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Taking the "G" out of BIG: A Comparative Political Economy Perspective on Basic Income

Taking the "G" out of BIG: A Comparative Political Economy Perspective on Basic Income Basic Income Guarantee proposals aim at, among other objectives, the salutary goal of providing a minimum income floor beneath which individuals cannot fall. We analyze this family of proposals through the lens of comparative political economy, arguing that politics is not an appropriate institutional environment for pursuing the end of an income floor. Once the notion of a guaranteed income is cast in realistic, probabilistic terms, it becomes a live question whether the market or the polity can better secure a Basic Income. Actual markets must be compared to realworld political processes rather than idealized policy proposals in order to ascertain their desirability. Drawing on the extant literature on the failure of political processes to realize the goals of other redistributive programs, we argue that Basic Income Guarantee proposals likewise ignore politics as practiced and are thus equally subject to critiques both of their means ends coherence and their vulnerability to political opportunism. Keywords ­ basic income, comparative political economy, generality norm, libertarianism, redistribution, robustness, universal welfare, welfare policy, welfare reform, welfare state DOI: 10.1515/1932-0183.1218 Copyright ©2012 De Gruyter. All rights reserved. 1. Introduction Libertarians are surprisingly comfortable with Basic Income Guarantees (BIG) and related proposals. The classic statement is Milton Friedman's negative income tax proposal from Capitalism and Freedom (1962). In Friedman's scheme, individuals earning an income beneath a certain threshold receive the difference between their income and that threshold rather than paying taxes. A BIG differs only in that it pays up front an amount equal to that threshold to everyone regardless of income, balancing the outlay through taxes afterwards. Charles Murray (2006, 2008) has defended it as a potential compromise between libertarians and liberals as a measure replacing the welfare state. Hayek (1960, p. 376), while lambasting proposals to engineer the overall pattern of income distribution, defends the idea of a minimum income floor, one of the primary aims of BIG advocates. And libertarian economists have long argued that, given some redistribution, simple cash transfers are preferable to the bureaucratic machinery necessary for rationing specific goods. We take issue with this conciliatory attitude. Though it is beyond the scope of this short article to present anything like a comprehensive appraisal of BIG ­ especially since it constitutes a class of proposals rather than one definite plan susceptible to detailed analysis ­ we can highlight underappreciated problems in the implementation of such policies. Such problems may not be sufficient to overturn a conviction that a BIG is desirable, but they should at least be grounds for revising one's estimate of the potential gains from attempting to implement it. We are both specialists in comparative political economy, so that is our angle of approach. Section 1 explains the basics of comparative political economy and its implications for policy analysis. Section 2 explains why, from a comparative perspective, libertarian political economists are skeptical of redistribution programs in general. Section 3 explains that arguments for BIG fail to adequately address the problems with redistribution in general. Throughout the article we avoid staking out any strong normative foundations for libertarianism. Libertarianism is most often thought of as a set of claims about ethics and political philosophy. But we are economists by training and intellectual temperament, so we focus on the general character of different sets of social rules and the strategies that individuals are likely to pursue given those alternative rules. Comparative analysis offers insights that are robust across a wide array of normative approaches, though not all. The limits of our analysis's applicability are taken up below, but we believe that any normative stance that would completely deny its relevance is flatly implausible. However, we do grant, for the sake of argument, the moral desirability(ceteris paribus) of an income floor broadly understood, which we discuss more fully below. We neither question nor endorse the ends sought by BIG advocates, only the institutional means. Our thesis is that while an effective income floor may or may not be a desirable goal, claims that government policies are the best means of achieving that goal are vulnerable to two interrelated critiques: meansends coherence and robustness against opportunism. Extant arguments for BIG fail to establish that (1) political action is the best institutional means of pursuing an income floor or (2) that BIG is sufficiently robust against opportunism to avoid the myriad problems of opportunism attendant on redistributive politics. 2. Comparative Political Economy and Policy Proposals The foundational assumption of comparative economics is that people are people. Any assumptions one makes about either the competence or the motivation of individuals in one sphere of human activity must carry over to other spheres. We dub this postulate behavioral symmetry.1 Under this assumption, systematic differences in behavior and in the outcomes of behavior across different social settings are driven by the institutions constituting those settings. Institutions are the "rules of the game" (North, 1991, p. 3) or the "ways ...of relating to one another" (Ostrom, 1997, p. 186 ) that constrain and shape interaction. Comparative economics analyzes differences across social settings as the outcome of underlying institutional differences. What does this approach have to say about evaluating policy proposals (e.g., BIG)? Sound comparative political economy assumes that political agents are neither more benevolent nor vastly more intelligent than individuals acting in their private capacity in the market or civil society. Viewed through this lens, policies are the outcome of a social process of interaction, outcomes governed by the institutions regulating behavior in the polity. The agents who engage in that interaction are fallible human beings with a wide and divergent array of ends, values, and cognitive capabilities (see Hayek, 1948, pp. 11­14). Once we take this perspective, the problems of opportunistic behavior and cognitive limitations must be taken seriously in our analysis ­ and with that, policy proposals will be compared for their internal coherence and vulnerability to opportunistic behavior.2 If agent types do vary across different spheres of activity it is due to selection or filter mechanisms at work that characterize the activities constituting that sphere. As James Buchanan has recently put this, "Same Players, Different Games" (2008). 2 For a full booklength treatment on this approach, see Pennington (2011). Also see Boettke (1993, pp. 1­11) and Boettke and Leeson (2004). While this sounds like a commonsense depiction of political life, most academic discussions of policy proposals implicitly dismiss it. While economists are used to conceiving of market prices and quantities as outcomes of interaction rather than planned outcomes, they assume that policy is an object of choice. Policies are treated as if they were designed and implemented in a teleological fashion by decision makers with a coherent set of ends. Even political economy arguments usually focus only on the feasibility of passing a given policy rather than taking seriously the political forces that shape the nature or content of that policy. Comparative political economy can drive a wedge between the normative desirability of a hypothetical policy and the sufficient conditions for its endorsement as an actual policy. There are in fact wide divergences between the nature, implementation, and effects of policies as outcomes of real political processes and the standard sorts of normative justifications given for such policies. Most policy proposals ­ even libertarian ones ­ ignore this disjoint (Wagner, 2010). Moving immediately from the normative desirability of a hypothetical policy to its endorsement assumes that policy is an object of choice; determining what policy should be passed is thus isomorphic to determining what sort of choice an individual should make. When a policy is understood instead as one of many outcomes of an interactive process framed by underlying political institutions, that isomorphism breaks down. Understanding policy formation as a process rather than a simple choice raises some hairy questions.3 A policy proposal may look good on paper. Will it still look good when revised and amended to make it out of a congressional committee? Even if it is passed in close to pristine form, will it survive future political shocks? What other policies will have to be passed as parts of political deals to get it through a general assembly? How will it interact with other policies? How will the bureaucratic body or bodies charged with implementing the policy actually do so? How easily are its enforcement mechanisms captured by special interests and other political entrepreneurs? It makes as much sense to ignore that process as it does to ignore the incentives and knowledge of private With respect to redistributive policies in particular, we must always remember that policy choice is never a simple choice over distributions of resources, but is always a choice over a set of rules of the game that engender exchange, production and distribution. Distribution outcomes are not invariant in relation to exchange and production activities. Questions of the fair division of a fixed economic pie do not adequately deal with questions associated with the exchange and production processes that result in that economic pie. The fundamental economic point that was made in the late 19th and early 20th centuries was that the size of the economic pie was an interdependent function of the way the pie was divided: production cannot be separated from distribution. actors who will be subject to the policy. Public policy is a nested game. Incentives and knowledge issues are at play during the different games associated with the passing, administrating, and implementing of the policy, as well as in the ultimate game into which the polity intervenes, and must be examined at each level if we ever hope to come close to aligning the policy intentions with the policy results. It may be objected that introducing these concerns obscures rather than clarifies the question at hand. The question is this: should we (libertarians, citizens, etc.) endorse this sort of policy? Making the content of the policy endogenous to some external mental model of the political process appears to merely change the question, making it in effect about a different policy. This is why, for the sake of discussion, we draw the distinction between the normative desirability of a policy as proposed and whether the policy as enacted should be endorsed. We take it that the latter means that the reality of the policy's likely character must be taken into account. Since we take BIG proponents to be proposing a real policy measure, we feel justified in critiquing it on such grounds. Rather than obscuring the question, insisting on this comparative approach qualifies exactly what is being called for when a policy is proposed. If one is allowed to assume that policymakers would behave themselves in enacting and executing this policy, why not assume that private actors in the market and civil society would also behave themselves and could provide an income floor without state involvement? Insisting on behavioral symmetry and endogenous policy actually clarifies the relevant questions: what is it about the polity that makes it a suitable arena in which to pursue the end sought by the policy? Given how the policy is likely to be enacted, should one be in favor of the state having the power to do so? Unless these questions are addressed, we posit that there are not sufficient grounds for endorsing an actual policy measure.4 These considerations bear relevance for a wide range of basic normative stances. Their applicability for consequentialist theories is obvious. We posit further that, insofar as the very nature of a policy is the outcome of a political process, that comparative political economy also has much to say for To clarify, we are not claiming that it makes no sense to ask how political agents should conduct themselves. Given that they have the power to redistribute income ­ or to effect any given type of policy ­ they should always use it in the best possible way (which may entail refraining from using it). But one could say the same thing about private agents. Given that market institutions give or recognize certain decision rights, there can be better or worse, right or wrong, ways of exercising those rights. Concomitantly, simply saying that there ought to be an income floor does not establish in what realm individuals should pursue that end. deontological moral standards.5 If it is granted that individuals ought to possess some right, then what sort of institutional environment will best secure that right is not a trivial question. It might be asked, for instance, whether a common law or civil law system better secures or manifests an individual's right to the integrity of the individual's person or property. The only normative stance that could safely shrug off such comparative analysis is one that holds that the initiation itself of such and such a policy is normatively desirable. That is, that even a purely nominal guarantee of basic income ­ whether such an income is actually provided or not ­ is the relevant question in deciding whether the policy should be endorsed. This position seems implausible, so we assume that comparative analysis has something to say about whether libertarians should endorse BIG. Policies have to be enacted and executed by real human beings. This means that policy offers no guarantees, at least not in any metaphysical sense. It is tempting ­for both those who engage in wishful conjectures about what the law ought to be as well as those who employ sophisticated mathematical models ­ to forget this basic fact when discussing redistributive policy proposals. This practice stacks the deck in favor of intervention by associating an imaginary guarantee with policy and the vicissitudes of chance and others' goodwill with civil society and the market. Individuals can have sound reasons for a greater or lesser degree of confidence that they will have the means to live at a given level of comfort. Those reasons can indeed be predicated on the existence of a government transfer program. They can likewise be predicated on market forces and civil society. But any income floor must be understood in probabilistic terms in order to be realistically appraised. This is what we mean by a "reasonably understood" income floor. If such a floor is normatively desirable, the comparative question is this: what institutional regime best produces a floor with salutary qualities? Consider the relationship between the abstract discourse in social philosophy (what is the good and just game) and the concrete discourse of economics (what are the rational and optimal strategies that will be played, given the rules of the game). The contribution that political economy makes to our understanding emerges in this play between social philosophy (rules) and economics (strategies). But the key idea is that the answer to the social philosophic is never complete unless it takes into account the economic analysis. Comparative political economy provides us with the framework to intellectually "slide" between different rule regimes and assess the game being played in those regimes, by using economic analysis. 3. Libertarianism, Generality, and Redistribution A moment's reflection makes it clear how a comparative approach to policy analysis complements libertarian normative beliefs concerning the moral status of public policies, especially redistributive ones. This is because arguments in favor of government intervention in the market or civil society generally treat policy teleologically, as an object of choice. Market failure arguments, for instance, assume that policy is a teleological response to marketgenerated inefficiencies. Replace "inefficiency" with "injustice" and you have many philosophical arguments for intervention. These arguments mentally substitute the author's imaginary fiat for the actual political process. By refusing to take the implementation of a hypothetical policy as given, comparative political economy tends to take a more skeptical view of policy. Combined with even a modest presumption in favor of private decision rights over public ones, this deep skepticism is capable of whittling down quite a bit one's appraisal of the desirable scope of state power. A presumption in favor of private over public decision rights can flow from the same source as the twin critiques of the meansends coherence and vulnerability to opportunism of policy proposals (Pennington, 2011, pp. 2­3). Coherence is most closely related to the "knowledge problem," which is that individuals possess only a small fragment of the dispersed knowledge that would be required to effect some social outcome. The knowledge problem is understood in a comparative sense: it does not ask if someone knows a given onceandforall solution for a given problem, but instead asks who has the best ideas (including ideas on the nature of the problem) and how can they be brought to bear on the problem. Grappling with the knowledge problem requires that individuals have a wide scope to experiment and that failed experiments are shut down. In this regard, both markets and civil society have several salutary qualities compared to polities. Experimentation only requires the assent of a few parties rather than that of a legislative body or bureaucratic entity, permitting (in general) more scope for experimentation. Experiments are likewise easily shut down since they usually require continuing consent for funding. The tax revenue that comes with state involvement, however, dramatically lowers the cost of continuing with a failed experiment. The lack of financial residual claimants dampens the feedback available to political enterprises as to whether their experiments achieve their desired ends at all or whether there are more effective means available for pursuing those ends (Martin, 2010). In Section 3, we return to the knowledge problem as it relates to an income floor. Vulnerability to opportunism is most closely connected with the incentive problems of policymaking. More broadly, opportunism arises from the possibility that a decision right will be used for some end opposed to the values it was granted to serve. In markets and civil society, the temptations that such powers generate are checked (however imperfectly) by the possibility of exit (Pennington 2011, p. 4). The ability to disassociate oneself from those who abuse their decision rights curtails the temptations of power at least somewhat in the realm of private choices. Not so in the polity. The legitimate ability to redistribute income is one such power that is far more general than is any particular redistributive scheme. Once the legitimacy of that means is granted, it can be used for any number of ends. What ex ante reason do we have to expect that redistribution will be used for poverty alleviation?6 Ample libertarian scholarship illustrates that the redistributive efforts of the state in practice often diverge substantially from the idealized version that serves the interest of the poor (e.g., Murray, 1984; Wagner, 1989). Buchanan (1975b) points out that acts of generosity can be opportunistically exploited by those who are recipients and those who are potential recipients. There is a strong incentive in these situations for an endogenous increase in the supply of those who will receive the benefits from our policy, leading to ongoing distributional conflicts Jasay characterizes as the "churning state"(De Jasay, 1985, pp. 232­245). Comparative political economy looks for robust protection against opportunism in rules that generate a harmony of interests among the players of a game (Mises, 1927). The exit option provided by the institutions of the market and civil society makes antisocial predation unprofitable. In the polity, political economists identify the generality norm as a comparatively robust means of securing a harmony of interests (Buchanan and Congleton, 1998).7 A generality norm obtains to the extent that policies that have discriminatory effects on different groups in society are off the table in political discussions.8 To the degree that everyone is affected by a policy equally, the incentive to engage in opportunistic behavior is mitigated. The power to redistribute generates problematic distributional conflicts precisely because the power to tax one group for the benefit of another grossly violates the generality norm. The resulting institutionally generated disharmony 6 Wagner (2010) makes the even deeper point that we should not even expect a coherent array of ends out of the welfare state. 7 See also Hayek (1960) on the rule of law and Boettke and Oprea (2004) on the condition of nondiscrimination in law and politics. 8 There are subtle issues as to what counts as nondiscriminatory that would take us too far afield (Buchanan, 1997). of interests creates powerful incentives to influence or capture redistributive decision rights. It is unlikely that the poor will turn out the winners of such conflicts (Wagner, 1989). This is a problem with redistribution regardless of whether the goal is to effect some strongly patterned distribution prescribed by a theory of social justice or to merely provide a minimum income floor. When libertarians refuse to endorse welfare state institutions, it need not reflect any lack of concern with the fate of the poor. Rather, it may reflect a belief that robust protection against poverty comes from institutions that generate a harmony of interests rather than those that foment distributional conflicts. It is redistribution itself, not concern for the poor or the wisdom of any particular policy, that we are most skeptical of.9 4. Basic Income Guarantees But it is precisely because BIG appears to comport to the generality norm that makes it attractive even to libertarians. Buchanan (1997), among the chief proponents of the importance of the generality norm, makes just such an argument. He claims that a polity constitutionally prohibited from enacting discriminatory policies may still fund a welfare state provided that (1) it is funded by strictly proportional flat taxes, and (2) payments ("demogrants") are made to all citizens.10 BIG, unlike other transfer programs, is a general policy since it is not meanstested or targeted at specific groups. Every citizen qua citizen gets a paycheck for the same amount. As such, it does not generate a group of narrow, special interests that would generate the distributional conflict characteristic of existing welfare programs. We remain unconvinced that BIG differs sufficiently from other redistributional policies to overcome a wellgrounded general mistrust of the welfare state. That said, there is little doubt that BIG proposals approximate the generality norm far more closely than extant redistribution. But we fear that this is a prime instance of comparing an ideal implementation of a theoretical policy to the vicissitudes of real policy making. Buchanan addresses the generality norm most directly, and so we address the balance of our argument primarily to his case. We do not dare attempt to answer whether it is possible to actually affect what powers government has, including redistribution. That is the million dollar question in political economy. Rather, we focus only on whether individuals should normatively endorse the possession of that power by the state. 10 Buchanan lists other, slightly modified, options for determining recipients that he likewise characterizes as general, but they are not applicable to the question at hand. The first odd feature of Buchanan's justification for BIG is that he starts from a hypothetical polity with no existing welfare state. This is because the nature of his exercise is to ask whether some sort of welfare could potentially be justified in a liberal polity. But that abstract justification has little bearing on whether we should endorse BIG policy now, as citizens of realworld churning welfare states. For that task, we do better to listen to Buchanan in one of his more sanguine moments: The choice among alternative structures, insofar as one is presented at all, is between what is and what might be. Any proposal for change involves the status quo as the necessary starting point. "We start from here," and not from somewhere else. (Buchanan, 1975a, p. 101). In a modern welfare state, the attempt to pass a BIG would in all likelihood endogenously generate special interests that would systematically attempt to undermine its "general" character.11 BIG proposals only appear general insofar as they ignore the revenue generating side of the redistributive equation. The money to fund BIG must come from somewhere. We assume that chronic deficits and inflation are not on the table, though they are certainly a possible outcome of funding such a program. Most libertarian BIG proponents, in any case, would not be willing to endorse the policy on such grounds. That leaves either increased taxes or cutting existing programs. Either would undermine generality and unleash the distributive conflicts that redistribution typically entails. If the BIG were to be funded by new taxes, they would in all probability be progressive. By definition, tax burdens apportioned "progressively" fall asymmetrically across the population, thus laying the groundwork for both rent seeking and countervailing distributional forces to work from the bottom up (Wagner, 1989, pp. 67­88). A tax burden concentrated on the rich creates a strong incentive for a small group to lobby to introduce various loopholes and provisions to offset the burden. The effectiveness of such lobbying and other activities undertaken to offset tax burdens can be seen in Figure 1. This graph plots tax receipts for the United States federal government as a percentage of GDP. In some sense, we are arguing against (or at least cautioning about) the position that Michael Munger takes in his contribution to this Basic Income Studies journal issue. We agree with him that it is better not to have a welfare state at all. And we are sympathetic to the idea that a BIG, in a strictly counterfactual sense, would be superior. But we posit that any move from the present state of affairs through a BIG is unlikely to end well because of precisely the same pathological forces that afflict the existing welfare state. Figure 1: US Federal Government Tax Revenue by Year Source: White House Office of Management and Budget, "Historical Tables," http://www.whitehouse.gov/omb/budget/Historicals. The striking feature of the line is how flat it is despite numerous changes in the tax code. Our point is simply that individuals adjust their behavior in response to a policy in various ways. Some of these will offset or undermine the intent of the policy. The amount of funding that it is politically feasible to allocate to a BIG program would be a function of this process and could take myriad forms. Buchanan (1997) mentions this possibility, but reduces the range of distributional conflicts to those predicated on income level. This ignores the various other (structural) ways of forming a coalition. For instance, small groups bearing a disproportionate share of the BIG cost would have an incentive to lobby for restrictions on who receives the money. Former convicts or those who fail a drug test would make easy political targets for exclusion. If the proposal were to replace existing programs, then the concentrated beneficiaries of those programs ­ both those who receive transfers as well as the politicians who push them through for political gain ­ have a strong incentive to become involved in the BIG enactment. One possible outcome is that BIG would simply take its place alongside existing entitlements rather than replacing them.12 While this might not trouble many BIG advocates, it should raise substantial doubts for the libertarian who sees it as a replacement for existing programs (e.g., Murray, 2006). The same forces that concentrate gains on special interests in the current system will be at play in any attempt to reform the system. But regardless of whether BIG were replaced or were added to other policies, its passage would be at the mercy of special interests in order for it to be passed at all. How long would the debate proceed before a proposal like supplements to BIG for the needy or the deserving (i.e., public employees such as teachers) were proposed? These problems with the potential generality of the BIG all come about in the process of its enactment. Another problem is whether it would be stable over time. One potentially serious concern is the program's susceptibility to political shocks. These problems come to bear even on an initially pristine policy implementation, like the sort that Buchanan (1997) imagines. An opportunistic politician might make serious headway proposing that BIG payments to the wealthy be suspended during a fiscal crisis. Again, this undermines generality, potentially enabling costly rent seeking. Alternatively, he might propose that payments increase to the poor during a downturn. Whether such policies would make sense or not, they would be difficult to reverse once the downturn ended (Buchanan and Wagner, 1977; Higgs, 1987).13 It is easy to sketch a highly stylized proposal or model in which redistribution occurs evenly and smoothly. That is as easy as subtracting money from one column representing a bank account and adding it to another. But the reality is that taxing and spending are never general. Money channeled through politics always filters through particular processes, particular government agencies, and 12 Sheahan (2007) explicitly situates BIG as but one plank of a larger antipoverty portfolio of programs that should include both "full employment policy and national health insurance." 13 The Alaska Permanent Fund appears to have resisted such pressures. An attempt to suspend the dividend payments during a period of low oil prices was roundly rejected by 83% of voters in 1999 ­ see http://ballotpedia.org/wiki/index.php/Alaska_Permanent_Fund_Advisory_Vote_(1999). However, Alaska is shielded from fiscal pressures due to its reliance on federal tax revenue. According to the Tax Foundation, the United States federal government sent $1.31 for every $1.00 in federal taxes paid by the state from 1982­2005 (the last year that the study covered; see http://www.taxfoundation.org/research/show/22685.html). Since 1999, the year of the potential suspension and ballot measure, the number has steadily risen from $1.47 per $1.00 of taxes to a high of $1.84. into particular hands in heterogeneous ways. The question is whether political institutions are up to the challenge of creating a robust income floor. Even if the policy that emerges from a legislature bears some family resemblance to the BIG on paper, the particular actions taken to execute it will create vested interests in its being executed in a particular way. The clearinghouses and banks through which the money flows, to say nothing of the bureaus charged with administering it, will have a stake in the path by which payments reach the citizenry. Any mistakes, inefficiencies, corruption, and incompetence from these sources are unlikely to be corrected, because political institutions lack the feedback mechanisms that characterize market processes or even private charities (Martin, 2010). Those in charge of administering the program have every reason to enhance their budgets and expand their responsibilities, not to cleanly and cheaply transfer the funds (Tullock, 1965; 2005). This sort of waste might seem trivial. That might be the case if the resources devoted to creating an income floor through a BIG were not taken from existing measures to catch those that fall through the cracks. That is, the inefficiencies would not count against BIG if funding it did not crowd out private charity. But there is substantial evidence that crowding out is quite real. Countries with lower levels of redistributive spending ­ whether in the form of outright transfers or of subsidized services for the poor ­ exhibit systematically higher amounts of private charity. This is true both for the total volume of charitable expenditures (Fishback, 2010) and for the breadth of coverage across the population (Pennington, 2011, p. 153). The comparative approach compels us to ask: would the government bureaucracy charged with delivering basic income payments help the poor more effectively than would a combination of private charity and market forces? It may be objected that relying on private agents is effectively giving up altogether on the idea of an income floor. But a BIG only establishes a legal claim on resources, not a guarantee that such a claim will serve its intended purpose. This is where meansends coherence, comparatively understood, comes into play. Even if a BIG conforms to the generality norm, it still lacks the salutary properties of market and civil society institutions for grappling with the knowledge problem of alleviating poverty. How does poverty alleviation confront a knowledge problem? We take it as firmly established that wealth creation involves knowledge problems (Hayek, 1948). How, then, could poverty alleviation not? It may be objected that poverty alleviation can be addressed solely in terms of distribution rather than production. This claim, going back to John Stuart Mill, is a profound intellectual error since it ignores the effects of exchange and prospective exchange on production (Vallier, 2010). You cannot treat the economic pie as fixed, and the public policy question as one of fair division. Sound comparative analysis compels us to focus not on the static properties of wealth distribution, but always on rules of the game that engender a pattern of entrepreneurship, production, and exchange out of which distributions emerge. What we doubt is that the rules established by a BIG offer agents the knowledge necessary to generate a more normatively desirable distribution than do the market and civil society. BIG proponents are likely to claim that, by eliminating any requirements for receiving a demogrant, a BIG neatly bypasses such concerns. The policy grounds stable expectations about both taxes and disbursements that, due to their small magnitude, will but minimally disrupt wealth creation. We disagree. We take issue with the static view of wealth creation that this argument implicitly presupposes, but let's set that aside to raise two more salient issues specifically concerning poverty alleviation. First, BIG proposals share a glaring disadvantage with all other redistributive policies: they hamper further experimentation. Welfare states draw resources from the adaptable institutional environment of the market and civil society into the non or maladaptive institutional environment of the polity. As we note above, this means that it is both costlier to experiment and costlier to shut down failed or obsolete experiments. This is no less important for poverty alleviation than for any other good end individuals might pursue. We are not accusing BIG proponents of believing that there is a once and for all solution to poverty that will never require revision or improvement. But we find it troublesome that, in a world of uncertainty and ignorance but also stark ingenuity, they would hand the crucial task of poverty alleviation (even on the margin) over to the inertial state. Prior to the advent of modern welfare states, care for the poor took a wide and fruitful variety of forms (Pennington, 2011, pp. 151­190; Beito, 2000). Bottom up experimentation in rendering aid has been crowded out to the extent that government has instantiated transfers, a lamentable trend that BIG would do nothing to reverse. We need experiments in giving no less than experiments in living. Second, and in the same vein, BIG and other redistributive proposals remove from individuals the responsibility of alleviating poverty. We agree with Tocqueville that human flourishing results when citizens are capable of dealing with the "care of thinking and the troubles of living" (Ostrom, 1997, p. 223) and not insulated from the vagaries of life. In making this argument, we are not claiming that individuals should not care for one another nor that they should not have a reasonable expectation that they will have the necessities of life. Rather, we are claiming that the process by which provision is made for the poor matters a great deal. Is it a problem to be seriously and continually confronted by thinking, responsible members of a community or one to be sloughed off onto distant bureaucrats? We favor a system in which individuals actively engage with one another rather than rely on a mechanistic scheme. Such engagement cultivates the capacity for selfgovernance that is the most robust protection of individual liberty and dignity (Ostrom, 1997). Redistributive policies entail not an exercise in but an abdication of self governance. BIG policies are no different in this regard. Its goals include solidarity and equality. We share those goals, but think that BIG delivers them only in a stunted form. Mutual slavery is a kind of equality, but not a desirable one. We take the equality entailed by freedom of association and disassociation to be far more commensurate with human dignity. Similarly, ants are interdependent, but not in a dignified human way. We agree with BIG's proponents that the illumination of our interdependence is indeed a lofty aim for any social reform. But BIG proposals attempt to fix the form of that interdependence, rather than allowing creative and ingenious individuals to discover and jointly work out the (provisionally) best means of serving one another. 5. Conclusion BIG is a policy that has some intuitive appeal for those who care about social justice and human dignity. We grant for the sake of argument that BIG has this desirable characteristic. But for most advocates, the analysis stops there because intentions are presumed to equal results in policy, just as ought is assumed to presume can in questions of public policy. Comparative analysis, by contrast, begins with the recognition that intentions do not equal results in public policy due to problems associated with the structure of incentives, and to problems associated with the discovery, mobilization and utilization of knowledge within a society. We argue that the comparative political economy analysis that focuses on rules and strategies to evaluate proposals based on coherence and opportunism usefully complements the social philosophic analysis that libertarian political and moral theory can provide. Libertarianism offers a standard of assessment from the perspective of the ethical stance of nonaggression. We agree with the libertarian position, but do not believe it exhausts public policy analysis ­ and it may not be the most effective argumentative strategy to pursue in the clash of ideas in policy discourse. But we hope that the libertarian intuition of nonaggression can in fact be served by critically assessing the alternative public policies that comparative political economy provides. We apply this framework to the BIG question and raise some criticisms regarding the effectiveness of BIG to realize the goals of serving human dignity and cultivating a citizenry capable of democratic selfgovernance. We share with the libertarian political philosopher the goal of establishing a society of free and responsible individuals, but we do not see this vision of society as being the outcome of academic justifications for individual rights. As comparative political economists, we see instead the private property market economy as an institutional configuration that takes humankind in all its given variety ­ sometimes good and sometimes bad, sometimes smart and more often stupid. And we see that institutional configuration as something that ­ through private property incentives, the informational signals of free prices, the lure of pure profit and the penalty of loss ­ coordinates dispersed knowledge and generates a harmony of interests. Dignity, efficiency, and justice are served by a rule regime of individual rights, clearly defined and strictly enforced property rights, and freedom of trade and association. Rather than starting from self ownership or property rights as a premise, the case for libertarianism is a result of the comparative analysis of rule regimes. And the comparative analysis also suggests that BIG does not seem to pass either the coherence or the vulnerability tests. Comparative political economy indicates that BIG does not satisfy its own goals, while libertarianism actually does serve the goal of promoting human dignity and cultivating the capacity for selfgovernance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Basic Income Studies de Gruyter

Taking the "G" out of BIG: A Comparative Political Economy Perspective on Basic Income

Boettke, Peter J.; Martin, Adam
Basic Income Studies , Volume 6 (2) – Jan 19, 2012
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de Gruyter
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Copyright © 2012 by the
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1932-0183
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1932-0183
DOI
10.1515/1932-0183.1218
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Abstract

Basic Income Guarantee proposals aim at, among other objectives, the salutary goal of providing a minimum income floor beneath which individuals cannot fall. We analyze this family of proposals through the lens of comparative political economy, arguing that politics is not an appropriate institutional environment for pursuing the end of an income floor. Once the notion of a guaranteed income is cast in realistic, probabilistic terms, it becomes a live question whether the market or the polity can better secure a Basic Income. Actual markets must be compared to realworld political processes rather than idealized policy proposals in order to ascertain their desirability. Drawing on the extant literature on the failure of political processes to realize the goals of other redistributive programs, we argue that Basic Income Guarantee proposals likewise ignore politics as practiced and are thus equally subject to critiques both of their means ends coherence and their vulnerability to political opportunism. Keywords ­ basic income, comparative political economy, generality norm, libertarianism, redistribution, robustness, universal welfare, welfare policy, welfare reform, welfare state DOI: 10.1515/1932-0183.1218 Copyright ©2012 De Gruyter. All rights reserved. 1. Introduction Libertarians are surprisingly comfortable with Basic Income Guarantees (BIG) and related proposals. The classic statement is Milton Friedman's negative income tax proposal from Capitalism and Freedom (1962). In Friedman's scheme, individuals earning an income beneath a certain threshold receive the difference between their income and that threshold rather than paying taxes. A BIG differs only in that it pays up front an amount equal to that threshold to everyone regardless of income, balancing the outlay through taxes afterwards. Charles Murray (2006, 2008) has defended it as a potential compromise between libertarians and liberals as a measure replacing the welfare state. Hayek (1960, p. 376), while lambasting proposals to engineer the overall pattern of income distribution, defends the idea of a minimum income floor, one of the primary aims of BIG advocates. And libertarian economists have long argued that, given some redistribution, simple cash transfers are preferable to the bureaucratic machinery necessary for rationing specific goods. We take issue with this conciliatory attitude. Though it is beyond the scope of this short article to present anything like a comprehensive appraisal of BIG ­ especially since it constitutes a class of proposals rather than one definite plan susceptible to detailed analysis ­ we can highlight underappreciated problems in the implementation of such policies. Such problems may not be sufficient to overturn a conviction that a BIG is desirable, but they should at least be grounds for revising one's estimate of the potential gains from attempting to implement it. We are both specialists in comparative political economy, so that is our angle of approach. Section 1 explains the basics of comparative political economy and its implications for policy analysis. Section 2 explains why, from a comparative perspective, libertarian political economists are skeptical of redistribution programs in general. Section 3 explains that arguments for BIG fail to adequately address the problems with redistribution in general. Throughout the article we avoid staking out any strong normative foundations for libertarianism. Libertarianism is most often thought of as a set of claims about ethics and political philosophy. But we are economists by training and intellectual temperament, so we focus on the general character of different sets of social rules and the strategies that individuals are likely to pursue given those alternative rules. Comparative analysis offers insights that are robust across a wide array of normative approaches, though not all. The limits of our analysis's applicability are taken up below, but we believe that any normative stance that would completely deny its relevance is flatly implausible. However, we do grant, for the sake of argument, the moral desirability(ceteris paribus) of an income floor broadly understood, which we discuss more fully below. We neither question nor endorse the ends sought by BIG advocates, only the institutional means. Our thesis is that while an effective income floor may or may not be a desirable goal, claims that government policies are the best means of achieving that goal are vulnerable to two interrelated critiques: meansends coherence and robustness against opportunism. Extant arguments for BIG fail to establish that (1) political action is the best institutional means of pursuing an income floor or (2) that BIG is sufficiently robust against opportunism to avoid the myriad problems of opportunism attendant on redistributive politics. 2. Comparative Political Economy and Policy Proposals The foundational assumption of comparative economics is that people are people. Any assumptions one makes about either the competence or the motivation of individuals in one sphere of human activity must carry over to other spheres. We dub this postulate behavioral symmetry.1 Under this assumption, systematic differences in behavior and in the outcomes of behavior across different social settings are driven by the institutions constituting those settings. Institutions are the "rules of the game" (North, 1991, p. 3) or the "ways ...of relating to one another" (Ostrom, 1997, p. 186 ) that constrain and shape interaction. Comparative economics analyzes differences across social settings as the outcome of underlying institutional differences. What does this approach have to say about evaluating policy proposals (e.g., BIG)? Sound comparative political economy assumes that political agents are neither more benevolent nor vastly more intelligent than individuals acting in their private capacity in the market or civil society. Viewed through this lens, policies are the outcome of a social process of interaction, outcomes governed by the institutions regulating behavior in the polity. The agents who engage in that interaction are fallible human beings with a wide and divergent array of ends, values, and cognitive capabilities (see Hayek, 1948, pp. 11­14). Once we take this perspective, the problems of opportunistic behavior and cognitive limitations must be taken seriously in our analysis ­ and with that, policy proposals will be compared for their internal coherence and vulnerability to opportunistic behavior.2 If agent types do vary across different spheres of activity it is due to selection or filter mechanisms at work that characterize the activities constituting that sphere. As James Buchanan has recently put this, "Same Players, Different Games" (2008). 2 For a full booklength treatment on this approach, see Pennington (2011). Also see Boettke (1993, pp. 1­11) and Boettke and Leeson (2004). While this sounds like a commonsense depiction of political life, most academic discussions of policy proposals implicitly dismiss it. While economists are used to conceiving of market prices and quantities as outcomes of interaction rather than planned outcomes, they assume that policy is an object of choice. Policies are treated as if they were designed and implemented in a teleological fashion by decision makers with a coherent set of ends. Even political economy arguments usually focus only on the feasibility of passing a given policy rather than taking seriously the political forces that shape the nature or content of that policy. Comparative political economy can drive a wedge between the normative desirability of a hypothetical policy and the sufficient conditions for its endorsement as an actual policy. There are in fact wide divergences between the nature, implementation, and effects of policies as outcomes of real political processes and the standard sorts of normative justifications given for such policies. Most policy proposals ­ even libertarian ones ­ ignore this disjoint (Wagner, 2010). Moving immediately from the normative desirability of a hypothetical policy to its endorsement assumes that policy is an object of choice; determining what policy should be passed is thus isomorphic to determining what sort of choice an individual should make. When a policy is understood instead as one of many outcomes of an interactive process framed by underlying political institutions, that isomorphism breaks down. Understanding policy formation as a process rather than a simple choice raises some hairy questions.3 A policy proposal may look good on paper. Will it still look good when revised and amended to make it out of a congressional committee? Even if it is passed in close to pristine form, will it survive future political shocks? What other policies will have to be passed as parts of political deals to get it through a general assembly? How will it interact with other policies? How will the bureaucratic body or bodies charged with implementing the policy actually do so? How easily are its enforcement mechanisms captured by special interests and other political entrepreneurs? It makes as much sense to ignore that process as it does to ignore the incentives and knowledge of private With respect to redistributive policies in particular, we must always remember that policy choice is never a simple choice over distributions of resources, but is always a choice over a set of rules of the game that engender exchange, production and distribution. Distribution outcomes are not invariant in relation to exchange and production activities. Questions of the fair division of a fixed economic pie do not adequately deal with questions associated with the exchange and production processes that result in that economic pie. The fundamental economic point that was made in the late 19th and early 20th centuries was that the size of the economic pie was an interdependent function of the way the pie was divided: production cannot be separated from distribution. actors who will be subject to the policy. Public policy is a nested game. Incentives and knowledge issues are at play during the different games associated with the passing, administrating, and implementing of the policy, as well as in the ultimate game into which the polity intervenes, and must be examined at each level if we ever hope to come close to aligning the policy intentions with the policy results. It may be objected that introducing these concerns obscures rather than clarifies the question at hand. The question is this: should we (libertarians, citizens, etc.) endorse this sort of policy? Making the content of the policy endogenous to some external mental model of the political process appears to merely change the question, making it in effect about a different policy. This is why, for the sake of discussion, we draw the distinction between the normative desirability of a policy as proposed and whether the policy as enacted should be endorsed. We take it that the latter means that the reality of the policy's likely character must be taken into account. Since we take BIG proponents to be proposing a real policy measure, we feel justified in critiquing it on such grounds. Rather than obscuring the question, insisting on this comparative approach qualifies exactly what is being called for when a policy is proposed. If one is allowed to assume that policymakers would behave themselves in enacting and executing this policy, why not assume that private actors in the market and civil society would also behave themselves and could provide an income floor without state involvement? Insisting on behavioral symmetry and endogenous policy actually clarifies the relevant questions: what is it about the polity that makes it a suitable arena in which to pursue the end sought by the policy? Given how the policy is likely to be enacted, should one be in favor of the state having the power to do so? Unless these questions are addressed, we posit that there are not sufficient grounds for endorsing an actual policy measure.4 These considerations bear relevance for a wide range of basic normative stances. Their applicability for consequentialist theories is obvious. We posit further that, insofar as the very nature of a policy is the outcome of a political process, that comparative political economy also has much to say for To clarify, we are not claiming that it makes no sense to ask how political agents should conduct themselves. Given that they have the power to redistribute income ­ or to effect any given type of policy ­ they should always use it in the best possible way (which may entail refraining from using it). But one could say the same thing about private agents. Given that market institutions give or recognize certain decision rights, there can be better or worse, right or wrong, ways of exercising those rights. Concomitantly, simply saying that there ought to be an income floor does not establish in what realm individuals should pursue that end. deontological moral standards.5 If it is granted that individuals ought to possess some right, then what sort of institutional environment will best secure that right is not a trivial question. It might be asked, for instance, whether a common law or civil law system better secures or manifests an individual's right to the integrity of the individual's person or property. The only normative stance that could safely shrug off such comparative analysis is one that holds that the initiation itself of such and such a policy is normatively desirable. That is, that even a purely nominal guarantee of basic income ­ whether such an income is actually provided or not ­ is the relevant question in deciding whether the policy should be endorsed. This position seems implausible, so we assume that comparative analysis has something to say about whether libertarians should endorse BIG. Policies have to be enacted and executed by real human beings. This means that policy offers no guarantees, at least not in any metaphysical sense. It is tempting ­for both those who engage in wishful conjectures about what the law ought to be as well as those who employ sophisticated mathematical models ­ to forget this basic fact when discussing redistributive policy proposals. This practice stacks the deck in favor of intervention by associating an imaginary guarantee with policy and the vicissitudes of chance and others' goodwill with civil society and the market. Individuals can have sound reasons for a greater or lesser degree of confidence that they will have the means to live at a given level of comfort. Those reasons can indeed be predicated on the existence of a government transfer program. They can likewise be predicated on market forces and civil society. But any income floor must be understood in probabilistic terms in order to be realistically appraised. This is what we mean by a "reasonably understood" income floor. If such a floor is normatively desirable, the comparative question is this: what institutional regime best produces a floor with salutary qualities? Consider the relationship between the abstract discourse in social philosophy (what is the good and just game) and the concrete discourse of economics (what are the rational and optimal strategies that will be played, given the rules of the game). The contribution that political economy makes to our understanding emerges in this play between social philosophy (rules) and economics (strategies). But the key idea is that the answer to the social philosophic is never complete unless it takes into account the economic analysis. Comparative political economy provides us with the framework to intellectually "slide" between different rule regimes and assess the game being played in those regimes, by using economic analysis. 3. Libertarianism, Generality, and Redistribution A moment's reflection makes it clear how a comparative approach to policy analysis complements libertarian normative beliefs concerning the moral status of public policies, especially redistributive ones. This is because arguments in favor of government intervention in the market or civil society generally treat policy teleologically, as an object of choice. Market failure arguments, for instance, assume that policy is a teleological response to marketgenerated inefficiencies. Replace "inefficiency" with "injustice" and you have many philosophical arguments for intervention. These arguments mentally substitute the author's imaginary fiat for the actual political process. By refusing to take the implementation of a hypothetical policy as given, comparative political economy tends to take a more skeptical view of policy. Combined with even a modest presumption in favor of private decision rights over public ones, this deep skepticism is capable of whittling down quite a bit one's appraisal of the desirable scope of state power. A presumption in favor of private over public decision rights can flow from the same source as the twin critiques of the meansends coherence and vulnerability to opportunism of policy proposals (Pennington, 2011, pp. 2­3). Coherence is most closely related to the "knowledge problem," which is that individuals possess only a small fragment of the dispersed knowledge that would be required to effect some social outcome. The knowledge problem is understood in a comparative sense: it does not ask if someone knows a given onceandforall solution for a given problem, but instead asks who has the best ideas (including ideas on the nature of the problem) and how can they be brought to bear on the problem. Grappling with the knowledge problem requires that individuals have a wide scope to experiment and that failed experiments are shut down. In this regard, both markets and civil society have several salutary qualities compared to polities. Experimentation only requires the assent of a few parties rather than that of a legislative body or bureaucratic entity, permitting (in general) more scope for experimentation. Experiments are likewise easily shut down since they usually require continuing consent for funding. The tax revenue that comes with state involvement, however, dramatically lowers the cost of continuing with a failed experiment. The lack of financial residual claimants dampens the feedback available to political enterprises as to whether their experiments achieve their desired ends at all or whether there are more effective means available for pursuing those ends (Martin, 2010). In Section 3, we return to the knowledge problem as it relates to an income floor. Vulnerability to opportunism is most closely connected with the incentive problems of policymaking. More broadly, opportunism arises from the possibility that a decision right will be used for some end opposed to the values it was granted to serve. In markets and civil society, the temptations that such powers generate are checked (however imperfectly) by the possibility of exit (Pennington 2011, p. 4). The ability to disassociate oneself from those who abuse their decision rights curtails the temptations of power at least somewhat in the realm of private choices. Not so in the polity. The legitimate ability to redistribute income is one such power that is far more general than is any particular redistributive scheme. Once the legitimacy of that means is granted, it can be used for any number of ends. What ex ante reason do we have to expect that redistribution will be used for poverty alleviation?6 Ample libertarian scholarship illustrates that the redistributive efforts of the state in practice often diverge substantially from the idealized version that serves the interest of the poor (e.g., Murray, 1984; Wagner, 1989). Buchanan (1975b) points out that acts of generosity can be opportunistically exploited by those who are recipients and those who are potential recipients. There is a strong incentive in these situations for an endogenous increase in the supply of those who will receive the benefits from our policy, leading to ongoing distributional conflicts Jasay characterizes as the "churning state"(De Jasay, 1985, pp. 232­245). Comparative political economy looks for robust protection against opportunism in rules that generate a harmony of interests among the players of a game (Mises, 1927). The exit option provided by the institutions of the market and civil society makes antisocial predation unprofitable. In the polity, political economists identify the generality norm as a comparatively robust means of securing a harmony of interests (Buchanan and Congleton, 1998).7 A generality norm obtains to the extent that policies that have discriminatory effects on different groups in society are off the table in political discussions.8 To the degree that everyone is affected by a policy equally, the incentive to engage in opportunistic behavior is mitigated. The power to redistribute generates problematic distributional conflicts precisely because the power to tax one group for the benefit of another grossly violates the generality norm. The resulting institutionally generated disharmony 6 Wagner (2010) makes the even deeper point that we should not even expect a coherent array of ends out of the welfare state. 7 See also Hayek (1960) on the rule of law and Boettke and Oprea (2004) on the condition of nondiscrimination in law and politics. 8 There are subtle issues as to what counts as nondiscriminatory that would take us too far afield (Buchanan, 1997). of interests creates powerful incentives to influence or capture redistributive decision rights. It is unlikely that the poor will turn out the winners of such conflicts (Wagner, 1989). This is a problem with redistribution regardless of whether the goal is to effect some strongly patterned distribution prescribed by a theory of social justice or to merely provide a minimum income floor. When libertarians refuse to endorse welfare state institutions, it need not reflect any lack of concern with the fate of the poor. Rather, it may reflect a belief that robust protection against poverty comes from institutions that generate a harmony of interests rather than those that foment distributional conflicts. It is redistribution itself, not concern for the poor or the wisdom of any particular policy, that we are most skeptical of.9 4. Basic Income Guarantees But it is precisely because BIG appears to comport to the generality norm that makes it attractive even to libertarians. Buchanan (1997), among the chief proponents of the importance of the generality norm, makes just such an argument. He claims that a polity constitutionally prohibited from enacting discriminatory policies may still fund a welfare state provided that (1) it is funded by strictly proportional flat taxes, and (2) payments ("demogrants") are made to all citizens.10 BIG, unlike other transfer programs, is a general policy since it is not meanstested or targeted at specific groups. Every citizen qua citizen gets a paycheck for the same amount. As such, it does not generate a group of narrow, special interests that would generate the distributional conflict characteristic of existing welfare programs. We remain unconvinced that BIG differs sufficiently from other redistributional policies to overcome a wellgrounded general mistrust of the welfare state. That said, there is little doubt that BIG proposals approximate the generality norm far more closely than extant redistribution. But we fear that this is a prime instance of comparing an ideal implementation of a theoretical policy to the vicissitudes of real policy making. Buchanan addresses the generality norm most directly, and so we address the balance of our argument primarily to his case. We do not dare attempt to answer whether it is possible to actually affect what powers government has, including redistribution. That is the million dollar question in political economy. Rather, we focus only on whether individuals should normatively endorse the possession of that power by the state. 10 Buchanan lists other, slightly modified, options for determining recipients that he likewise characterizes as general, but they are not applicable to the question at hand. The first odd feature of Buchanan's justification for BIG is that he starts from a hypothetical polity with no existing welfare state. This is because the nature of his exercise is to ask whether some sort of welfare could potentially be justified in a liberal polity. But that abstract justification has little bearing on whether we should endorse BIG policy now, as citizens of realworld churning welfare states. For that task, we do better to listen to Buchanan in one of his more sanguine moments: The choice among alternative structures, insofar as one is presented at all, is between what is and what might be. Any proposal for change involves the status quo as the necessary starting point. "We start from here," and not from somewhere else. (Buchanan, 1975a, p. 101). In a modern welfare state, the attempt to pass a BIG would in all likelihood endogenously generate special interests that would systematically attempt to undermine its "general" character.11 BIG proposals only appear general insofar as they ignore the revenue generating side of the redistributive equation. The money to fund BIG must come from somewhere. We assume that chronic deficits and inflation are not on the table, though they are certainly a possible outcome of funding such a program. Most libertarian BIG proponents, in any case, would not be willing to endorse the policy on such grounds. That leaves either increased taxes or cutting existing programs. Either would undermine generality and unleash the distributive conflicts that redistribution typically entails. If the BIG were to be funded by new taxes, they would in all probability be progressive. By definition, tax burdens apportioned "progressively" fall asymmetrically across the population, thus laying the groundwork for both rent seeking and countervailing distributional forces to work from the bottom up (Wagner, 1989, pp. 67­88). A tax burden concentrated on the rich creates a strong incentive for a small group to lobby to introduce various loopholes and provisions to offset the burden. The effectiveness of such lobbying and other activities undertaken to offset tax burdens can be seen in Figure 1. This graph plots tax receipts for the United States federal government as a percentage of GDP. In some sense, we are arguing against (or at least cautioning about) the position that Michael Munger takes in his contribution to this Basic Income Studies journal issue. We agree with him that it is better not to have a welfare state at all. And we are sympathetic to the idea that a BIG, in a strictly counterfactual sense, would be superior. But we posit that any move from the present state of affairs through a BIG is unlikely to end well because of precisely the same pathological forces that afflict the existing welfare state. Figure 1: US Federal Government Tax Revenue by Year Source: White House Office of Management and Budget, "Historical Tables," http://www.whitehouse.gov/omb/budget/Historicals. The striking feature of the line is how flat it is despite numerous changes in the tax code. Our point is simply that individuals adjust their behavior in response to a policy in various ways. Some of these will offset or undermine the intent of the policy. The amount of funding that it is politically feasible to allocate to a BIG program would be a function of this process and could take myriad forms. Buchanan (1997) mentions this possibility, but reduces the range of distributional conflicts to those predicated on income level. This ignores the various other (structural) ways of forming a coalition. For instance, small groups bearing a disproportionate share of the BIG cost would have an incentive to lobby for restrictions on who receives the money. Former convicts or those who fail a drug test would make easy political targets for exclusion. If the proposal were to replace existing programs, then the concentrated beneficiaries of those programs ­ both those who receive transfers as well as the politicians who push them through for political gain ­ have a strong incentive to become involved in the BIG enactment. One possible outcome is that BIG would simply take its place alongside existing entitlements rather than replacing them.12 While this might not trouble many BIG advocates, it should raise substantial doubts for the libertarian who sees it as a replacement for existing programs (e.g., Murray, 2006). The same forces that concentrate gains on special interests in the current system will be at play in any attempt to reform the system. But regardless of whether BIG were replaced or were added to other policies, its passage would be at the mercy of special interests in order for it to be passed at all. How long would the debate proceed before a proposal like supplements to BIG for the needy or the deserving (i.e., public employees such as teachers) were proposed? These problems with the potential generality of the BIG all come about in the process of its enactment. Another problem is whether it would be stable over time. One potentially serious concern is the program's susceptibility to political shocks. These problems come to bear even on an initially pristine policy implementation, like the sort that Buchanan (1997) imagines. An opportunistic politician might make serious headway proposing that BIG payments to the wealthy be suspended during a fiscal crisis. Again, this undermines generality, potentially enabling costly rent seeking. Alternatively, he might propose that payments increase to the poor during a downturn. Whether such policies would make sense or not, they would be difficult to reverse once the downturn ended (Buchanan and Wagner, 1977; Higgs, 1987).13 It is easy to sketch a highly stylized proposal or model in which redistribution occurs evenly and smoothly. That is as easy as subtracting money from one column representing a bank account and adding it to another. But the reality is that taxing and spending are never general. Money channeled through politics always filters through particular processes, particular government agencies, and 12 Sheahan (2007) explicitly situates BIG as but one plank of a larger antipoverty portfolio of programs that should include both "full employment policy and national health insurance." 13 The Alaska Permanent Fund appears to have resisted such pressures. An attempt to suspend the dividend payments during a period of low oil prices was roundly rejected by 83% of voters in 1999 ­ see http://ballotpedia.org/wiki/index.php/Alaska_Permanent_Fund_Advisory_Vote_(1999). However, Alaska is shielded from fiscal pressures due to its reliance on federal tax revenue. According to the Tax Foundation, the United States federal government sent $1.31 for every $1.00 in federal taxes paid by the state from 1982­2005 (the last year that the study covered; see http://www.taxfoundation.org/research/show/22685.html). Since 1999, the year of the potential suspension and ballot measure, the number has steadily risen from $1.47 per $1.00 of taxes to a high of $1.84. into particular hands in heterogeneous ways. The question is whether political institutions are up to the challenge of creating a robust income floor. Even if the policy that emerges from a legislature bears some family resemblance to the BIG on paper, the particular actions taken to execute it will create vested interests in its being executed in a particular way. The clearinghouses and banks through which the money flows, to say nothing of the bureaus charged with administering it, will have a stake in the path by which payments reach the citizenry. Any mistakes, inefficiencies, corruption, and incompetence from these sources are unlikely to be corrected, because political institutions lack the feedback mechanisms that characterize market processes or even private charities (Martin, 2010). Those in charge of administering the program have every reason to enhance their budgets and expand their responsibilities, not to cleanly and cheaply transfer the funds (Tullock, 1965; 2005). This sort of waste might seem trivial. That might be the case if the resources devoted to creating an income floor through a BIG were not taken from existing measures to catch those that fall through the cracks. That is, the inefficiencies would not count against BIG if funding it did not crowd out private charity. But there is substantial evidence that crowding out is quite real. Countries with lower levels of redistributive spending ­ whether in the form of outright transfers or of subsidized services for the poor ­ exhibit systematically higher amounts of private charity. This is true both for the total volume of charitable expenditures (Fishback, 2010) and for the breadth of coverage across the population (Pennington, 2011, p. 153). The comparative approach compels us to ask: would the government bureaucracy charged with delivering basic income payments help the poor more effectively than would a combination of private charity and market forces? It may be objected that relying on private agents is effectively giving up altogether on the idea of an income floor. But a BIG only establishes a legal claim on resources, not a guarantee that such a claim will serve its intended purpose. This is where meansends coherence, comparatively understood, comes into play. Even if a BIG conforms to the generality norm, it still lacks the salutary properties of market and civil society institutions for grappling with the knowledge problem of alleviating poverty. How does poverty alleviation confront a knowledge problem? We take it as firmly established that wealth creation involves knowledge problems (Hayek, 1948). How, then, could poverty alleviation not? It may be objected that poverty alleviation can be addressed solely in terms of distribution rather than production. This claim, going back to John Stuart Mill, is a profound intellectual error since it ignores the effects of exchange and prospective exchange on production (Vallier, 2010). You cannot treat the economic pie as fixed, and the public policy question as one of fair division. Sound comparative analysis compels us to focus not on the static properties of wealth distribution, but always on rules of the game that engender a pattern of entrepreneurship, production, and exchange out of which distributions emerge. What we doubt is that the rules established by a BIG offer agents the knowledge necessary to generate a more normatively desirable distribution than do the market and civil society. BIG proponents are likely to claim that, by eliminating any requirements for receiving a demogrant, a BIG neatly bypasses such concerns. The policy grounds stable expectations about both taxes and disbursements that, due to their small magnitude, will but minimally disrupt wealth creation. We disagree. We take issue with the static view of wealth creation that this argument implicitly presupposes, but let's set that aside to raise two more salient issues specifically concerning poverty alleviation. First, BIG proposals share a glaring disadvantage with all other redistributive policies: they hamper further experimentation. Welfare states draw resources from the adaptable institutional environment of the market and civil society into the non or maladaptive institutional environment of the polity. As we note above, this means that it is both costlier to experiment and costlier to shut down failed or obsolete experiments. This is no less important for poverty alleviation than for any other good end individuals might pursue. We are not accusing BIG proponents of believing that there is a once and for all solution to poverty that will never require revision or improvement. But we find it troublesome that, in a world of uncertainty and ignorance but also stark ingenuity, they would hand the crucial task of poverty alleviation (even on the margin) over to the inertial state. Prior to the advent of modern welfare states, care for the poor took a wide and fruitful variety of forms (Pennington, 2011, pp. 151­190; Beito, 2000). Bottom up experimentation in rendering aid has been crowded out to the extent that government has instantiated transfers, a lamentable trend that BIG would do nothing to reverse. We need experiments in giving no less than experiments in living. Second, and in the same vein, BIG and other redistributive proposals remove from individuals the responsibility of alleviating poverty. We agree with Tocqueville that human flourishing results when citizens are capable of dealing with the "care of thinking and the troubles of living" (Ostrom, 1997, p. 223) and not insulated from the vagaries of life. In making this argument, we are not claiming that individuals should not care for one another nor that they should not have a reasonable expectation that they will have the necessities of life. Rather, we are claiming that the process by which provision is made for the poor matters a great deal. Is it a problem to be seriously and continually confronted by thinking, responsible members of a community or one to be sloughed off onto distant bureaucrats? We favor a system in which individuals actively engage with one another rather than rely on a mechanistic scheme. Such engagement cultivates the capacity for selfgovernance that is the most robust protection of individual liberty and dignity (Ostrom, 1997). Redistributive policies entail not an exercise in but an abdication of self governance. BIG policies are no different in this regard. Its goals include solidarity and equality. We share those goals, but think that BIG delivers them only in a stunted form. Mutual slavery is a kind of equality, but not a desirable one. We take the equality entailed by freedom of association and disassociation to be far more commensurate with human dignity. Similarly, ants are interdependent, but not in a dignified human way. We agree with BIG's proponents that the illumination of our interdependence is indeed a lofty aim for any social reform. But BIG proposals attempt to fix the form of that interdependence, rather than allowing creative and ingenious individuals to discover and jointly work out the (provisionally) best means of serving one another. 5. Conclusion BIG is a policy that has some intuitive appeal for those who care about social justice and human dignity. We grant for the sake of argument that BIG has this desirable characteristic. But for most advocates, the analysis stops there because intentions are presumed to equal results in policy, just as ought is assumed to presume can in questions of public policy. Comparative analysis, by contrast, begins with the recognition that intentions do not equal results in public policy due to problems associated with the structure of incentives, and to problems associated with the discovery, mobilization and utilization of knowledge within a society. We argue that the comparative political economy analysis that focuses on rules and strategies to evaluate proposals based on coherence and opportunism usefully complements the social philosophic analysis that libertarian political and moral theory can provide. Libertarianism offers a standard of assessment from the perspective of the ethical stance of nonaggression. We agree with the libertarian position, but do not believe it exhausts public policy analysis ­ and it may not be the most effective argumentative strategy to pursue in the clash of ideas in policy discourse. But we hope that the libertarian intuition of nonaggression can in fact be served by critically assessing the alternative public policies that comparative political economy provides. We apply this framework to the BIG question and raise some criticisms regarding the effectiveness of BIG to realize the goals of serving human dignity and cultivating a citizenry capable of democratic selfgovernance. We share with the libertarian political philosopher the goal of establishing a society of free and responsible individuals, but we do not see this vision of society as being the outcome of academic justifications for individual rights. As comparative political economists, we see instead the private property market economy as an institutional configuration that takes humankind in all its given variety ­ sometimes good and sometimes bad, sometimes smart and more often stupid. And we see that institutional configuration as something that ­ through private property incentives, the informational signals of free prices, the lure of pure profit and the penalty of loss ­ coordinates dispersed knowledge and generates a harmony of interests. Dignity, efficiency, and justice are served by a rule regime of individual rights, clearly defined and strictly enforced property rights, and freedom of trade and association. Rather than starting from self ownership or property rights as a premise, the case for libertarianism is a result of the comparative analysis of rule regimes. And the comparative analysis also suggests that BIG does not seem to pass either the coherence or the vulnerability tests. Comparative political economy indicates that BIG does not satisfy its own goals, while libertarianism actually does serve the goal of promoting human dignity and cultivating the capacity for selfgovernance.

Journal

Basic Income Studies – de Gruyter

Published: Jan 19, 2012

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