Reducing Inequality: Merit Goods vs. Income Grants

The incompetence and cruelty of the Bush administration, currently on view in Iraq and New Orleans, may suffice to get the electorate to reduce Republican ascendancy in the Congress in 2006 and put a Democrat in the White House in 2008. But it would be sad for the country if the result was a reversion to the Clinton don’t-do-much years. We on the left should be discussing and debating the general outlines of a program of government action to ensure a decent life for everybody. Such a program would clearly require higher government spending, financed by higher taxes, and a reduction in spending for unproductive programs. The predictable Republican chants of “tax and spend” would need to be answered by a campaign to point out to the public that there are some things worth taxing and spending for.

What kinds of outlays by the government would best achieve our aims? Some outlays distribute sums of money to some or all of the population, while others subsidize or provide goods and services. Much of the discussion so far has been from those who advocate schemes for the large-scale government distribution of money. Unfortunately, very little has been said about provision by government of services, with the exception of national health insurance. I would argue that government provision of a fairly long and expensive list of such services, plus targeted cash payments to people in special circumstances such as unemployment or disability, should take priority over universal distributions of cash, and that we do not currently have the capacity to do both.

Sean Butler’s recent article in Dissent (“A Little Bit of Cash,” Summer 2005 ) argued in favor of the Basic Income Grant (BIG), one of the more ambitious of the money distribution schemes, and one that has dedicated adherents in many countries. One version of BIG would give all households a monthly cash grant equal to a poverty-line income. BIG is not the only proposal for large-scale distributions of government cash. Attention to the inequality in the ownership of assets has inspired suggestions that the government provide each young person with a capital sum. The most audacious suggestion calls for “Stakeholder” grants of $80,000 to each person on his or her twenty-first birthday, with no limitations on how the money might be spent.

Disadvantages of Cash Grants

Rescuing everybody from poverty, as it is currently measured, and giving everybody some assets to start out with in life are attractive goals. However, large universal cash handouts have serious drawbacks. The most important is that despite their large cost they cannot, by themselves, guarantee access to certain important services—health care, child care, high quality schools, decent housing—that most people with progressive views believe should be available to all. Most progressive people also favor above-poverty-level cash payments to people in special need—the old, the disabled, ...