Mr. Moderate

We should not, as a nation, expect people to do things that injure their own interests. When we establish economic incentives and disincentives, we should expect them to operate on the actions of those who become aware of them in the way that a rational person would act. Again, we should not expect the actions taken by thinking people to go against their own self-interests.

When government programs are so structured as to lead to consequences that are literally insane, you have to ask whether or not the politicians creating the programs were themselves insane or whether they were just trying to create a program (and earn some “brownie points”) that would eventually fail, so that they could then axe the program (and earn more “brownie points”). It seems like some government programs were not well thought out as to their consequences. Perhaps we need to have an independent economist review any legislation with any economic impacts and write a report back to the lawmakers about the “Law of Unintended Consequences” as applied to the proposed legislation. Maybe we would not get programs structured like the one that is my topic for today.

I attended a talk the other day by the Deputy Mayor of a major city. This man is a well-respected African-American politician who is also a community activist of the good kind, not the screaming kind. He told a story of a young woman with four children whose husband had been killed on the job. Under the circumstances, she and her children were eligible for Survivors’ Benefits from the US Social Security Administration, and that combined with their abject poverty entitled her to Supplemental Security Income (SSI).

This woman had gotten pregnant at a young age, dropped out of school, and never graduated. She was essentially unemployable. But she wasn’t lazy or unwilling to work. Once her situation clarified and stabilized, she found a way to earn her GED certificate (equivalent to a graduation diploma from high school). The Deputy Mayor was impressed with this woman’s drive and invited her to speak to a civic group. To make a long story short, this woman presented herself so well that somebody in the audience offered her a job.

However, when this woman spoke to her welfare advocate about getting this job offer, she was informed that she could not afford to take this low-paying job as it would result in her immediate loss of the bulk of her benefits. Since her prospective earnings were only a few dollars an hour over minimum wage, she could not possibly hope to earn enough to come out ahead. So, she was forced to give up on her dream of entering the workforce and becoming a productive citizen because the economic penalties for her to do so were just too great to bear.

The lesson from this set of facts is that government programs ought to be structured with some sort of “stop-loss” clause so that any earnings-based payment to somebody is reduced by no more than $0.50 for each $1.00 earned in take-home pay from economically-productive employment. If such a program structure applied to that woman, she would still lose about half-a-week’s pay for each week she worked, but she would gain immensely from the intangible benefits of beginning her career. And of course, the rate of $0.50 per $1.00 earned isn’t written in stone. It might be even more fare to use a ration of losing $1.00 of benefits for each $3.00 of take-home pay.

But nobody should be surprised that if somebody stands to lose all of their benefits for making even the slightest effort to earn an honest living, that this will prevent all but the most-lucky among us from rejoining the ranks of the employed. It only makes good economic sense to retain the more-valuable option, which in this woman’s case was the benefits she received from our government.