Who Do You Trust?
December 1, 1998
With Responses From
Dec 1, 1998
6 Min read time
A welfare system must provide accountability.
Bowles and Gintis have written an interesting polemic, and one such good turn invites another. We enjoyed what they have written, but we have some minor disagreements. Our research on reciprocity interprets the spontaneous emergence of institutions as an attempt to expand the use of reciprocity to impersonal situations. As in our personal exchange, successful institutions provide accountability in an impersonal world. A "welfare" system, however benign, must still provide this accountability.
We would agree that our experimental work, and that of others cited by Bowles and Gintis, is consistent with equity norms and with a minimal safety net; but we do not agree that this indicates a general commitment to equality. The 1995 CBS/New York Times survey in which 89 percent supported a mandated work requirement for welfare recipients, like other pool evidence cited by Bowles and Gintis, suggest to us that the willingness to make distributional transfers depends on deservingness. Except for the abstract principle of some ideal minimum, people expect to see a return on their distributional transfers. This suggests that people subscribe not to equality but to equity, where equity means: to (and from) each according to his or her potential (or actual) productivity, tempered with a minimum safety net, as any of us is potentially subject to disabling, not always insurable, misfortunes beyond our control. This principle derives from a desire to achieve equality of opportunity, not of outcome--from a desire, perhaps a very deep need, to help people help themselves. In our experiments, equity surfaces in the form of proposers giving less to responders, when the proposer position has been earned "fair and square" in a general knowledge tournament, and responders, knowing this, willingly accept less.
Bowles and Gintis discuss the n-player public goods experiments as evidence for strong reciprocity among individuals. Over time, however, reciprocity (i.e., contributions to the public good) declines. In these experiments subjects are pre-assigned to groups from which there is no escape. What happens when contributors are sorted into groups on the basis of their contribution to the public good? Like-minded reciprocators sustain the level of their contributions. In other words, strong reciprocity works when people get the right to choose with whom to interact.
All attempts to achieve equality of outcome flounder on the rocks of incentive incompatibility and the behavior of those in power when dipping into a common-pool government budget (as in the former Soviet Union, Sweden, Mexico, the United States, and any country with a central government committed to the rhetoric of doing good while spending tax money collected involuntarily through the police powers of the state). The difficulty of course is a consequence of the age-old OPM--other people's money--problem.
We think the widespread experimental and other evidence for the innate practice of reciprocity by some, but not all agents (roughly half our subjects choose reciprocity, and half choose noncooperative play when given a choice) in decentralized processes of social exchange, suggest that the problem of distributional transfers might best be handled by individuals, acting alone or through social institutions. That is, the alleviation of poverty should largely be considered none of the government's business, and in this sense belongs in the same category with drugs, abortion, health care, population size, prostitution, schooling and religion. It appears safe to expect that if the government did mandate a work requirement for welfare recipients, the inevitable "one size fits all" approach by government would eventually yield such unsatisfactory results that a sizeable share of those polled would be opposed to it. Thus, the move toward cost control through managed care in health care services has sponsored a call for putting "patients and doctors back in charge of medical decisions, not managed care bureaucrats," as the New York Times put it--precisely the OPM conditions that led to uncontrolled cost escalation. Again, large majorities favor a "lets be tough on crime" stance and then, unsurprisingly, are shocked by the Rodney King, and Waco incidents. Centralized power yields abuse as certain as death, taxes, and clumsy government intervention. Basically, people cannot trust governments to do their bidding because each is bidding differently, and the aggregation of the bids faces implementational infeasibility. Information on the fine structure of distributional preferences is dispersed and no central authority can deploy resources to effectively satisfy those preferences. These ancient truths have been well-expressed by Bastiate, Hume, Locke, and others; given them, what is to be done?
It is probably not politically correct or feasible for the government to get out of the welfare business, cold turkey, and allow private initiatives and institutions to be reinstated and rebuilt after being undermined by welfare and the "war" on poverty. (Yet the poor are still with us decades after the declaration of war.) Things are not bad enough and no doubt have to get worse, before they can get better. We need a transition mechanism, or maybe a permanent incentive rule, to replace a system in which poverty would disappear if you gave all those below the poverty line a proportionate share of total spending on poverty programs. An example of the former is to allow direct transfers to individuals below the alleged "poverty line" to be deductible from income for tax calculation purposes. Deductions for contributions to the Salvation Army and similar organizations assisting the poor are already allowed. This scheme would allow individuals to adopt a poor family, lay on their own requirement standards and get a deduction directly. To get rid of it in 10 years you depreciate the deduction from 100 percent in year one at 10 percentage points per year. We like it in principle as a means of incentivizing natural tendencies for reciprocity. An example of a permanent incentive rule would be to replace the income tax with a consumption tax, and extend it to become a negative consumption tax. Hence, below the "consumption poverty line," the tax becomes negative, yielding a subsidy. The incentive advantage of this option is that at all consumption levels, there is an incentive to save, to build capital, even for the poor who are below the poverty consumption line. We don't like this option, in principle, as well as the first. It is one-size-fits-all while the first option leaves redistribution entirely up to the free choice of individuals, where it belongs. But it has the advantage of being a scheme that directly redistributes consumption, without the heavy hand of a discretionary government, except in enforcement and monitoring. The IRS and H&R Block should like it because it gives them much to do.
We would prefer, and so perhaps might the Rodney Kings of this world, to take our chances with the willingness of our neighbors, and of philanthropic institutions to help us in our need, than to rely on the vicissitudes of a government that provides incentives for fathers to disappear from their families, and who gives us Waco as a bonus. This might even implement Bowles and Gintis's epigraph: "A man ought to be a friend to his friend and repay gift with gift. People should meet smiles with smiles and lies with treachery." This is the message of spontaneous institutions like Christianity, Judaism, Buddhism, Islam, Confucianism, and assorted native groups from the Eskimos to the Aborigines. Helping those in need is much too important to be entrusted to the government.
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December 01, 1998
6 Min read time