Competitive Universal Basic Services?

Providing basic services should often be more efficient than basic income. The state can use its centralized negotiating power to get lower prices on standardized packages, and accordingly a floor for welfare could be provided at a lower cost than just redistributing income, which, though it gives people more agency, can more easily just inflate prices generally and leave people more liable to impulse spending. To keep such a system efficient, there must be fitness pressure on the programs, plausibly via competing services (e.g. think of charter schools) and you probably want to peg the system to some percentage of GDP or natural resource rents to prevent uncontrolled growth and debt. Without a peg, responsible voters may keep the system sustainable, but there will always be the risk of the newly expanded policy window incentivizing politicians to bribe voters with other’s money. While redistribution can generate more utility right away since a dollar is worth more to a poor person than a rich person, it is more efficient yet if the government actually adds value by helping consumers solve their coordination problems.

In some areas, that probably means lowering standards on dimensions that people don’t care about too much, but that have previously been highly regulated by those trying to “outlaw” poverty in order to keep crime away from themselves (e.g. room size minimums, zoning, etc.) There could be competition between services, and also packages of services. At one extreme, there could be a highly paternalistic welfare system, where the state is providing a somewhat optimized diet, healthcare, housing, etc. while at the other extreme the state would just grant basic income at the same cost level it could have provided the other services. The competition aspect helps mitigate the problems of government placing bad bets, though if the government does a really bad job the basic income plan would always win. Essentially, people would be choosing between getting exactly what they want on a small budget, vs. getting more stuff with less choice. There are massive economies of scale to standardized production that we never see the benefits of because consumers can’t organize to coordinate their preferences: by reducing variety in the provision of basic necessities their cost can be driven down massively, but the economy can still have many outlets for status competition, and variety in other areas without inherently raising the cost of living.

A related question that comes to mind is why there aren’t already highly paternalistic services that help the poor get a good foundation and get out of poverty. One reason is that if people have to coordinate to drive down prices, it is pretty likely that people who aren’t poor will always have an advantage at such activities (e.g. employer negotiated healthcare plans). Another reason is information asymmetry, in free market system with as much income mobility as the U.S. (more than half the population reaches the top 10% of income earners for at least a year) smart well informed people already have lots of opportunities to escape poverty: those remaining in poverty are more likely to be exploitable, have less good networks, and less good information on opportunities generally. Adverse selection is another related reason: systems that could invest in those in poverty often won’t anticipate high returns unless they charge very high interest rates which end up keeping people in poverty, and as mentioned before, many regulators will block affordable housing units since they will tend to decrease regional investment, increase crime, etc.

With all this in mind, a lot of U.S. welfare policies are probably preferable to basic income, but adding basic income as an opt-out competing choice, as well as other forms of welfare packages seems like it would have a good effect, AT THE SAME OR LOWER COST, if the programs must compete for the same budget and can actually die rather than being allowed to continue indefinitely. The main changes required would be ensuring eligibility is broad, and getting rid of the welfare cliffs that currently exist and discourage work (these would increase costs). With the combination, costs are driven down over time.

1 Comment

  1. “A related question that comes to mind is why there aren’t already highly paternalistic services that help the poor get a good foundation and get out of poverty.”

    I think for a lot of people the military serves this purpose. Might be a good starting place for making that kind of service.


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