Here is what I would like some staffer to ask next time NDP strategists are kicking around ideas for goods to subsidise or services that governments to provide at a discount in order to advance their agenda of reducing poverty and inequality:
"Why don't we just give low-income households money and let them spend it on what they need most?"
Because one you start asking yourself this question regularly, you're less likely to come up with policy proposals that are inefficient, inegalitarian and regressive.
There are cases for offering subsidies or for providing goods and services at a discount, but that low-hanging fruit has already been picked. The most common argument is based on goods that have positive externalities, that is, those that benefit people other than the person who purchases it. In such a case, the free market will provide too little of the good: the consumer must pay the full cost, but receives only part of the benefit. The government can correct this misallocation by offering subsidies or by providing it at a discount. Some example of goods with positive externalities are education and R&D, both of which are already subsidised.
So unless you're prepared to make the case that the good or service in question is generating positive spillovers to third parties, then this
- We want to help low-income households.
- Low-income households find it difficult to buy X.
- Therefore, we should subsidise X.
doesn't follow. Unless X has positive externalities, the problem is not that X is expensive: the problem is that low-income households have low incomes. The solution is to give them money.
- Why in-kind benefits?: "[I]t is hard to escape the conclusion that paternalism remains a fundamental underlying rationale for in-kind transfers."
- The progressive politics of pricing publicly-provided products: "[There] are examples in which universality provides outcomes that are progressive. Not as progressive as targeted transfers, but since the benefits are spread across a broader base, there is less of a chance that the median voter will defect from the coalition. But this does not mean that universal programs are always and everywhere progressive. If that point is not immediately obvious to you, ask yourself if a publicly-funded universal program to provide free yacht maintenance would be a considered to be a progressive policy."
This approach doesn't require much in the way of a new administrative apparatus: the GST rebate and the Working Income Tax Benefit are already in place. These can be the basis for a more coherent policy of directed transfers, maybe even a Guaranteed Annual Income.
This is part of a series:
- Economic policy advice for the NDP, Part I: Inequality
- Economic policy advice for the NDP, Part II: Defending big government
- Economic policy advice for the NDP, Part III: The GST
- Economic policy advice for the NDP, Part IV: Corporate income taxes
- Economic policy advice for the NDP, Part VI: Climate change