Welfare and the True Meaning of "Conservative"

by Steve Shafarman

President Bush has proposed revisions to the 1996 welfare law that undermine his claim to be a "compassionate conservative." His proposal is, in fact, neither.

The current law requires aid recipients to perform 30 hours of "work activities" each week; the administration wants to make that 40 hours a week. Some of that time can involve job training, drug treatment, or related preparatory activities, though 20 hours has to be at a job; that would be increased to 24 hours. States must enforce those limits on 50 percent of recipients; that would become 70 percent.

But most recipients are single mothers who will have less time to care for their children, help with homework, meet with teachers, and so forth. That means more neglected young people; their troubles and the troubles they cause are already a major problem for our schools and society as a whole. Requiring recipients to work distorts labor markets and punishes low-wage workers by increasing competition for their jobs. Markets are also distorted whenever taxpayers fund job training, which is actually a subsidy to future employers. The new quotas, according to most governors, will require states to spend money on "make-work" jobs. That's counter-productive. And it infringes on states' rights. It seems that President Bush's compassion is mostly for employers, and that he defines "conservative" as anti-federal government without regard for the consequences.

Is there a truly conservative way to help the poor? F. A. Hayek thought so. It is, he declared in The Road to Serfdom, "a legitimate object of desire" to guarantee "security against severe physical privation, the certainty of a minimum of sustenance" because society can afford to provide that for everyone. Moreover, "there is no incompatibility in principle between the state's providing greater security in this way and the preservation of individual freedom."

Milton Friedman - another undisputed conservative - agreed. In Capitalism and Freedom, he called for a "negative income tax," cash payments to the very poor:

The advantages of this arrangement are clear. It is directed specifically at the problem of poverty. It gives help in the form most useful to the individual, namely, cash. It is general and could be substituted for the host of special measures now in effect. It makes explicit the cost borne by society. It operates outside the market.

Everyone's freedom and security would be enhanced, Hayek and Friedman maintained, if everyone is guaranteed some minimum income; everyone's freedom and security are impaired whenever government programs benefit specific individuals or groups. Peter Drucker discussed similar ideas in The New Society. Attempts to guarantee jobs or wages "do only harm to the worker and the economy" because they "give the worker the illusion of security which is bound to be cruelly disappointed" during any business setback or recession, while "subsidizing obsolescent industries and restricting, if not stopping, technological progress." Instead, he sought a universal minimal "predictable income" that varies with changing economic conditions.

The idea of a negative income tax was extremely popular in the 1960s. A national commission of prominent business executives, academics, and union leaders held hearings around the country and unanimously concluded:

Even if the existing welfare and other programs are improved, they are incapable of assuring that all Americans receive an adequate income. We have therefore recommended the adoption of a new program of income supplementation for all Americans in need.

In the House of Representatives, two-thirds voted for Richard Nixon's Family Assistance Plan, which was written by Daniel Patrick Moynihan. The plan was extremely complicated, however; Friedman called it "a striking example of how to spoil a good idea." It was defeated in the Senate Finance Committee. The Citizen Policies Institute is updating and further simplifying Friedman's idea. Instead of using any type of means testing, we propose to pay the same basic income, a "Citizen Dividend" to every adult citizen - working or unemployed, rich or poor, married or single. The amount would be enough to ensure that the unemployed can afford basic food and shelter, but not so much as to reduce the incentives to work, earn, and save.

To pay for this simple, efficient way to promote the general welfare, we can cut all programs that promote only the special welfare of specific individuals, groups, businesses, or industries. We all know the federal budget is layered with fat, but it's almost impossible to trim any because politicians reflexively defend the pork that goes to their states or districts. Citizen Dividends will make it much easier to cut the budget because there will no longer be any defensible rationale for wasteful programs. We won't have to spend public money to provide housing or create jobs when everyone directly receives enough income for food and shelter. People will find or create their own jobs. Markets will function more freely and reliably.

While this should be a national program, it could be tested in some city or state. And cities or states where the cost of living is high could provide supplements from local revenues. Regardless, cities and states will be relieved of many federal mandates.

Most conservatives want a flat income tax or a national sales tax. Opponents insist that either would hurt poor people because the poor have to spend a higher percentage of their incomes on food, shelter, and other basic necessities. However, if combined with tax-free Citizen Dividends, the net effect of a flat tax or consumption tax would be good for everyone.

While debating Nixon's plan, opponents objected to "giving people something for nothing." In return for Citizen Dividends, every adult would be expected to perform some community service, say eight hours a month. Even if a few people refuse to do so (and would you? would your friends and neighbors?), the resulting expansion of the volunteer service sector would further displace many government programs and save taxpayers even more money, helping to pay for the universal basic income. In response to September 11, some conservatives have been calling for new or expanded national service programs. President Bush wants every adult to give 4,000 hours over a lifetime, though his approach would require a costly bureaucracy. With the Citizen Policies Institute approach, everyone would do at least that much service. The enforcement mechanism would be social pressure, which is free. And every American serving eight hours a month will do much more to unify and secure our nation from threats and unexpected calamities.

Without a service component, a basic income guarantee might be seen as a handout, even though it's demonstrably a better deal for the taxpayer than the current welfare system with its massive bureaucracy and complex regulations. But universal guaranteed income and universal citizen service reinforce each other and are mutually enabling.

A knee-jerk objection to Citizen Dividends is that some people will waste or misuse the money - for example, by spending it on drugs or alcohol. Some will. Just as some people today waste or misuse their money, whether hard-earned, inherited, or acquired through panhandling or stealing. But everyone will at least have enough money for food and shelter, and so be less susceptible to the lures of theft, drug dealing, prostitution, and associated activities. And judges could order Citizen Dividends redirected to pay fines, penalties, victim restitution, or child support from dead-beat dads. It will be a lot easier for each of us to show, expect, and demand personal responsibility; a lot harder for anyone to blame "society" for personal failings.

Other objections were actually tested - and dispelled - in a series of federally funded "income maintenance experiments" in the 1960s. More than 6,000 families in various parts of the country received guaranteed payments instead of welfare, and data were collected about hours worked and family stability. A key factor in the defeat of Nixon's plan was the premature release of that data and its biased interpretation. While it seemed at first that there was an increase in marital breakups, that was not evident in the final analysis. And though there was a decline in total hours worked, it was not the primary breadwinner who worked less but secondary and tertiary earners; in other words, wives were devoting more time to caring for their families and teenagers were staying in school.

Economists might worry about inflation from introducing Citizen Dividends, but because the funds would come from cutting existing government programs, that should not be a problem. The dividend would be adjusted periodically, perhaps automatically, to reflect changes in the cost of living; as a result, economic conditions would generally be much more stable - to the benefit of individuals, businesses, and government.

Does all this sound naïve? Why? Who wouldn't want extra income, an estimated $400 - 800 a month? A politician with the courage to propose this might quickly gain an enormous following.

Hayek, Friedman, Drucker, Nixon, and Moynihan were not the only ones who called for something like a negative income tax. So did Martin Luther King Jr., liberal economists James Tobin and John Kenneth Galbraith, and Democratic presidential candidate Sen. George McGovern. Much earlier, Franklin Roosevelt called for a "second Bill of Rights" that would guarantee a decent home, medical care, education, and enough income for food and clothing. Abraham Lincoln proposed, and the federal government enacted, the National Homestead Act that gave land to millions of poor Americans; Thomas Jefferson was the first to introduce that idea, in Virginia, in 1776.

The Citizen Policies approach to welfare is the conservative one. And it's a better deal for every taxpayer, every employer, every American.

ÓSteven Shafarman
Citizen Policies Institute
steve@citizenpolicies.org