When I first read Milton Friedman’s Free to Choose when I was in my teens two things particularly impressed me. First of course Friedman’s monetarist ideas and second his strategies for moving from a Welfare State to a classical liberal society.

My blog is mostly committed to monetarist ideas. However, in this blog post I will write a bit about the strategies to move towards a classical liberal society. Two of such strategies that Milton Friedman suggested in Free to Choose (and in Capitalism and Freedom for that matter) are education vouchers and the so-called Negative Income Tax.

I have always had considerable sympathy for these ideas and still find both ideas much preferable to most of the welfare schemes we know from today’s Western societies. Not because I think of these ideas as ideal, but because I think there are good pragmatic reasons to advocate these ideas. After all I consider myself a pragmatic revolutionary.

Recently the idea of a Negative Income Tax has gotten some attention among libertarian bloggers. Or rather the more generalized form of a Basic Income Guarantee.

What is a Basic Income Guarantee?

In a recent blog post my friend Sam Bowman who is Research Director at the Adam Smith Institute in London makes the case for a Basic Income and explains the basic idea. This is Sam:

The British government spends more on welfare than it does on anything else apart from healthcare. The benefits system is arcane and unwieldy, a mish-mash of disparate attempts to address different social problems in a piecemeal fashion. It creates perverse incentives for those on it, such as people stuck in a ‘benefits trap’ where they lose almost as much money in benefits by working as they are earning, and distorts entire markets by inflating prices, as housing benefit does to the housing market. …The ideal welfare system is a basic income, replacing the existing anti-poverty programmes the government carries out (tax credits and most of what the Department for Work and Pensions does besides pensions and child benefit). This would guarantee a certain income to people who have no earnings from work at all, and would gradually be tapered out according to earnings for people who do have an income until the tax-free allowance point, at which point they would begin to be taxed. For example, we could set a basic income of £10,000/year by using a cut-off point of £20,000/year, and withdrawal rate of 50%. The basic income supplement would be equal to 50% of the difference between someone’s earnings from work and the £20,000 cut-off point. A person with no earnings would get a basic income of £10,000/year; a person who earned £10,000/year would get a supplementary income of £5,000; a person on £15,000/year would get a supplementary income of £2,500; and a person on £20,000 would get nothing (and begin paying tax on the next pound they earned). These numbers are representative: no need to tell me that £10,000 is too low or too high. What matters is the mechanism.

What Sam here suggests is basically a system similar to the Negative Income Tax, which Friedman suggested in Capitalism and Freedom and Free to Choose.

Matt Zwolinski’s libertarian case for redistribution

Sam is not the only libertarian to recently having made the case a Basic Income Guarantee. Hence, in a recent post on libertarianism.org Matt Zwolinski spells out The Libertarian Case for a Basic Income.

I must admit that when I read Matt’s blog post I was not totally convinced by his arguments – despite my general sympathy for the idea – and I felt like writing a blog post refuting some of Matt’s arguments for a Basic Income.

David Friedman, however, beat me to it and in a new blog post he discusses Matt’s arguments.

I find myself generally agreeing with David’s objections to Matt’s position on a Basic Income Guarantee. Or maybe I should say David’s objections to Matt’s libertarian case for income redistribution. That, however, does not mean that I agree with all of David’s objections as you will see below.

Matt makes three overall arguments for a Basic Income.

1) A Basic Income Guarantee would be much better than the current welfare state

This is Matt:

Current federal social welfare programs in the United States are an expensive, complicated mess. According to Michael Tanner, the federal government spent more than $668 billion on over one hundred and twenty-six anti-poverty programs in 2012. When you add in the $284 billion spent by state and local governments, that amounts to $20,610 for every poor person in America. Wouldn’t it be better just to write the poor a check? Each one of those anti-poverty programs comes with its own bureaucracy and its own Byzantine set of rules. If you want to shrink the size and scope of government, eliminating those departments and replacing them with a program so simple it could virtually be administered by a computer seems like a good place to start. Eliminating bloated bureaucracies means more money in the hands of the poor and lower costs to the taxpayer. Win/Win. A Basic Income Guarantee would also be considerably less paternalistic then the current welfare state, which is the bastard child of “conservative judgment and progressive condescension” toward the poor, in Andrea Castillo’s choice words. Conservatives want to help the poor, but only if they can demonstrate that they deserve it by jumping through a series of hoops meant to demonstrate their willingness to work, to stay off drugs, and preferably to settle down into a nice, stable, bourgeois family life. And while progressives generally reject this attempt to impose traditional values on the poor, they have almost always preferred in-kind grants to cash precisely as a way of making sure the poor get the help they “really” need. Shouldn’t we trust poor people to know what they need better than the federal government?

I think Matt has a point here – and it is very similar to the kind of argument Milton Friedman made for the Negative Income Tax – if you are going to redistribute income anyway then why not do it in the least paternalistic way and at the lowest possible economic cost?

This is not a particularly strict libertarian argument, but from a purely pragmatic perspective it makes a lot of sense. And it is surely much less statist and interventionist than most of the present day welfare schemes in the Western world.

However, David Friedman explains why this might be less simple than his dad (and Matt and I) seemed to think. This is David:

That is probably true (that the Basic Income would be an improvement compared to the present welfare system), especially if you imagine it replacing not only welfare but all policies, such as the farm program, that are defended as helping poor people. The problem, as Matt appears to realize, is that if a guaranteed minimum income is introduced it will almost certainly be an addition to, not a substitute for, current programs.

David clearly also has a point, but I am afraid that this is an argument basically against any free market reforms that is not 100% denationalization and I can certainly easily see welfare reforms inspired by the Negative Income Tax/Basic Income Guarantee that will improve that present welfare system.

Hence, in the case of for example the Danish wide-ranging welfare system I could easily imagine a number different welfare schemes being “merged” into a Negative Income Tax style system – for example a NIT for all able-bodied persons between the age of 18 and 35 years. That surely would be an improvement over the present system. Would it be political realistic? Probably not, but realistic enough to being discussed and to generate ideas for genuine welfare reform.

2) A Basic Income Guarantee might be required on libertarian grounds as reparation for past injustice

Back to Matt’s second argument for a Basic Income:

One of libertarianism’s most distinctive commitments is its belief in the near-inviolability of private property rights. But it does not follow from this commitment that the existing distribution of property rights ought to be regarded as inviolable, because the existing distribution is in many ways the product of past acts of uncompensated theft and violence. However attractive libertarianism might be in theory, “Libertarianism…Starting Now!” has the ring of special pleading, especially when it comes from the mouths of people who have by and large emerged at the top of the bloody and murderous mess that is our collective history. Radical libertarians have proposed several approaches to dealing with past injustice. But one suggestion that a lot of people seem to forget about comes from an unlikely source. Most people remember Robert Nozick’s Anarchy, State, and Utopia as a fairly uncompromising defense of natural-rights libertarianism. And most people remember that Nozick wrote that any state that goes beyond the minimal functions of protecting its citizens’ negative rights would be itself rights-violating and therefore unjust. But Nozick’s entitlement theory of justice is a historical one, and an important component of that theory is a “principle of rectification” to deal with past injustice. Nozick himself provided almost no details at all regarding the nature or proper application of this principle (though others have speculated). But in one fascinating passage, Nozick suggests that we might regard patterned principles of justice (like Rawls’ Difference Principle) as “rough rules of thumb” for approximating the result of a detailed application of the principle of rectification. Here’s what Nozick has to say: “Perhaps it is best to view some patterned principles of distributive justice as rough rules of thumb meant to approximate the general results of applying the principle of rectification of injustice. For example, lacking much historical information, and assuming (1) that victims of injustice generally do worse than they otherwise would and (2) that those from the least well-off group in the society have the highest probabilities of being the (descendants of) victims of the most serious injustice who are owed compensation by those who benefited from the injustices (assumed to be those better off, though sometimes the perpetrators will be others in the worst-off group), then a rough rule of thumb for rectifying injustices might seem to be the following: organize society so as to maximize the position of whatever group ends up least well-off in the society (p. 231).” In a world in which all property was acquired by peaceful processes of labor-mixing and voluntary trade, a tax-funded Basic Income Guarantee might plausibly be held to violate libertarian rights. But our world is not that world. And since we do not have the information that would be necessary to engage in a precise rectification of past injustices, and since simplyignoring those injustices seems unfair, perhaps something like a Basic Income Guarantee can be justified as an approximate rectification?

I must admit that I don’t find Matt’s arguments particularly convincing – as I didn’t find Nozick’s arguments convincing (when I long ago read Anarchy, State and Utopia). The problem in my view is that Matt is trying to make a libertarian argument in favour of redistribution (rather than just in favour of a Basic Income Guarantee). I generally don’t think you can make such an argument. David seems to agree:

As he (Matt) points out, the existing state of the world is in part a result of past rights violations. Land claims in libertarian theory may be based on a series of voluntary transfers beginning with the person who first mixed his labor with the land, but many land claims in the real world run back to an initial seizure by force. Similarly, claims to other forms of wealth must be justified, in libertarian moral theory, by a chain of voluntary transactions back to a first creator. In at least some cases that chain is interrupted by involuntary transactions. Consider a house built by slave labor. Is the legitimate owner the person with the present title to it or the heir of the slaves forced to build it, or is it perhaps partly the legitimate property of one and partly of the other? What about property in other forms inherited through a chain that leads back to a slave holding or slave trading ancestor who owed, but never paid, compensation to his victims? Most libertarians would recognize this as a legitimate problem, although many might point at the practical difficulty of establishing just ownership in such cases as justifying some sort of statute of limitations with regard to wrongs in the distant past. Matt’s alternative, suggested by a passage he quotes from Nozick, is to argue that the descendants of those who gained by past rights violations are on average better off than the descendants of those who lost, hence redistribution from richer to poorer in the form of a guaranteed minimum income represents an approximate rectification for past injustice. While the argument suggests that transfers from richer to poorer might do a better job of rectification of past injustices than random transfers, it does not imply that such transfers do a better job than doing nothing, that they on net reduce injustice rather than increasing it. Some present wealth may be due to causes that are, from the standpoint of libertarian moral theory, unjust, but not all. If I justly owe you forty cents, taking a dollar from me and giving it to you makes the resulting distribution less just, not more. Unless most inequalities are inherited from past rights violations, a claim I think few libertarians would support, the logic of the argument breaks down.

3. A Basic Income Guarantee might be required to meet the basic needs of the poor Again back to Matt and his third argument: The previous two arguments both view a basic income as a kind of “second-best” policy, desirable not for its own sake but either as less-bad than what we’ve currently got or a necessary corrective to past injustice. But can libertarians go further than this? Could there be a libertarian case for the basic income not as a compromise but as an ideal? There can and there has. Both Milton Friedman and Friedrich Hayek advocated for something like a Basic Income Guarantee as a proper function of government, though on somewhat different grounds. Friedman’s argument comes in chapter 9 of his Capitalism and Freedom, and is based on the idea that private attempts at relieving poverty involve what he called “neighborhood effects” or positive externalities. Such externalities, Friedman argues, mean that private charity will be undersupplied by voluntary action. “[W]e might all of us be willing to contribute to the relief of poverty, provided everyone else did. We might not be willing to contribute the same amount without such assurance.” And so, Friedman concludes, some “governmental action to alleviate poverty” is justified. Specifically, government is justified in setting “a floor under the standard of life of every person in the community,” a floor that takes the form of his famous “Negative Income Tax” proposal. I must admit when I first read Friedman’s argument (or maybe later…) I found it a quite weak argument for redistribution and I don’t find it any stronger today. Here again I agree with David: One version of that is to point out that private charity faces a public good problem, hence that we are on net better off if government taxes us to provide the charity that each of us wants provided but would prefer that other people pay for. This is not a particularly libertarian argument, but it is essentially the same as one that many libertarians accept in the context of national defense. One problem with the argument here is that we do not have any way of setting up mechanisms for income transfer that can only work in the way we would want them to. Once those mechanisms exist, individuals will try to game or alter them in order to be transferred to rather than from. That will impose real costs—resources spent gaming existing rules and lobbying to change them. And we may end up, as we often have in the past, with transfers that go up the income ladder rather than down or in all directions at once. I totally agree – in fact I mostly tend to find collective goods arguments for government intervention to be quite weak as there are other mechanisms than government intervention to solve collective goods problems and furthermore Public Choice theory teaches us that there is no guarantee that government intervention will solve collective goods problems. The Basic Income Guarantee should inspire welfare reform (but there is no libertarian case for redistribution) Concluding, so while I have a lot of sympathy for Matt’s suggestion for a Basic Income Guarantee I have major problems with his arguments for income redistribution. Hence, I continue to think a Basic Income Guarantee or a Negative Income Tax is a good idea as a denationalization strategy that could bring us (a little) closer to the ideal of a non-paternalitic classical liberal society. In that sense even though I agree with Matt’s policy suggestion (for a Basic Income Guarantee) I do not agree with his overall arguments for this suggestion. Overall, it seems to me that Matt’s Bleeding Heart Libertarian project in general is to find libertarian (sounding) arguments for income redistribution and even though I generally find this discussion interesting and an inspiring I seldom find myself convinced by the arguments. That is unfortunately also the case this time around.

PS Even though I do not consider myself to be a Bleeding Heart Libertarian (or a “left-libertarian”) I have quite a bit of sympathy for their general focus on “social justice” and their general arguments that classical liberal societies should not serve certain “class interests”. Capitalism is not an ideal to benefit the capitalists. PPS don’t expect me to venture into a lot of political-philosophical posts in the future. I am an economist and I am obsessed with monetary matters. That will also be the case in the future and I do not for one second try to pretend to be more clever than people like Matt when it comes to political philosophy. I am not.