Thursday, December 20, 2007

Rebuttal: Some Modern Discrimination Ain't That Bad

The last post called the consideration of the absolute level of welfare spending "completely irrelevant" to the issue of how welfare benefits should be distributed. For ANY particular level of welfare spending, it argued that welfare funds should be distributed strictly on poverty criterion rather than based on the causes of this or that form of poverty. Unfortunately for that line of reasoning, there is a strong case, related to how we decide what is the best level of welfare spending, for setting different levels of welfare spending for different groups of people.

To see this, look at the level of welfare spending as a compromise between two conflicting needs. The first need is to take care of the poor. The second need is to keep national productivity high so that the rich are rich enough to give to the poor (through redistributive taxation, for example). These needs conflict (with some exceptions) since redistribution reduces the incentives to work and produce. Poor people have less incentive to find work if the welfare system is already meeting its basic needs.

Now here is the important thing: Not all poor people respond to welfare benefits in the same way. The availability of welfare money enables some poor people to work much less than they would if the aid were not available, whereas other poor people continue to work just as hard after receiving aid. If we can find ways to identify who these hard workers are and give them better welfare benefits, then we have found a way to increase our welfare spending (and presumably improve the lives of more poor people) without reducing production and prosperity in general.

While we will never be able to figure out exactly who keep on working just as hard after they get welfare money, we can observe general trends among different groups of people. Then, by discriminating between different groups of people based on our stereotyping, we can come closer to achieving the goal of maximizing welfare spending while minimizing losses to national productivity.

For example, consider urban ghettos, stereotypically full of high school dropouts and druggies (and a few honest, hardworking individuals, no doubt), and often infected by a culture of defeatism or negativism. It would be unsurprising if welfare in such an area lowers labor rates just as much as it lowers poverty rates.

On the other hand, consider a rural, well-to-do town that is suddenly destroyed by an earthquake. In this case, providing funds to people who have lost their homes seems less likely to make them work less and more likely to be used quickly and efficiently to return to a normal standard of living. Providing this money to the town would not especially make the townspeople work less, especially if the aid comes as a one-time payment and the people realize that they will need to continue to provide for themselves.

Once again, as in the case of car insurance, skillful discrimination appears to improve the national economy at least in monetary terms. The more difficult thing to evaluate is the long-term economic and social cost of resentments and tensions that could result from discrimination.

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