What happens if we consider welfare programs as investments?
- A recently published study suggests that some welfare programs more than pay for themselves.
- It is one of the first major reviews of welfare programs to measure so many by a single metric.
- The findings will likely inform future welfare reform and encourage debate on how to grade success.
How do you decide if a government program is doing well? Do you look at how many people it helps? Do you consider its efficiency? Perhaps it has a particular gauge limited to its focus area that can be used? If you use that unique gauge, then how do you compare it to other programs?
The problem of how to properly review government programs and compare their outcomes has bedeviled analysts for years. In many cases, they'll consider a handful of programs with a particular metric while another person will review different programs using another one. One comprehensive review using a single, widely applicable, and easily compared benchmark was lacking.
That is exactly what one group out of Harvard aimed to create when they reviewed more than 100 major welfare programs with a single metric.
Welfare as an investment
The study, carried out by Nathaniel Hendren and Ben Sprung-Keyser of Harvard University, reviews 133 welfare programs through a single lens. The authors measured these programs' "Marginal Value of Public Funds" (MVPF), which is defined as the ratio of the recipients' willingness to pay for a program over its cost.
A program with an MVPF of one provides precisely as much in net benefits as it costs to deliver those benefits. For an illustration, imagine a program that hands someone a dollar. If getting that dollar doesn't alter their behavior, then the MVPF of that program is one. If it discourages them from working, then the program's cost goes up, as the program causes government tax revenues to fall in addition to costing money upfront. The MVPF goes below one in this case.
Lastly, it is possible that getting the dollar causes the recipient to further their education and get a job that pays more taxes in the future, lowering the cost of the program in the long run and raising the MVPF. The value ratio can even hit infinity when a program fully "pays for itself."
While these are only a few examples, many others exist, and they do work to show you that a high MVPF means that a program "pays for itself," a value of one indicates a program "breaks even," and a value below one shows a program costs more money than the direct cost of the benefits would suggest.After determining the programs' costs using existing literature and the willingness to pay through statistical analysis, 133 programs focusing on social insurance, education and job training, tax and cash transfers, and in-kind transfers were analyzed. The results show that some programs turn a "profit" for the government, mainly when they are focused on children:
This figure shows the MVPF for a variety of polices alongside the typical age of the beneficiaries. Clearly, programs targeted at children have a higher payoff.
Nathaniel Hendren and Ben Sprung-Keyser
Programs like child health services and K-12 education spending have infinite MVPF values. The authors argue this is because the programs allow children to live healthier, more productive lives and earn more money, which enables them to pay more taxes later. Programs like the preschool initiatives examined don't manage to do this as well and have a lower "profit" rate despite having decent MVPF ratios.
On the other hand, things like tuition deductions for older adults don't make back the money they cost. This is likely for several reasons, not the least of which is that there is less time for the benefactor to pay the government back in taxes. Disability insurance was likewise "unprofitable," as those collecting it have a reduced need to work and pay less back in taxes.
What are the implications of all this?
Firstly, it shows that direct investments in children in a variety of areas generate very high MVPFs. Likewise, the above chart shows that a large number of the programs considered pay for themselves, particularly ones that "invest in human capital" by promoting education, health, or similar things. While programs that focus on adults tend to have lower MVPF values, this isn't a hard and fast rule.
It also shows us that very many programs don't "pay for themselves" or even go below an MVPF of one. However, this study and its authors do not suggest that we abolish programs like disability payments just because they don't turn a profit.
Different motivations exist behind various programs, and just because something doesn't pay for itself isn't a definitive reason to abolish it. The returns on investment for a welfare program are diverse and often challenging to reckon in terms of money gained or lost. The point of this study was merely to provide a comprehensive review of a wide range of programs from a single perspective, one of dollars and cents.
The authors suggest that this study can be used as a starting point for further analysis of other programs not necessarily related to welfare.
It can be difficult to measure the success or failure of a government program with how many metrics you have to choose from and how many different stakeholders there are fighting for their metric to be used. This study provides us a comprehensive look through one possible lens at how some of our largest welfare programs are doing.
As America debates whether we should expand or contract our welfare state, the findings of this study offer an essential insight into how much we spend and how much we gain from these programs.
Americans understands very well what feels wrong – and there's a piece of U.S. economic policy that the establishment and educated elites haven’t been fully honest about, says Pia Malaney.\r\n
The election of Donald Trump wasn’t business as usual – it was a message from the Rust Belt, who in some sense have lost their economic voice. Voters in the region used the ballot in November 2016 to attempt to regain control over financial policies that were not designed to benefit them. Inequality in the U.S. has increased dramatically, and economists like Pia Malaney understand that if you do a post-mortem on major financial policies like trade and immigration over the last few years, it exposes where the populist backlash has come from. There are winners and losers in every economic policy, and in recent years the U.S. has been skipping the crucial last step: wealth redistribution. Malaney gives a detailed insight into the system of winners and losers the U.S finds itself in, and emphasizes the importance of understanding the real implications that policies have in different regions.
Universal Basic Income an expensive system to be sure, but social justice commentator Eva Cox argues that the societal returns will be worth the investment.
It’s difficult to deny the attractive qualities a Universal Basic Income (UBI) holds. A radical policy such as this could right many of the inequalities that exist in our societies, says Eva Cox, a former program director of Social Inquiry at the University of Technology, Sydney.
“Brought together, it is clear that a Universal Basic Income (UBI), if implemented appropriately, could help address historic gender, race and material inequities,” Cox wrote in an essay for the Green Institute, titled Why a Universal Basic Income Can Address Historic, Gender and Material Inequities (pdf).
She argues there’s a bias in how we calculate the GDP, which does not account for many unpaid activities that contribute to the health of our society and economy. “My case for changing the paid work bias is based on wider traditions that recognize the value of widely diverse ways of living and contributing to the common good and personal wellbeing.”
At its core, the purpose of a UBI is to create opportunity and freedom where it formerly never existed. It would help ease the frustration many factory workers in America’s heartland are facing with the rise of automation and give those in poverty a chance for something better. This movement has a message centered around creating a fair start for everyone, and challenging misconceptions surrounding the very nature of work. It’s an idea that has had promising outcomes for society in at least one past study.
But many economists question its practicality. It’s an expensive system to be sure, which is why many countries (the Netherlands, Finland, and Canada) are launching pilot programs to test how it might best be implemented and whether the return is worth the investment.
Cox argues that a UBI would not only recognize the unpaid contributions people already make through volunteer projects and societal demands, it could also encourage its expansion. “It would allow people to redirect some of their energies to unpaid roles, encourage creativity, enterprise and goodwill,” writes Cox. She continues:
"If we accept officially that people are not essentially lazy or work-shy, we can change the current assumption that welfare payments need to be mean and stigmatising, with sexist and racist overtones. Removing requirements to search for paid work or prove incapacity, would enable many more people to feel value and return a sense of agency."
Universal Basic Income is an idea that has long been discussed by history's great thinkers, but is finally being tested. Whether its time has come is still being debated and trialled, but many hope it can narrow the inequality that causes so much societal tension. The proof of its worth will be in the data.
People like Thomas More, Abraham Lincoln, Franklin Roosevelt, and Bertrand Russell have already had many of the arguments we're having about basic income today.
Dr. Elise Klein wants to point out the conversations we’re having around Universal Basic Income (UBI) aren’t new. Great leaders and thinkers Thomas Paine, Abraham Lincoln, Franklin Roosevelt, and Tony Atkinson have already had many of the arguments surrounding UBI, today. Its history bears repeating.
Dr. Elise Klein wants to point out the conversations we’re having around universal basic income (UBI) aren’t new. Great leaders and thinkers Thomas More, Abraham Lincoln, Franklin Roosevelt, Bertrand Russell, and Tony Atkinson have already had many of the arguments currently surrounding UBI. Its history bears repeating.
In Klein’s essay for the Green Institute, she walks through a 10-page outline of the many historical conversation surrounding UBI. It’s meant to be read as a taster, encourage further reading. Klein, a lecturer of Development Studies at the University of Melbourne, walks us through a sampling, discussing UBI through the lens of three themes present in conservations surrounding it throughout history:
1. Freedom: Freedom to live the way one wants, freedom from starvation, and so on.
2. Justice: A more equal and just society, especially for those doing labor that is unpaid but valuable. It’s a way to give back to everyone participating in our society.
3. Economic transformation: UBI is how we take our economy to the next level—it’s the next step in our evolution.
It’s important to note this idea has been argued by liberal thinkers, as well as conservative. Indeed, Y Combinator founder, Sam Altman once tweeted, “Important point: basic income is not socialism. Basic income provides a floor, and then people can get as rich as they want.”
One of the earliest instances of a proposed UBI can be seen in Thomas More’s Utopia, published in 1516. In it, UBI was proposed as a solution to stopping petty thievery, questioning the idea of punishment when the thief has no other choice but to steal.
“Instead of inflicting these horrible punishments, it would be far more to the point to provide everyone with some means of livelihood, so that nobody’s under the frightful necessity of becoming, first a thief, and then a corpse.”
What’s interesting is that many people assume that giving money to the poor is a fruitless labor. “They’ll just spend it on alcohol,” we say. However, when we review the evidence, we see how far it is from the truth. Unconditional cash transfers do not increase the rate of purchase of tobacco or alcohol among the poor. In many cases, studies have found it actually reduces these purchases.
British Labor Party member George Cole referred to an unconditional income as a social dividend. He saw the individualized nature of success troubling when success is something born of a society. According to Cole, there’s merit to the idea that wealth – the success of one – should be shared:
“Current productive power is, in effect, a joint result of current effort and of the social heritage of inventiveness and skill incorporated in the stage of advancement and education reached in the arts of production, and it has always appeared to me only right that all the citizens should share in the yield of this common heritage, and that only the balance of the product after this allocation should be distributed in the form of rewards for, and incentive to, current service in production.”
Perhaps the most recent and most urgent argument pushing for UBI is that wage labor cannot and should not be a basis for membership within our society. There are many non-traditional jobs from motherhood to volunteer work, which contribute heavily to the success of our society. But what’s most compelling is the idea that automation—robots—paired with waining job creation may leave many of us without wage work.
Throughout history there have been many pushes for adopting UBI. We are only just beginning to realize the real power this idea may have in providing a better future for everyone. Support is far from unanimous, but curiosity is alive: many countries are beginning to green-light trials, such as the Dutch city of Utricht, Finland, and Canada.
There's a lot missing from debates and policy surrounding poverty but the biggest deficit, according to Dr C. Nicole Mason, is in honesty. Impoverished people aren't poor because they're lazy, they're poor because social mobility is institutionally suppressed.
Dr C. Nicole Mason was born in Los Angeles, raised by a beautiful but volatile 16-year-old single mother. Early on, she learned to navigate between an unpredictable home life and school where she excelled. Having figured out the college application process by eavesdropping on the few white kids in her predominantly Black and Latino school, and along with the help of a high school counselor, Mason eventually boarded a plane for Howard University, alone and with $200 in her pocket.
Mason found a path out of poverty – something that only 4% of America’s impoverished population are able to do. An alarming majority will never rise into the middle class, and so it seems that in the US, if you’re born poor, you stay poor. And no one is being very honest about this invisible caste system.
Mason is a vocal advocate against the presumption that the poor are poor simply because they don’t help themselves enough. "[In college] we heard a lot of things about welfare queens, people living off the system, not wanting to work, women being lazy, having multiple children. And that really wasn’t the reality for the women who were actually impoverished." Mason found that the policies were detached from reality, and in fact the barriers built into the system (some intended to motivate people) – such as time limits, additional child penalties, and few provisions for childcare – were ineffective and suppressed social mobility. "What was excluded from that policy was a clear pathway out of poverty, like education," she says.
When people think of poverty they think in terms of money and material resources, but a large part of being poor is suffering from a lack of social connections and networks, and living in a low-income area with no infrastructure that enables the leap up to the middle class.
If institutions and leaders want to support and elevate poor communities, Mason argues that they need to provide better infrastructure (like libraries, parks, good grocery stores, and hospitals) as well as bridging programs both within the community and, very importantly, outside of it, so people can get in contact with people outside of their normal social network. "We just need to be honest about what it really takes for everybody to have a fair shot at the American Dream," she says.
Dr. C. Nicole Mason's new book is Born Bright: A Young Girl's Journey from Nothing to Something in America.