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.
