Wednesday, 16 August 2017

Trailblazing to the Outside of the Asylum

Last year's documentary on New Zealand, hosted by Johan Norberg, is now available online. It's a great story, featuring the likes of Roger Beattie. We don't know how lucky we are in New Zealand.



Here's Dan Mitchell on New Zealand, and the documentary.

Full disclosure: the Initiative helped out a bit in putting the documentary makers in touch with some of their interviewees and providing a bit of background detail. I show up briefly towards the end.

As America gets ever-crazier, remember to check back on that list I told you to make back in 2013.
A couple of months ago, when Alex Tabarrok complained of his son's school being turned into a police camp, I noted some of the differences between American schools and the ones here, concluding:
You can choose to live like this too. Sure, New Zealand is getting worse, and it's definitely worse than some parts of the US if marijuana freedom is an important part of your bundle of liberties. But NZ is starting from a much better spot than the US, and it seems to be getting worse slowerthan other places.

Things aren't bad enough to leave yet? Fine. Freedom's a value, but so too are other things like distance from family and wealth differentials and access to Ethiopean restaurants. But write down today some bright-line rules that you think should trigger your future exit; it's easy to acclimatize to gradual changes for the worse.
If you really want to live free, write down your list of things that would actually be sufficient to trigger your emigration, then think about the places you might go that offer the best deal on the bundle of freedoms that matters most to you.

If you're instead happy getting consumption benefits from ranting about the deterioration of freedom in America, or from imagining that you'll be able to change things there, carry on.
Have any of the "Yeah, I'd emigrate if any of these bad things happened" things on your list happened yet?

Friday, 4 August 2017

There are no answers only tradeoffs

Fundamentally all welfare systems have to answer one basic question: is it better to target a lot of funding to those in most need, or to provide universal benefits at a far lower level of support?

Both options suck, they just suck differently.

Targeting systems are intrusive. They invade privacy. They create distortions in people's choices. But it is the only way of making sure that those in the most need have access to the most resources. If you want to make sure that kids with a single destitute parent receive a lot of support, you have to make sure that the parent is destitute. If there are other sources of financial support for that kid, and you want the next dollar of government money to go to the kid in the worst circumstances, then you need to know whether about it. Otherwise that next dollar goes to the wrong kid.

The system has perverse outcomes. It breaks families apart by financially penalising parents for living together. It encourages lying to the extent that lying is a successful strategy and isn't caught and punished. Where lying is a successful strategy and isn't punished, the targeting system morphs into the universal system, except with everybody lying about their circumstances and substantial financial penalties for truth-telling.

The universal system sucks too. It is impossible to provide every family with the support the government would like to provide to the worst off family: if it gave that much to everybody, the budget would blow out. Here's a quick ball-parking for you. The government takes in about $80 billion a year in revenue. There are about 4.7 million people in New Zealand. Suppose you decided to put every person in NZ on the equivalent of NZ Super, with no monitoring of living arrangements, so $900 per fortnight or $780 per fortnight net of tax for those with no other income. That's $95 billion. The net costs would be less than that because people on higher income would face a higher tax rate on that payment, but come on. There will also be plenty of people with complex needs receiving benefits in excess of NZ Super who would be hurt even by this arrangement.

It is strictly impossible to make a universal payment that is generous enough to help those in the worst circumstances without bankrupting the country. And the second you start layering a targeted welfare scheme on top of a universal scheme, you bring back all of the incentives to lie. Maybe the incentives aren't quite as strong, but they're still there, and there'll still be special pleading for those caught lying that is every bit as compelling as that which we currently hear.

So, which system sucks least? They're both awful. The current system ties a lot of cost around the receipt of benefit, and especially around receipt of more generous levels of benefit. All the monitoring I talked about. And high effective marginal tax rates because of earnings clawbacks. But it is able to deliver focused and targeted assistance to those in most need.

Shifting to a more universal scheme means everybody faces higher effective marginal tax rates, and only partially mitigates the incentives to lie about your circumstances - unless you go to a fully universal system and bankrupt the place (or have the universal payment at a very low level and get turfed from office on the first John Campbell special on kids in households with complex needs seeing a massive cut in benefits).

I prefer the current system, combined with the emphasis under the investment approach in trying to find ways of getting people out of dire circumstances. And that requires actual policing and punishment of those who lie about their circumstances to draw money intended for kids in greater need.

Those defending lying for higher benefits should work out the fiscal implications of moving to the system they implicitly prefer. You can agree with every critique of the current system's perverse incentives and unintended consequences - I do! But you've gotta think through the alternatives, because they just suck differently - and arguably suck more.