The Progressive Case for the Welfare State: A Refresher

Many of my own fellow-travelers police progressivism in a way I sometimes find frustrating. It is de rigeur to chastise neoliberals and technocratic moderates for their lack of radicality. My work tends towards the technocratic/participatory divide around how policies should be made, and so I often don’t have strong policy preferences unless I’ve researched a question extensively. Thus I may be the wrong person to offer a common sense or standardized progressive defense of the welfare state, but I thought I’d give it a shot. Here goes:

Soft-core Case

  1. Taxes are the price of a good society. Many of the benefits that citizens enjoy are the positive externalities of our shared institutions, including safety net institutions. Thus, the wealth we earn in the marketplace is only partly due to our own effort, and largely due to social investments. Taxes are thus dividends owed for those social investments, and also the seed capital of future social investment.
  2. Private charity is laudable, but historically it has always come up short of real need. The welfare state responds to these failures of private efforts to ameliorate real suffering. Meanwhile, public provision of charity has been massively successful at reducing poverty and alleviating suffering. (The measures of poverty that claim otherwise assume away the goods and services supplied by safety net institutions.)
  3. The regulatory state responds to memorable injustices and documented depredations of private institutions and interests. Public regulation of industrial activity has helped to solve large-scale coordination problems, giving us cleaner air, safer drinking water, and lower mortality than countries who do not regulate those goods.
  4. It is no coincidence that the richest countries have more pervasive welfare states. Both serious poverty and large inequalities are inefficient for finding talented workers and ensuring that they are not excluded from sectors of the labor market that the rich might be tempted to monopolize.

Medium-Core Case

  1. There is a plausible case to be made for free markets: they tend to allocate resources more efficiently than alternative institutions when there’s a method for increasing the supply of that good. But free-market principles tend to fail where there are prospects of monopoly, including in situations of desperation where price-gouging becomes possible. Rent-seeking can happen both privately and publicly, but private rent-seekers tend to extract more value from those they exploit than public rent-seekers do.
  2. When users share a common-pool resource, they gain an incentive to maintain it, punish overuse and free-riding, and invest in future development. Economists have claimed otherwise for years, but eventually they gave Elinor Ostrom a Nobel Prize for her work showing that the so-called “tragedy of the commons” is avoidable.
  3. The safety net is properly understood as a common-pool resource, in specific, as a kind of infrastructure improvement. A functional public schooling system enhances human capital and makes workers more productive. A functional safety net for the very poor prevents the loss of human capacities to bad luck.
  4. Thus, there is good reason to choose mixed institutions (polyarchy) where markets and governments work together and in competition, with governments preventing the worst excesses of markets, and exercises of liberty (through exit, voice, collaboration, and innovation) preventing the worst excesses of governments.

Hard-Core Case

  1. We have stronger obligations to our fellow human beings than our moral psychology is equipped to recognize. The same part of our psyche that ignores the needs of strangers also hates other races and cultures. Group loyalties should be expanded as much as they can be.
  2. The nation-state partially corrects for flaws in our individual moral psychology. It generates the conditions under which we can recognize a limited set of our collective obligations that transcend our family and friends, making it possible to care for distant strangers, though not yet indiscriminately. We still feel stronger obligations to our co-nationals than to citizens of other countries; we have not yet discovered institutions that can produce recognition of cosmopolitan obligations. These obligations to co-nationals includes duties of care, reciprocity, and non-domination.
  3. Care and concern require us to seek both institutional arrangements and personal opportunities to engage with our vulnerable neighbors. Reciprocity requires that we ensure that capabilities and vulnerabilities are distributed in an egalitarian manner. Non-domination requires not just that we personally forgo interfering with each other, but that we reject institutional arrangements that allow other parties to arbitrarily and capriciously coerce our fellow human beings.
  4. Universal welfare programs, like universal infrastructure programs, are better at generating a shared sense of care, reciprocity, and solidarity.
  5. Universal programs are also more efficient than need-based programs. Universal programs don’t generate perverse incentives and poverty traps. Universal programs also don’t require resources be spent on civil servants to determine eligibility or investigate potential misuse.

Super Hard-Core Case

  1. Throughout much of our history, the state and private organizations have worked together to create conditions of exploitation. This includes colonialism, slavery, and the successors to slavery, and legalized discrimination against women, homosexuals, and indigenous peoples.
  2. Most large pools of intergenerational wealth are the product of those or other abuses, and most people earning above the median income are benefiting from that history of plunder as well. Other larger pools of wealth are primarily due to the financial sector which is propped up by the public regulatory state and through corporate capture of the state’s policies. Thus taxes and social spending are usually-inadequate efforts to repay those debts.
  3. Libertarians are right to note that redistributive efforts have usually failed to change the basic inequalities of distribution in our society, and that large regulatory states provide ample opportunities for regulatory capture and rent-seeking. But the answer is not to give up on reclaiming what has been expropriated, allowing the bandits to keep what they have stolen so long as they promise to raid no more! The answer is to redistribute more effectively, regulate more intelligently, and continue to target the ways that governments and regulators become captured by the interests of the wealthy.

I’ll note that I think the “soft-core” case is somewhat at odds with the “super hard-core” case, which is what often generates divisions between liberalism and progressivism. Yet I think this basically outlines my reasons for a commitment to the welfare state.

My friends who worry about moderate and technocratic ideological inconsistency are wrong, though. I think progressives should worry about governments, a lot. Governments do a lot of bad things, including a lot of things libertarians are good at recognizing and pointing out.

And really, this post was inspired by a libertarian. Over at EconLog, Bryan Caplan offers a “refresher” designed for libertarians who find Scandinavian welfare alternatives appealing. It’s a kind of intervention for prodigals. It works primarily as a reminder to those who are supposed to have known those things, but it works well. In a few short paragraphs, Caplan combines empirical claims about the efficacy of libertarian policies with principled objections (to borders and to the coercion of taxation.) It’s not exactly an argument: more a statement of premises, with an argument perhaps taking the form of a longer book like Michael Huemer’s The Problem of Political Authority.

Yet it’s still enough to provoke debate with other libertarians. And in my view, arguments with one’s fellow-travelers can be helpful for your collective projects. As is not-often-enough-the-case, we are currently contesting the nature of the progressive/liberal divide during the primary contest between Hillary Clinton and Bernie Sanders. It’s worth remembering our basic commitments to public and participatory institutions, as well as to just and competent government.

(Post updated March 8th)

When we finally start talking about gun control, what should we say?

I love policy discussions, but the demands for policy discussion on gun control after the shootings in Newtown today are terribly wrong-headed.

The problem is that demanding a policy discussion is not the same thing as having a policy discussion. At this point, we’re just talking about talking about gun control. It’s all “mention” and no “use.” It’d be nice if folks would actually start proposing laws. Like: limits on magazine size. Ammo taxes. Closing the gun show loophole. Or even…

Prohibition.

I’d love to talk about gun prohibition. (Notice, this isn’t even the same policy debate as “gun control.”) Unfortunately, if we start talking about gun prohibition, then we will be forced to confront how badly prohibition is working in other markets. There are three hundred and ten million guns in the US. (Yes! 310,000,000!) What does prohibition look like under those circumstances?

Reflecting on that question, ask yourself this: how many people will be killed in no-knock police raids trying to root out the black market in guns? Will they be mostly white or mostly black? (Notice that gun control laws have tended to be stricter in majority black areas rather than majority white areas. Both DC and Chicago, the battleground states for the 2nd Amendment claims, are disproportionately black.) How many of those killed by police will be kids? How many kids’ deaths will be prevented?

On reflection, I suspect that many gun control regimes and all possible paths to gun prohibtion are more likely to increase the number of people hurt and killed by guns.  So when we do finally start talking about gun control and gun prohibition, let’s be very, very careful.

Something must be done.

Prohibition is something. 

∴ ????

Also, let’s remember that the violent crime rate, including gun crimes, is the lowest it’s been in 20 years. That doesn’t make what happened today any easier to handle, but perhaps it will allow us to focus on what happened, and the people it happened to, instead of replaying Jon Stewart’s Monday night monologue. Something terrible has happened. It didn’t happen to you or I, so we have the ability to ask whether it could have been prevented. We should ask whether it could have been prevented. But we should also ask: at what cost? Then we should follow that calculation of lives lost and lives saved wherever it leads.

Craig Whitney’s July New York Times Op-Ed on the Aurora shooting is still apropos here:

Liberals should accept that the only realistic way to control gun violence is not by keeping guns out of the hands of as many Americans as possible, but by keeping guns out of the hands of people we all agree should not have them.

Read the whole thing. Whitney is a liberal gun apologist–which means he has a good sense of what kinds of regulation would actually be constitutional under DC v. Heller, and what sorts might be effective.

What should we say when we talk about guns?

When we start talking about guns, some people will say that they’re unnecessary and dangerous. Others will say that they’re a tool for self-defense and self-sufficiency. That’s usually where the debate rests, except that the 2nd Amendment privileges the second group. If we want to make progress, we can offer better reasons, reasons that will be superior precisely because they are responsive to the reasons of our interlocutors. That means honestly trying to find the overlap in what appears to be an incommensurable set of assumptions.

Here’s Dan Braman and Dan Kahan, in an article on how to have a better gun debate:

For one segment of American society, guns symbolize honor, human mastery over nature, and individual self-sufficiency. By opposing gun control, individuals affirm the value of these meanings and the vision of the good society that they construct. For another segment of American society, however, guns connote something else: the perpetuation of illicit social hierarchies, the elevation of force over reason, and the expression of collective indifference to the well-being of strangers. These individuals instinctively support gun control as a means of repudiating these significations and of promoting an alternative vision of the good society that features equality, social solidarity, and civilized nonaggression.

As a result, Braman and Kahan propose a “big trade”: those who oppose guns should offer to recognize and respect the rights of gun ownership, effectively normalizing it, in exchange for universal registration. By emphasizing the responsibility and civic spiritedness of most gun owners, Braman and Kahan believe that we can better reach an agreement what that responsibility entails.

For Braman and Kahan, this is an extension of their cultural cognition work, but I’d put it a little differently, in terms of the interaction between esteem and social norms: rather than depicting gun owners as dangerous hicks, we give them esteem in exchange for esteem-worthy performances of self-abnegation and sacrifice, like giving up assault weapons and semi-automatics. Since less than 0.004% of all guns are used on other human beings in any given year, we should acknowledge that most people’s guns are not the problem.

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by Flickr user deepwarren

It’s tempting to stage a cultural showdown around guns, to line up a set of  statistics and international comparisons and arguments: i.e. that carrying a gun probably increases the likelihood that you will be shot and killed. Lots of resources already go into advertising this fact, along with others. From a public health perspective it makes perfect sense to discourage gun ownership, but so long as many Americans treat guns as a central part of their identities, such discouragement will only have limited impact. Research suggests that our prior beliefs on guns will have an significant impact on the way that we process new data on gun deaths. That’s more evident in my Facebook and Twitter feeds, where tragedy and group polarization rule, but very little cross-cutting bipartisan dialogue takes place.

In “More Statistics, Less Persuasion: A Cultural Theory of Gun-Risk Perceptions,” Braman and Kahan offer evidence that risk perceptions are derivative of social norms and cultural-loaded meanings:

The risks that we face in our daily lives are far too vast in number and diverse in nature to be comprehended in their totality. Of all the potential hazards that compete for our attention, the ones most likely to penetrate our consciousness are the ones that comport with our norm-pervaded moral evaluations: it is easy to believe that ignoble activities are also physically dangerous, and worthy ones benign. Thus, “moral concern guides not just response to the risk but the basic faculty of [risk] perception” as well.

What this means is that how we process school shootings or firearm-related suicides will be largely dictated by our prior views on the social importance of guns. That’s why our responses differ so drastically: it’s not that some of us are dumb and some smart, some indifferent to suffering and some caring, but that we can only understand tragedy within a cultural framework, and that framework partially dictates which elements of the tragedy pop out as salient.

In particular, those concerned primarily with hierarchical forms of status and authority will relate to gun crimes differently from those egalitarians who abhor social statification, while those who favor individual autonomy will take up a different yet a third approach to evaluating and prioritizing risks than those who favor collective action. What Braman and Kahan show is that the facts and statistics that seem salient to us depend largely on where we fall on both the hierarchy-egalitarian axis and the individualism-solidarism axis.

Here, then, is the problem: most of the prohibition-type solutions are only going to receive support from those of us who are both egalitarian and in favor of collective action. This creates the potential for a coalition of interests between those who favor guns as a traditional prerogative of American citizenship, and those who see them as a symbol self-sufficiency and of man’s mastery of nature. You can’t simply eliminate those value profiles and risk-assessments from the electorate, and it’s important to acknowledge that they do see some facts more clearly we do. Instead, we should seek solutions that are more widely satisfying to traditionalists. Politicians understood this long ago and captured it in the canard that gun safety regulations should respect the rights of “hunters and sportsmen.”

But what kinds of policies does this respect entail?

I’ve already linked to two kinds of suggestions for gun control that seem like reasonable accommodations with the many civic-minded gun owners in the country: the federal legislation recommendations from the Mayors Against Illegal Guns, and the Op-Ed by Craig Whitney, “A Way Out of the Gun Stalemate.”

To this, let me add the state and local initiatives suggested by the Mayors Against Illegal Guns, which are in many ways more important, such as better mental health reporting and ammunition controls and licensing. Many of these are things that need not be resolved nationally to be effective: for instance, California single-handedly improved ballistics recognition by requiring guns sold in the state to “micro-stamp” their serial numbers onto shell casings. That program should be expanded to other states.

A lot of the pushback I received last week was tied to the fact that places like Japan and Great Britain have had reasonable success with prohibitions. Certainly this is true, but it seems to ignore both that those places started off with a very different gun culture, and that they are geographic anomalies, islands of dense populations with a lot of ethnic homogeneity. We have 310,000,000 of the damned things, and we’ve had many failures over the years trying to curb that numbers’ growth. We should try something different.

(Always a good reminder: Timur Kuran’s and Cass Sunstein’s “Availability Cascades and Risk Regulation.”)

The Season of Political Irrelevance

It is my considered opinion that the next three months will involve no serious deliberations regarding substantive public policy. Though readership and viewership for such matters will be at its highest, none of the things discussed will be discussed in a way that comports with public reason or with anything like the goal of exchanging reasons and evidence in the search for truth-tracking beliefs. Our best analysts, pundits, and public intellectuals will be busy with horse-race coverage and fact-checking the candidates’ claims. Worse, few of the matters discussed in highly rhetorical fashion, upon which our fellow citizens will be asked to make their determinations, will even be relevant to the public policy matters that ought to concern us most.

Here are the things I suspect we will discuss most:

  • Taxes
  • Jobs and the economy
  • The distribution of income and wealth
  • Globalization and outsourcing

Since none of these are under the control of the presidency, it’s absurd to stage the debates on these matters around the presidential election. And yet we will.

Since this is a highly cynical claim for a democratic political philosopher to make (well, not contentious among professionals) here are the things we ought to be talking about:

  • Climate change
  • Mass incarceration and its causes
  • Immigration
  • Regulatory agency capture by the financial sector
  • The proper size and role of the US military

Notice that all of these policies are administered by agencies under the President’s control. But perhaps even this is undemocratic. Accounts of politics that focus on leaders and the vertical measures of “greatness” are at odds with the pervasive sense of horizontality that ought to guide us in a democracy. Presidents are not the only political actors, nor even the most important: they perch atop the bureaucratic state barely able to steer it, using the reins merely to hold on to their office a bit longer.

Here’s Arendt in Reflections on Violence:

These definitions coincide with the terms which, since Greek antiquity, have been used to define the forms of government as the rule of man over man—of one or the few in monarchy and oligarchy, of the best or the many in aristocracy and democracy, to which today we ought to add the latest and perhaps most formidable form of such dominion, bureaucracy, or the rule by an intricate system of bureaux in which no men, neither one nor the best, neither the few nor the many, can be held responsible, and which could be properly called the rule by Nobody. Indeed, if we identify tyranny as the government that is not held to give account of itself, rule by Nobody is clearly the most tyrannical of all, since there is no one left who could even be asked to answer for what is being done. It is this state of affairs which is among the most potent causes for the current world-wide rebellious unrest.

Still relevant, forty-three years later.

Another Badly-Aimed Attack on the Basic Income Guarantee from Crooked Timber

John Quiggin has been taking up the case against the basic income guarantee at Crooked Timber recently. See here and here. Unfortunately, he is attacking a weak man version of the policy.

It doesn’t look like he actually opposes the BIG, in theory, but his objections all appear to demonstrate that a Basic Income is much too hard and expensive to implement, short of a revolution. As such, he ignores the experimental evidence out of Namibia, Manitoba, and the US. Quiggin starts by eliminating an unconditional and universal basic income guarantee and instead focuses on a means-tested guaranteed minimum. Then he assumes that this will reduce employment as workers leave the workforce (presumably to surf). He also assumes that it will be funded by income taxes, natural resource extraction taxes, or capital expropriation.

All of these assumptions are wrong, and caste the BIG in the worst possible light. The real appeal of the BIG is that it is easy to implement, can work piecemeal, will likely increase employment and productivity, and can ramp up slowly, and even unsteadily, to make the transition politically palatable and in accordance with the rule of law.

Cheap at Any Price (“Cost” versus “Dead-weight Loss”)

How much would a basic income cost? There are a few ways to ask this question:

  • “How much would we have to raise taxes in order to pay for this policy?”
  • “How much productivity would we lose under this policy?”
  • “What would the effective tax rate be under this policy?”

It’s important to note that these are separate questions. We would certainly have to raise tax rates to pay for a basic income: there is not a currently a revenue stream devoted to it. These higher taxes might reduce people’s propensity to work, and still more productivity might be lost because people choose not to work when their needs are met. However, depending on how those taxes are collected, such an increase might not increase the effective tax rate: the difference between the tax rate and the services supplied. The early Crooked Timber discussion totally confused effective rates with headline rates, in much the same way that people pretend that the rich actually paid 91% under Eisenhower. They didn’t.

The best way to ask this question would be:

  • “What is the dead-weight loss of a basic income guarantee and its associated taxation, compared to what we have now?”

The answer is that, on the most plausible accounts, a basic income guarantee is actually cheaper than the current system.

It’s important to note that the current cost of government in the US is approximately 21.41% of GDP. That’s the GDP divided by the Disposable Personal Income. Doing it this way adds back transfers payments and the positive benefits of government like firefighters and medical research. 21.41% is how much money we spend on all the stuff we don’t really want: invasions and aerial drones, pretextual traffic stops, cavity searches, TSA employees, drug warriors, and CIA black sites.

Government as a whole produces net benefits (a social surplus) because it makes transactions possible through the rule of law. Yet GDP probably overvalues government services and undervalues technological innovation over time, so it’s pretty controversial whether the number is anywhere close to this  21.41%  in reality.

In contrast, calculating the economic cost of a transfer payment is pretty easy: I take $100 from Bill Gates and give it to a poor person, there’s no lost disposable personal income in that transaction. Gates has less, but the poor person has more. Yet some ways of funding that transfer can be said to produce a dead-weight loss, an “excess burden” compared to other revenue-generating mechanisms. If it costs me $10 dollars to pay for the administrative costs of running the $100 transfer, the transfer tax costs 10% of disposable personal income. If Bill Gates produces $10 less income than he would otherwise because he has less of an incentive to work knowing that some of his money will be taxed, then the deadweight loss is 20%. ($10 from lost productivity, and $10 to pay for the transfer.) The current administrative costs of Social Security are 0.9%, which isn’t much, so the question is, how much less will Gates and the poor person work under the BIG?

It’s a trick question, of course: Bill Gates doesn’t work, and neither do the very poor! The capitalist allows his investments to work for him, and the poor can’t afford to work or they’ll lose their benefits. So some transfers are less distortionary than others.

Unconditional & Universal (Guarantees reduce Dead-weight Losses)

Here’s Quiggin:

The big question is whether current workers will respond by leaving the workforce and relying on the basic income. We’d expect and want this to happen to some extent – the whole idea is to free workers from absolute dependence on wage income. But if the shift is too large, the tax burden will become unsustainable.

How large is too large? Suppose the employment rate falls from 60 per cent to 50 per cent, and that capital income falls in line with labor income, so that a larger benefit cost is being supported by a smaller income.

The basic income guarantee solves a problem that Quiggin seems to think it creates: various parts of the government actively discourage remunerative work by creating a “poverty trap” consisting of various means-tested programs that are necessary for survival but are lost as incomes increase. Many of the poor literally can’t afford to work: they’re exiled from the (remunerative) labor pool. That’s a powerful coercive effect that more than trumps the lessened interest in employment felt by middle-class workers who conclude they have enough. This will also be a problem with a negative income tax, which is why a universal guaranteee is actually more efficient.

All of the experiments designed to test the employment effect found that work effort increased under a BIG: in Namibia, workforce participation rose from 44% to 55%! The poor can work for each other if they become the middle class. In Manitoba, hours worked by new mothers and teenagers decreased, but only because the teenagers focused on education and the new mothers on child-rearing. In that sense, remunerative work declined slightly, but productive work effort increased: this isn’t about a “right to surf.” Each marginal dollar earned still increases a poor family’s well-being, but now they can afford to make longer-term decisions by investing in human capital.

Note: the US experiments with negative income tax do show a 13% decrease in hours worked for wages, but similar increases in educational effort to Manitoba’s Mincome, and didn’t test overall employment effects from new labor market entrants because the unit of experimentation was the household. This is a famous moment in social scientific research, when we noticed that the “unit of analysis” matters.

Populations with a basic income guarantee work more, not less!

Tax Consumption, Not Income (If you want more of it, why tax it?)

Quiggin worries that marginal income tax rates needed to fund a basic income proposal might become unsustainable:

Depending on the design of the tax scales and the mix between income and other taxes, the marginal rate for the average worker would probably be around 40 per cent, and with a moderately progressive tax scale, lots of workers would be paying marginal rates above 50 per cent.

For a lot of people, the 50% marginal tax rate mark has psychological significance, since it seems like you’re working for more for the government than for yourself. But that’s precisely why we should focus our taxing attentions on consumption, a belief shared by the majority of economists on both the left and right.

A Basic Income Guarantee causes some to receive payments who don’t actually “need” it. But that’s not such a problem if we fund the basic income with a sales tax or value added tax. (A value-added tax, or VAT, is like a sales tax that is collected all along the supply chain rather than only at the point of sale: it’s cheaper to administer and harder to cheat than a sales tax.) That way, we can recapture the basic income grant paid to the very rich, who will spend more of their earned and basic incomes on consumption and thus repay the basic grant. I’ve written about this before, herehere, and here.

An ideal level for both the VAT and the basic income might be to cause the bottom two quintiles of the population to receive a subsidy paid by the top three quintiles. In the US in 2003, this would have been about $34,738: anyone earning less than this would be subsidized by anyone earning more. Other proposals might aim to redistribute around the median income of $44,000, such that a household earning the median income would receive exactly the same amount in basic income that they pay out in VAT (if they spent every penny they earned.) Since the basic income is designed to supply the poorest with the means of subsistence, the VAT might be as high as 30%: in the median proposal, each household would receive 30% of the median income (about $13,200) as a guaranteed payment, but the median income household would pay out the same amount over the year in sales tax, thus breaking even. This is the best way to widen the tax base while enhancing progressivity.

Transition is as Easy as a Tax Rebate (A BIG can start small!)

Quiggin claims that that the BIG+VAT would require a “big bang” rather than a slow transition:

The simplest way to get to a universal basic income would be to pay it to everyone, then recoup the cost, through the tax system, from everyone above the basic level. While conceptually simple, this way of doing things would be almost impossible to implement except as a ‘big bang’, and is also too hard for me to evaluate.

Along with Chris Bertram, Quiggin has been saying that the path to a BIG is totally unimaginable:

So, any serious approach must, as Chris suggests involve transferring a large proportion of existing wealth from its private owners to the public. Leaving aside questions of justice, I can’t see an obvious transition path here. The problem, as illustrated by the existing wealth-based funds, is that it takes a lot of capital to generate a return that would finance a UBI at or above the poverty line. In the US context, you’d need something much larger than the Social Security Trust Fund (2.7 trillion) to get near the target. On the other hand, it’s hard to see how a universal payment at a level far below the poverty line could mobilise the kind of popular support needed for a policy of radical redistribution.

Hardly! You can start with a partial BIG+VAT and grow it over time. The current proposals for a carbon tax or a national sales tax would both suffice. Make these important Pigovian taxes palatable by giving them back to the people using classic Republican tax rhetoric. Just don’t give them back in the same distributional pattern as they were collected: take a 5% tax on all carbon emissions, and use the revenue to pay every American a small annual income. Call it a “rebate.” A partial BIG wouldn’t replace the current welfare state, but it could help ween us off means-testing, reduce the size of the poverty trap, and help us iron out the kinks in this plan while supplying lots more evidence for pundits, wonks, and social scientists to study.

Take your time, the poor will still be here: we can do 5% now, and another 5% in a decade.

As it grows, the BIG can replace the expensive or particularly paternalistic parts of the welfare state, things like Social Security (which isn’t actually egalitarian) and food stamps. The BIG is tailor-made for these kinds of gradual tradeoffs; it enlists the middle-class in poverty-alleviation. Just think of all the ways in which conservative economists and progressive activists can ally to accomplish economically efficient policy changes: a minimum wage becomes a clear obstacle to employment (with no distributional upside) if everyone has a BIG, and that means even greater workforce participation, as would decreased unemployment insurance, which current employers must factor in to the cost of hiring decisions.

What’s more, we needn’t transfer any wealth at all! For a consumption tax, the current economy is all we need to get started: the household part of the US economy is worth $57 trillion or so. We only need to redirect the income stream from that enormous wealth. If a rich person lives as frugally as Warren Buffet, she won’t pay much in consumption taxes, but that’s okay. We don’t want to discourage investment and productivity increases! We want more of that, not less. We want less conspicuous consumption, right? We want less class difference! You may think that this requires wealth redistribution, but even the Scandinavian social democracies actually have quite large wealth inequality. What matters most is how people live.

Greece and the European Union

This Newsnight piece paints a picture of the widespread breakdown of the Greek social compact:

What was no joke were the clashes between police and the hardline protesters.[…] Time and again, on the grounds of confronting the rioters, police made incursions into large masses of peaceful protesters. […]I can tell you from repeated experience, it feels like a process of collective punishment of a peaceful majority.

I think this week caught Greece on the proverbial brink of something. The anger could easily solidify into anti-German sentiment, but with the conservatives and Orthodox right implicated in the first bailout, anger can more easily flow to the left.

[…]in the three hours I spent at or close to the front of the rioting on Sunday night, I did not see a single other television crew. Ours was repeatedly harassed, verbally and physically, most harshly by a small group of right wingers who accused us of being German.

The article details the effects of austerity on public services combined with widespread tax and fee defiance. Higher taxes and fewer public goods will create a spiraling legitimacy crisis, all while European leaders demand that Greece postpone elections. That means less democracy and accountability to the Greek people when they need it most. It seems untenable, and indeed even Jürgen Habermas has tempered his Euro-optimism with this:

“Sometime after 2008, I understood that the process of expansion, integration and democratization doesn’t automatically move forward of its own accord, that it’s reversible, that for the first time in the history of the EU, we are actually experiencing a dismantling of democracy. I didn’t think this was possible. We’ve reached a crossroads.”

The right answer seems obvious: default on the loans. Even the Financial Times proclaims it: “Greece must default if it wants democracy.” But there are problems. For one thing, Greece isn’t just in debt from past expenditures: it’s currently spending more than it takes in taxes. So a default isn’t the end of its troubles: it’ll still have to make costly cuts and increase taxation. Debt forgiveness won’t be enough: the Greeks would immediately need to go back to borrowing, only now the rates would be even higher since they will have signaled that loans should be treated more like gifts.

That means that the Greek government will not be able to avoid austerity through default and inflation. So what’s left?

  • Institute technocratic rule and massive austerity enforced by the IMF and the Eurozone
This seems to be the plan dreamed up by Greece’s creditors. Send in the efficiency experts, raise taxes and improve tax collection while cutting the public sector. Given the unrest and the lack of hope, this is absurdly unsustainable. A corrupt public sector and uncontrolled (and largely untaxed) private sector don’t become more legitimate when they’re all managed by foreign eggheads. “Do the Greeks even have a word for democracy in their language?”
  • Leave the Eurozone and allow the new drachma to inflate faster than the European Central Bank is doing

This is the Communist Party’s answer. But it faces many of the same problems of a simple default, only now exacerbated by capital flight. Leaving the Eurozone will dissipate the wealth that Greece must tax: the wealthy have been waging a quiet run on Greek banks and the behavior has spread to the working-class. They’ll likely disseminate the cash to non-Greek banks in the form of Euros, to avoid the devaluation of a new drachma. This may well be their best hope, and if Greeks vote for it, we should support their efforts to go it alone. But I don’t think they’ll enjoy the same post-default bump that Argentina got, and this actually seems like the course of action with the greatest number of possible unintended consequences. The Communists could easily end up destroying the Greek public sector in order to save it.

  • Institute a military junta in Greece

This is obviously the scariest prospect: I include it only to make the others seem more palatable than they’d otherwise be. But there was a coup d’etat in 1967, and the Junta ruled until 1974, and that’s recent enough that such a solution is still imaginable. Right now, the far left in Greece holds more appeal than the far right, but that need not last. What will the Communists do after their plan to leave the Eurozone and default on the debt fails to end the spiral of service-cuts, tax rises, and the resulting illegitimacy? Historically, austerity and low growth seem to lead people to value the fantasies of security and strong leadership that characterize military rule.

  • Institute a federal fiscal union with regular interstate tax/spending transfers

Right now, there’s little financial incentive for Germany and France to continue to subsidize Greek debt, and there’s little financial incentive for Greece to remain in the Eurozone. True, German and French banks are massively exposed to the possibilities of default, and this may well preserve the union for a while; but more than a financial bailout or an economic stimulus to jumpstart their economies, I believe the whole EU needs the political stimulus that only closer federation can supply.

Where the financial incentives fail, Habermas and other Euro-optimists have always suggested that cultural commitment to the ideal of European Unity would have to suffice. The way to cement this is to create meaningful democracy at the EU level, along with the mechanisms for regular taxation and spending decisions to be made throughout the entire Union.

Currency union without political unification has always been dangerous, yet it’s common to resist a political union because sharing governance gives people outside of our communities a legal claim on our resources and rights. Still, there’s plenty of evidence that this interstate transfer is what makes the United States function. Much as we in the US hate Congress, especially the way that politicians representing values we don’t share can still govern us… we can’t be federalists without them. And as a bonus, the perpetual transfers lead to better infrastructure investments in currently low-productivity states that allow those states to remain productive rather than suffering from adverse selection.

“More Democracy!” Yes, that’s my final answer.