Monday, April 03, 2006

A plan to replace the welfarestate

The Plan to Replace the Welfare State

By Max Borders : 28 Mar 2006

Max Borders: Joining us today we have Charles Murray, author of the new book, "In Our Hands: A Plan to Replace the Welfare State." Welcome, Charles.

Charles Murray: Good morning.

Borders: You've studied social safety nets for most of your career. What has the welfare entitlement state done to this country?

Murray: Well you have effects on two levels. One involves the effects of social programs intended to help the poor and the disadvantaged. And that was the topic of a book I wrote 20 odd years ago called Losing Ground, which said essentially we made things worse for the very people we were trying to help.

There is, however, another whole set of effects of the welfare state in the form of Social Security and Medicaid and other kinds of programs which take money from one American and give it to another American (whom the government has decided needs the money more). Whether it's taking it from a young person to give to a retiree, or whether it's taking it from a secretary in Alabama to give to a corporation that is getting a special favor from the government, all of these transfers -- and that's what they are: money from individual Americans to other individuals or to corporations -- seem to me to be a classic example of shipping money to Washington, seeing large amounts of it be wasted and go down the drain, and then it gets shipped out of Washington in much reduced form for dubious purposes.

And what "In Our Hands" is all about, ultimately, is saying: stop that. Just, if you're going to collect all this money, give it back to people as money and let them run their lives as they see fit.

Borders: And at the same time you eliminate the considerable degree of bureaucratic interference and, for that matter, the bureaucracy itself.

Murray: Yes, that's a topic I actually don't even mention in the book. I have not calculated the number of government officials who would be put out of work by my plan, but I'm sure it numbers in the hundreds of thousands.

Now the reason I didn't put it in the book is very simple: that's not the main point. It would be very nice to have these people engaged in productive lives instead of unproductive ones, but it's not the real purpose.

The real purpose could be perhaps summarized like this:

We start with a country that is the richest country in the world, with most of its people having lots of money (compared to any historical standard), ample money to provide for their own retirements, medical care, and the rest of it. On top of this national wealth, we then add more than $1 trillion to help people provide for comfortable retirement and medical care, and so forth. And guess what? We still have millions of people without comfortable retirements, without adequate medical care. And only a government can spend that much money that ineffectually.

The alternative I suggest is give every adult American, age 21 and older, $10,000 a year. And let them run with it.

Borders: So $10,000 for every single American? As soon as you turn 21 you start getting this money?

Murray: That's right. And there are a couple of key points to be made here because some folks will be thinking of past attempts at negative income taxes which provided a floor under income and certain experimental programs. And this is different. This is not a floor. This is not a case of, "if you make less than $10,000 a year we will top up your income to $10,000." This is $10,000 period. And so if you're making $10,000 a year, your net is $20,000. If you're making $20,000 a year, your net is $30,000.

There are some complications down the road, but they aren't very important. I'll just mention them real quickly.

At $25,000 of earned income you start to pay a surtax on the grant, and that reaches a maximum of half the grant. So at $50,000 you only have a net of $5,000 from the grant. The reason for that is pretty simple -- that you want to give upper income people something for all the money they're putting into taxes right now to provide for their own medical care and retirement, and they get that net of $5,000. And I argue it's a better deal than what they're getting now.

But the other main point is that the surtax doesn't kick in until $25,000 of earned income. So the negative work incentives are pretty small.

Borders: Do you know of any other countries that have tried anything like this? Or is this entirely new?

Murray: The idea is a direct descendant of Milton Friedman's proposal for negative income tax. George Stigler sometimes gets the credit for that. But George Stigler himself says it was suggested to him by Milton Friedman back in the early 1940's. So it's a direct descendent of that idea, considerably revised, but on a much bigger scale and doing much more. I'm not using this just to cure poverty. I'm using this money to take the place of Social Security and Medicare and Medicaid and all the rest of those kinds of things.

Borders: I take it that your system, to get the $10,000 per year, we would have essentially to abolish all other entitlements and transfers.

Murray: That's absolutely essential. It's not on top of an existing system of payments; it is instead of.

Perhaps I should tell the listeners and readers how I really start at the very beginning of the book with the ground rules. The ground rule that reminds me of an old joke that involves three people stuck at the bottom of a deep hole, and they are supposed to figure out ways to escape. And I forget who the first two people are, but the third person is an economist, and when it comes his turn to propose his solution to escape he says, "First, we assume a ladder."

The economists say "first, we assume a free market"; "first, we assume frictionless prices," and so forth. And so I will be the first to acknowledge to my readers that I am not under the illusion that Congressmen are going to read this book and say, "by George, this is it and we're going to enact it." I am trying to enter into the debate a radical new way of doing business that is going to take a while to sink in to the political consciousness enough to have a chance to be considered seriously.

But that's one ground rule. My readers have to say, "OK, we understand this is not politically feasible right now." But the ground rule facing me is that I have to be practical about it. I have to say, this would work -- not just in theory. If this were implemented, it would really do all the good things I say it would do in the 21st century United States. So that's one aspect of thinking about what I'm proposing.

In that light, I start out the first chapter by saying there would have to be a constitutional amendment. And I am not confident to frame that in legal language, but I can tell you the sense of it. And the sense of it is that -- hence forth -- no government program shall be used to transfer money directly from individuals or groups to other individuals and groups. You know, the programs that are legitimate for the government are ones that provide authentic public goods -- such as police protection, the court system, and national defense. The one exception to all of this shall be the grant -- the $10,000 -- that starts out at $10,000 a year on the opening of the program. And other than that, no transfers at all. And that includes corporate welfare and agricultural subsidies and all the rest. At the local, state, as well as federal level.

Borders: You don't really mention the cost savings when the bureaucracies would go away, but I think that is an important underlying point.

Murray: Well, I'm saying throughout the book that this plan is revenue neutral. So this is not promising people big tax cuts. What I do is take the current projected costs of the current system, which have been done by the Congressional Budget Office and many others, and in all cases I use very conservative estimates of how much the cost of the current system is going to be in the out years. And then I have very detailed calculations of the cost of "the Plan," as I call it. And it would be that the cost of the plan and the cost of the projected current system cross in 2011.

Right now, the plan I propose is more expensive than the current system. As of 2011, costs would be equal. And let's fact it, there's no chance it's going to be implemented before 2011. And by 2020, the projected costs of the plan are about half a trillion dollars a year less than the projected costs for the current savings. So there are savings in the out years.

Borders: And do your calculations include what we might call "dead weight loss" to the economy -- but could later be money spent in the economy actively?

Murray: No, I don't. It's an absolutely valid point you're making that there would be enormous beneficial side effects in freeing up all the human capital that's presently devoted to these silly systems.

But I decided at the outset -- because I know that any book I write will be attacked unfairly in terms of, "oh, Murray didn't take into account such and such, and therefore his numbers are all wrong" -- so I decided to try to minimize that by using extremely conservative assumptions whenever I'm calculating the costs of the current system, and extremely conservative assumptions in the opposite direction, as it were, when I'm calculating the costs of the plan.

In other words, every time there's a choice between saying something like "look at all the benefits we'll get from capital that will be freed up," I say no, I won't count that. It's there, but I'm not going to count it.

I'll give you another example. When I calculate the accumulations that people would have if they were managing their own retirement funds, I use a compound annual growth rate in their invested assets of four percent a year of real value. That is more conservative than any of the Congressional Budget Office or Presidential Commission estimates. For that matter, four percent is lower than the average compound annual growth rate for any 45-year period, which is sort of the savings period of an adult's career. Any 45-year period in American history. Another example of saying: "Look, everything I'm saying is conservative in terms of what I'm planning for."

Borders: So it's still going to work even with the most conservative estimates?

Murray: Right, and if you have more realistic ones, it's that much better.

Borders: You have elsewhere called yourself a libertarian.

Murray: Absolutely. I wrote a book calling myself a libertarian.

Borders: So do you believe that justice demands we correct the -- as the philosopher John Rawls would put it -- the natural lottery, the inequalities that life hands us? Or is In Our Hands a kind of pragmatic compromise with the egalitarian left?

Murray: More the latter. I want to say to my fellow libertarians out there: I not only still consider myself a libertarian, I don't consider that I've wavered in it.

But here's what I think we have to talk about. You think, if you're a libertarian -- as I think -- that the best solution of all is to leave all of this money in the hands of the people who started with it. And this would energize unimaginably effective, widespread, voluntary means of dealing with the problems we face. You believe that. I believe that. That's fine.

We cannot blink at the fact that there's so much money out there -- and the impulse to use the government to redistribute is widespread. We are not going to change that. For all time to come, governments are going to take in vast sums of money and redistribute it. And then the question for libertarians becomes: if one accepts that it's going to happen, is there a way to do this which leaves people's lives in their own hands?

And that's the source of the title of the book. So there will still be government redistributing a lot of money. The big difference is it's no longer bureaucrats who are going to be doling it out in dribs and drabs under certain conditions if you have demonstrated certain kinds of need. It is going to be giving people sufficient resources to run their own lives.

But let me add, however, one other element.

Whereas I still think that the best solution is the pure libertarian solution, I am more sympathetic – and I think my work on The Bell Curve and IQ sort of pushed this along -- I am more and more sympathetic to the proposition that in the lottery of life some people come up with the short end of the stick on a whole bunch of different dimensions. It's not so bad if you don't have an IQ of 130 if you're beautiful, charming, or industrious. After all, there are all sorts of bundles of qualities that make it very hard to rank people from "high" to "low."

It is also true that there are substantial numbers of people who are not that smart, not that beautiful, not that charming, not that industrious, for reasons that they have no control over -- and they've gotten the short end of the stick. So if I'm talking about using government to redistribute some resources to that person, I'm not going to lie awake nights thinking that I've done some awful thing by helping them out. I'm happy with this compromise.

Borders: And yet I think it's one thing to convince supporters of a larger welfare state of the economic or efficiency gains of this kind of plan, but it's quite another to dislodge the entrenched bureaucracies that surround the current regime. What do you think it would take to overcome that obstacle?

Murray: I have no idea. But we all work in our part of the vineyard. And the first step is to get people to talk about the end-state they want. And so suppose this book strikes a chord with a wide variety of people on the left as well as the right. Because if you're on the left and you're serious about wanting to move resources to people who don't have them now, the plan that I propose does a lot more than the current system does. So suppose you get people talking about that. That's a start.

Then, there are a couple of ineluctable, long-term trends I think make something similar to the plan almost inevitable. There are two of these trends.

The first of them is the secular increase in wealth. At one point in the book, I have a graph showing real GDP per capita over the 20th century. And I have the individual dots for the individual years, but I also have a trend line which is non-linear -- it's an exponential increase.

And the funny thing is how closely the individual dots hew to that trend line throughout the 20th Century. They go down below it during the depression; and they are above it consistently, only -- guess when? -- during the Reagan years. But by and large they're real close.

And what this says is: even when you have administrations that we think are absolutely awful in the past, the economy has tended to improve. And similarly with administrations we like better... and that's going to continue. The amounts of money out there, which are already large, are going to continue to increase. That's one trend.

The second trend is: it is going to become increasingly obvious to a consensus of the electorate -- as it is now obvious to people on the right, (at least) the libertarian right -- the government is really incompetent. But it's not a matter of saying: "Am I generous and want to have expensive social programs?" or "Am I stingy and don't?" Everybody who has any dealings with government just knows that it's hard enough to have a competent police force and military. That can be done, but even that's hard. And once you get to more complex human needs, governments are just completely clueless, all thumbs, and any other metaphor you want to use. That is, I think that understanding is more and more widespread as, increasingly, we have private alternatives that we all prefer. If we had a choice of always using FedEx instead of the U.S. Post Office -- of course we'd use FedEx. That's going to become obvious.

And you put those two things together. Suppose that in the year 2050 we have the current system extended and you look at the amounts of money that are going to be spent then, and we'll still have poor people, and we'll still have people without comfortable retirements, and people are going to say "this is crazy." Just give people the money. Well I'm saying right now that it's already true. We can just say "give people the money" and let them take care of these problems for themselves.

So it's going to be obvious. How that obviousness will play out, I don't know. But on the other hand, when "Losing Ground" came out and I said, "welfare is terrible and doing more harm than good and it ought to be gotten rid of," it's not that the 1996 Welfare Reform Act got rid of it altogether, but it was pretty major reform. As of 1984, nobody was even considering that in the realm of possibility.

Borders: Who are your heroes?

Murray: Well I will just preface it by saying that after I got done writing a book called Human Accomplishment, the people I stood in awe of were the greatest artists of history in music and literature and visual arts. They are the ones that I stand before and say: "how on earth do they do that?"

But putting those aside, In the 20th century, the books I loved the most were Robert Nozick's Anarchy, State and Utopia and Richard Epstein's Takings. Those are two that come to mind. And of course, I mean, Milton Friedman and Friedrich Hayek are way up there. As intellectual heroes, they're at the top of the list, as well.

Other than that, I consider myself to be very much in the tradition of the Founders. When I call myself a libertarian, I basically think what George Washington and Thomas Jefferson thought. I look upon the role of virtue pretty much the way they did. I am a traditionalist in the sense of the institutions that I believe make up a happy society with the family being central to that. But when it comes to the government's role, I read Thomas Jefferson and his "First Inaugural Address" and I would say what he said -- that the role of government is to protect people from injuring one another. Otherwise leave them free to govern their own pursuits, and how they want to live their lives. It's very simple.

Borders: Charles Murray, thanks so much.

Murray: Thank you. I appreciate it.


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