Universal Social Programs vs. Cost-Benefit Analysis
By Bryan Caplan
Economists habitually mock protectionism for its high cost-benefit ratio. “$265,000 per job saved! How ridiculous.” But when you propose means-testing Social Security and Medicare benefits, these same economists usually protest, “A program for the poor will always be a poor program. The only way to make well-funded programs popular is to make them universal.”
Notice, however, that we can easily ridicule universal social programs in exactly the same way that we ridicule protectionism. Suppose two-thirds of the population is perfectly able to provide for its own retirement and health insurance. Then the budgetary cost of cloaking welfare for the bottom one-third in universal garb is triple the apparent cost. And that ignores all the disincentive effects of the extra taxes and giveaways. Add it all up, and you could easily get a number in the protectionist ballpark. Think: “$100,000 per retiree lifted out of poverty! How ridiculous.”
The defenders of universal programs could protest that, “Political forces tie our hands; there’s no other way to help the elderly poor.” But couldn’t the protectionist plausibly make an analogous argument? American voters don’t like the idea of the Treasury mailing $200k checks to displaced auto workers; tariffs and quotas to revive the auto industry just feel better.
I suspect that if push came to shove, most economists would respond, “Since there’s no cost-effective way to help displaced auto workers, the least bad solution is not to help them.” So why are they so reluctant to say the same about Social Security and Medicare? If cost-effective means-tested programs are politically unsustainable, isn’t it possible that the least bad solution is no programs at all?