Sunday, April 21, 2013

Time Inconsistency and the Welfare State

Start with a society in which individuals are mostly reliant on themselves—if you don't find some way to earn an income you are likely to go hungry, or at least have to rely on charity and lead a much harder life than if you had a job. In that society, someone on charity will be seen as a failure, by himself and others, which is a strong reason to avoid being in that situation.

Add a reasonably generous welfare state. For a while, perhaps a generation or so, the old attitudes persist. As time passes, it becomes clearer and clearer that going on welfare is not evidence of failure, hence not something to be ashamed of. It may not pay as well as a  job, but it leaves you a lot more leisure and a lot more control over your own life; if you want to go off to Prague or Barcelona for a week or two you are free to  do so, provided you don't mind doing it on the cheap.  As more and more people see welfare as a reasonable choice, attitudes change. Once the old attitudes are entirely gone, you have a society where anyone who prefers a life of leisure with a moderately restricted income takes it, leaving fewer and fewer people to pay the taxes to support that life.

The implication is that a welfare state will look considerably better in the short term, when most of the people collecting welfare are people with no good alternative, than in the long term. One likely effect is to undermine political support for the welfare system, at least among those not on it. Another is to eliminate the economic support it requires to continue.

All of which occurred to me, and I am sure many other people, long ago. What reminded me of it, and inspired this post, was a recent story in the New York Times. 

Denmark has gotten to the long term.

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“In the past, people never asked for help unless they needed it,” said Karen Haekkerup, the minister of social affairs and integration, who has been outspoken on the subject. “My grandmother was offered a pension and she was offended. She did not need it."

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