Regulating the Poor is a Bad Idea
by D.J. McGuire
There was a time – dare I say, it might have been as late as two years ago – when I would have applauded the recent wave of states adding work requirements to Medicaid. I’m not sure where I would have exactly landed on the Food-boxes-for-Food-Stamps idea now ensconced in the president’s budget back then. Today, however, I think both are mistaken.
My reasoning stems from the current drive to automation in the economy. That may seem disconnected, but bear with me. Contrary to the assertions of most, I do not see an oncoming automation apocalypse as inevitable. Many have expressed concern about the tremendous drop in demand for labor that could come with automation – in other words, far fewer jobs for actual persons. Not nearly as many have discussed the ramifications on the other side of the coin, prices. Without a central bank insisting on inflation ad nauseam, prices would also fall as a result of automation, in many cases dramatically. The result could be a dramatic drop in the cost of living, ameliorating if not drowning out entirely the effect of automation on jobs. Keynesians of all stripes would revert to their last line of argumentative defense: the concept of “sticky prices”. However, the assumption behind this defense – that prices cannot be driven down without tremendous unemployment or wage cuts – is undone by the effects of automation, which switches the order of the process. Thus, prices need no longer be sticky – and in fact probably would not be sticky – because the wage effect on stickiness has already been taken out of the equation. In other words, automation would remove the greatest barrier to productivity-driven deflation, the one thing that can ensure greater prosperity for all Americans.
However, in order for this to be as successful as it can be, we have to shift our mentality away from working for other people in favor of working for ourselves. The generations that follow us in the automated era are far more likely to be self-employed than employed by someone else – which means creating incentives that drive people to work for someone else instead of working for themselves go in the wrong direction. Americans will need to be less risk-averse – which means the consequences of risk itself need to be reduced.
The work requirement for Medicaid is thus exactly the kind of perverse distortion of incentives we need to avoid. If anything, we need less regulation of the behavior of poor Americans – as they are more likely to engage in the entrepreneurship we need to advance the economy in the automated era if they are not forced to work for someone else for their health insurance. Likewise, the dynamism and flexibility that come with successfully launching a small business can’t mix with a one-size-fits-all food-delivery system (and this doesn’t even consider the vastly different diets required by different human beings).
For much of the 20th century, “welfare” was viewed – when it was perceived as effective – as a temporary system designed to push people back into the industrial workforce. In a post-industrial, automated economy, we need more self-employment, in which case the current welfare system – and the proposed changes by the Republicans – become the exact opposite of what is required.
As a conservative, I would lament the damage over-regulation would do the economic innovation and dynamism. I call myself a progressive conservative now, in part because I understand that over-regulation is just as dangerous when the regulated are poor Americans. The poor need fewer restrictions on the aid they receive (indeed, I would consider a Negative Income Tax or Universal Basic Income a dramatic improvement over the Rube-Goldberg-like welfare system we have now), not more.