Tuesday, April 22, 2008

How should needy people be helped?

During their lifetimes the amounts that many people contribute in taxes and receive in benefits from the government are of broadly equal magnitude. In my view this churning is not benign, but in this piece I want to focus on poverty alleviation. How should help be given to those needy people who have not paid much tax in the past and who may never be in a position to make sufficient tax contributions to fully repay the cost of the welfare assistance they receive?

First we need to consider why taxpayers should be providing assistance to needy people. It can be argued that private charity would not be sufficient because of a free-rider problem. I am distressed by the existence of poverty and I gain a benefit if I see it alleviated – even if I make no voluntary contribution myself to the alleviation of poverty. This means that a case can be made for the government to compel me to make an appropriate contribution through taxation. Milton Friedman advanced this argument in the early 1960s (Capitalism and Freedom, 1962, p 190). The argument has recently been endorsed by Mark Harrison (The outcomes of income transfers’, New Zealand Business Roundtable, 2007).

One of the problems with this argument is the absence of any mechanism to identify free-riders. Welfare payments are funded from taxes that are imposed in accordance with more or less objective criteria that take no account of the fact that some taxpayers have conscientious objections to helping people they consider to be undeserving. That leaves us with a dilemma since we can hardly assume that the coercion involved in redistributive taxation has only trivial effects on the well-being of these conscientious objectors.

As I see it, the best way to begin to escape from this dilemma is to ensure that welfare assistance is consistent with human flourishing, so that the numbers dependent on it diminish over time. It is, perhaps, conceivable that if welfare assistance is sufficiently effective in alleviating poverty then at some time in the future the remaining problem could be small enough to be dealt with adequately through voluntary contributions.

A great deal has been written about the adverse effects of unconditional welfare assistance. (For recent discussions, see Mark Harrison’s paper cited above, pages 49-57 and Helen Hughes, Lands of Shame, The Centre for Independent Studies, May 2007, Chapter 7). The psychologist, Nathaniel Branden, has summed up the issues as follows:
“There are social philosophies and policies that encourage independence, and there are others that encourage dependence. The average person is not so autonomous that he or she will generate the appropriate attitudes in a culture that is rewarding the opposite” (A culture of accountability).

Although it is paternalistic to attach conditions to welfare assistance, in my view such conditions can be consistent with both freedom and human flourishing. They are consistent with freedom because people are free to reject offers of assistance if they don’t like the conditions attached to it. They can be consistent with flourishing because requiring needy people of working age to accept responsibility to help themselves can help them to achieve greater self-respect by becoming self-supporting.

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