food stamps, inefficiency, and paternalism

This morning we had a guest lecture in Microeconomics about why welfare programs like Food Stamps that give goods instead of cash are inefficient. In this case “inefficient” means that there is a way to design the program that would make someone (either the tax payers or the program participants) better off without anyone being worse off.

The basic idea is that some people who receive Food Stamp benefits would, on their own, choose to consume less food than the food benefits they receive.  If they got the same amount of cash as they now get in food benefits, they would be happier because they could spend some of the money on something else they want more – like paying down their utility bills, buying clothes, or health care (or, if you want to take a more negative view of human behavior, buying cigarettes and booze).  At the same time, they could receive less than they do now – but in cash instead of in food benefits – and still be just as happy (same thing – the other goods they would buy would make them happier than the food).

This is basically a sound argument – if what you care about is getting the most welfare for the most people based on the money you’re spending AND you think people make good choices with their own money, then cash benefits are better than “in kind” benefits (specific stuff, such as food).

There are two major problems as I see it: first, you might not think people make good choices with their money. If the person receiving the money for the household is addicted to drugs, they might spend the money on drugs instead of food for their kids, and the kids might suffer as a result. Dictating what they have to spend money on might be worth a little inefficiency if it guarantees that children are fed. This is a sticky argument though. If you’re making this argument, you’re essentially saying that poor people don’t know how to handle their own money, and given the choice, won’t take care of their children. That comes out sounding pretty paternalistic, and potentially racist when you start looking at what percent of people receiving welfare benefits are minorities.

The second problem, which I think is a much more useful way to think about it (and which the visiting professor did not have time to address in class today), is that there is a great deal of political support for in-kind welfare programs, and not much for cash welfare programs. People are generally behind making sure poor families have enough to eat. They are not behind giving poor families money, even if the end result is the same (and cheaper). If you changed the program, to make it cash welfare, it could very likely result in loss of support for the program, and its eventual demise. Thus, inefficiency is the price we pay for political support. I, personally, am fine with that, given the importance of the objective.

The interesting thing that happened in class is that people in my class didn’t make the second argument, and they didn’t want to make the first, so they ended up caught somewhere, arguing rather incoherently that it was important to protect a certain level of food-consumption, even if the model indicated that people would be better off spending the money somewhere else – but trying very hard not to say it in a paternalistic way. There was a clear bias of the people in the room for providing food benefits over cash benefits – but only one person openly made the argument that poor people would make bad choices with the cash benefits, and everyone else kind of recoiled when he did so. (I think there is a more complicated argument to make about the failure of individuals to be economic rational actors that is not about people who live in poverty and therefore, while still paternalistic, is not biased against poor people – but it’s hard to separate that argument out since in reality we can only control the food choices of people we are giving money to.)

The point of the exercise was to show that we can model and discuss real world programs with the limited economic tools we have learned in the last month. Which is cool! What I got out of the class, though, was how unsure we are, as a group, about the weight to put on economic analysis and how to argue against its conclusions without rejecting the whole analysis out of hand.

test prep

I have my first exam of grad school tomorrow.

I just spent the last forty-five minutes making brownies.

I have to wake up in… eight hours? Ish. I was hoping that baking + doing dishes would relax me and get me ready to fall asleep, but I am just as hyper as before, possibly more. On the plus side, my apartment smells really good.

It has been a long time since I’ve taken a test like this (involving math, and formulas, and possibly a calculator). I am nervous not because I don’t think I am prepared – I understand the concepts, as far as we have gone over them multiple times in class and in the book – I am nervous because every time I try to do problems stemming from the concepts I trip up on some silly step along the way, usually involving algebra. I am not detail oriented. We have been assured that partial credit will be given if it’s clear we knew how to do it, but as the whole “exam” concept is a recipe for big, scary stress, this doesn’t help very much.

What a boring post. Time to stuff my mouth with brownies; that has to be better than whinging.

EDIT: Used this recipe as I did not have any baking chocolate in the house. Quite good!

Microeconomics is trying to make me a conservative

Today in my microeconomics class, we learned about how labor markets balance risk and wages.  Basically, it costs employers money to mitigate risks, so they are willing to pay more to not have to – that is, they will pay more for people to take on riskier jobs.  This is good, because most people (who have some basic sense of self-preservation) demand higher wages for riskier work.  In the graph my professor drew on the board, there is an ideal point at which the individual’s risk-per-unit-of-wage curve is tangent to the employer’s curve, and everyone has a job and is relatively happy.  Then you have Government Intervention.  The government says you can’t take on that much risk, even if you want to, and the individual is suddenly making less money, and is less happy.  Meanwhile, the employer, having passed off the costs through a wage cut, is sitting pretty.

So what does this tell us?  Government should stay the hell away from markets!  They are just making people make less money, and constraining their rights to risk their lives for profit.  Boo government.

…

Of course, there are a couple tiny problems with this.  For instance: the model assumes that companies make no profits, so if the government imposes a limit on risk, the only way they can stay in business is to reduce wages.  Obviously in the real world, companies do have profits.  Often very large profits.  Another small problem: the model assumes that people know exactly how much risk they are taking on, and are perfectly able to leave and find another job if they don’t like their new level of wages, or their new level of risk.  There are so many examples of these not being true, it doesn’t even seem worth listing them.  So the model is stupid and unrealistic, and sometimes government limits on risky behavior can be “good.”

My professor made this point in class; he’s a good liberal, and he’s not trying to brainwash us.  Nevertheless, I feel that the discipline itself is trying to brainwash us.  It’s so simple!  It’s so clean!  It mostly works even if it’s based on bullshit assumptions that in no way reflect the real world!  Trust it!  Love the market!  BE THE MARKET.

Ahem.

I’ll be over there, writing long maudlin papers about how downtrodden and constrained the poor are, thank you very much.

on paper-writing and school nights

It’s Sunday afternoon and my mind is all fogged up from too-much-dancing-and-not-enough-sleeping last night (I apparently have yet to learn that the grad student’s weekend is not the same as the working person’s weekend, and act accordingly).  I am supposed to be writing my first paper, a four page memo recommending a political strategy to an Oregon governor from the early 1990s.  Instead, I am procrastinating.  Ah yes, the last three weeks of doing my homework three days ahead of time have now given way to the reality of avoidance-at-all-cost.  (This is hyperbole.  My paper is not due until Thursday.  And to be perfectly frank, I don’t even have the write the paper for Thursday.  I could write another paper next week, or another paper the week after that.  So my self-portrait of a procrastinating student is somewhat misleading.)

So what has public policy grad school been like so far?  I have learned a lot of things I do not entirely believe about the rational behavior of individuals in a market setting.  I have spent a lot of time on my couch (reading).  I have started to make friends.  (My little sister just started middle school, which is similar, I think, to starting graduate school.  At the end of her first week she said, “I have one friend, and everyone else is just an acquaintance.”  I think I have two, maybe three, at the end of three weeks.  Can we extrapolate a rate from our sample of two?  Is the rate of friend-making a straight line, or does it eventually become asymptotic to some physical limit of human friendship?)

Consider for a moment, how scattered this blog entry is, and then imagine me trying to write a very structured, very concise memo about anything.  No more dancing for me (though it was fabulous, the gay boys and the girls in short dresses and the drag queens, and the music, and everyone having such a good time).  Every night is a school night now.

first day of school

Note: this post is slightly delayed since I still do not have internet in my apartment – it was written on the night of the 26th.

Today was the official beginning of my graduate career.  I woke up at 6:30, hauled myself out of bed, and was sitting in Microeconomics by 8 am, if not ready to learn, at least with my eyes open.  It was a good day; both professors I had today were smart and engaging, I did not feel too lost, it was sunny and I lay in the grass for about ten minutes after lunch.
My favorite thing that has happened today, however, is reading the second chapter of one of my two (two!) giant Microeconomics textbooks.  Yes, I was not expecting this either.

The textbook to which I am referring was written by Lee Friedman, a professor here (Friedman also teaches next semester’s more advanced Micro class).  My current professor described this book (from the outside, your standard 700+ page textbook) as “more literary.”  (As opposed to the other textbook, which upon casual perusal appears to have lots of math.)

The first chapter of Friedman’s book was pretty straightforward: what is the role of a policy analyst, why is microeconomic analysis important for a policy analyst to know, what are its limitations, etc.  The second chapter opened in a similar vein, but then it had a story.  Not just any story.  This story was about a young woman named Barbara Blackstone starting her Very! First! Day! at public policy grad school.  She woke up at 6:45 am!  She wanted to do good in the world but needed more tools to know how!

The real fun begins when Barbara goes to class and her gentle-eyed professor gives a lecture on supply and demand curves (not terribly dissimilar from the one I heard earlier today).  I can’t decide which I find more delightful: the internal nervous dialogue of the students (it does not sound like that inside my head!) or the fact that Professor Friedman likes his opening lecture so much he felt the need to give it to us inside a textbook, complete with fake student questions and interjections.  Though honestly, nothing can beat the end of the story, which I copy in full below:

Professor Weiss went on to show [some math about cost-benefit analysis] and then announced that this was quite enough for one day and ended the class.  Barbara and Reggie looked at each other, tired but smiling.

“That was some class, wasn’t it?” said Reggie.

“You can say that again,” Barbara replied.  “I think this course is going to be very interesting.  I just hope I can keep up with it.  At times it seemed to be going too fast for me.  I’ve never seen anything like this before.”

Reggie grinned at her.  “It sounded to me like you’re going to do just fine.”

Professor Weiss, who overheard the thrust of this conversation, smiled to himself as he left the room.  They both will do just fine, he thought.  This whole class will do just fine.  I am lucky to have such good students.  And with those private thoughts, he disappeared from view.

I solemnly swear to utter the words, “That was some class,” at least once a day every day for the next two years.