Interesting. For whatever reason I just noticed the tension between "My critique of where Biden-era Democrats are going is that it seems they are trying to advance on too many fronts simultaneously." and what you wrote on Vox in November about ice cream parties: https://www.vox.com/21555853/joe-biden-budget-deficit-senate-republicans
I assume for you the political calculation has changed?
Most engagement of this week was the one about Harris. A lot of the subscribers are men who have taken shit for not liking Harris. I got banned from the Peachtree City Democrats page after someone found old FB posts of mine criticizing her. So the subscribers enjoyed a nice safe space for refining their ostensibly non-racist, non-misogynistic reasons for not liking her. so certainly enjoyed that
This is an interesting discussion on the Danish model and inequality in Denmark, which still tracks well with class and family background despite government intervention.
In the discussion there is an aside about how Danish educational programs started off targeting the disadvantaged and rural, and the education gap was closing. In the 1950s, they made the programs universal, and the gaps stopped closing because the advantaged were able to use the same programs. Also see the charter school movement in the US.
Public assistance for life's necessities should help the poorest pay the market price for food, housing, etc. , but not be so broadly distributed that you drive up the market price and then you are just chasing your tail.
I agree with a lot of the economics arguments here, but one thing sticks out to me: "And the current thinking in the party seems to be that if you can implement your dreams, you should do half-assed versions of everything."
That isn't a recipe for efficient design of social programs, but earlier in this article you also point out that these sorts of programs are hard to expand but also hard to cut. So if your goal is to maximize the welfare state, wouldn't there be some value in just creating a lot of new social programs right now while Dems have power, even if they are kind of half-assed and inefficient, and then the next time the GOP has power do some bipartisan deals with moderates to make the programs better and more efficient?
Matt, I really appreciate the inclusion of administrative burdens here, especially the thoughtful example of health insurance. I think administrative burdens are one of the key barriers to entry across a lot of social programs (not just for the poor!) and they don’t receive enough attention outside of the Twitterati-policy-wonk world.
One thing I’d like to point out is that administrative burdens can be more easily gamed by the rich. Case in point, my sister qualified for a Pell Grant because my family was able to make it appear as if our income was low enough through various legal but ethically dubious shenanigans. There is no reason a family like mine needed the Pell Grant but in four years nobody ever asked why a rich girl from the ‘burbs who grew up in gated golf course communities and went to private school also got the US taxpayers to find her degree from Auburn. War Eagle, I suppose.
Good post, but I balk at the analogy with libraries, parks, etc. I don't think this is a fair comparison.
Much of what the government provides are public goods. National defense, national parks, airports, etc -- none of that is means-tested nor could be (like Matt's example of getting on a bus). Yet all those are effectively rationed. Lots of people use libraries (around 50%) but lots of people don't. We don't see 330 million people visiting national parks every year, nor does 80% of a city's population descend on the local park at once. And not everyone uses the bus because, well, duh.
That self-rationing makes these things affordable. That's very different from a cash-granting program like the CTC, where you qualify for a check by breathing (mostly). You can argue that it's worth sending checks to the ~30% of the population which is well off because it reduces the administrative burden by both the applicant and the bureaucracy, but that's still a pretty big chunk of change; I'm not sure it passes a cost-benefit analysis.
I'm pretty sold on the high marginal tax rate issue, however. Whether that means we have to make programs universal is another thing, though.
Getting on a bus is in fact means-tested, because in most cities you have to pay a fare to get on the bus. Going through this process with each passenger slows down every stop, and makes the trip slower for everyone on board, and makes each bus do fewer runs per day, so each line has lower frequency at the same level of investment. Thus, some people have advocated removing fares to make the buses run faster. It's conceivable that in some cities, you could actually cut the number of drivers to correspond to the lost farebox revenue, and because of the bus speedup could actually run just as many buses per day on every route (though probably not many cities could do this).
I guess that's the opposite of means testing, since you have to be rich enough to care to pay in order to get the benefit, but it still has the same structure of an administrative complexity designed to recoup some of the operating expenses of the program.
What about the distinction between public goods and assistance to the poor? Nobody is proposing to means-test libraries and mass transit, but it makes sense to means-test cash assistance to the poor because it's VASTLY cheaper than a UBI, hence worth the administrative cost.
I think the worst is means tested and capped number of participants. So this poor person gets a house under section 8 and this one doesn’t because you snooze you lose. And like if the poor person gets a raise are they thrown out of the house? And one of the similarly poor people who is on a 10 year waiting list gets in? Section 8 is just really unfair to people who qualify but get nothing because of paperwork or they didn’t apply first.
What do you think about means-testing in relation to UBI? UBI does seem very appealing to me, but also very costly. Conditioning cash transfers on your level of need makes sense to me in that context, and certainly there appears to have been some success with conditional cash transfers in Latin America.
I saw a post the other day that discussed how the root issue for most of these issues is the declining trust in institutions (including/especially the government). In theory you could have the government tax and provide a service, but if you don't trust the government to do that well, why would you agree to that.
At the end of the day, I think that is what kills people's willingness to pay taxes and makes all the programs so very hard to start. Its also what made me realize why hard core blue states with large Democratic supermajorities are not able to initiate true nordic like social democratic welfare programs within their state, even though they are clearly wealthy enough to do it.
I think what people generally mean by "means-tested" is: If I'm eligible for the benefit, it isn't means-tested, but if I'm not eligible for the benefit, then it is means-tested.
Last year was the first year doing my taxes when I really felt like a dupe after I hit submit. I've always had this morality bent around doing my own taxes, paying my fair share. I very much judge my friends who have these super aggressive tax "optimization" schemes. But my equity grant schedule triggered some obscure wash-sale rules and my IL property tax credit wasn't allowed last year so I ended up having to cut two surprisingly large checks. Couple that with what Matt talks about there and yeah ... still one the fence, but I'll probably get an accountant.
One way to partially thread the needle here is to abolish means testing but treat benefits as taxable income. Little claw back for the poor but much more for the rich particularly if you increase the top marginal rates.
It might make more sense to consider means-testing as a way to control inflation rather than as a way to keep the cost down.
If the government were to create free amusement parks around the country for all (a la libraries) it would probably cost a lot to build and operate them but I'm not sure it would drive inflation all that much. So who cares how much it costs? No one spends that much on amusement parks anyway (some quick googling returned an estimate of $10B) so if that money was just re-directed to other things it wouldn't have any drag on the economy.
By contrast health care spending is massive so giving that money back to people to spend on other things would drive inflation sky-high. Means-testing prevents a lot of people from accessing it, which controls inflation.
But free amusement parks are a dumb idea, as-is probably anything else that wouldn't drive inflation. Probably.
I feel like the conclusion here isn't really in the rest of the post, er, newsletter. Granted the Infrastructure deal and reconciliation are still moving targets, but other than sunsetting the CTC I am not sure what's really being muddled per se.
Interesting. For whatever reason I just noticed the tension between "My critique of where Biden-era Democrats are going is that it seems they are trying to advance on too many fronts simultaneously." and what you wrote on Vox in November about ice cream parties: https://www.vox.com/21555853/joe-biden-budget-deficit-senate-republicans
I assume for you the political calculation has changed?
I'm curious why this post got so little engagement
Most engagement of this week was the one about Harris. A lot of the subscribers are men who have taken shit for not liking Harris. I got banned from the Peachtree City Democrats page after someone found old FB posts of mine criticizing her. So the subscribers enjoyed a nice safe space for refining their ostensibly non-racist, non-misogynistic reasons for not liking her. so certainly enjoyed that
1) It came out on a Friday at the end of July when many people, like me, are on vacation
2) It pushes zero culture war buttons
3) It doesn’t have a crisp take, just nuance and comparison
https://www.econtalk.org/james-heckman-on-inequality-and-economic-mobility/
This is an interesting discussion on the Danish model and inequality in Denmark, which still tracks well with class and family background despite government intervention.
In the discussion there is an aside about how Danish educational programs started off targeting the disadvantaged and rural, and the education gap was closing. In the 1950s, they made the programs universal, and the gaps stopped closing because the advantaged were able to use the same programs. Also see the charter school movement in the US.
Public assistance for life's necessities should help the poorest pay the market price for food, housing, etc. , but not be so broadly distributed that you drive up the market price and then you are just chasing your tail.
I agree with a lot of the economics arguments here, but one thing sticks out to me: "And the current thinking in the party seems to be that if you can implement your dreams, you should do half-assed versions of everything."
That isn't a recipe for efficient design of social programs, but earlier in this article you also point out that these sorts of programs are hard to expand but also hard to cut. So if your goal is to maximize the welfare state, wouldn't there be some value in just creating a lot of new social programs right now while Dems have power, even if they are kind of half-assed and inefficient, and then the next time the GOP has power do some bipartisan deals with moderates to make the programs better and more efficient?
Matt, I really appreciate the inclusion of administrative burdens here, especially the thoughtful example of health insurance. I think administrative burdens are one of the key barriers to entry across a lot of social programs (not just for the poor!) and they don’t receive enough attention outside of the Twitterati-policy-wonk world.
One thing I’d like to point out is that administrative burdens can be more easily gamed by the rich. Case in point, my sister qualified for a Pell Grant because my family was able to make it appear as if our income was low enough through various legal but ethically dubious shenanigans. There is no reason a family like mine needed the Pell Grant but in four years nobody ever asked why a rich girl from the ‘burbs who grew up in gated golf course communities and went to private school also got the US taxpayers to find her degree from Auburn. War Eagle, I suppose.
Good post, but I balk at the analogy with libraries, parks, etc. I don't think this is a fair comparison.
Much of what the government provides are public goods. National defense, national parks, airports, etc -- none of that is means-tested nor could be (like Matt's example of getting on a bus). Yet all those are effectively rationed. Lots of people use libraries (around 50%) but lots of people don't. We don't see 330 million people visiting national parks every year, nor does 80% of a city's population descend on the local park at once. And not everyone uses the bus because, well, duh.
That self-rationing makes these things affordable. That's very different from a cash-granting program like the CTC, where you qualify for a check by breathing (mostly). You can argue that it's worth sending checks to the ~30% of the population which is well off because it reduces the administrative burden by both the applicant and the bureaucracy, but that's still a pretty big chunk of change; I'm not sure it passes a cost-benefit analysis.
I'm pretty sold on the high marginal tax rate issue, however. Whether that means we have to make programs universal is another thing, though.
Getting on a bus is in fact means-tested, because in most cities you have to pay a fare to get on the bus. Going through this process with each passenger slows down every stop, and makes the trip slower for everyone on board, and makes each bus do fewer runs per day, so each line has lower frequency at the same level of investment. Thus, some people have advocated removing fares to make the buses run faster. It's conceivable that in some cities, you could actually cut the number of drivers to correspond to the lost farebox revenue, and because of the bus speedup could actually run just as many buses per day on every route (though probably not many cities could do this).
I guess that's the opposite of means testing, since you have to be rich enough to care to pay in order to get the benefit, but it still has the same structure of an administrative complexity designed to recoup some of the operating expenses of the program.
What about the distinction between public goods and assistance to the poor? Nobody is proposing to means-test libraries and mass transit, but it makes sense to means-test cash assistance to the poor because it's VASTLY cheaper than a UBI, hence worth the administrative cost.
I think the worst is means tested and capped number of participants. So this poor person gets a house under section 8 and this one doesn’t because you snooze you lose. And like if the poor person gets a raise are they thrown out of the house? And one of the similarly poor people who is on a 10 year waiting list gets in? Section 8 is just really unfair to people who qualify but get nothing because of paperwork or they didn’t apply first.
What do you think about means-testing in relation to UBI? UBI does seem very appealing to me, but also very costly. Conditioning cash transfers on your level of need makes sense to me in that context, and certainly there appears to have been some success with conditional cash transfers in Latin America.
I saw a post the other day that discussed how the root issue for most of these issues is the declining trust in institutions (including/especially the government). In theory you could have the government tax and provide a service, but if you don't trust the government to do that well, why would you agree to that.
At the end of the day, I think that is what kills people's willingness to pay taxes and makes all the programs so very hard to start. Its also what made me realize why hard core blue states with large Democratic supermajorities are not able to initiate true nordic like social democratic welfare programs within their state, even though they are clearly wealthy enough to do it.
If New York raises taxes too high, rich people move to Connecticut. Moving to Singapore is harder unless you are a corporation
I think what people generally mean by "means-tested" is: If I'm eligible for the benefit, it isn't means-tested, but if I'm not eligible for the benefit, then it is means-tested.
Last year was the first year doing my taxes when I really felt like a dupe after I hit submit. I've always had this morality bent around doing my own taxes, paying my fair share. I very much judge my friends who have these super aggressive tax "optimization" schemes. But my equity grant schedule triggered some obscure wash-sale rules and my IL property tax credit wasn't allowed last year so I ended up having to cut two surprisingly large checks. Couple that with what Matt talks about there and yeah ... still one the fence, but I'll probably get an accountant.
One way to partially thread the needle here is to abolish means testing but treat benefits as taxable income. Little claw back for the poor but much more for the rich particularly if you increase the top marginal rates.
It might make more sense to consider means-testing as a way to control inflation rather than as a way to keep the cost down.
If the government were to create free amusement parks around the country for all (a la libraries) it would probably cost a lot to build and operate them but I'm not sure it would drive inflation all that much. So who cares how much it costs? No one spends that much on amusement parks anyway (some quick googling returned an estimate of $10B) so if that money was just re-directed to other things it wouldn't have any drag on the economy.
By contrast health care spending is massive so giving that money back to people to spend on other things would drive inflation sky-high. Means-testing prevents a lot of people from accessing it, which controls inflation.
But free amusement parks are a dumb idea, as-is probably anything else that wouldn't drive inflation. Probably.
I feel like the conclusion here isn't really in the rest of the post, er, newsletter. Granted the Infrastructure deal and reconciliation are still moving targets, but other than sunsetting the CTC I am not sure what's really being muddled per se.