Basic Income/Negative Income Tax



Welfare, by Martin Anderson, Stanford, Calif.: Hoover Institution Press, 1978, 251 pp., $10.

What to do about welfare? For over a decade, the American public has increasingly and correctly perceived that welfare is a "mess," that cheating is endemic, that productive people are being bled unconscionably, and that something must be done about it. Conservative advocates of the free market have risen to this challenge in two different ways, each of them tragically missing the mark and thereby abandoning a clear opportunity to lead the public in the direction of privatizing welfare and eradicating the coercive "welfare" system.

One highly influential proposal by a group of conservative economists, led by Milton Friedman, was a variant of a guaranteed annual income known as a "negative income tax" (NIT). As designed by Friedman, the NIT was supposed to substitute for welfare payments and render the entire system more "efficient." In actual political practice, the Friedman plan was gleefully used by the left as a cover for its cherished idea of a guaranteed annual income (GAI), and by Patrick Moynihan in skillfully persuading the Nixon administration to propose the Family Assistance Plan (FAP).

Free-market economist Martin Anderson has long been the nation's most effective opponent of any form of guaranteed annual income, including the negative income tax. Anderson won his spurs with his first book, The Federal Bulldozer (1964), the first and still the most effective demolition of the urban renewal program. Within the top councils of the Nixon administration, it was Anderson who led the fight against the FAP and who in a sense was indirectly responsible for its eventual defeat in the Senate.

Now, in Welfare, Anderson has levelled a comprehensive and lucidly written critique of the guaranteed annual income in all of its parts and variants. He is unsparing of the NIT, and there are several sparkling pages of inside information on the infighting within the Nixon administration. But the bulk of the book is a critique of the GAI and an excellent guide to the critical literature on welfare. It is an empirical counterpart to Henry Hazlitt's brilliant philosophical demolition of the GAI and NIT in his Man vs. the Welfare State (1969), which should be read in conjunction with the present book.

The most important contributions of Welfare are chapters 5 and 8. The proponents of the GAI have triumphantly attempted to refute theoretical criticisms of the crippling effects of their scheme on incentives to work, pointing to various local GAI "experiments" in which this effect is supposed not to have occurred. Anderson's chapter 5 is the first thoroughgoing critique of these experiments, and he leaves them in ruins.

Chapter 8 is the first published critique of the much-ballyhooed Carter welfare reform scheme; Anderson penetrates its fog of obfuscation to show its potentially disastrous effects. As he summarizes his analysis:

President Carter's welfare reform proposal would add nearly 22 million more Americans to the welfare rolls. The federal cost of welfare would increase by about $20 billion a year, and most of that money would go to families with incomes above the poverty level. Effective marginal tax rates would remain very high and act as a serious financial disincentive to work. The [Carter proposal]…would be more complex, require more welfare workers, and be more difficult to administer than the current welfare system. [Its] basic thrust…is to further the idea of a guaranteed income, expanding welfare into the heart of the middle class of America. It is a potential social revolution of great magnitude that could result in social tragedy.

So effective was Anderson's critique that Newsweek reported (October 9) that copies of Welfare were distributed to all the members of the Senate Finance Committee and their staffs and that the book probably played a vital role in the committee's decision to shelve the welfare program.

And yet, despite its great merits, Anderson's Welfare is but the latest embodiment of a second, and more traditional, form of self-defeating conservative strategy referred to at the beginning of this review. Basically, this is the strategy of holding the pass against evil coming down the road. In his commendable anxiety to guard against radical welfare reform for a guaranteed income, Anderson finds himself not only defending but even praising the status quo. In this way, libertarianism in principle is transmuted to conservatism in strategy, to a willingness to embrace as well as defend the existing system.

It is not that Anderson doesn't understand and point out many of the flaws of the current welfare system. In particular, there is his excellent discussion of the marginal disincentives to work that it imposes on its clients. But the general thrust of his discussion is positive: the welfare system is considered basically good and is even lauded for abolishing poverty in the United States. In the name of political feasibility as discerned from opinion polls, Anderson is willing to accept the current system and suggests only the cosmetic Reagan reform of cracking down on welfare cheats and imposing a work requirement for those able to work.

In fact, Anderson goes so far as to commend the Reagan reform for not lowering total welfare payments and for increasing payments to those who remained on the welfare rolls. And one of Anderson's main arguments for cracking down on welfare fraud is explicitly to restore public confidence in the welfare system itself: "As long as fraud is widespread, anyone on welfare is suspect to some degree in the minds of many people. A substantial reduction of welfare fraud would…help greatly to restore confidence in and respect for the system."

Thus, the conservative strategy, concentrating on a short-run preservation of the status quo from greater evils looming in the future, winds up willy-nilly as an apologia for the statist system that now exists. Not only that: in the case of welfare, this strategy is all the more tragic, because it explicitly undercuts the rebellious mood of the mass of the public against the welfare system and tries candidly to enlist support for a merely trivial alteration of that system.

Libertarians and classical liberals can and must do better. Now that the public is properly fed up with the welfare mess, our task should never be to defuse its anger or redirect it to support the self-same system. Libertarians should seize the current opportunity to reconfirm and heighten the discontent of the public, not to vitiate it, and then to point to the other radical alternative to the current system—the privatizing of welfare and the abolition of compulsory "charity." But for that we need a concentration, not on influencing the corridors of power, but rather on igniting the public's resentment against those very corridors. We need, in short, a radical rather than a conservative strategy.

Unfortunately, Anderson, along with a host of other conservative strategists, has not absorbed the lesson set forth 40 years ago by that splendid "old rightist" Garet Garrett, in The Revolution Was. Garrett warned conservatives that it is senseless and counterproductive to guard the pass against a "revolution" that has already taken place. It has already triumphed, and the status quo is its embodiment. If we once realize that, we will no longer wish to expend our energies in defending the existing system against further statism. Statism is, and so libertarians must devote themselves to rolling it back so as to achieve liberty.

In principle, Martin Anderson is a libertarian. But if he were only a libertarian in strategy, he could have written a clarion call, not against truly radical welfare reform, but in favor of it: in favor of independence and freedom.

Murray Rothbard is a REASON contributing editor.