Politics

First note on specific policies: a guaranteed minimum income

The idea of providing a guaranteed minimum income to every American currently lies outside the ever-shifting window of politically plausible policy ideas. But it is hardly a fringe proposal. Various public thinkers from Friedrich von Hayek to Martin Luther King Jr. have supported the idea.

There are a variety of good practical arguments in favor of providing a guaranteed minimum income, including that it would decrease economic inequality and all of its negative externalities; strengthen families, since poverty is one of the greatest contributors to family breakdown; encourage investment in personal capital, innovation, and risk-taking, because all of these are more likely when a person is not faced with uncertainty about basic economic needs; and be more efficient than the tangle of programs that currently make up the safety net. The limited empirical evidence regarding guaranteed minimum incomes also seems to suggest that their disincentive effect on work is not as serious as might be feared.

What interests me, however, is the way that a guaranteed minimum income fits together with the post-Reagan-era vision of government sketched in previous posts. The key is recognizing that because of the centrality of the price mechanism to the efficient functioning of markets, wealth inequality in and of itself represents a non-self-correcting source of inefficient outcomes—a “market failure.”

(I resist the term “market failure” because it is often contrasted with “government failure,” as though the two forms of failure were conceptually distinct. In fact, once it is recognized that government policies create markets, that markets exist in many forms, and that there is no non-arbitrary basis for defining classical liberal markets as “the free market” and labeling any departure from “the free market” as “government intervention in the market,” it becomes clear that all so-called “market failures” are in fact “government failures” as well.)

So here is an argument for guaranteed minimum incomes, based on the rejection of the Reagan-era bright-line distinctions between governments and markets:

All other things being equal, any amount of wealth inequality will tend to disrupt the ability of the price mechanism to coordinate the self-interested behavior of economic actors so that this behavior serves the public’s interests. Only when every individual has the same amount of wealth will each individual’s preferences be likely to receive equal attention in the economy. If I have a billion dollars to spend on my basket of preferences, and you have ten dollars to spend on yours, chances are the self-interested choices of economic actors will lead to the fulfillment of more of my preferences than of yours.

By contrast, the economy that we have chosen through our government’s legal rules obviously results in extreme inequalities of wealth. There are, of course, extremely good reasons for this inequality. Above all, the possibility of unequal economic outcomes provides an incentive to work—and not only to work, but to work hard, to innovate, to compete. So, we have a conflict: on the one hand, we want wealth to be as equal as possible, so that the price mechanism will function properly throughout the economy, and the economy will lead to efficient outcomes rather than grossly inefficient ones; on the other hand, we want individuals to be rewarded unequally for their labor, so that people will be motivated to do the work that the public values.

The important point is that we choose how to balance these conflicting principles. We choose whether our government’s economic policies will result in greater equality, and with it a more well-functioning and efficiency-generating price mechanism; or greater inequality, and with it more incentives to pursue the work for which the public (to the extent that it can pay) is willing to pay.

But this is not how the ideology of the Reagan era views the reduction of wealth inequality through wealth transfers. In this context, as in many others, the ideology of the Reagan era might be called “market fundamentalism” (so long as “market” is understood as arbitrarily meaning “something like a classical liberal market”). In the eyes of the Reagan era, wealth transfers are viewed as an interference in the natural functioning of the economy—perhaps justified on humanitarian grounds, but nevertheless a form of government intervention that requires special justification.

Perhaps because we continue to live in the Reagan era, this way of viewing wealth transfers is the default in public discussions. But there is another way. Attempts to promote wealth equality by transferring wealth from those with more of it to those with less can be seen not as unnatural interventions in the natural state of the economy, or as a suspension of the ordinary economic rules in the interest of some external, non-economic value such as fairness, but simply as a recalibration of the price mechanism in the interest of efficiency—which is, after all, the value that lies at the center of most economic thinking. It is because markets generate efficiency through trade that we study markets. Having some form of equality-promoting wealth transfer may be as necessary a component of an efficient economy as having some form of property rights. Viewed in this light, routine wealth transfers may represent no more of an external interference in the natural workings of the economy than routine enforcement of property rights.

To the extent that we do not adopt economic rules establishing such transfers, then we deliberately choose an inefficient economy in which the price signals are distorted so that the preferences of some economic actors receive more attention than others. Again, we may wish to make this choice in the interest of providing incentives. The important point here is that we have a choice, through our taxation and spending policies, as to which balance we wish to strike between the disincentives of decreased inequality and the inefficiency-generating distortions of increased inequality, among other considerations. The choice is not made for us by the nature of markets, nor is one chosen balance of interests more “natural” than another.

Which leads to the guaranteed minimum income: the spending side of a wealth transfer in its purest form.

(Even Milton Friedman appears to have supported a guaranteed minimum income. I note that it is hard to reconcile a guaranteed minimum income with the usual economic libertarian commitment to negative liberty. If the ultimate political value is negative liberty, then how can it be justified to take money from some people (against their will) and give it to others? If the response is: “well, negative liberty isn’t the only value—it wouldn’t be right to do nothing while people are too poor to feed or house themselves”—then the question arises: if the positive freedom to eat and to house oneself is a valid basis for placing limits on negative freedom, then why not other positive freedoms as well? On what principled basis can a libertarian say that the positive freedom to eat and be housed trumps negative freedom from taxes, but not the positive freedom to obtain a good education and all the other material and spiritual benefits of not living in poverty?)

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5 thoughts on “First note on specific policies: a guaranteed minimum income

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