Billing Aid to Account
By Alec Rawls © 1996/1998. (1100 words) Originally published in The Stanford Review 2/12/96.

The debate about welfare reform exposes what seems to be a fundamental divide between liberals and conservatives. While conservatives are determined to eliminate perverse incentives for irresponsible childbearing, liberals say that to stop supporting impoverished women for continuing to have babies they cannot afford unfairly punishes the children, who should not be forced to pay for their parents' irresponsibility.

These themes echo in numerous policy debates. Conservatives focus on incentives and effective means for pursuing policy objectives. Liberals say that we cannot just look at the situation we are trying to bring about but must also attend to existing needs and commitments. Conservatives deride this liberal fixation with existing needs as targeting symptoms at the expense of causes. Liberals accuse conservatives of being blind to rights and fairness and justice.

As profound as this division between liberal and conservative seems, it is all a phantasm, an artifact of trivial conceptual errors, both in theory and in practice. On the practical side (the subject of today's article), there is no necessary choice to make between treating symptoms and treating causes. It is perfectly possible to help people without creating perverse incentives that will induce people to abuse that help and fall into dependence on it. The device which accomplishes this is called a loan. In the private sector, loans allow people to recieve help while maintaining incentives for responsible behavior. The more one borrows the more one has to pay back, so there is no incentive to borrow more than is necessary and no possibility of long term dependence.

There are sound public policy reasons to want to help anyone get a leg up on life and become a contributing member of society, yet some people's prospects are so uncertain that loaning to them is not a commercially viable risk. Since markets are unable to help in these instances, there is a role for government to step in and try to reap this efficiency. It can do so by following the market lead and billing to account the cost of whatever aid is given. So long as repayment is required according to an ability to pay formula over the life of the recipient (with all outstanding balances rolled over at market interest rates) incentives for responsible self-help will be maintained. With incentives to responsible behavior intact, society could even offer more help than at present and still incurr much less inducement to dependency.

The most promising application of billing aid to account would be support for needy mothers and children, where it is so imperative both to provide support and to maintain rational incentives. Rational policy would start off as it does now, by requiring parents to provide their children with all necessities, including housing, nutrition, health care and schooling through twelth grade. Whatever the parents could not provide on their own would be financed by the state and billed to the parents at full cost, to be paid back over the rest of their lives to the full extent that they are able. Now that gives the right incentives not to bear children irresponsibly, and it gives full help to the children.

Indeed, such a scheme should lead, not just to parental responsibility, but to the theoretically ideal rate of population growth, taking into account environmental and other concerns. All parents would face the full costs of raising a child. If our other tax policies were also rationalized, so that microeconomic taxes were used to internalize pollution and other environmental externalities, then the costs of raising a child would include the costs that supporting another person imposes on the environment. As parents proceeded to take these costs into account, and compare them with the value they see in having a child, the resulting decision would fully account all value (at least in the steady state, where parents are not suprised by the cost of raising a child, or by the prospects for prosperity in the world the child will inhabit).

The more affluent citizens of the world already take the costs of raising a child fully into account (except for pollution and other costs that are not yet internalized in prices) because they do not get any help in paying for their children's upbringing. The result is very low levels of irresponsible childbearing. We need to bring the poor of the world into the same paradigm and billing aid to account would largely accomplish this.

There will always be parents whose prospects for supporting themselves are so low that they will face little disincentive from the knowledge that if they ever do earn income it will be garnished at non-punitive rates to repay their debt of aid. Since they are out of the reach of incentives, these people would have to be placed on bare minimum aid in kind, along with their children, and to prevent further irresponsible childbearing, this minimum aid should be contingent on implanted birth control.

Such steps are difficult today because our policies of giving aid away have created such a huge dependent class and given them a sense of entitlement. But billing aid to account would allow the cream to rise. The remnant that needs to be dealt with more severely would be small and billing aid to account would keep the books straight. Everyone would know who owes whom, making it politically tenable to be stringent with those deadbeats who want to keep racking up unlimited debt.

In sum, the only reason there seems to be this great conflict in practice between liberalism and conservatism -- between giving help and maintaining incentives -- is because we are stuck in the mode of giving help away instead of billing for it. All we need to do to eliminate the conflict is start billing aid to account. It would make a fabulous ballot measure.

Even better, make it across the board: "All state expenditures on goods or services for identifiable recipients must be billed to the recipients accounts and repaid according to ability to pay." That would stop interest groups from clamoring for pork! Eat at the public trough, pay the cashier.

In one swoop, we could eliminate all those parts of government that do not fit the proper role of government. Where markets can service a need better than government, those who were getting billed for government service would demand to be allowed to purchase from the private sector where they could get better value. Corruption and stupidity would both be rooted out. Imagine that, a one line ballot measure that could save the poor and the rest of us.

(Alexander Rawls is pursuing a Ph.D. in economics)


Next article in Utilitarianism volume of Moral Science: Reconciling Consequentialism with Deontology

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