Why isn't welfare considered a good economic strategy?

[Borzo]

@smiling_bandit

Agnostic Pagan, and I’m not trying to insult here, but that’s the worst neoclassical economics I’ve read since Marx, the worst understanding of the role of wealthy individuals in the economy, and flat wrong about the supposed weakening of neoclassical economics.

Well, he certainly did have content.

Do you think you could summarize the main issues you have with his post and his points? I’d be greatly appreciative.

[Borzo]

Transferring money from those that have earned it to those that haven’t simply robs incentive from the producers. It removes the motivation to make a $10 table, so to speak.

Last year, I had a job for $X/year. I was offered a job for $10,000 more but there were some drawbacks. The commute was farther. I’d have less vacation days. I valued those drawbacks as costing me $8,000. Since it’s giving me $10,000 more in salary but costing me $8,000 in drawbacks, you’d think I’d have taken the job. But with the tax rate, that $10,000 becomes only $7,000. So I didn’t take the job. That means the economy loses out. I decided not to “dig up that ore” or “make the table”. So no wealth was created and the government missed out on extra tax revenue that they would’ve gotten with a lower tax rate.

Is there no economic value to welfare? I mean… there’s a huge economic cost associated with a ghetto full of unemployed… drugs, crime, violence, health problems, etc (and possibly rioting if it gets bad enough).The government would have to spend (lose) even more money on such situations if welfare didn’t exist to meet peoples’ very fundamental basic needs. Do you disagree?

So sure, the economy lost out because of taxation, in your particular example, but what about the riot that was avoided, that would have cost infinitely more?

For one thing, even if the rich invest overseas, the whole point of investing is the get a nice return. And you know who gets a piece of that return? Uncle Sam, via capital gains tax. So that money is only out of the country temporarily.

This isn’t completely fair. What about the people who built the factory, or the people who work the factory? They get paid, and that money stays in China… whereas otherwise it would stay in this country instead. Are you suggesting that the amount of wealth generated in the USA is the same no matter where the factory is?

Secondly, you assume that if the poor spend money quickly, that it will stay in the country. I don’t see that as evident at all. The US imports cheap goods, not expensive luxury items. Our major export is technology and financial services. Now ask yourself- who makes use of financial services, the rich or poor? Who buys up new gadgets like iPods, Cisco routers, and Oracle servers, the rich or poor? And finally, when Apple sells a million iPods to Japan, what government gets to tax those profits, the US or Japan?

I will concede that a lot of the inexpensive commodity items, clothes, cheap electronics, etc, are from overseas.

And finally, all those arguments are from an economic angle. I didn’t even mention the inherent unfairness of taking from one for the sole purpose of giving to another.

Inherent unfairness? I think you lost me with this. Many would argue about the inherent moral/ethical FAIRNESS of taking from the rich to give to the poor.

I’m a believer in the idea that society allows people to get rich, and therefore society gets to decide what happens with their wealth. Social structures like government allow people to earn, hold onto, and spend, most their wealth. Society is in effect saying “you are allowed to have this”. It’s society’s right to decide what to do with it, and the taxes taken from it, and where it goes thereafter. If people don’t like this, they can move somewhere else. (And they do, and that’s okay, it’s all a part of the market.) This is just my personal opinion on these issues.

But I do have to refer to my previous point: Government exists to preserve and protect and nurture and foster society (correct me if I’m wrong). Allowing those at the bottom of our economy to “fall through” would lead to absolute chaos and rioting over basic things such as housing and food. This wouldn’t be in anyone’s best interest. Not the rich, not the middle class, and not the poor themselves. The cost of cutting welfare in half, for example, would probably be much more than the initial savings incurred.

[Spit]

@Borzo

I don’t need to be hired by someone on welfare if his shopping habits are keeping my grocery store in business, or if his minimal rent payments on my spare bedroom are helping me pay for my own expenses. This kind of use of welfare money goes directly into the local economy and helps further the local “circle-of-cash”, benefiting many people down the line.

Absolutely.

So why doesn’t everyone go on welfare, spend the money, and we all retire rich?

[Agnostic_Pagan]

@Borzo

Well, he certainly did have content.

Do you think you could summarize the main issues you have with his post and his points? I’d be greatly appreciative.

So would I.

And neo-classical economics is weakening, but most of the work is being done outside of economic departments which still consider Samuelson and Mankiw the only relevant textbooks, ignoring all the challenges to those texts.

But those criticisms have not been consolidated in a complete model comparable to that of the neo-classical school, and there is no one text that covers them all. Some professors are working on alternatives, but are still a couple years away. Though I would welcome any news on that front.

A good site for a discussion of heterodox schools (and they are not all complementary to one another, but most are) is the Real-World Economics Reviewand its blog.

As for what mainstream economists are thinking, the congressional testimony here is a good read, especially Solow’s:

It may be unusual for the Committee to focus on so abstract a question, but it is certainly natural and urgent. Here we are, still near the bottom of a deep and prolonged recession, with the immediate future uncertain, desperately short of jobs, and the approach to macroeconomics that dominates serious thinking, certainly in our elite universities and in many central banks and other influential policy circles, seems to have absolutely nothing to say about the problem.

…

there is no need to overturn it in any wholesale way, and no acceptable suggestion for doing so. It goes without saying that there are important gaps in our understanding of the economy, and there are plenty of things we think we know that aren’t true. That is almost inevitable. The national – not to mention the world – economy is unbelievably complicated, and its nature is usually changing underneath us. So there is no chance that anyone will ever get it quite right, once and for all. [I disagree with him here - heterodox schools such as evolutionary economics may not get it quite right, but they are far closer to reality than the neo-classical economics does.]
…

Economic theory is always and inevitably too simple; that can not be helped. But it is all the more important to keep pointing out foolishness wherever it appears. Especially when it comes to matters as important as macroeconomics, a mainstream economist like me insists that every proposition must pass the smell test: does this really make sense? I do not think that the currently popular DSGE [Dynamic stochastic general equilibrium - the main neo-classical model] models pass the smell test. They take it for granted that the whole economy can be thought about as if it were a single, consistent person or dynasty carrying out a rationally designed, long-term plan, occasionally disturbed by unexpected shocks, but adapting to them in a rational, consistent way.
I do not think that this picture passes the smell test. The protagonists of this idea make a claim to respectability by asserting that it is founded on what we know about microeconomic behavior, but I think that this claim is generally phony. The advocates no doubt believe what they say, but they seem to have stopped sniffing or to have lost their sense of smell altogether

…

An obvious example is that the DSGE story has no real room for unemployment of the kind we see most of the time, and especially now: unemployment that is pure waste. There are competent workers, willing to work at the prevailing wage or even a bit less, but the potential job is stymied by a market failure. The economy is unable to organize a win-win situation that is apparently there for the taking. This sort of outcome is incompatible with the notion that the economy is in rational pursuit of an intelligible goal. The only way that DSGE and related
models can cope with unemployment is to make it somehow voluntary, a choice of current leisure or a desire to retain some kind of flexibility for the future or something like that. But this is exactly the sort of explanation that does not pass the smell test.

The facade is cracking, and what will be revealed is still up in the air, but neo-classical economics is losing what little credibility it had and homo economicus is dying. The sooner the better.
PS - Mods, this is public testimony, so I don’t think I am violating any copyright, and hoping not excessively quoting. That is nowhere close to his full statement.

[Borzo]

@Spit

Absolutely.

So why doesn’t everyone go on welfare, spend the money, and we all retire rich?

I believe we’re not all on welfare, because the whole “everyone is instinctively lazy” myth is just that… a lie. The vast majority of people do stuff. In fact, I’d probably be able to put forward a reasonable argument suggesting most humans have an innate drive to be productive.

Personally, welfare wouldn’t give me the resources that I’d need to be productive (let alone pay my rent in the big metropolitan city I currently live in). Most people wouldn’t settle for welfare, because it’s simply not enough money for them.

I believe there’s a balance between the people who are on welfare, and the people who take welfare-recipients’ money in exchange for the goods/services that they want. If everyone was put on welfare, some people would start businesses servicing all the welfare-people, and they’d make tons of money. Eventually an equilibrium would be reached, which I suspect would be very close to where we happen to be right now.

[Ravenman]

@Chessic_Sense

But with the tax rate, that $10,000 becomes only $7,000. So I didn’t take the job. That means the economy loses out. I decided not to “dig up that ore” or “make the table”. So no wealth was created and the government missed out on extra tax revenue that they would’ve gotten with a lower tax rate.

So that job is unfilled because you wouldn’t take it? That’s horrible!

Man, you would think that if the company had important work to do, they would have offered you more money, or hired someone else to do it, instead of letting the economy and tax revenues suffer since you didn’t want the job.

Come to think of it, this weekend I saw a sign in a McDonald’s that said, “Part time workers wanted.” If I had thought harder about how much the economy was going to lose out if I didn’t offer to work at the Golden Arches, I might have sacrificed my weekends for $8 an hour. (You know, just to earn a little cheese on top of my six figure salary.) But since I didn’t apply for the job, my dreams are filled with nightmares of all the starving patrons who won’t get Big Macs because I’m not working the grill. So very, very sad.

[Voyager]

@Fotheringay-Phipps

The problem here is your first sentence, which conflates two issues. The first half is not necessarily true, but the second half generally is. As you spend the rest of your post attacking the first half, you’ve made things seem more simplistic than they really are.

The fact is that “welfare encourages the poor to stay poor and be leeches”. There’s no way around this. It’s human nature.

I did give a reason why it makes sense to support someone temporarily poor - to help in transitions. However, in the early 19th century the English tried to make it as tough as possible for the poor to live. It didn’t reduce the number of the poor at all. It just made life miserable for them. Don’t you think the child of the poor who get fed adequately and schooled adequately is less likely to grow up to be poor than a kid dumped onto the streets?

And I hardly think it is human nature to live a life below those of the others you see, on TV or in your city.

While it’s true that not all rich people are productive and some are leeches (and even many of the ones who are productive are being grossly overpaid, e.g. fat-cat CEOs and the like), being on welfare is almost never productive. The more welfare you give, the more you encourage people to be lazy, which is both morally wrong and counterproductive for the economy as a whole.

[Which is NOT to say that all people on welfare are lazy. But that some are, to one extent or another, and the more welfare you give, the more this will tend to be the case.]

In times of plentiful employment, it is fine to limit time on welfare unless there are specific physical or health reasons for someone not to be employable. In times where there are five workers per open jobs, telling someone they shouldn’t be on welfare and just get a job is cruel and stupid. Plus, as statistics I’ve posted before show, a lot of welfare cases are on welfare a relatively short time.

The real question is - what do you suggest doing with the people now on welfare? Make them homeless to dumpster dive and beg? Let them die? Send them somewhere? Tell them to find jobs that just don’t exist? It is not like the no welfare method hasn’t been tried in the past. It just doesn’t work all that well.

[Spit]

@Borzo

I believe we’re not all on welfare, because the whole “everyone is instinctively lazy” myth is just that… a lie. The vast majority of people do stuff. In fact, I’d probably be able to put forward a reasonable argument suggesting most humans have an innate drive to be productive.

Yes they do, when motivated. The problem with welfare is the taking of that motivation. Heck, this is even true with working people- If someone works hourly, they tend to be more productive than someone who is salaried. I see this behaviour in myself.

Personally, welfare wouldn’t give me the resources that I’d need to be productive (let alone pay my rent in the big metropolitan city I currently live in). Most people wouldn’t settle for welfare, because it’s simply not enough money for them.

It isn’t enough money for me, either. The problem is that the original recipient thinks just like that. However, their offspring do not know anything different and the cycle continues until we end up with strings of people who feel living in squalor is perfectly acceptable.

I believe there’s a balance between the people who are on welfare, and the people who take welfare-recipients’ money in exchange for the goods/services that they want. If everyone was put on welfare, some people would start businesses servicing all the welfare-people, and they’d make tons of money. Eventually an equilibrium would be reached, which I suspect would be very close to where we happen to be right now.

Wow. It’s like you look at an economy in reverse. If you already knew the answer, why did you bother asking the question in the first place?

[Voyager]

@Chessic_Sense

From a macro perspective, the only thing that matters is how much value is being created at a given time. That is, how often someone is taking $1 of nails and $3 of wood and making a $10 table, or burning $3 of gasoline to dig up $5 of ore. That’s the only thing that, in the long run, employs people and makes up for all the consumption (like eating or heating our homes) that we do.

You forgot one minor thing. If there is no market for that $10 table it will not get built, not matter how much investment capital there is. If there is a glut of $10 tables on the market, it also probably won’t get built.

Transferring money from those that have earned it to those that haven’t simply robs incentive from the producers. It removes the motivation to make a $10 table, so to speak.

If taking $1,000 from you, Mr. Tablemaker, creates enough incremental consumption so that you make $2,000 more in profit from increased table sales (including benefits of scaling up) then it is a good deal.

Last year, I had a job for $X/year. I was offered a job for $10,000 more but there were some drawbacks. The commute was farther. I’d have less vacation days. I valued those drawbacks as costing me $8,000. Since it’s giving me $10,000 more in salary but costing me $8,000 in drawbacks, you’d think I’d have taken the job. But with the tax rate, that $10,000 becomes only $7,000. So I didn’t take the job. That means the economy loses out. I decided not to “dig up that ore” or “make the table”. So no wealth was created and the government missed out on extra tax revenue that they would’ve gotten with a lower tax rate.

You might as well blame the oil companies also. All people interested in that job share the same tax burden, thus, it is a wash. It might be that someone living closer might want the job at that rate - that is why we put industries in population centers. If no one still wants it, the employer isn’t paying enough. The market works both ways, after all.

[smiling_bandit]

@Borzo

Well, he certainly did have content.

Do you think you could summarize the main issues you have with his post and his points? I’d be greatly appreciative.

Alright. I’ll keep it very short.

Neoclassical economics is basically unassailable. You might not like the assumptions or the conclusions, but the basic argument is unbreakable, and is verified every day by millions of people. In short, efficiency is everything.

That’s what it is concerned with: macroeconomical efficiency. Adam Smith got it in one. (Like Darwin, he got many details wrong and it’s been revised, expanded, and the rough edges smoothed out.) You can still go back and read the less tedious sections of Wealth of Nations, and it not only makes total sense but is still experiementally demonstratable.

Those conclusions are mean suckers. They tell us that the economy is mostly out of any central control: it’s composed of billions of people interacting in tiny, even trivial ways on a daily basis. Changing the structure is nearly impossible, and changing the rules is flat-out impossible. They are formed by the human animal and the laws of physics.

It does not tell you what to do with that knowledge. The Communists suck their fingers in their ears and paid the price. The slow, grinding economic troubles of the Communist nations during the Cold War, and North Korea today, are not accidents. They are absolutely necessary results of programs which do not adequately allow for profitable economic activity.

Some have accused economists of being cruel. In a way, they are. They abstract the individual choice and interest because we can’t measure it. We can measure the aggregate and make educated guesses about group interest only. Economics demands that there are winners and losers, and any economic system only differs in two ultimate respects: the total wealth of the system, and the amount of wealth accumulation allowed to individuals.

And those two are related. Mathematically, it’s almost impossible to increase wealth without increasing inequality, and it’s flat impossible in the human sense.

This is law, more or less, albeit a human law and not a physical one. It is an absolute constraint of the system: people do not work for free. They may get something other than money out of it, but that’s always a side issue, a need to be taken care of after you fill your belly. Thus, when you say, ‘I believe we’re not all on welfare, because the whole “everyone is instinctively lazy” myth is just that… a lie.’

Well, you’re talking damned nonsense. Everyone is lazy. Let me ask you: when was the last time you stopped and moved some hundred-pound rocks for the sheer joy of exhausting yourself? Some people enjoy exercise, but even they don’t waste energy frtuitlessly: they’ve plenty of resources and can amuse themselves without risk. Humans are animals whatever else we may be, and it is necessary that humans conserve effort and spend it wisely.

Note, too, that simply because people can enjoy themselves, they don’t go off and dig ditches for fun, or go out and study medicine for a decade so they can sit on the couch. There are a limited array fo activites that people do for fun. There is a vastly broader array that they would do for money - resources. You kid yourself if you that changes. Just because people like to fill their days doesn’t mean they would fill them with anything useful, given a free choice.

What Agnostic Pagan doesn’t understand that everything he’s talking about is marginal activity. Economists don’t continue to improve the macro model because it’s about as perfect as we know to make it. Further improvements aren’t terribly good investments, and if there’s one thing economists understand, it’s investment potential. Some economists think that bettering human freedom might improve the potential of those nations already using the model (and note that this kind of talk is directed at deevloping nations, not usually the developed West, for obvious reason).

It doesn’t change the model. The model is demonstrated in aggregate. Only details and situational issues exist: can government-directed investment really improve the economic situation over the long term, or is it simply lucky sometimes and misallocating funds in aggregate? The very cite he puts up is a perfect example of this: “Nope, we’ve mostly got it right for now, so what else can we focus on?”

He’s also wrong that neoclassical economics has nothing to say about the current problems. That’s flat nonsense anyway you slice it, but not otherwise relevant today.

Ultimately, I don’t have to even argue against you theoretically. We can experimentally demonstrate that people do not work as hard, or sometimes at all, if sufficient welfare inducement is offered. If you crank the offer high enough people will simply stop doing other things, and we’ve seen that the higher welfare goes, the less productive society becomes. There is always someone on the margin who makes the choice, and it really doesn’t matter what you think about the problem: it is as it is.

This is a fact, not an opinion. Deal with that as you wish.

If you want to offer welfare, offer it because you consider it inhumane not to, or some other values-driven reason. Explain your value, and be prepared to accept that other people think you’re buying off your guilty conscious at too high a price. There really is not other defense of it, because it isn’t economically rational, much like the Minimum Wage.

I won’t get into the role of the wealthy, because it’s actually not relevant here, either. The short version is that pretty much every liberal ghere is looking at the phenomenon of wealthy people in emotional, and not descriptive, terms. That is, you are using your hearts and not your head. This is not an issue which needs any more heart, much less any more venting of the spleen.

Edit: Yes, that was short for me. Pray you don’t invite me to talk about the damn minimum wage anytime soon.

[Voyager]

@Sage_Rat

2. Higher taxes make the wealthy and middle class scared about the freedom of the market, which causes businesses to become more conservative, which depresses the economy.

As demonstrated by the great reduction in risk taking after the tax increases of the early 1990s. :rolleyes: What do you think scares people more - the ultra-rich not keeping every penny they have now, or federal and state governments cutting vital services because of historically low tax rates?
The rich are really a lot smarter and less insecure than you give them credit for. The radical left calls them grasping monsters. You on the right call them morons who can’t figure out their long term self interest. I’m not sure who likes them less.

[Thudlow_Boink]

@Voyager

The simplistic answer is that the rich contribute to society and the poor do not, so welfare encourages the poor to stay poor and be leeches.

Yeah, I am not an economist, but as I understand it, one way economists look at things is in terms of incentives. If you want people to do A and not B, you make sure there’s a greater incentive for doing A than B. From this point of view (which, to be sure, is not the only factor worth considering), welfare is a bad idea because it incentivizes not working and not contributing anything to society.

[Bryan_Ekers]

@Ravenman

So that job is unfilled because you wouldn’t take it? That’s horrible!

Man, you would think that if the company had important work to do, they would have offered you more money, or hired someone else to do it, instead of letting the economy and tax revenues suffer since you didn’t want the job.

Come to think of it, this weekend I saw a sign in a McDonald’s that said, “Part time workers wanted.” If I had thought harder about how much the economy was going to lose out if I didn’t offer to work at the Golden Arches, I might have sacrificed my weekends for $8 an hour. (You know, just to earn a little cheese on top of my six figure salary.) But since I didn’t apply for the job, my dreams are filled with nightmares of all the starving patrons who won’t get Big Macs because I’m not working the grill. So very, very sad.

Bravo. [slow sarcastic-sounding applause that is actually sincere appreciation for first-class sarcasm]

[Borzo]

So that job is unfilled because you wouldn’t take it? That’s horrible!

This is my problem with economics. For every example, there is a counter-example. ALWAYS. How do economists get anything done at all?!?

Obviously in his case, someone else took that job, so the loss on the economy is clearly not so great.

Hrmmm…

The real question is - what do you suggest doing with the people now on welfare? Make them homeless to dumpster dive and beg? Let them die? Send them somewhere? Tell them to find jobs that just don’t exist? It is not like the no welfare method hasn’t been tried in the past. It just doesn’t work all that well.

This is a good question.

Yes they do, when motivated. The problem with welfare is the taking of that motivation. Heck, this is even true with working people- If someone works hourly, they tend to be more productive than someone who is salaried. I see this behaviour in myself.

Welfare doesn’t remove motivation. The motivation of getting a job and making 10x more money is still present.

Whether you hate your job, or are overworked, that’s a totally different issue. Those who love their jobs often work for free when allowed, however.

Also consider the retired: Sure some just sit on their asses and watch TV, but others remain productive, creative, studious, etc, even though they no longer get paid.

Being productive is motivation enough, in and of itself, for many many people. I’m sure if I wasn’t so damn un-motivated, I could dig out a few papers from my archive and cite this. Though I suspect this is actually fairly common knowledge, to a degree.

It isn’t enough money for me, either. The problem is that the original recipient thinks just like that. However, their offspring do not know anything different and the cycle continues until we end up with strings of people who feel living in squalor is perfectly acceptable.

I’m gonna call BS on this, I’m sorry. The 2nd generation is still motivated. Why else do they try their hand at entrepreneurship in the form of theft, drug dealing, etc? I’m going to say that’s it’s more a lack of opportunity.

I grew up in an immigrant ghetto. (I was lucky to not be poor, and that my parents valued education above all else.) Friends started babysitting at 7. They started working under the table at 10. They started working fast-food and retail by 14. They worked a LOT. They worked so much in fact - to meet their family’s basic needs for food and shelter - that despite their desperate studying, their grades weren’t good enough to get into college. There was motivation, but not opportunity. At 22, some of them became drug dealers. Recently, one of them was just arrested for armed robbery.

If they were allowed to study instead of forced into working so much, they’d be in college right now. This is not a result of laziness or “getting used to living on welfare”. They were tremendously motivated to be successful - it just wasn’t enough. If only their parents were given a bit more social assistance… then at least my taxpayer dollars wouldn’t be wasted on prosecuting them in court right now. Imagine if that money was given to them 20 years ago?

Wow. It’s like you look at an economy in reverse. If you already knew the answer, why did you bother asking the question in the first place?

My main point was that increasing welfare would probalby be a good way to stimulate the economy, though I’m not really sure about this, and am looking for more input. I still believe, however, that increasing welfare would be good, since I do NOT believe most people are un-motivated, as I described above.

If taking $1,000 from you, Mr. Tablemaker, creates enough incremental consumption so that you make $2,000 more in profit from increased table sales (including benefits of scaling up) then it is a good deal.

How can you tell, as an economist, if this is happening? Is this model-able?

Thus, when you say, ‘I believe we’re not all on welfare, because the whole “everyone is instinctively lazy” myth is just that… a lie.’

Well, you’re talking damned nonsense. Everyone is lazy. Let me ask you: when was the last time you stopped and moved some hundred-pound rocks for the sheer joy of exhausting yourself? Some people enjoy exercise, but even they don’t waste energy frtuitlessly: they’ve plenty of resources and can amuse themselves without risk. Humans are animals whatever else we may be, and it is necessary that humans conserve effort and spend it wisely.

Okay, I will concede this point to a degree. I believe humans are naturally productive, even if the reward is minimal or non-existant (because humans probably have a biological need for mental stimulation, and phsyical movement, as two examples). There are certain jobs, however, that people generally would rather not do - and those people would need to be paid one way or another. (No one would want to be a garbage man for free, unless of course the garbage is in their own backyards…)

There are a limited array fo activites that people do for fun. There is a vastly broader array that they would do for money - resources.

Yes, okay.

Ultimately, I don’t have to even argue against you theoretically. We can experimentally demonstrate that people do not work as hard, or sometimes at all, if sufficient welfare inducement is offered. If you crank the offer high enough people will simply stop doing other things, and we’ve seen that the higher welfare goes, the less productive society becomes. There is always someone on the margin who makes the choice, and it really doesn’t matter what you think about the problem: it is as it is.

If welfare was raised to $40,000 per year, I would take a pay cut and quit my job, and start doing my own thing - which may involve starting my own questionably-successful business. I would be productive, but obviously this “productivity” may not be market-driven… Though a potential jackpot of hundreds of thousands of dollars may mean that is will be. Some people will no longer perform market-driven tasks, however, since 40k is enough for some to retire and be happy forever. I can see this happening.

if welfare is reduced to $0 you will get rioting on the streets, on the other hand, and effectively cost the government more than if they had paid some amount of welfare.

How do we decide what the economically and financially (let’s leave the social out of it for now) appropriate amount of welfare is? Can a market decide this? I assume no…?

If you want to offer welfare, offer it because you consider it inhumane not to, or some other values-driven reason. Explain your value, and be prepared to accept that other people think you’re buying off your guilty conscious at too high a price. There really is not other defense of it, because it isn’t economically rational, much like the Minimum Wage.

This is well-articulated, and something for me to think about. Personally, I’d probably lean towards welfare as social/moral/ethical policy, which can also help the economy (in the ways I’ve described in my other posts). I’d also probably view welfare as a way to avoid the state costs associated with maintaining populations of extraordinarily poor people (re: riots, malnourishment, etc.).

Edit: Yes, that was short for me. Pray you don’t invite me to talk about the damn minimum wage anytime soon.

I’d love to hear it, or get a link to where it’s already expressed!
Sorry for the long post, and the poorly quoted text.

[Voyager]

@smiling_bandit

This is law, more or less, albeit a human law and not a physical one. It is an absolute constraint of the system: people do not work for free. They may get something other than money out of it, but that’s always a side issue, a need to be taken care of after you fill your belly. Thus, when you say, ‘I believe we’re not all on welfare, because the whole “everyone is instinctively lazy” myth is just that… a lie.’

Well, you’re talking damned nonsense. Everyone is lazy. Let me ask you: when was the last time you stopped and moved some hundred-pound rocks for the sheer joy of exhausting yourself? Some people enjoy exercise, but even they don’t waste energy frtuitlessly: they’ve plenty of resources and can amuse themselves without risk. Humans are animals whatever else we may be, and it is necessary that humans conserve effort and spend it wisely.

Note, too, that simply because people can enjoy themselves, they don’t go off and dig ditches for fun, or go out and study medicine for a decade so they can sit on the couch. There are a limited array fo activites that people do for fun. There is a vastly broader array that they would do for money - resources. You kid yourself if you that changes. Just because people like to fill their days doesn’t mean they would fill them with anything useful, given a free choice.

Ultimately, I don’t have to even argue against you theoretically. We can experimentally demonstrate that people do not work as hard, or sometimes at all, if sufficient welfare inducement is offered. If you crank the offer high enough people will simply stop doing other things, and we’ve seen that the higher welfare goes, the less productive society becomes. There is always someone on the margin who makes the choice, and it really doesn’t matter what you think about the problem: it is as it is.

You are contradicting yourself here. While you say people are lazy, and do nothing without a motive, you kind of sneak in the fact that many times the motives are impossible to measure monetarily. Bill Gates is not running around the world to feed his family. If your model was correct, he’d be sitting on the couch. I challenge you to create a model where the satisfaction he gets from his charity work is worth the billions of dollars he is donating/forgoing for it.
No one digs a ditch for fun? Millions dig their gardens for fun. Most of us nowhere nearly make back the value of our labor in the vegetables we get, not to mention those who grow flowers and get nothing so easily converted to dollars.

You are claiming that those on welfare - and everyone - are lazy and won’t lift a finger to improve their circumstances if welfare is above the level preventing starvation. But salaried workers the world over work overtime for little or no reward. Lots of people with plenty of money work hard as hell to get more. Are these people fundamentally different from those on welfare? If so, how do you distinguish those who are on welfare from being truly lazy from those who are on welfare because of bad breaks, or from those who are welfare because they are born without the skills needed to make a decent living in a society where a minimum wage for people who do work is considered evil.
The problem is not with classical economics (thought it is hardly as perfect as you think) the problem is with those who use superficial models to demonize the poor.

[Chessic_Sense]

@Ravenman

So that job is unfilled because you wouldn’t take it? That’s horrible!

@Voyager

You forgot one minor thing. If there is no market for that $10 table it will not get built …It might be that someone living closer might want the job at that rate - that is why we put industries in population centers. If no one still wants it, the employer isn’t paying enough. The market works both ways, after all.

Voyager, you provided the rebuttal to your own argument. Yes, if no one still wants the job (say, building $10 tables), then the employer isn’t paying enough. So then what? Does he raise his offer? Depends on if there’s a market for an $11 table. It’s entirely possible that the employer can’t raise the offer because then his projected profit isn’t worth the risk.

Ravenman, what makes you think someone else took the job? I guarantee they didn’t take it immediately. It sat open for at least a month, probably more. So even if it was filled, the government still lost out on a month of revenue. But like I told Voyager, there’s no guarantee that the job will be filled at all. It’s why we track employment numbers. Jobs are created and destroyed by the thousands ever week. This is one of the ways that destruction happens.

If you want a better example, consider the company that wants to build a product that would be profitable, but then they see the tax they’d pay, recalculate their “take-home profit”, and decide the risk isn’t worth it. It’s not the case that another company will make the product, because as you said, it’s a wash. Every company should do the same math and decide that there won’t be such a thing as a jetpack or flying car or whatever. Sure, they could make it, but it’s financially unfeasible.

The simple proof of this concept is to consider certain things as inherently untaxable compensation. Vacation time is one of them…you can’t tax me if I’m not working. Low-stress environments are another. The point is, if you tax the actual dollars that hit my palm too much, then I’m going to switch to a compensation package that includes untaxed benefits. In the example I provided, I, personally, traded taxed dollars for untaxed days off. It happens.

Really, it’s the whole reason we have special tax breaks and subsidies, so I don’t understand how the point can be contested.

[Voyager]

@Thudlow_Boink

Yeah, I am not an economist, but as I understand it, one way economists look at things is in terms of incentives. If you want people to do A and not B, you make sure there’s a greater incentive for doing A than B. From this point of view (which, to be sure, is not the only factor worth considering), welfare is a bad idea because it incentivizes not working and not contributing anything to society.

But not everyone shares the same incentives, and even the same incentives operate differently depending on where you are in the richness scale. For some people $1,000 would be a very significant prize, for others not worth getting excited about. This operates at any level. Also, it has been shown that a certain loss hurts more than the equivalent gain pleases - thus loss aversion and the endowment effect.

Anyhow, if you think about it, you have the very curious position that someone “making” a pittance on welfare has no incentive to make more, while someone reasonably wealthy clearly demonstrates the incentive to make more. How can that be? Welfare isn’t the difference between owning one and two cars - it is the difference between having a place to live and things to eat and not. If it is a fundamental human characteristic to stop with the minimum, how do you explain those who do not?

[Borzo]

No one digs a ditch for fun? Millions dig their gardens for fun. Most of us nowhere nearly make back the value of our labor in the vegetables we get, not to mention those who grow flowers and get nothing so easily converted to dollars.

This is true. But who will dig a subway tunnel or a coal mine, for fun?

You are claiming that those on welfare - and everyone - are lazy and won’t lift a finger to improve their circumstances if welfare is above the level preventing starvation. But salaried workers the world over work overtime for little or no reward. Lots of people with plenty of money work hard as hell to get more. Are these people fundamentally different from those on welfare? If so, how do you distinguish those who are on welfare from being truly lazy from those who are on welfare because of bad breaks, or from those who are welfare because they are born without the skills needed to make a decent living in a society where a minimum wage for people who do work is considered evil.

Anyhow, if you think about it, you have the very curious position that someone “making” a pittance on welfare has no incentive to make more, while someone reasonably wealthy clearly demonstrates the incentive to make more. How can that be? Welfare isn’t the difference between owning one and two cars - it is the difference between having a place to live and things to eat and not. If it is a fundamental human characteristic to stop with the minimum, how do you explain those who do not?

I’d love to get answers to these questions as well!

[Voyager]

@Chessic_Sense

Voyager, you provided the rebuttal to your own argument. Yes, if no one still wants the job (say, building $10 tables), then the employer isn’t paying enough. So then what? Does he raise his offer? Depends on if there’s a market for an $11 table. It’s entirely possible that the employer can’t raise the offer because then his projected profit isn’t worth the risk.

Ravenman, what makes you think someone else took the job? I guarantee they didn’t take it immediately. It sat open for at least a month, probably more. So even if it was filled, the government still lost out on a month of revenue. But like I told Voyager, there’s no guarantee that the job will be filled at all. It’s why we track employment numbers. Jobs are created and destroyed by the thousands ever week. This is one of the ways that destruction happens.

That is the way the market works. The manufacturer who charges too much for a product or builds the wrong one goes out of business. The employer who wants to pay too little loses out on the work he could have gotten from the people who didn’t take the job. The person who studied the wrong thing in school doesn’t make as much as the person who studied the right thing. Why is this fine for workers to suffer through but not employers?

As for my supposed self contradiction, you are conflating two different things. If you pay someone $1 more, but he produces $2 more, you both win. You seem to be assuming that salary increases go directly into single product costs, which is usually not true. Anyhow, you don’t hire the cheapest person, you hire the person who provides the most productivity for the dollar. Plus, the chair maker is losing opportunity by being cheap. What if a lack of supply makes him lose market share to a competitor, who by economies of scale gets to undercut him? Not paying the extra dollar looks real stupid now, doesn’t it?
But that wasn’t my point. On the larger scale, if every employer pays the least possible, if they make any kind of nonessential item they are at risk of creating an environment where the masses of people can no longer afford their products. While I understand the desire to not hire until you know for sure the demand is there, if everyone does this the demand will never be there.

If you want a better example, consider the company that wants to build a product that would be profitable, but then they see the tax they’d pay, recalculate their “take-home profit”, and decide the risk isn’t worth it. It’s not the case that another company will make the product, because as you said, it’s a wash. Every company should do the same math and decide that there won’t be such a thing as a jetpack or flying car or whatever. Sure, they could make it, but it’s financially unfeasible.

Do you understand the concept of margin? The margins on new and risky items are very big, much bigger than any taxes, and there is plenty of room to adjust prices including taxes. In any case I strongly suspect (though I’d have to look up research on this) that in America buying decisions are made on the pre-tax price.

The simple proof of this concept is to consider certain things as inherently untaxable compensation. Vacation time is one of them…you can’t tax me if I’m not working.

You get paid when you are on vacation, right? So you get taxed.

Low-stress environments are another. The point is, if you tax the actual dollars that hit my palm too much, then I’m going to switch to a compensation package that includes untaxed benefits. In the example I provided, I, personally, traded taxed dollars for untaxed days off. It happens.

Really, it’s the whole reason we have special tax breaks and subsidies, so I don’t understand how the point can be contested.

Yes, that is in fact the reason we have the weird employer paid health insurance system we have here, so that employers could give raises while in a wage freeze situation. But there is a limit to such untaxable benefits, and some are inherently impossible. I work in microprocessor design, and we are not going to have a low stress environment. In any case, the justification for many of these benefits is the company bottom line. You do things to increase retention, for example. And you give the benefits employees want. Mostly they want money - and, remember, taxes or no, they still get to keep most of their raises.

[Agnostic_Pagan]

@smiling_bandit

Alright. I’ll keep it very short.

Neoclassical economics is basically unassailable. You might not like the assumptions or the conclusions, but the basic argument is unbreakable, and is verified every day by millions of people. In short, efficiency is everything.

Except that is not. Efficiency without equity and opportunity often leads to monopoly and stagnation, forgoing innovation. Modern economies depend on creative destruction and a strong entrepreneurial class. If efficiency was everything, they would never gain access to capital since no one knows what is the most efficient use until after that fact. So the smart thing is to support several ventures, and the successful ones create more wealth than the failed ones lost.

Those conclusions are mean suckers. They tell us that the economy is mostly out of any central control: it’s composed of billions of people interacting in tiny, even trivial ways on a daily basis. Changing the structure is nearly impossible, and changing the rules is flat-out impossible. They are formed by the human animal and the laws of physics.

Institutionalists want to have a word with you. The laws that matter are not physics, but property, contracts, torts and the entire legal arena. Those rules can be changed, have been changed, and will continue to be changed. Those rules determine how participants can interact in the market. And Adam Smith’s behavioral model has been challenged by numerous authors. Plus the Asian tigers grew their economies through close collaboration between government and industry in deciding which industries to pursue and providing the necessary financing for them to grow large enough to compete on the global market.

Some have accused economists of being cruel. In a way, they are. They abstract the individual choice and interest because we can’t measure it. We can measure the aggregate and make educated guesses about group interest only. Economics demands that there are winners and losers, and any economic system only differs in two ultimate respects: the total wealth of the system, and the amount of wealth accumulation allowed to individuals.

And those two are related. Mathematically, it’s almost impossible to increase wealth without increasing inequality, and it’s flat impossible in the human sense.

This assertion is completely false. Economics is not a zero-sum game. A win-win economy is possible. And the European economies are sliding down the Gini index while we creep up it. It may not be feasible to have a Gini index of 0, but .20 is certainly achievable. And the more people than can partake of the benefits of an economy, the more dynamic that economy will be and the faster it is likely to grow. The major reason for our growth in the 50’s and 60’s was the GI Bill and allowing people who would never have had the opportunity to pursue college degrees now could, and created the innovations that drove that growth.

This is law, more or less, albeit a human law and not a physical one. It is an absolute constraint of the system: people do not work for free. They may get something other than money out of it, but that’s always a side issue, a need to be taken care of after you fill your belly…

I would like to welcome you to the current century. The amount of money someone needs to fill their belly is minuscule. The majority of the desire to work is to meet social or self-actualization needs, not physical ones. At least in the industrialized nations. We have moved up a bit on the Maslow hierarchy since the beginning of the Industrial Revolution.

There are a limited array fo activites that people do for fun. There is a vastly broader array that they would do for money - resources. You kid yourself if you that changes. Just because people like to fill their days doesn’t mean they would fill them with anything useful, given a free choice.

This assertion is completely false, and is a moral proposition, not an economic one. The truth of economics is that most people will only pursue enough work to satisfice their income needs. Most could not care less about maximizing their wealth or generating every ounce of profit. Except for the bankers that control the system and do seek to do so, even if that means screwing over the income opportunities for the majority of the population.

And most people are not lazy. I would say a good 95-99% of the population. The poor work their ass off, for less reward. Those that have the means pursue all manner of useful work - according to their definitions of useful. And we live in a free society. No one is forced into any occupation, including burger flippers. But they would rather do that then dig ditches, while the ditch diggers would rather work in the elements.

What Agnostic Pagan doesn’t understand that everything he’s talking about is marginal activity. Economists don’t continue to improve the macro model because it’s about as perfect as we know to make it. Further improvements aren’t terribly good investments, and if there’s one thing economists understand, it’s investment potential. Some economists think that bettering human freedom might improve the potential of those nations already using the model (and note that this kind of talk is directed at deevloping nations, not usually the developed West, for obvious reason).

This assertion is absolutely incorrect. Read the testimony by Chari in the link I posted. He talks explicitly about how the model does not need to be changed since he claims it continuously incorporates criticisms of the model. Personally if the model needs that many updates, it is time to change over completely. If the original assumptions could not anticipate those criticisms, then those assumptions were likely wrong.

It doesn’t change the model. The model is demonstrated in aggregate. Only details and situational issues exist: can government-directed investment really improve the economic situation over the long term, or is it simply lucky sometimes and misallocating funds in aggregate? The very cite he puts up is a perfect example of this: “Nope, we’ve mostly got it right for now, so what else can we focus on?”

Which I explicitly disagreed with. And it is also a mischaracterization of his entire statement. The model fails to account for the structural causes of unemployment among other issues. Personally, I think Solow has too much invested in the current schema for him to dismiss it completely. It would be an acknowledgment that his career was spent chasing a ghost. It is too late in the game for him, but not for the new generation of practicing economists.

And Keynesians have never accepted that model either, nor accepted the Lucas critique, but adopted their model as well as we learn more about human behavior and how the real world works, and not just what fits into the mathematical models.

He’s also wrong that neoclassical economics has nothing to say about the current problems. That’s flat nonsense anyway you slice it, but not otherwise relevant today.

Then your problem is with Solow, not me.

Ultimately, I don’t have to even argue against you theoretically. We can experimentally demonstrate that people do not work as hard, or sometimes at all, if sufficient welfare inducement is offered. If you crank the offer high enough people will simply stop doing other things, and we’ve seen that the higher welfare goes, the less productive society becomes. There is always someone on the margin who makes the choice, and it really doesn’t matter what you think about the problem: it is as it is.

This is a fact, not an opinion. Deal with that as you wish.

Then offer cites of these experiments. And yet, we have to offer bankers million dollar salaries and bonuses or they will flee … where? Where else would have the opportunity to rob people blind. If welfare is sufficient to stop people from working, then why don’t bankers cash out as soon as they are independently wealthy? Their status is far more important that their income. There is a reason most of them work in Manhattan and not in Omaha. Offering people at the bottom a small sum is enough incentive for them to sit on the couch all day, but offering huge sums at the top is necessary. Something is not passing the smell test here either.

And what have the richest men in America done with their gains - mostly establish foundations to help those that lack resources.

If you want to offer welfare, offer it because you consider it inhumane not to, or some other values-driven reason. Explain your value, and be prepared to accept that other people think you’re buying off your guilty conscious at too high a price. There really is not other defense of it, because it isn’t economically rational, much like the Minimum Wage.

I won’t get into the role of the wealthy, because it’s actually not relevant here, either. The short version is that pretty much every liberal ghere is looking at the phenomenon of wealthy people in emotional, and not descriptive, terms. That is, you are using your hearts and not your head. This is not an issue which needs any more heart, much less any more venting of the spleen.

I have offered my reasons several times on this board, and have yet to hear a rational rebuttal of it. And I have no guilty conscience. I see the conservatives here try to disguise emotional or moral arguments behind the facade of reason more often that any other group. Altruism and compassion are emotional arguments. Us liberals consider them as important as reason, and the only valid use of reason is to guide us in how to be effectively altruistic and compassionate.

“Logic is the beginning of wisdom, not the end.”

We also recognize that money equals power, and as long as wealth is grossly unequal, power will be as well. Plutocracy and democracy are not compatible.

And, personally, I have no problem with wealth - the ownership of assets, such as Gates and Microsoft. He built that company. Screwed a few people along the way, but he created a successful product. I do have a problem with the rich - those that take obscene salaries from organizations they do not own, claiming they are necessary to attract the ‘right’ talent. Bullshit. They are skills that can be learned, and have been learned by self-made millionaires building real products, usually on the second or third try after failing at inefficient economic ventures.