Providing basic services should often be more efficient than basic income. The state can use its centralized negotiating power to get lower prices on standardized packages, and accordingly a floor for welfare could be provided at a lower cost than just redistributing income, which, though it gives people more agency, can more easily just inflate prices generally and leave people more liable to impulse spending. To keep such a system efficient, there must be fitness pressure on the programs, plausibly via competing services (e.g. think of charter schools) and you probably want to peg the system to some percentage of GDP or natural resource rents to prevent uncontrolled growth and debt. Without a peg, responsible voters may keep the system sustainable, but there will always be the risk of the newly expanded policy window incentivizing politicians to bribe voters with other’s money. While redistribution can generate more utility right away since a dollar is worth more to a poor person than a rich person, it is more efficient yet if the government actually adds value by helping consumers solve their coordination problems.
In some areas, that probably means lowering standards on dimensions that people don’t care about too much, but that have previously been highly regulated by those trying to “outlaw” poverty in order to keep crime away from themselves (e.g. room size minimums, zoning, etc.) There could be competition between services, and also packages of services. At one extreme, there could be a highly paternalistic welfare system, where the state is providing a somewhat optimized diet, healthcare, housing, etc. while at the other extreme the state would just grant basic income at the same cost level it could have provided the other services. The competition aspect helps mitigate the problems of government placing bad bets, though if the government does a really bad job the basic income plan would always win. Essentially, people would be choosing between getting exactly what they want on a small budget, vs. getting more stuff with less choice. There are massive economies of scale to standardized production that we never see the benefits of because consumers can’t organize to coordinate their preferences: by reducing variety in the provision of basic necessities their cost can be driven down massively, but the economy can still have many outlets for status competition, and variety in other areas without inherently raising the cost of living.
A related question that comes to mind is why there aren’t already highly paternalistic services that help the poor get a good foundation and get out of poverty. One reason is that if people have to coordinate to drive down prices, it is pretty likely that people who aren’t poor will always have an advantage at such activities (e.g. employer negotiated healthcare plans). Another reason is information asymmetry, in free market system with as much income mobility as the U.S. (more than half the population reaches the top 10% of income earners for at least a year) smart well informed people already have lots of opportunities to escape poverty: those remaining in poverty are more likely to be exploitable, have less good networks, and less good information on opportunities generally. Adverse selection is another related reason: systems that could invest in those in poverty often won’t anticipate high returns unless they charge very high interest rates which end up keeping people in poverty, and as mentioned before, many regulators will block affordable housing units since they will tend to decrease regional investment, increase crime, etc.
With all this in mind, a lot of U.S. welfare policies are probably preferable to basic income, but adding basic income as an opt-out competing choice, as well as other forms of welfare packages seems like it would have a good effect, AT THE SAME OR LOWER COST, if the programs must compete for the same budget and can actually die rather than being allowed to continue indefinitely. The main changes required would be ensuring eligibility is broad, and getting rid of the welfare cliffs that currently exist and discourage work (these would increase costs). With the combination, costs are driven down over time.
The advantage of income over services is that with income the choice is yours, but with service the choice is upon the service provider. So you may get situation where the government gives you free Cola, but what you actually need is insulin injections. Less dramatically, government gives you free sausages, and you are a vegan; or government gives you free chocolate, and you prefer ice cream. Shortly, the service approach imagines a “model customer”, and if your needs differ significantly from this model, sucks to be you.
Even the construction of the “model customer” would probably not optimize for the majority of consumers, but would be subject to corruption (I lobby for including X in the “basic services” because my friends owns the X-producing factory), and applause lights (should “basic services” include art? yes; sex toys? no).
Another important aspect is feedback about quality. It is quite likely that the government-provided food would be tasteless; and the government-provided books either boring or stupid, probably both.
This sounds like a possible solution, and I wonder if something like this was already used somewhere.
Is the choice “all or nothing”, or can you choose to e.g. take the healthcare, but take cash instead of housing and live with your parents, and take cash instead of food and buy soylent? Can you change your mind once in a month, or once in a year? I wonder how flexibly could government react to mass changes, like one year million people want housing, the next year they all decide they would rather take cash (or the other way round, which would require building million new houses overnight).
I have no strong opinion on this. On one hand, it seems to be a universal experience that when government does something, it usually sucks, with a few exceptions now and then. On the other hand, hypermarket chains are able to provide cheap products under their own brand, and it is not obvious why the government shouldn’t be able to do the same thing, especially when citizens could opt out, so some pressure would remain. (This however assumes that the government wants to do the right thing. Maybe politicians would instead make the opting out more difficult, or perhaps make taking the services mandatory for some part of population. The problem is that politicians do not have to optimize within some given rules; they can also change the rules.)
I agree that it is a huge problem if the rules can change in a manner that evaporates the fitness pressure on the services: you need some sort of pegging to stop budgets from exploding, you can’t have gov outlawing competition, etc.
I also don’t have a strong opinion on how flexible the government should be here. The more flexible it is, the less benefit you get from constraining variance and achieving economies of scale, the more flexible it is, the more people can get exactly what they want, but with less buying power. I do think it is helpful to have the ability to individually opt out of services, and this would be a very useful signal for forcing both the government and service contractors to adapt. I’m not sure just how many services should be competing for a given service niche within the broader system. One idea would be you have a competition to come up with cheap standardized services, and then companies compete to provide them.
The big thing you are trying to achieve is providing a welfare floor at a much more sustainable cost via competitive pressure combined with the ability to centrally coordinate consumer preferences. The coordination doesn’t just give market power benefits, you also have increased legibility that decreases search and transaction cost for consumers and potentially the ability to do better large scale (though still not randomized) experiments in nutrition science and regulation design (e.g. food standards far exceeding regulatory requirements cheaply, exceptions to housing size requirements, etc.)
I don’t think this is even close to true—you’re assuming an open system, where the government is a large-but-minority consumer. When the government involvement becomes significant enough that the market and equilibrium shift so it becomes it’s own market segment, “negotiation” gets replaced with “capture”.
When you start thinking “universal”, you probably can start factoring money out of your equilibrium—start thinking in terms of a closed ecosystem where people are working hard to provide the things that other people are consuming.
I think this is a good argument in general, but idk how it does against this particular set-up.
When spending levels are pegged, and you are starting out with a budget scope similar to current social programs, some particular company or bureaucracy is only going to capture a whole market if they do really good job since: A: people can opt-out for cash, B: people can chose different services within the system, and C: people can spend their own income on whatever they want outside the universal system.
As long as you sustain fitness pressure on the services, and constrain the competition to performance rather than anti-competitive capture maneuvers, I think it could go well.
Singapore’s health system comes to mind since it is a very low percentage of GDP, has both public and private options, and there is still universal care (though you always face some degree of cost when getting care in order to avoid bad rationing).
This sort of thing could go very poorly in practice if the government is too corrupt, but in that particular case it seems like there is sufficient fitness pressure on government hospitals from the private sector that they are probably doing a good job.
Letting the government provide housing while focusing on that being cost effective would likely strange innovation in housing to an even lower point then where it currently is. Different people have different preferences when it comes to houses and market prices are an efficient way that people with different preference each get what they want.
It makes various alternative ways of living like group housing harder when the government standardizes housing.
In economics the idea that free markets are better at creating efficiency and low prices then government planning is well accepted.
There are plenty of those services for the unemployed. Maybe you are too much focused on one jurisdiction if you think those don’t exist? It just that they don’t work that well.
You might want to look at the EA analysis of GiveDirectly. There’s a lot of thinking into why giving money is better then providing services.
Many people want but cannot get houses of their own in places like the US.
Government-provided social housing is widely implemented , not an innovation.
Or...strange s/b strangle? But, again, the overwhelming need is affordable housing for young workers , not new kinds of housing.
The goal is to standardize a floor, not to chop up the ceiling. People would be free to buy whatever they want if they opt out. Those that opt-in benefit from central coordination with others to solve the adverse selection problem with housing that incentivizes each local area to regulate things bigger and bigger than people need to keep away poor people, making housing more expensive everywhere than it needs to be and curtailing any innovation in the direction of making housing smaller. It probably isn’t a coincidence that Japan has capsule hotels, better zoning, low housing costs, more spread out high speed transit and a lot of wacky houses given its barriers to immigration. Don’t forget that most large group houses that people live in are illegal (though enforcement is lax unless something else goes wrong) and that cities all over the place have all sorts of NIMBY policy and rent controls that distort the market. That is the counterfactual you are replacing, there isn’t a pure market counterfactual in any big city I can think of, but would be interested to hear. The current equilibrium in most places creates an extremely strong incentive to create barriers to housing innovation, and accordingly they do. Singapore is hyper market oriented and rich as a country, but nevertheless did central coordination on housing to drive down costs and erode the support base for communism (not saying one should copy all their policies of course).
https://reasonstobecheerful.world/singapore-affordable-housing-freedom/#:~:text=In%20Singapore%2C%20housing%20is%20affordable%2C%20diverse%20and%20impeccably%20maintained.&text=80%20percent%20of%20Singaporeans%20live,Singaporean%20context%20in%20a%20moment.)
On the lack of paternalist services, I am getting at why the market doesn’t do them by default. If there are so many can you give one example? If you are just talking about gov ones, then we are talking about different things.
On GiveDirectly, I am incredibly skeptical of unconditional cash transfer vs. other targeted interventions in terms of direct effectiveness and vs. or institutional interventions for the long-term: https://ssir.org/articles/entry/givedirectly_not_so_fast
In abstract, interventions like this have always been possible since there have been political entities that use money, and yet you don’t see any country anywhere getting rich via this mechanism. Governments through history instead coordinate and provide services that would otherwise be difficult to provide. When there are systematic transfers, they are usually conditional in order to sustain good incentives over the long-term.
More concretely, the costs the GiveDirectly RCT gives for roofing costs seem a bit strange once you start reasoning about local prices. If people are so poor they are earning like a dollar or two per day, it isn’t going to cost $55 to thatch a tiny roof unless it someone actually has to spend about a month doing it… if metal roofing is less than $1 per square foot in materials I have no idea how you get to a $400 roof when labor wages are so low.
I think this part of the argument fails, at least for things that work well as market commodities. The main advantage of individuals selecting suppliers over governments selecting suppliers isn’t that it gives people more agency, it’s that it has better aligned incentives and is more resistant to corruption. Impulse buying is a minor problem; packages containing the wrong items, and items that are useless for hard-to-recognize reasons, is a major problem.
In general, when there are conspicuous mismatches between what the government tells people to buy and what they actually buy, there are usually good reasons for it. Nutrition, in particular, is an area where increasing government control would be disastrous; the US goernment already exert some control over some poorer peoples’ food purchases via eligibility restrictions, and while the intent is to encourage people to eat healthier, the actual effect is mostly the opposite, because they operate on a model of nutrition that’s less accurate than most peoples’ instincts.
A simpler solution to the impulse-purchase problem would be time restricted funds: regular money, except it can only be spent on items with a long shipping delay and a cancellation window.
I think I agree with the time-restricted fund idea on competitive commodities as being better than just providing the commodities since there aren’t going to be a lot of further economy of scale benefits.
Having competing services and basic income coming out of the same gov budget does create pressure to not make things as poorly as past gov programs. The incentives should still be aligned, because people can still choose to opt out just like the normal market.
On food, the outcomes shouldn’t be as bad as food stamp restrictions over time not just because of the opt-out option, but also because the data will be more legible to the government and enable better standards over time where we otherwise have pretty bad food science.
I think people would only opt-in to the food plan if it basically allows them to capture benefits somewhere else within the service package they select (e.g. extra basic income via reducing expected medical bills). Otherwise basic income should dominate a food plan as an option unless the person is looking for a way to tie their own hands.
Why? I would expect the opposite. Government standards become more important when the government pays for the goods then when private actors pay for the goods.
I agree with your point in general. In these cases, I’m specifically focusing on regulations for issues that evaporate with central coordination:
- Government is doing the central coordinating, so overriding zoning shouldn’t result in uncoordinated planning: gov will also incur the related infrastructure costs.
- If you relax zoning and room size minimums everywhere, the minimum cost to live everywhere decreases, so no particular spot becomes disproportionately vulnerable to concentrating the negative externalities of poverty while simultaneously you decrease housing cost based poverty everywhere.
Production is subordinate to consumption. The constraints is accountability, in a market system, competition is the accountability, while in a public service directed system, the accountability is transparency and votes. Money is essentially like votes (ie shop local). So a basic income without condition gives everyone more “votes” for goods and services, and markets will reorganize. The government then only has to focus on anti-trusts, breaking monopolies, fostering competition.
One person’s expense is another person’s income.
Here’s another view:
https://medium.com/discourse/the-economy-is-a-giant-vending-machine-20edc1348694
Are there any examples of government switching from paying for a thing to demanding price go down and it saving money?
I’m not quite sure what you’re asking, but state healthcare providers buy pharmaceuticals with public money and can get them cheap...outside the US.
Issue there is that implicitly U.S. R&D is subsidizing the rest of the world since we don’t negotiate prices but others do. Seems like an unfortunate trade-off between the present and the future/ here and other places, except when there is a lack of reinvestment of revenue into R&D.
I made the specific point about drug costs to support the general point that that things don’t have to become more expensive when purchased by governments.
If you insist that government guarantee anything, why not vouchers for that thing?
Providing things directly vs basic income seems like a false binary.
The binary is true though: either you bid up the price of a good by subsidizing purchases, or you bid it down by collective bargaining (or you do both and they cancel each other out to some extent). Vouchers, along with measures like college loans, seem to be on the first horn of the dilemma; OP is more interested in the other horn.
Agreed that subsidizing things bids prices up.
I still think vouchers for specific items feels qualitatively different than a basic income.
Vouchers could be in the range of competition, but if people prefer basic income to the value they can get via voucher at the same cost-level then there has to best substantial value that the individual doesn’t capture to justify it. School vouchers may be a case of this, since education has broader societal value.