In 1968, the in-kind share of assistance was 60 percent; now it is 85 percent.
That is from Ed Glaeser, who believes we should use more cash payments and less in-kind assistance.
Addendum: Kevin Drum comments.
Facts about welfare transfers
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It’s a fair point, but the HMR is the really big problem I think.
Go on, work harder so we can give you less stuff.
Well, at least we don’t tell single mothers, “go on, have more bastard spawn, we’ll give you more–”
Oh shit.
Other stuff is transferred in kind through mandated benefits on employers. These too have grown over the same period. That would be inconsequential if employees valued the mandates at what it cost employers to provide. In general, of course that’s not true. Just think of benefits that would be provided voluntarily — ones that cost the employer less than the employee values.
Absolutely true. But it’s not that simple, given the coordination problems involved.
For example, both workers’ compensation and unemployment insurance are government mandated benefits (paid for by the employers, which are of course passed onto the employees in the form of lower wages).
Now consider a world where neither of those mandates existed. Suddenly, any employer considering purchasing either UI or WC will appear suspect to insurers, increasing the price and inviting a nasty bout of adverse selection that increases the price.
This shows how a mandated benefit can actually be welfare-enhancing, as it eliminates the adverse selection problem: without the mandate, the benefit can be inefficiently expensive due to adverse selection, whereas with the benefit, it can be appropriately and efficiently priced.
(Of course, this proves a theoretical possibility. Empirical evidence must guide whether or or not the theory holds in practice.)
Why would adverse selection be a problem in this case. An employer more in danger of laying people off should pay more for unemployment insurance and an employer that has more dangerous jobs should pay more for injury liability insurance (WC).
After the welfare reforms of the 1990′s, most cash assistance stopped altogether. So I think what Ed is observing is not an increase in in-kind assistance, but a decrease in cash assistance.
M. Yglesias makes this point all the time with lots of government benefits, tax breaks, stimulus funds to corporations and state governments, et al… Just give people cash is his alternative.
I can’t read Ygliseas anymore without thinking the world outlook would be improved by his death.
Stay classy, TallDave.
Maybe you can get him to do some of that nation-building in Syria.
According to Yglesias this is now an acceptable sentiment, because conventions around death are ridiculous.
No word if Krugman has been told.
So now TallDave = Yglesias. Well done.
Goose, gander.
(i.e. the proper equivalence there is Brietbart = Ygliseas)
Uh, no. Yglesias is being a prick re Breitbart, and you think that means you can be one too. Which says plenty about you.
Just accept you got nailed on this and forget it.
+1 What an ass he is.
That defeats the purpose. These breaks are a kinder, gentler attempt at central planning. Giving cash would make it ordinary cronyism and remove some of the central planning.
Cash is efficient from a social welfare standpoint.
It’s very inefficient from an outcome standpoint. That’s why we spend more money on welfare programs than it would take in cash transfers to lift every man, woman, and child above the poverty line. Do we really want to give food stamp recipients the choice of buying alcohol and cigarettes before food?
In Kind transfers are also useful for paying off your political allies who supply the “kind.”
I am not convinced that it is inefficient from an outcome standpoint. Perhaps we do as a society prefer that a portion of the food stamp recipients use those funds to instead purchase alcohol and cigarettes. Is there some evidence to the contrary? Perhaps they can shorten their lives sufficiently to be a less negative effect to the payers, or perhaps their behavior is altered by these choices to the betterment of all.
I also note that Food Resource Action Center (frac.org) is concerned that 25% of the urban poor (33% nationwide) do not collect the SNAP for which they are eligible. Among the many reasons they indicate for lack of participation is low benefits. Apparently some individuals conclude that their time and money (if any exists) is better spent doing something other than applying for aid. One of the outstanding characteristics of money is its flexibility. By creating a more restricted form of money for those who have the least we further entangle them.
You hit the nail squarely with the idea that in kind transfers are useful political payoffs. One recipient group is the army of caseworkers required to manage a needlessly complicated set of programs and the rest of that bureaucracy.
Imagine you’re a Mississippi lawmaker: you try to give poor, irresponsible mothers of “bastard spawn” simple cash payments with few restrictions. It will be your last term. I’m not saying it’s a bad idea, I’m just saying that many people don’t accept not being able to impose vast amounts of rules and procedures, some degrading (e.g. urinalysis for welfare), on people who get something back from the government programs. Well, at least they demand these rules for the poor people getting these benefits.
Cigarettes are not a real problem in that they are cheap even to the heavy smoker and actually seem to enable smokers to work harder and function better. Cigarettes also save Governments money on medicare/medicaid and SS. They only hurt the smoker’s health and even him only after a long time smoking.
As far as alcohol you may or may not be right in say a 10 year time farm but you are most likely wrong in the very long run 100 years or more. Society will build up norms against such behavior or those that engage will slowly be culled from the population.
Further it is not that hard to turn food stamps and or section 8 housing into alcohol and cigarettes when people do not it is because they do value the food and housing. Further most people even drug addicts and alcoholic love there children and those that do not are being abusing with the current system.
I assume this was all sarcasm.
I see that I made some typing errors that might change meaning so here:
Cigarettes are not a real big problem in that they are cheap even to the heavy smoker and actually seem to enable smokers to work harder and function better. Cigarettes also save Governments money on medicare/medicaid and SS. Smoking only hurts the smoker’s health and even that only after a long time smoking.
As far as alcohol you may or may not be right in say a 10 year time frame but you are most likely wrong in the very long run 100 years or more. Society will build up norms against such behavior or those that engage will slowly be culled from the population.
Further in the current system it is not that hard to turn food stamps (buy food for someone else for cash) and or section 8 housing (take in boarders) into alcohol and cigarettes when people do not do so it is because they do value the food and housing. Further most people even drug addicts and alcoholics love there children and those that do not are abusing them even with the current system, we have limited ability to help.
In-kind assistance fufills the twin goals of welfare spending best, First, subsidize the providers of the products and services. Second, attempt to control or steer people’s lives in a certain direction. Welfare, as the economist would see it, is irrelevant.
Why is subsidization of producers an important consideration for welfare?
Same reason any subsidy happens…because the subsidized have a lot of political power.
The problem with cash benefits is fraud. People are unwilling to commit fraud for non-cash benefits (with the possible exception of food stamps, which are close to cash). Cash benefits are far more appealing to fraudsters. This is particularly so when the application process is simple.
One possible solution is Universal Credit or Citizens’ Income. Everybody receives a flat payment from government, including those in work. Higher tax payments are required; but for the average Joe the tax and benefits net out to the same as before.
Even this solution merely transfers the opportunity for fraud from the welfare distribution office to the tax collection office.
Direct cash transfers deter fraud. People tend to find ways of selling their in-kind assistance for cash so that they can gain flexibility. A way to do this with “food stamps” would be to buy food at a grocery store for another person in exchange for cash.
By just giving transfer payments, there is no incentive launder the welfare.
In subsidized housing people move in borders (most commonly working boy friends).
I personally favor such a policy, and at least two Cabinet-level Departments can be abolished. Of course, the premise of a Citizens’ Income policy is that poverty is not primarily caused by lack of money.
” tax and benefits net out ”
No, the overhead on the benefits today is sky high. Switching to a cash payment system would save incredible amounts of money even if the cash disbursement was higher than the cash value of services currently received.
The point of assisting the poor is not to force them all to make what we feel are “optimal” life choices. The point is to lessen the negative consequences of poverty.
No mater how you assist people, some are going to find a way to use that assistance to buy cigarettes and alcohol. But some people on assistance are going to use that money to better their lives and their kid’s lives. Thus with direct transfers payments we can help those willing to improve their lives with minimal bureaucracy. There is little we can do to help the unwilling.
We can’t force everyone to be moral, upstanding citizens. The best we can do is help at the margins.
Bloomberg has a poor quality of commenters for a business site.
It is interesting what they include and what they do not include.
SS is a direct payment and clearly welfare and not included. Medicare, Education and schooling are in kind payments and also clearly welfare and not included.
TallDave, Jan, perhaps the negatives associated with this kind of transfer payment helps reduce the effective high marginal tax rate?
Go ahead and work harder. We’ll give you less stuff, but you won’t have to pee in a bottle any more.
-dk
Actually, you’re more likely to have to pee in a bottle, if you want a job.
I’m not sure what negatives really exist anymore.
BTW here is my blog post about a method to medical care not have the problem of producing a huge marginal tax rate at some level of income:
http://un-thought.blogspot.com/2009/09/healthcare-compromise.html
The state would provide insurance to all Americans but the annual deductible would be equal to the family’s trailing year adjusted income minus the poverty line income (say $25,000 for a family of 4) + $300. So a family of 4 with a trailing year adjusted income of $30,000 would have a deductible of $5,300. A family of 4 with a trailing year adjusted income of $80,000 would have a deductible of $55,300.
Does anyone know (and have a credible cite) what typical pass-through rates are? For example, w/ good charities one often hopes that 90 cents on the dollar will reach beneficiaries. I’ve heard/read in the past that roughly 25-30 cents actually reaches intended beneficiaries with various govt. programs, but for all I know that’s a made up stat.
Btw, here’s an oldie but goodie, via Mankiw:
I have always advocated eliminating all in-kind assistance and just giving cash to the poor for whatever amount it is that will cover the things we don’t believe anyone should have to do without.
Most people’s heads explode when confronted with that concept.
״A family that gets both food stamps and a housing voucher loses more than 50 percent of each extra dollar earned in the form of reduced benefits. Medicaid (USBOMDCA) benefits, likewise, disappear with significant income or assets.”
So what? They can learn what it’s like to work for a living. I, too, lose half of every additional dollar earned, with 35% marginal tax rate, 11.5% state income tax (with additional 1% prop 63 tax) and 8.5% sales tax.
Giving out cash leaves fewer benefits for busybodies.
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