Economics, Libertarianism

You Can’t Get There From Here? A Reply to Magness

Phil Magness replies to my post by advancing a new argument that while the UBI might be a fine policy, we can’t get to it from our present circumstances. If we try, we’ll end up with a UBI + the current welfare state arrangements. In order words, you can’t get there from here.

This is, to my mind, a new argument, and in some respects a better one. I think there are serious institutional hurtles to getting a UBI off the ground in the US. Not only is it far away from what most people think is feasible, which itself makes the UBI less feasible, it likely violates the sense of justice of most people in the US, given that it is likely that the unconditional nature of the UBI will create enormous resentment.

But these considerations, along with Phil’s story about how we’d end up with the welfare state + a UBI prove too much. They suggest that policy change isn’t seriously possible, and so isn’t worth pushing for. In a detailed exchange between Will Wilkinson, Phil, and Pete Boettke in one of my Facebook threads, we were eventually able to agree that the UBI is not feasible at present in the US. But Phil and Pete insisted that unless we’re very careful about explaining how we could arrive at a UBI through a series of practical political bargains, that we UBI advocates are essentially utopian.

I don’t think that’s true. And I don’t think they really believe that either. This is because both Pete and Phil are libertarians – they support policy changes that would radically alter the institutional landscape in the United States. They recognize that these arrangements aren’t presently feasible, but by fighting and winning the battle of ideas, they hope to make presently infeasible arrangements feasible. So it can’t be fallacious to support ideas or policies that are not at presently politically feasible or hard to arrive at. You just have to be aware of the non-ideal circumstances in trying to figure out how to gradually render your policy proposal more feasible by changing moral beliefs, altering the power of interest groups, etc.

To illustrate, I’m going to run an argument parallel to Phil’s post by replacing “UBI” with “privatization” and “welfare state” with “socialist state. I will also make a few other minor alterations. If the parallel argument is successful, it should also show that we shouldn’t attempt to privatize socialized industries. And that, I presume, is an unacceptable outcome for Phil (or Pete). My general point is that if Phil is right, we should doubt whether we can make any major policy change given that Congress will muck it up. For after all, why risk privatization when we might end up with a worse replacement, like a botched privatization that leads to a more long-lasting resocialization, or perhaps an inefficient crony-capitalist industry with vestiges of socialism (privatized profits but socialized costs)?

So here we go mimicking Phil’s post:

I can accordingly think of one very likely scenario where [privatization’s] affliction with the problems of rent seeking, waste, corruption etc. is not simply worse but significantly worse than … current [socialism]: the scenario in which [privatization] is adopted due to a promised [“free market”] replacement for the existing [socialist] state…. Now wait a minute, you might say – that’s not a part of what [the privatization advocate] is proposing! Indeed it isn’t, but remember – we are living in a non-ideal political world. The seamless execution of a [political move from] the current [socialist] state to [privatization] is highly improbable in non-ideal conditions, so we must contemplate the adoption of our non-ideal policy in accordance with the most likely pathway to its implementation.

I’ll go ahead and predict right now what will likely happen if, say, Congress were to seriously consider implementing a [privatization]:

  1. A deal would be proposed to [substitute a privatized industry for] the existing [socialist] state …. This deal would carry all the promises that we now hear from [privatization] supporters about how the new policy would be welfare-improving and more efficient than the hodgepodge of a system we currently have.
  1. Once [privatization] is adopted, it will need to be phased in over several years if not decades in order to wean us off the old [socialist] system and onto the new. This will involve a “phasing out” of all of the elements of the old [socialist] state over many years, likely on a schedule prescribed by law.
  1. When the first phase-out deadlines arrive for the old [socialist] state, interest groups that are highly invested in those programs will begin to realize the imminent loss of their captured and concentrated program-specific rents, even though all people also now have [a privatized industry]. A number of them will move to preserve the rents of the old [socialist] system by pressuring Congress to carve out an exemption to the previously agreed upon schedule.
  1. Pressure to abandon the agreed-upon schedule will be immense, and will point to perceived deficiencies in the newly-adopted [privatized] system as a reason to “preserve” part if not all of the old [socialist] state …. You can expect to see news features and TV commercials that illustrate the sob stories of children or other dependents who still need food/clothing/medical attention despite having [privatization]. This includes a very likely number of cases where incompetent parents or guardians misappropriated their [shares in the privatized industry or lower prices from the privatized industry] on wasteful or frivolous self-indulgence, leaving their dependents little better off than they were previously. The paternalistic instincts of the [socialist] state will come out in full force.
  1. Amidst these and other pressures, Congress will cave, because the concentrated benefits of that rent will have an advantage over the diffuse costs of the [privatization]. We also have extensive evidence that Congress will cave because that is what Congress usually does in this very similar scenarios where a previously agreed-upon expenditure-limiting schedule runs into political demands in the present for continued appropriations.
  1. Instead of getting the promised [privatization], we will be saddled with both an extremely expensive new [crony capitalist industry or resocialized industry] and [so] substantial preserved elements of the old [socialist] state.

I say this scenario is likely because the existing [socialist] state is the product of many decades of rent extraction, as well as a number of deeply entrenched and relatively stable stakeholder interests that sustain it and make the execution of substantial changes to it very, very difficult…. Vested interests with substantial existing rent extractions do not simply dissipate, unless the rent itself also dissipates to the point that it is no longer worth the political investment to maintain it (and that scenario is highly unlikely with a direct payout system, as welfare is). Nor do interest groups easily [accept privatization] from [socialist conditions]…. Doing so is something akin to scrapping one’s lucrative and existing political investments – including investments that keep out other competitive seekers of the same rents – and starting again from scratch under a new rent allocation regime that is, comparatively, open to new competitive entrants seeking to capture some of its fruit.

In the end, a non-ideal transitional [privatization] program may explicitly eschew an idealized unicorn “fix” for [socialism]. But its implementation is still subject to a non-ideal political world. Delivering a massive proposed overhaul intact through that non-ideal political world therefore becomes its own unicorn problem, given everything that we know to be true and evidenced by centuries of experience within that political world.

It’s not enough to compare the [socialist] state and [privatization] – even a non-ideal transitional [privatization] – side by side and see how they stack up. We must also ask if we can even get to a [privatization] from the current [socialist] state while also leaving its promised benefits over the [socialist] state intact. Since one of those benefits necessarily entails repealing and replacing substantial parts of the [socialist] state within a non-ideal political world, the obstacles that political world places on the pathway to [the privatization] implementation must not only be addressed – they are the very essence of why [privatization], idealized or not, is a politically impractical program.

  • Daniel McIntosh

    Actually, I find the argument very persuasive. Just because one finds the conclusion “unacceptable” doesn’t mean it’s wrong.

  • Fritz

    Maybe Mageness’s argument seems new to you, but it’s not new. And it’s so obvious that it almost goes without saying.

    In any event, the arguments for free markets and socialistic schemes aren’t really symmetrical. Those who push socialistic schemes have the rhetorical advantage of proposing things that sound “nice” and which a huge fraction of Americans think of as “free,” either because they’re economically ignorant or they believe that “the rich” will pay for them. In fact, almost no one thinks of (or acknowledges) the biggest hidden cost of government interventions — slower economic growth, and therefore lower incomes for almost everyone (https://politicsandprosperity.com/2014/12/12/the-rahn-curve-revisited/).

  • M S

    I mean, the mimic of Phil’s post that you made happens to be a pretty accurate picture of a number of post-Soviet economies. So it seems like Phil’s critique is worth taking seriously, even if it doesn’t in the end provide a 100% knockdown argument against the UBI.

    • Phil Magness

      In a similar fashion, I suspect that an attempt to design, manage, or impose a large sweeping privatization program of external political design on – say – China would end disastrously (not the least due to the retaliatory bloodshed it would provoke from the government) compared to marginal and incremental encouragements that allow it to occur spontaneously.

      Nation-building generally doesn’t end well – even when it is done for ostensibly commendable purposes such as privatizing a socialist state.

  • MARK_D_FRIEDMAN

    Once upon a time in a happy, beneficent kingdom far, far away, the powerful, omniscient king instituted programs for his subjects’ own good. He instituted taxes on them, held this gold in his treasury, and then wisely and justly distributed the gold to the people, withholding only a tiny bit for his administrative expenses. These programs were known as “entitlements.” His subjects loved them, and over time their scope and the taxes needed to fund them grew exponentially. The wise ruler always kept his promises, his subjects always loved him, and everyone lived happily ever after. The end.

  • My question is, assuming making a policy impact is the ultimate goal and that we are libertarians, why is the UBI where we should focus our efforts? Why the UBI instead of other more traditional libertarian hobby horses like open immigration, zoning reform, patent reform, lower taxes etc. etc.?

    What is UBI advocacy getting us, other than a new centralizing welfare system?

  • Irfan Khawaja

    I had to chuckle at this discussion. I was at a round-table discussion a few days ago at the Kenyon Institute in Jerusalem, on Palestinian responses to Israel’s master plans for Jerusalem. The economist on the panel, Raja Khalidi, recommended UBI…as part of the Palestinian Authority’s means of resistance to Israeli development policy in East Jerusalem. (I won’t explain how the proposal went–I’ll leave it to your imagination.) Talk about the unintended consequences of an idea! Just when you thought UBI’s contribution to the welfare state was the worst of the problems involved…now UBI is part of the Palestinian jihad against Israel. Who saw that coming? I didn’t–and I’m a card carrying member of the jihad myself.

    http://cbrl.org.uk/event/which-jerusalem-israel-s-little-known-master-plans

    On another subject, is there a literature on how UBI applies to the mentally ill? The severely mentally ill are by definition mentally incompetent. Some proportion of them are (believe it or not) mentally incompetent when it comes to spending money. UBI’s supposed appeal arises from the fact that it does away with such supposedly useless things as social workers and mental health care workers as intermediaries between disbursement mechanisms and mentally ill recipients. The attraction is supposed to be that UBI puts the money directly in the recipient’s hand, cutting out the social-worker, counselor, or psychiatrist.

    What if the recipient is severely mentally ill? Is the directness of the monetary disbursement a bug or a flaw? There is a literature on poverty and mental illness, and it clearly indicates an overlap between the two things. It isn’t obvious to me that when the recipient is mentally ill, direct disbursement is preferable to supervised disbursement. But I don’t know for sure, and haven’t ever heard it discussed here. As someone in the mental health field (and in philosophy), I’d be curious to be pointed in the direction of a relevant literature.