corporate assistance. Instead, every American age 21 and older would receive $10,000 a year, of which $3,000 would have to be spent on health insurance. When a person’s income from other sources exceeded $50,000, his or her grant would be cut back to $5,000. But that is the only reduction. In other words, Bill Gates gets his check, too. Murray is offering a truly universal benefit—even more comprehensive than Social Security, which can exclude those who have not spent much time in the formal labor market. His only requirement is that the recipient maintain a bank account.

Murray agrees that social norms matter. But unlike Mead he doesn’t believe that they should be enforced by the bureaucracy.

3. Positive freedom: As the world grows richer, some argue that we can now afford to give people a choice about whether to work for a living. On this vision an unconditional basic income would offer everyone the ability to choose the kind of life they want to live. While similar to Charles Murray’s plan, the objective is to expand freedom rather than to shrink government.

Philippe Van Parijs is a leading advocate of this approach. He argues that government should pay everyone a universal basic income, at a level sufficient for subsistence. Ronald Dore sketches out the vision:

No dole, no means tests, no concept of unemployment. The market economy goes on. Those who want to work and are genetically lucky enough to be able to learn skills that the market rewards do so and have more than the basic income to spend. Those who do not work include the genetically unlucky, who would find it hard to get a job, as well as those who are capable of almost anything but prefer to write poetry or play chess.

Unlike Mead, Van Parijs isn’t worried about people choosing not to work. "No one can reasonably want an overworked, hyperactive society", he writes. A basic income would allow people to spend more time with their children or caring for elderly relatives. And since it wouldn’t be means tested, he argues it would solve the problem of poverty traps for low-wage workers.

4. Active society: While the work enforcement model insists that paid work is the only acceptable for of participation and positive freedom model advocates a government subsidised free for all, the active society approach proposes something in between.

Rather than focusing on paid work, active society approach takes a broader view of participation. Recipients of support are expected to make a contribution to the community but this contribution can take a variety of forms. These might include studying, caring for elderly or disabled relatives, caring for children or performing unpaid work in the community.

Improving work incentives is not an objective of this model. Nor is it expected to deliver savings to taxpayers.

Beyond the graphs and tables

Too many debates over income support assume that everyone agrees on what the income support system is meant to do. Assuming that everyone wants the most generous allowance possible with the constraint of work incentives and what government can afford, the debate dives into the arcane language of replacement rates and effective marginal rates of taxation. Models are built and tested and costings developed. But most of this is a waste of time if there’s no agreement about what we want the income support system to do.

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Pedro
Pedro
9 years ago

IIR, Friedman said that the dole ought to be sufficiently below wage earnings to provide an incentive to work. But one thing all economists ought to agreed on is that incentives matter.

I suppose you can’t argue with the proposition that some libertarians worry more about the size of govt than anything else, but it would be more fair to say that generally libertarians worry about the size of govt because of its effects on society as a whole, including on the behaviour of the poor.

“Too many debates over income support assume that everyone agrees on what the income support system is meant to do.”
Almost all debates assume voters agree on something. Getting rid of that idea would be a positive thing. Even a landslide of seats is really a small majority in most cases and the crude metrics of an election really give you no idea about the popularity of various policy variants.

derrida derider
derrida derider
9 years ago

As a positve description of the most common positions this is fair enough. But one point that is missing is the tremendous hypocrisy of Model 1 as it is actualy implemented.

People who genuinely believe labore est orare are rare. We don’t see conservative politicians publicly asserting that menial paid work makes the big bearded fella in the sky happy, and they certainly don’t act that way in their own lives – they generally work hard but for entirely different goals. It is much more about enforcing “social discipline” – ie due deference to “those whom it hath pleased the Almighty to put in authority over us” – or even simply punishing people they don’t like.

I’ve not a lot of time for Murray generally (an exemplar of intellectual dishonesty over many years) but he’s right about the”custodial state” bit.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
9 years ago

Thanks for the post Don,

Just one point. When you say that a lot of debate is redundant because people are not coming from shared premises, of course your own implied ‘solution’ isn’t any solution either – because you won’t get people to agree on the principles any sooner than you’ll get them to agree on the means. And often people won’t even know what principles they’re (implicitly) arguing from until they come to some concrete case and realise that they like or don’t like it.

So debate goes on its chaotic way – as it does in democracies . . .

michaelfstanley
michaelfstanley
9 years ago

Taking Nick’s point I might propose a way to bridge the divide pragmatically.

Philosophically I’d pretty happily sit with three however however I think the real world consequences of such schemes would be sub-optimal in a social justice sense –

The big problem I have with ideas like a universal basic income (or the small govt. ideas of welfare) is that it essentially means a large number of people will never have an opportunity to rise above that material level.

Wage labour is (for most people) the best, if not the only – avenue to be able to gain wealth, and the best avenue to be able to do this is well, having a job.

I’m going to freely argue from my own experience (as someone who spent a few years training people in entry level jobs) that much like education, the experience of many (but certainly not all) jobs, helps build capabilities for people to live the sort of life they want through both the wage they receive and the ability to move into other forms of employment.

I stress this is different from a conservative conception of a job teaching the bludgers to get up at the crack of dawn and humbly accept orders from their overseer.

You can do a lot to build people’s capabilities with education and providing the right social environment (through access to affordable housing, proper healthcare – esp. with mental health etc.) but having the opportunity to have a paid job is also critical to building people’s capabilities.

A politically feasible compromise could find the support of the paternalists and the positive freedom crowd – without making either completely happy.

I’d suggest a more rigorous, but voluntary approach to getting people into paid work – whether through direct job creation or (less desirably) targeted wage subsidies. If the numbers could be shown to add up I’d support a full employment guarantee – which could be sold to the median voter.

murph the surf.
murph the surf.
9 years ago

Aren’t there wage subsides already?
I think a friend of mine has had a couple of placements where the employer receives a wage offset for 3 months – then they are let go and another subsidy gets applied for I would guess?
The jobs were in retail – do they have access to a scheme targeting their industry or is this available to every employer?

Don Arthur
Don Arthur
9 years ago

Nicholas – No, people aren’t going to agree on principles. And as you say, a lot of the time people aren’t thinking in terms of abstract principles, they’re acting on gut feel.

Politics is all about getting people to work together when they disagree on values. It’s often possible to get people to agree on what to do even if they disagree about why.

What we shouldn’t do is treat political problems as if they were technical problems.

Tel
Tel
9 years ago
Reply to  Don Arthur

I disagree, very few Libertarians think it’s a good idea to have people starving on the street (regardless of who wants to put up straw-man arguments). So there is general agreement on desirable outcome.

Most Libertarians don’t believe the Nanny State is required to achieve this outcome (indeed, ultimately probably the Nanny State makes things worse), and at the very least would like some line in the sand putting clear limits on how much intrusion into private lives is acceptable. At the moment we don’t even have that much.

May I also point out that right now, in Australia, approximately all of our income tax goes into welfare, and yet we still have homeless guys sitting in parks and we still have beggars at street corners and near train stations. I think we can also broadly agree that’s a sign of failure.

Pedro
Pedro
9 years ago

“What we shouldn’t do is treat political problems as if they were technical problems.”

What else can you do? A political solution cannot be achieved unless sufficient support is obtained, and surely showing the technical issues with the problem and reasons for the proffered solution is the way to do that.

Tel
Tel
9 years ago
Reply to  Pedro

Technical problems have technical solutions.

Political problems have political solutions AND technical solutions.

If your particular problem does not have a technical solution then you are stuck with that, regardless of the politics.

Don Arthur
Don Arthur
9 years ago

Pedro – Sure, but if you see the problem in terms of ‘work enforcement’ you’re not going to be persuaded by an analysis that shows your favourite policies cost more than the savings they produce in income support.

Pedro
Pedro
9 years ago

Perhaps Don, but a good starting point for any debate is to let people prove they are stupid. Also, work enforcement, on which I am agnostic, may have non-cash benefits and IIR saving money is usually not put forward as the main justification. But irrespective of the claim, if the evidence doesn’t support it then it ought to be abandoned. Like the carbon tax.

murph the surf.
murph the surf.
9 years ago

The option of positive freedom should be sold as an aspiration.
Is it too much to imagine that it exists already in some parts of Australia?

Peter Saunders
9 years ago

You’re right, Don – ultimately the arguments about welfare and income support derive from differing moralities. But this needn’t imply no common ground, for as Haidt’s recent book on evolved moral instincts suggests, we all share certain basic notions of good and bad, right and wrong, in common. I shall be discussing this at the upcoming CIS ‘Big Ideas Forum’ in Sydney on 27 August

where I shall suggest that left and right should be able to agree on certain basic rules for welfare reflecting both the caring instinct and the proportionality (fairness) instinct.

Don Arthur
Don Arthur
9 years ago

Peter – Sounds like an interesting forum. Will the CIS be publishing the presentations or posting video?

Peter Saunders
9 years ago

Don, I believe CIS now routinely videos talks and posts them on its web site, so I assume this one will be recorded too. I’m not the only speaker – also John Hirst, Gary Johns, Manny Jules (from Canada) and Jeremy Sammut. More details here (my previous attempt at inserting a link went a bit wrong!):
http://www.cis.org.au/events/upcoming/event/118/The-Annual-CIS-Big-Ideas-Forum—Welfare-Without-the-State/0