Welfare paternalism

Paul Ryan's welfare plan, including stronger reliance on case managers to guide clients out of income support and into work, reminds me an awful lot of the Beaulier and Caplan piece on behavioural economics and welfare. It was published in Kyklos; the link above goes to the ungated version.

I'd paraphrased their paper a few years ago:

If we take behavioural economics seriously, we've good reason to believe that the anomalies it describes are found primarily among the poor and are exacerbated by the welfare system. Poor people are more likely to exhibit behaviours that reflect more than just high rates of time preference: they demonstrate little ability to foresee the consequences of actions. The poor (and less educated / lower IQ - the two go together) are more likely to be heavy drinkers, to be obese, to smoke, to buy lotto tickets, to take illegal drugs, and to commit even non-economically motivated crimes (theft would not be surprising, but violent crime isn't lucrative). Low IQ amplifies behavioural anomalies. And, the dole makes things worse. If you start out with big self-control problems, you're likely to overestimate your ability to motivate yourself to find work - "I'll go on the dole for now but will look hard for work tomorrow". Absent the income backstop, you'd have to look for work. Worse, if welfare payments are more comfortable than the first year of work, after which work is better as income rises, folks with high discount rates and self-control problems may decide never to leave even though it would be in their long run interest. Consequently, welfare payments may make welfare recipients worse off, contra neoclassical economics.

Ryan's plan has recipients working with case managers to develop short- through long- term goals, with wraparound tailored support in place of some current federal programmes:

The OG system will promote a more holistic form of aid to move individuals and families out of poverty. One promising method this proposal envisions is the use of case management. Here’s an example of the number of steps illustrating the OG in practice:

• First, each state will approve a list of certified providers that are held accountable for providing quality service and achieving results (such as moving people to work, out of poverty, and off of assistance).
• Next, a person will select a provider, and the provider will conduct a comprehensive assessment of that person’s needs, abilities, and circumstances. 
• Then, the two of them will develop a customized plan to address the recipient’s needs. The plan could take the form of a contract—with sanctions for failing and bonuses for exceeding expectations. The plan would offer financial assistance to address immediate needs, like food, clothing, child care, and housing. But it would also work on setting goals, learning skills, and developing a broader support system.
• At the most basic level, successful completion of a contract will involve an able-bodied individual obtaining a job and earning enough to live above the poverty line. Each state may choose to define success slightly differently insofar as those basic conditions are met.

I'm not a particular fan of paternalistic approaches. They're insulting. But at least this variant is targeted at those who have demonstrated that they need a bit more of this assistance. Further, help to get out of poverty already comes with strings. Between this kind of approach and one that simply provided a minimum income with no strings, well, it's a tough call. I don't like the paternalism, but I do expect it could be more effective in getting people into better situations, conditional on there being some sufficiently competent and empathetic army of social workers to do the job. [update: link fixed]

Previously:

• Welfare reform
• The poor aren't like us
• Coercion everywhere: welfare edition
• Guaranteed income and living wages

Left and Right united against Behavioural Economic Policy

Chris Dillow is my second favourite Marxist after Jon Elster. He here critiques Tim Harford on behavioural economics and economic policy.

Tim Harford's brilliant essay on behavioural economics highlights an ideological bias in the way the subject is used.

What I mean is that he presents it as "a hot idea for policy makers". This underplays two things.

One is that politicians themselves might be as prone to cognitive biases as the public. Indeed, it's possible that they are selected for such biases - because the overconfident are disproportionately likely to enter politics and because irrational consumers are likely to make irrational voters. The image promoted by behavioural economics (or its users) - of rational policy-makers operating upon irrational subjects - is therefore questionable.

The other is that there's an alternative use of behavioural economics. It could serve an educational function - of telling consumers what errors people commonly make, and of warning them against them. A lot of my day job is just this.

I made much the same suggestion in my review of Dan Ariely's book for the Christchurch Press. As a self-help guide, behavioural economics is really valuable. As a guide for policy, a bit less so.

Behavioural economics gives economists the chance to live up to Keynes' ideal of them, as dentists giving humble competent advice. And it's a chance they are blowing.

Now, you might reply here that it has always been so, Economics has long been pompous white men in suits speaking to other pompous white men in suits, rather than a dialogue with the public. That's true. But there's a big difference between telling politicians "people are rational maximizers so leave them alone" and telling them "people are stupid and here's how you can manipulate them."

In this context, there's both similarity and contrast between users of behavioural economics and Marxists. Both believe that ideology or cognitive biases (they're much the same) stop people pursuing their best interests. Where they differ is in how they respond to this. Marxists think people should be educated out of ideology and therefore empowered: "theemancipation of the working class must be the work of the working class itself”. Most users of behavioural economics, by contrast, see cognitive biases as just more policy tools, and thus ways of empowering rulers. But it needn't be so.

Strongly endorsed.

Control Yourself

My column on the economics of self-control is up at CANTA. A few choice excerpts:

If the psychologists and the behavioural economists are right, then we effectively have warring factions inside our head, all the time. There's the me who wants to check Twitter rather than finish this column and the me who wants to finish the column so I can get on to other things. They're currently yelling at each other. The same battle plays out in diverse forms for most of us. The preferences revealed then by our actions are the emergent outcomes of the minor battles inside our heads for control.

Some critics of individual choice take this as reason for government intervention to favour one faction over the other in our internal battlefields. In these models, we help smokers by taxing cigarettes and help the obese by forcing them away from food. But remember Baby Pareto's crying: if you really do prefer to stop the short-term hedonist in your head from harming your longer-term interests, some clever entrepreneur can profit. And indeed, when we go out in search of self-disciplining mechanisms, we find that the market provides. There are myriad programmes to block you from surfing the web when you should be working. Problems sticking to an exercise regimen? Hire a personal trainer to mock your lack of effort. If you want to quit drinking, you can get a prescription for a drug that will make you violently nauseous if you do drink.

...

Should we ban Twitter when you can buy the Twitter-blocking programme Freedom for $10 with a 90-day money-back guarantee? Hardly.

Further, people often want excuses for doing embarrassing or disapproved things. While it's true that people are more likely to engage in risky sex after a night out drinking, they're also more likely to report positive sexual experiences after drinking. Should we conclude that drinking made them go out and do bad things, or that people sometimes drink to give themselves an excuse?

If we want to help people exercise self-control and make good choices, we should encourage the use of the readily available market solutions that work to those ends: voluntarily chosen constraints are far less likely to make Baby Pareto cry than are those paternalisms imposed from on-high. We otherwise require government to choose sides in the war inside your head when non-interventionism is likely best.