Welfare for Lazy Bums

Welfare is a complicated issue. On the one hand, most people feel really bad if there are some poor folks in the community who just can’t make ends meet on their own, and need a helping hand. On the other hand, if we give too much of a handout, then there won’t be so much of an incentive for everyone to get a job, and you’ll have people lining up for free money, overwhelming the system. Besides, why should we help people who could be helping themselves?

Often, the people who are on welfare lack the skills to get a decent job (this is even aside from those who can’t work due to illness or old age). Perhaps they played basketball all day when they should have been in high school. Let’s run with this, even if it might not be true (it could be that people are just born into circumstances beyond their control). We’ll use a model with two periods, representing stages of life. The first represents high school, and the second represents the rest of life. The choice of whether to take school seriously occurs in the first period. The choice of whether to provide welfare to the indigent occurs in the second period. The bums prefer getting welfare (W) to getting an education (E) leading to a job that pays (S), but much prefer getting an education and not starving (S – E) to not getting welfare (normalized to 0). Society would not want people to starve, but any assistance that they provide comes at a significant cost (C), which makes assistance to people who don’t desperately need it (which gives them payoff S – E + aW) prohibitively costly.

Suppose the bums, in the first period, decide that school sucks and they’ll instead play guitar – that’s where all the money and girls are, anyway, right?

Except they are no good at guitar, even though they think they are. So they flunk out of high school, and end up with no job, no gigs, and no money (and certainly no girls). So in the second period, these guys are already bums – they’ve missed the boat to a large extent (they could go for something like a GED, but that requires a program that’s sorta like welfare in the meantime, anyway), whether or not there is welfare. Since society prefers that the bums do not starve, any subgame-perfect Nash equilibrium  in this model requires that, if the bums have not graduated high school, then society must provide them with welfare. Of course, this will incentivize them not to work in the first period, but this is unavoidable.

Now, one might object that this does not take into account how future generations will see this system (which we model by repeating the two-stage game above indefinitely). After all, if they can get away with not working, they will not obtain education now either, creating problems in later periods. However, if they see that the bums are “punished” by not being provided with welfare, they will know that the system isn’t messing around – when they say to go to school, they mean business. Thus the benefits to society from later periods, when they won’t have to pay welfare and everyone works, outweigh the suboptimal stage game solution of not providing welfare to the bums.

This may be true, or it may not, depending on a bunch of factors. First, it’ll depend on how much we value the welfare of future generations. Obviously, there is some discounting, the exact value of which (δ) will help determine whether there is a subgame-perfect Nash equilibrium without welfare: if δ is large, then we care more about future generations, and so we are willing to forgo welfare in the current generation to teach the young’uns a lesson; if δ is small, then we care more about the starvation of the bums than the lessons we can teach.

Second, it’ll depend on how much disincentive there will be to work by providing welfare. This might depend on how much welfare gives – if it gives them gold crowns, then there will probably be more people who will punt on school. This gets into some rather complicated economic issues, such as the shape of utility curves, optimal taxation, etc. Needless to say, the issue can’t be resolved here. Yet by the simple example here of the extensive-form game model of welfare, we can provide a new lens by which to view the problem.


2 Comments on “Welfare for Lazy Bums”

  1. Marli Wang says:

    This model relies on a belief by the teenager that he can actually make something of himself and that he’s comes from at least the middle class (i.e. can in fact afford to bum around during high school instead of work). If he’s not from the middle class and bums around, he might just be have been indoctrinated in a more European ideology, believing that social mobility is due to luck and poor people are unfortunate souls stuck at the bottom no matter what.

    It’s partially due to the belief that the poor are lazy (which is of varying degrees of truth) that we are less willing to redistribute, because we think it’s at least partially their fault, so it is punishment as in this model. In continental Europe, which is much more post-WWI Socialist, people are believe that the poor are just unlucky and stuck that way, but are otherwise like everyone else, and this is one reason they are more willing to redistribute. In some places, like Germany and France, the bottom quintile works on average 0-13 hours a week, whereas the top quintile (comparable to the US) works about 45-50 hours/week. On the other hand, in Sweden, the median members of every quintile works 39 hours. Because of welfare, social mobility in the US and in Europe is comparable and the poor of Europe live just as well or better than the poor of the US. Given the belief that hard work won’t help, why even try? You could certainly argue that more leftist/pro-redistribution politicians even in the US promote a belief like this, that the poor are stuck being poor. This may in fact be self-fulfilling. Ideally we want to help the poor AND have them be productive individuals, but we’re not going to get redistribution if we believe the poor are poor because they’re lazy (they don’t deserve it) and we might not get productive individuals if we think it’s just luck.

    The real reasons for social mobility, redistribution, or lack thereof are many, and are a combination of factors, but this does not make for an attractive political slogan.

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