Before I begin any substantive response to my commentators, I want to take a moment to extend my deep gratitude to Michael Huemer, Jim Manzi, and Robert Frank, for taking the time to engage so thoughtfully with my essay. And, of course, I’m very thankful to Jason Kuznicki and the Cato Institute for making this conversation possible. Libertarian intellectuals, and especially libertarian intellectuals affiliated with think tanks, sometimes get accused of spending too much of their time in an intellectual echo chamber. The long history of excellent and ideologically diverse discussions at Cato Unbound in general, and this one in particular, seem to demonstrate pretty clearly that Cato has not succumbed to that vice.
Mike, Jim, and Robert have given me quite a bit to chew on – far too much for me to respond to in a single essay of any reasonable length. Rather than trying to respond to everything at once, which would be impossible, and rather than trying to respond to each essay in turn, which would be tedious, my plan is to organize my responses by topic. In this essay, I will address the issue of work disincentives and work requirements, and in so doing respond to some of the points that Jim and Robert have raised about these issues. In subsequent responses, I will address the feasibility of the Basic Income Guarantee (BIG), Mike Huemer’s anarchist challenge, and the relation between a BIG and the libertarian commitment to freedom.
The BIG and Work Disincentives
Jim Manzi argues that a series of experiments conducted between 1968 and 1980 demonstrates convincingly that a Negative Income Tax (or NIT - which I classified in my original essay as one form of BIG, broadly construed) leads to a reduction in the number of hours worked by recipients. Nor, Jim, thinks, should these results be surprising. “It is fairly extraordinary to claim,” he writes, “that the government could guarantee every adult in America an income even if they did zero work of any kind, and that somehow this would not reduce work effort.”
Both Jim and Robert think that this kind of reduction of work effort is a serious problem for the BIG, though both are a little unclear on exactly why it is a problem. It might be because allowing some lazy (dope-growing, commune-living) individuals to live off the productive efforts of others violates norms of reciprocity that, they think, we as a society have good reason to endorse. But maybe not. Even if we don’t have good reason to endorse those norms, or even if those norms don’t tell decisively against a BIG, the fact is that most people in our society think they do. And so, as a purely political matter, the fact that a BIG would make people less likely to work is a killer. Even if it’s a genuinely good idea, it’s simply never going to get the votes.
In what follows, I will challenge this argument at two different levels. First, I will argue that neither economic theory nor the available empirical evidence succeeds in demonstrating that a BIG would lead to a significant reduction in work effort. Second, I will argue that even if a BIG does lead to some reduction in work effort, this would not necessarily be a bad thing. It might be a cost, but a cost that is outweighed by other social benefits. I will also argue that in some cases it is not something we should properly characterize as a cost at all.
What Does Theory Predict? What Does the Evidence Show?
In theory, it seems like it should be obvious that a BIG would reduce work effort. As Jim notes, if you guarantee people an income whether they work or not, it would be fairly extraordinary if people didn’t work less.
But this is only half the story. As Ed Dolan has noted elsewhere (and in this very helpful comment on Jim’s post here), a basic income actually has two effects on the labor market, and they push in opposite directions in terms of incentives to work. One effect, the income effect, leads people to work less as their wealth increases. But there is also a substitution effect that leads people to work more as their after-tax hourly earnings increase. Relative to our current welfare system, a BIG would create a larger income effect for most people (depending, of course, on the details of the BIG scheme adopted). But a BIG would also create a stronger substitution effect, by decreasing the very high effective marginal tax rates many welfare recipients face under the current system. Whether a BIG causes a decrease in work effort or not depends, in theory, on which of these two effects is stronger.
So what does the evidence show? Well, as Jim notes, the NIT experiments of ’68-’80 resulted in an overall decrease in work effort. This much is uncontroversial. What’s a little less clear is the magnitude of the decrease, and how we ought to evaluate that decrease from the perspective of public policy. I’ll take up the second of those questions in the next section. For now, here are a few important points to bear in mind when trying to answer the first.
- By most accounts (see this paper by Gary Burtless of the Brookings Institution for a good overview), the reduction in work effort was small – about 120 hours less per year for husbands, about 90 less for wives, and about 130 less for single mothers. That’s not nothing. But it’s about the equivalent of taking a few weeks off from a 40 hour/week job. And that’s far smaller an unemployment effect than most economic models had predicted.
- A “reduction in hours worked” is not the same as “more people spending their lives on the dole.” Most of the reduction of work effort was not caused by people exiting the work force altogether. What happened, instead, was that periods of unemployment just lasted longer. That might still be a problem. But it might not. I’ll have more to say on this in the next section.
- A truly unconditional BIG would reduce work effort less than a NIT. The amount of money you get from an NIT depends on how much you earn by working. The more you earn, the less you get. This keeps the cost of a NIT down, relative to a truly unconditional BIG. But it also means that you lose one of the major benefits of a BIG. Because you keep your entire BIG no matter how much you earn, there’s no extra disincentive to work caused by the threat of losing some of your benefit. We should therefore expect work reductions to be smaller under an unconditional BIG than a NIT. But the experiments to which Jim points only tell us about how people responded to the latter, not the former.
- People worked more than they said they did. In the NIT experiments, the size of recipients’ benefits was determined by the amount of money they reported earning – to a survey company! This, of course, created a fairly strong incentive to underreport one’s income and hours worked. And, indeed, when reported earnings were cross-referenced with more reliable data from the unemployment insurance system, much of the apparent unemployment effect disappeared altogether.
In sum, neither economic theory nor the available empirical evidence make a compelling case for the conclusion that a BIG would cause a significant reduction in work effort.
Is Less Work Necessarily Bad?
Jim Manzi thinks that the work disincentives associated with a BIG are a good reason to reject it – or, at least, a good reason to believe that it is unlikely to gain much favor with the American public. Robert Frank agrees, and advocates a system in which the government serves as an employer of last resort as an alternative to both a pure BIG and the current welfare system.
Are they right? Suppose that a BIG really did cause a significant reduction in work effort. Would this necessarily be a bad thing?
It might. Work is important, in the first instance, because and to the extent that work turns less-useful things into more-useful ones. It is important in a secondary way insofar as meaningful work is one of the central components of human well-being. People feel better about themselves when they spend a good portion of their day doing something useful. And, in a market economy, doing something useful usually means making not only oneself better off, but others better off in the process. Such a fantastic coordination of mutual benefit is something to be celebrated. But it is also something to be protected, for it is neither inevitable nor indestructible.
Still, when it comes to employment disincentives, size matters. And we have already seen that, even in the case of conditional grants like those studied in the NIT experiments, unemployment effects are relatively modest in size. Whether those costs are worth bearing, then, depends on the size and nature of the offsetting benefits.
One of the main benefits, of course, is the freedom to do things other than work without being destitute. For some people that will mean the ability to go back to school and improve their employment prospects. For others, it will mean the ability to spend a few more months with their newborn child. For still others, it might simply mean just a bit less pressure to find another job after being laid off, and a bit more leeway to wait for a job that’s a better match.
Some people, of course, might simply use the freedom that a BIG gives them to “waste their time” sleeping in and watching television. Brink Lindsey cites some data to this effect, presumably to show that people freed from the necessity of work by a BIG would probably just squander it. But even if we grant (and only for the sake of argument!) that people’s lives would not be improved by a little more sleep and relaxation, the data Brink cites don’t show what he thinks they show. That data is about what people who are unemployed now do with their time. But it tells us precious little about what the (presumably different) people would do with the extra time made available through a BIG.
Work is a central component of both personal and social well-being. But it is not the only component. And it may well be a component that we, as individuals and as a culture, tend to err on the side of over-valuing. John Maynard Keynes thought so when he wrote over 80 years ago that the real, permanent problem of mankind is “how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest have won him, to live wisely and agreeably and well.” And while invoking Keynes might not be the best way to win over the audience of the Cato Institute, a similar sentiment can be found almost fifty years earlier expressed by no less a libertarian hero than Herbert Spencer, who pleaded with his American audience to embrace a new “gospel of relaxation,” and to remember that “life is not for learning, nor is life for working, but learning and working are for life.”
Like most other issues of social policy, then, the issue of work disincentives involves questions of trade-offs. One cannot criticize a BIG merely by showing that it would create some disincentives to work. One must show that it would create too much – that the moral, economic, and cultural costs of those disincentives would not be sufficiently compensated for by the moral, economic, and cultural benefits. Making this determination necessarily involves us, as Jim points out, in questions of value. But unlike Jim, I do not believe that questions of value are necessarily subjective. Some systems of value exhibit a greater degree of internal coherence than others; some better accord with what we know about human nature and the nature of the world we live in; some yield better explanations of our deeply held moral commitments. In short, we can rationally engage with and evaluate systems of values. Without this kind of rational engagement with questions of value, of ends, all the means-end economic analysis in the world will not get us anywhere on the important questions of public policy.