Sunday, August 16, 2009

A Different Approach to Aid & Social Welfare

Though it's labeled as "a communist utopia" by Spiegel, the reality is that it's more like the negative income tax system as advocated by Milton Friedman (Wikipedia via HN):

The idea is simple: The payment of a basic monthly income, funded with tax revenues, of 100 Namibia dollars, or about €9 ($13), for each citizen. There are no conditions, and nothing is expected in return. The money comes from various organizations, including AIDS foundations, the Friedrich Ebert Foundation and Protestant churches in Germany's Rhineland and Westphalia regions.

The organizers of the trial want to know what their subjects will do with the 100 Namibian dollars, whether they will invest the money or waste it on drink, and whether it will deter them from working or motivate them to work harder. Most of all, they want to know if it alleviates poverty.

The idea is that over time this would be financed through taxes. The program, called the Basic Income Grant (BIG) has a website here. In many ways it's brilliant because in effect it provides a baseline for everyone and the truly poor are empowered to make their own choices. One of the problems for welfare today, you have perverse disincentives to accept a part time job (or even get a small windfall from a relative) as you would no longer meet the income/asset test to receive welfare and would in effect lose money by doing so. This corrects for it and then some - reducing a massive amount of bureaucracy in the administration of social welfare programs. Of course, the political issue becomes what should be the amount of the windfall be? What should the break even point be? What programs/services/tax breaks/exemptions should be eliminated (there are clearly many including less obvious ones like minimum wage)?

This solution however doesn't eliminate the inevitable corruption in the developing world as citizens would still need to pay taxes and it's the government that would redistribute the funds. There's also still something somewhat troubling about forced redistribution but this seems at least to be a palatable solution that corrects for perverse disincentives. It reminds me a little of Alaska's Permanent Fund - and a model that more governments (like Iraq) should follow (WSJ).

No comments: