Reducing Inequality: Merit Goods vs. Income Grants

...BIG is not the only proposal for large-scale distributions of government cash...

...3. Child Care...

...The corps of civil servants that administers programs may grow to excessive size and become authoritarian, inefficient, dilatory, and corrupt, tendencies that were in full flower in the Soviet Union before its demise...

...That would require a very high tax rate on the income of remaining workDISSENT / Winter 2006 67 ers, reducing the reward of working for pay and lowering still further the number of earners...

...If I have young children needing care and you don't, giving both of us a basic income grant will not reduce the inequality between us that arises from my need to buy expensive child care...

...That could hardly be tolerated...

...But it would be sad for the country if the result was a reversion to the Clinton don'tdomuch years...

...The non-workers "on the dole," particularly the single mothers among them, would again become a tempting target for the right...

...Pros and Cons of the Welfare State Those of us who favor giving merit goods priority over large cash payments have to face the fact that like any other human system, the welfare state is subject to problems and abuses...

...The United States currently has a program helping low-income people with their housing costs...

...Some outlays distribute sums of money to some or all of the population, while others subsidize or provide goods and services...

...In the United States, about forty-five million people have no health insurance...

...Payroll tax revenues would also decline...

...5. Decent Housing...

...This well illustrates both the lure of cash-grant schemes to politicians and the mistaken priorities that such schemes invite...

...One version of BIG would give all households a monthly cash grant equal to a poverty-line income...

...Thus, in the United States, at present levels of per capita GDP, we must choose between the list of merit goods and cash payments for those in special circumstances (the welfare state) on the one hand and large cash payments such as BIG on the other...

...A withdrawal from the labor force by many women would be likely to reverse the progress that women have made in status and wages in the last half-century...

...Great Britain has a national health system, but because of Margaret Thatcher's 68 DISSENT / Winter 2006 depredations on its budget, people with painful and disabling conditions must wait years for medical treatment...

...THE INCOMPETENCE and cruelty of the Bush administration, currently on view in Iraq and New Orleans, may suffice to get the electorate to reduce Republican ascendancy in the Congress in 2006 and put a Democrat in the White House in 2008...

...Swedish households get an amount equal to 19 percent of GDP from government cash payments in the form of pensions, unemployment insurance, paid parental leave, children's allowances, and disability payments...

...Here is a list that people on the left could rally around: 1. Health Care...

...Lowquality and high-quality schooling are two different services, and high-quality schooling is clearly the merit good for which we should aim...

...They include Medicaid and Medicare, K- 12 public schools, the Child Care Block Grant, Pell DISSENT / Winter 2006 69 grants, Section 8 housing vouchers, and the social services provided by state agencies...

...School-age children with working parents need after-school care and recreation programs during the summer...

...Some two-earner couples would become one-earner couples, and the income tax they would owe could decline by 50 percent or more...

...In the United States, there is a tendency for governmentprovided goods to be unevenly distributed...

...However, the fact that such programs exist shows that even in these times of right-wing ascendancy there is a recognition that people ought not to be without the services they provide...

...This list may strike the reader as ridiculously ambitious...

...The welfare state reduces inequality with greater efficiency, because it takes better account of inequalities due to differences in needs...

...We on the left should be discussing and debating the general outlines of a program of government action to ensure a decent life for everybody...

...As the United Negro College Fund pithily puts it, "A mind is a terrible thing to waste...

...People on the left, who have limited energy, should in the immediate future concentrate on advocating a satisfactory menu of governmentprovided merit goods...

...Many parents buy relatively cheap "informal" care of inferior quality and safety, but even that takes a big share of the income of lowwage parents...

...Unfortunately, very little has been said about provision by government of services, with the exception of national health insurance...

...She is the author of The Economic Emergence of Women...

...4. More Help with College Expenses...

...Under current cultural conditions, the vast majority of those who would do so would be women...

...Schooling also has quality aspects...

...We should be providing treatment on demand, much of it residential, for those addicted to drugs, alcohol, and gambling...

...Attention to the inequality in the ownership of assets has inspired suggestions that the government provide each young person with a capital sum...

...BIG might also reduce the already tenuous control that parents have over teenagers, since the perceived value to them of getting an education would diminish...

...Nobody with the ability to take advantage of higher education, including graduate education, should be precluded from doing so by financial considerations, as many are now...

...Only after that is achieved should large cash grants come into consideration...

...Far more generous funding of child protection services would be desirable, as well as services that work with troubled youth, released offenders, and people who have trouble managing their family lives or finances...

...Ample provision for mental health care should be included in the health insurance scheme...

...Merit Goods In discussing the question of provision of services versus the provision of sizable universal cash grants, the concept of "merit goods" is useful...

...Although 70 percent of American GDP goes for household purchases of consumption goods, only 51 percent of Swedish GDP goes to household purchases, because services that American families have to buy are provided free or at reduced cost to Swedes...

...Arguably, the provision of these services and payments ought to come first when we are assembling a social program for the future...

...Some compromise might be possible–and those who advocate BIG and similar schemes should indicate which of the menu of merit goods they propose to do without...

...In the United States, higher salaries for teachers, which would allow for a far more rigorous process of teacher selection and training, would be a necessary condition for more adequate quality, as would reduced class size, better provision for dealing with disruptive students, and more funds for schools with a high concentration of students needing special services...

...The worry may also arise from a paternalistic judgment that some households will not choose to do what is healthful, safe, or prudent...

...But the program is not an entitlement, and limited appropriations allow only a small percentage of families eligible for this kind of aid to receive subsidies...

...Tony Blair has not found his way clear to allocating enough money to put the health service back on a decent footing...

...Such a program would clearly require higher government spending, financed by higher taxes, and a reduction in spending for unproductive programs...

...The large number of homeless people testifies to the need for more residential facilities for people with mental problems...

...An obvious example is medical care...

...He has, however, managed to fund "baby bonds," a scaled-down version of the Stakeholder scheme, which awards modest lump sums to mostly healthy young people to do with as they wish on reaching eighteen...

...The experience of France, the Low Countries, and the Scandinavian countries suggests, however, that these tendencies can, at least in certain contexts, be overcome...

...The most obvious candidate for merit-good status is health care, including access to dental care and pharmaceuticals...

...We cannot have both...

...I would argue that government provision of a fairly long and expensive list of such services, plus targeted cash payments to people in special circumstances such as unemployment or disability, should take priority over universal distributions of cash, and that we do not currently have the capacity to do both...

...The rest of households' spending on consumption-32 percent of GDP—is financed by the wage and property income left to households after they have paid their taxes...

...BIG would reduce the number of people who want to work for wages, and thus the number who pay income tax...

...However, large universal cash handouts have serious drawbacks...

...The predictable Republican chants of "tax and spend" would need to be answered by a campaign to point out to the public that there are some things worth taxing and spending for...

...Most developed countries do provide this on a universal basis and therefore treat it as a merit good...

...It works on the principle that families should not have to spend more than 30 percent of their income for housing...

...Sean Butler's recent article in Dissent ("A Little Bit of Cash," Summer 2005 ) argued in favor of the Basic Income Grant (BIG), one of the more ambitious of the money distribution schemes, and one that has dedicated adherents in many countries...

...The funds to finance universal cash payments to households such as BIG would have to come from taxing Swedish households an additional 15 percent of GDP...

...In the near- and mediumterm future, the attractive features of basic income grants don't trump extending the guarantee of merit goods to all citizens...

...We can then ask whether it would be feasible for Sweden to tack a BIG or Stakeholder scheme onto its existing budget...

...It is 70 DISSENT / Winter 2006 certainly simpler to administer a basic income scheme than it is to implement governmentprovided services or for government to fund and supervise the provision of such services by private firms...

...2. Schooling...

...Fewer resources go to public schools in low-income neighborhoods than to those in higher-income neighborhoods...

...Blacks and immigrants, having fewer good labor market opportunities, would be disproportionately represented among non-workers, exacerbating racism...

...The distribution of government expenditures may unduly reflect the clout of certain parts of the electorate (the elderly, for example) or be the result of energetic lobbying by small, self-interested groups, rather than the result of a rational assessment of needs based on humanitarian considerations...

...Some of the more modest cash grant schemes now circulating, such as government matching of funds put into savings accounts, would actually increase inequality, because the neediest people would be unable to participate...

...The worry that at least part of the population will not buy a sufficient quantity and quality of a high-priority good out of their own income will most often arise in the case of a good that is expensive relative to a household's income...

...But these countries have shown that high quality government provision is possible...

...Much of the discussion so far has been from those who advocate schemes for the large-scale government distribution of money...

...BIG would induce some parents to stay home with their young children...

...Reducing Inequality The fully developed welfare state deserves priority over large cash grants because it accomplishes what they don't: it guarantees that certain important human needs will be met universally...

...Taxation in Sweden totals 60 percent of gross domestic product, as compared with about 30 percent in the United States...

...If health insurance costs $5,000 per year per person, the universal provision of health insurance would allow everybody access to treatment...

...Is this possible under current conditions...

...They are not provided for everybody or even for everybody who meets the income requirements, and the quality of the services they offer is in many cases not high...

...Parents of children with developmental deficits and people taking care of parents with Alzheimer's disease need special help...

...What kinds of outlays by the government would best achieve our aims...

...The most important is that despite their large cost they cannot, by themselves, guarantee access to certain important services—health care, child care, high quality schools, decent housing—that most people with progressive views believe should be available to all...

...Giving each person $5,000 instead, or even more, could not accomplish that, because some people would use the money for other purposes...

...A second step would be an enlargement of the numbers eligible, and in some cases, an extension of eligibility to the entire population...

...One way to consider this question is to look at Sweden's welfare state, which provides the merit goods listed above, plus cash grants to citizens in special circumstances...

...Some of the Stakeholder recipients would spend their grant on things that most citizens, with good reason, would not want to finance out of tax revenues...

...BARBARA R. BERGMANN is professor emerita of economics at American University in Washington...

...In fact, however, there already are public programs in the United States that provide every one of these services...

...What the limit of taxing capacity is and which goods deserve to be placed in the class of merit goods are, of course, issues that need explicit discussion...

...In an adequate welfare state, the program would be fully funded...

...Although a generous BIG might be used to pay for child care, families with preschool children who used it that way would be living at a considerably lower standard than other families...

...Lack of competition may cause public authorities to produce a narrow range of unattractive goods and services that poorly meet the needs and tastes of the population...

...Most progressive people also favor above-poverty-level cash payments to people in special need—the old, the disabled, the unemployed...

...Different individuals will have different lists of merit goods...

...The decision that all should have access to a good may be based on expected benefits to society or on humanitarian considerations or some combination of both...

...Increasing people's income, as BIG would do, would not be the same thing as providing merit goods costing the same amount...

...Government provision of child care as a service allows families with preschool children to live at the same standard as those of the same income who do not need to buy care...

...For those not needing care in therapeutic facilities, generously subsidized access to pharmaceutical and talking therapies should be provided...

...Only the provision or subsidy of child care services can do that...

...Once we declare a particular good or service to be a merit good, then we are implicitly saying that there is a presumption that the government, if it has the taxing capacity, should provide it, either directly or by a voucher system...

...A government service that starts out as adequately financed may through time be allowed to deteriorate through a failure to allocate sufficient resources, as the case of the British health service shows...

...Once this has been accomplished, it will be the time to consider cash grants...

...There is a quality issue that must be addressed...

...Single parents' need for help with child care is particularly acute...

...The Problem of Finance If one agrees that it is a high priority to provide a substantial and expensive list of good quality merit goods to all citizens, then large universal cash payments, if adopted, must be in addition to the provision of merit goods, not instead of them...

...Expanding government help with college expenses would be very popular with the middle class and might win them over to favor the other items on the list as well...

...To campaign for a program of large cash payments in a country where this is the case is a striking inversion of priorities...

...Disadvantages of Cash Grants Rescuing everybody from poverty, as it is currently measured, and giving everybody some assets to start out with in life are attractive goals...

...6. Social Work Services...

...That would leave households just 17 percent of GDP as their net reward for their participation in the production of the entire GDP...

...A program offering free, universal care of decent quality would cost upward of $120 billion a year, while a program with co-payments from higher-income parents might cost $60 billion...

...A good first step would be a budget that provided enough financing to allow everyone currently eligible to benefit from the existing programs...

...BIG would do nothing to upgrade child care quality...

...A U.S...

...Schooling is a merit good because (a) it is perceived as something no child should be denied, for the child's own sake, for the economy's sake, and as the foundation of the kind of social and political life we desire and (b) because we have good reason to fear that some parents would fail or be unable to provide it in the quality and quantity deemed necessary...

...The most audacious suggestion calls for "Stakeholder" grants of $80,000 to each person on his or her twenty-first birthday, with no limitations on how the money might be spent...

...family with two preschool children needs to spend $12,000 to $20,000 a year to buy care in a licensed child care center...

...Elementary and secondary schooling are already treated as merit goods by liberals and conservatives alike, even in the United States...

...We label a good or service a "merit good" when (a) we decide that everyone who is in a position to utilize it should have access to it and (b) when, in the absence of government provision, there are people who would not or could not acquire it on their own...

...We can anticipate newspaper stories about jewelry, fancy cars, and blowing the grant in Las Vegas...