From a commenter.
The most important reason libertarianism is unpopular is that it has no credible agenda to benefit the middle class. Smart conservative writers have realized this, hence “Reform Conservatism”.
Many intellectuals on the right and the center-left share a perverse way of thinking about policy: they think that the poor are the legitimate recipients of government assistance, the middle class is not, and all the various middle-class-benefitting tax subsidies, entitlements, and other programs are unjustifiable bugs, rather than features, of our policy landscape. They fail to realize that a large, stable, prosperous middle class is not an inevitable or natural product of a market economy. . .
I think of the government currently as using the taxes on the rich to help pay for things like defense and non-defense purchases, while using taxes on the middle class to pay for the rest of that stuff plus transfers to the poor and to others within the middle class.
Given that perspective, what should be the balance of within-middle-class transfers vs. transfers from the middle class to the poor?
Thinking as an economist, I view the within-middle-class transfer system as imposing large deadweight losses. Primarily this is due to the need to have high taxes on work (payroll taxes), which drives down employment. There are also some deadweight losses due to rent-seeking, such as the costs imposed on the rest of us by the housing lobby, net of the gains to suppliers of services to the housing market.
If you got rid of the deadweight losses, and gave nothing additional to the poor, you would make the middle class better off. But that gain will not be politically salient.
My point is that I might agree with the commenter on the politics, but on the economics I would have to disagree. The middle class collectively would be better off without the programs that appear to benefit particular factions within it.
If you got rid of the mortgage tax deduction, would you expect the middle class to get some equal tax reduction somewhere else, or you would expect the money to end up in the hands of some other political stakeholder (the poor, the rich, government contractors, bondholders).
I won’t even get into how much of a hit buying a house and then losing that deduction would have on a young homebuyer (no self interest in this statement…)
A good example of this was Obamacare. Which raided Medicare and Employer health plans (middle class) to pay for Medicaid (poor).
I think this is the real situation the middle class finds itself in politically, so I’m not surprised they are against losing their benefits, whatever the theoretical deadweight loss they represent in a model. The model assumes they get something back in return. They won’t.
Middle class programs like SS and Medicare remain exceptionally popular in both parties. One thing I hate about descriptions of these programs is that they call them “welfare for white people”. They aren’t welfare, they are social insurance programs. People pay large sums into them over their lifetime, and see withdrawing benefits as merely taking back what they paid in. Much as you would view a 401k. There are insurance and social transfer aspects to the payment structure, so its a bit like Universal Life, but at the end of the day nobody views SS + Medicare are “free shit I get that I didn’t pay for”.
We can complain about pay-as-you-go and the actuarial math of the baby boomers, but for generations people have been told these programs are solvent, have a “trust fund”, and they watched huge deductions get taken out of their checks every two weeks for forty years. It’s no surprise they got in their heads that their money was sitting off somewhere waiting for them. That’s what they were told.
By contrast, Medicaid, EBT, etc are all straight up means tested welfare programs. The middle class pays for it, but does not receive anything in return. The people receiving these programs will likely never contribute enough in taxes to cover their benefits. This is welfare, not social insurance.
Welfare isn’t popular because its seen as an “other” taking from you (theft). Social insurance is viewed like the informal mutual insurance fund at my Dad’s work where all the guys paid in $X per week and if a guy ended up in the hospital it paid out to them.
If it is correct that the economics of the libertarian position would largely and consistently benefit the middle class, there should be a way to turn it into a political winner.
Emphasizing, for example, planned but gradual change to the tax code to reach a more efficient, revenue neutral end-state would allow middle-class folks to avoid or plan around the most feared “bugs” of switching to a new tax scheme for example. Obviously there’s the problem of securing future commitments, but if a plan to, say, eliminate tax complexity were sold over a period of 20 years, it’d certainly be more digestible than it is as a call for an immediate switch to a VAT or federal RST.
When I think why libertarianism fails in modern politics, I go back the simple contradiction that libertarians have fantasies of life like Laura Wilder and Ayn Rand heroes. They love both local stable communities and endless economic Creative Destruction and long term those goals our incapable.
So why do middle class people support the basic Unemployment Insurance, Medicare and Social Security? I remember reading economic papers on these programs done successfully a local level in the late 1890s – 1950s but the papers never explained why they ended up failing. (The authors were economic libertarians so they simply blamed Government!) I assumed they stopped working in the 1960s because people stopped remaining in their neighborhoods and the local co-opts slowly died. (That and the programs probably benefit from huge economies of scale and certain trust issues. In terms of Social Security, we have to remember Big Banks and Investors were not trusted with retirement after the Great Depression experience.)
The question is whether the are any transfers that tend to make more libertarians, the way more transfers that subsidize family formation seem to make more republicans.
Arnold Kling wrote: “My point is that I might agree with the commenter on the politics, but on the economics I would have to disagree.”
And since politics trumps economics (in my experience), then I’d say you agree.
Politics and economics are the same thing.
Economics, if its of any use at all, should help us to build a better world. Isn’t that the whole selling point of “the dismal science”, that it will describe the world “as it is” so that we can take concrete steps to get achievable results. It’s supposed to be a thoroughly pragmatic and material study of the world. Whether something is politically or socially possible is certainly critical.
Somewhere along the line economics became a religion where people got all utopian and moralistic. Any economic program put forward that doesn’t have a reasonable political path attached to it is just intellectual masturbation.
I think the middle class realize they are better off with them though they do dislike how expensive they are and imagine they are much richer than they are until they end up on them only to discover how meager they are. Who really clean up are the wealthy who both control the political process and divide and conquer to ensure they continue to while extracting more and paying less.
???? Taxes (aside from SS and fuel) go to the general fund. How can you say that taxes on the rich pay for some things, and taxes on the middle class pay for other things? They all pay for the same things.