The people who have an explicit legal obligation to work not on our behalf but on behalf of their shareholders do a pretty good job of giving us what we want; the people who vow to work on our behalf do not. That is a paradox only if you do not think about it too much, and not thinking about it too much is the business that politicians are in.
If capitalism – which is to say, human ingenuity set free to follow its own natural course – is a kind of social machine, then politicians are something like children who take apart complex machines without understanding what they do or how to put them back together. (At their worst, they are simply saboteurs.) When they rail against capitalism, automation, trade, and the like, they resemble nothing so much as those hominids at the beginning of 2001: A Space Odyssey, shrieking hysterically at something that is simply beyond their comprehension.
Tim Worstall reminds me, by e-mail, of this 2015 post by Arindrajit Dube in which Arin correctly explains that U.S. government welfare programs other than EITC do not lower the wages of low-income workers and, thus, do not subsidize employers of low-income workers. Here’s the most relevant part of the Dube post:
But what about other programs like food stamps or housing assistance? These means tested public assistance programs are not tied to work, and we should not expect them to lower wages. Let’s take food stamps, which are available to eligible families whether or not a family member works or not. Indeed, when people are not working, they are more likely to be eligible for food stamps since their family incomes will be lower. Therefore, SNAP is likely to raise, and not lower a worker’s reservation wages—the fallback position if she loses her job. This will tend to contract labor supply (or improve a worker’s bargaining position), putting an upward pressure on the wage. Whether or not wages are increased is an empirical matter: there is evidence that the initial roll-out of the food stamps program across counties in the 1970s lowered work hours, consistent with an increase in the reservation wage. The key point is that it is difficult to imagine how food stamps would lower wages. And if they don’t lower wages, they can’t be thought of as subsidies to low wage employers. The same logic applies to other means tested programs like energy or housing assistance. Moreover, these conclusions hold in a wide array of models of the labor market, including ones that emphasize bargaining or efficiency wage concerns.
On April 1st on GMU’s Fairfax campus a number of excellent speakers – including several of my colleagues – will participate in a day-long event, sponsored by the Institute for Humane Studies, titled “How is Social Entrepreneurship Impacting Disability Services?” Register now!