Incentives Matter: Examining the Problematic Nature of Public Aid in the US

Margaret P. Tuszynski

Advisor: Richard E Wagner, PhD, Department of Economics

Committee Members: Peter J. Boettke, Virgil H. Storr

Buchanan Hall, D180
December 07, 2016, 11:00 AM to 08:00 AM


In chapter 1, I argue that the institutional and constitutional context within which order emerges has a strong impact on the structure of that order. I examine the evolution of public-assistance policy in the United States to understand key dynamics of a perverse emergent order. Traditionally, studies of spontaneous social orders have not examined how order emerges within a framework that includes significant government actors (Hebert and Wagner 2013 is a notable exception). I argue that the public-assistance system as it exists in the United States is a perverse emergent order, with both public and private actors playing key roles in the creation of this system.

Chapter 2 examines why, though the 1996 Clinton welfare reforms aimed to encourage current and potential public-aid recipients to pursue sustainable, self-sufficient lifestyles, the architects of the program misunderstood the nature of poverty, so created inadequate solutions. I focus on the work mandates built into the Temporary Assistance for Needy Families program and show that mandating work attacks the symptoms of poverty without addressing the fundamental causes. Mandating work as a provision of receiving public aid will do little to help the least well-off in society if policy makers don’t simultaneously create the conditions (perhaps more appropriately, remove the restrictions) under which jobs for low-skilled and/or low-income individuals can emerge. Further, these requirements fail to help the deep poor, the population social safety nets generally target. These policies suffer from a pretense of knowledge, and it should be unsurprising that they fail to achieve their stated goals.

It is nearly universally presumed that redistribution can be carried out effectively only at the national or even global level, because local redistribution will be negated through personal mobility: recipients will move to high-paying jurisdictions while taxpayers will move away from those jurisdictions. To avoid this situation requires redistribution to be concentrated at national and not at local levels. In contrast to this standard line of argument, in chapter three I explore how redistribution might be carried out more effectively at local levels than at the national level. To explain this reversal from standard analytical implications, I integrate three concepts that are not present in the standard analysis. These concepts are the Samaritan’s dilemma, co-production, and polycentricity. It is interaction among these three concepts that reverses the implications of the standard analysis of redistribution.