November 15, 2012

MICHAEL S. GREVE: A Handout, Never A Hand Up.

Hand-up programs are the polar opposite in all dimensions. Under those programs we ask, because we must, whether people deserve assistance (lest the hand-up become a mere handout or anybody show up). Such situational, discretionary judgments about people’s character and competence are vexing and difficult even for parents, who will often get them wrong; yet hand-up programs entrust government case workers with thousands of such decisions, with respect to unknown people. Moreover, one program leads to another: a small business loan produces a solar power loan produces a grant to Jeffrey Immelt. “Julia” clambers from one program to the next; there never seems to be a time when she does not need, or receive, a hand up. And adverse incentive effects become pervasive and pernicious. People borrow to study when they should work; buy homes on credit when they should rent; rely on government “insurance” when they should save for old age; build windmills and $100,000 electric cars that burn up on New Jersey docks.

All this is nearly unavoidable. Hand-up programs, political economists have noted, can work without nasty incentive effects only under exceedingly narrow circumstances. They are like monetary inflation: the desired results transpire if, and only if, you can spring it on the country as a surprise and, at the same time, credibly promise never to do it again. That’s the Homestead Act and (for more recent examples) the GI Bill and the first deduction for home mortgage interest. However, we are light years beyond that.

Indeed we are.