11 July 2011

Tabarrok on The Great Fiction

I wanted to talk about the problems with this Matt Yglesias post, but Alex Tabarrok says it too well for me to attempt it. A 529 plan or the MID or veteran's benefits are simply not the same thing as food stamps.
Marginal Revolution | Alex Tabarrok | The Great Fiction

Catherine Rampell, Bruce Bartlett, and Matt Yglesias are all pushing the chart below from a paper by Suzanne Mettler. According to this gang, people who use, for example, the mortgage interest deduction or who have a 529 college savings program are willfully ignorant about how they benefit from government (Rampell’s terminology).

As Bastiat said, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else.” What Rampell et al. want to do is to make people believe in this great fiction. But there are always taxpayers and taxeaters, even though government has so wormed its way into every organ of the body politic that it is sometimes difficult to tell which are which. (Indeed, part of Mettler’s point is that the government shell game of ‘hide the subsidy, hide the tax’ is often designed to obscure taxpayers and taxeaters.)

Nevertheless, there are dividing lines. In a laissez-faire world we don’t get rid of 529 programs, instead all savings, not just savings for college, become tax-free. A 529 program is not a government program like food stamps, it is the absence of a government tax. (N.B. I am not taking a position here on the best tax structure.)

People who use 529 programs and who think that they have not used a government social program are not willfully ignorant, they are demonstrating a healthy if fading appreciation of the distinction between civil society and government. What Rampell et al. implicitly imagine is that the natural state is slavery and any departure from that state a government benefit. Thus, if the government taxes your saving for a college education less than your other savings, you should be grateful for how government has benefited you and your children.

And if the government doesn’t jail you today, you should be grateful for how government has granted you the benefit of liberty.

This is the attitude of a serf not an American.
One thing I will add is that presenting evidence of the irrationality or ignorance of voters in order to support one policy agenda or another can be a pretty useless thing to do. "People don't understand how many government benefits they get" doesn't convince me we should have more government benefits because people also don't understand what the costs are. I don't have time to track it down now, but I saw a similar survey of Americans that reported a majority of them thinking getting a refund check from the IRS meant they hadn't paid any taxes that year, not that they had just given the government an interest-free loan.

Furthermore reminding me how ignorant voters are only makes me think we should leave fewer things up to democratic, political decision making. If voters are really this ignorant (and I think they are!) why should we expand the scope of our lives that is reliant on voters making good decisions about who to elect?


  1. Your take on 529 and tax-free benefits is well taken, but I don' think the point of Yglesias' original post was simply to point out the hypocrisy or ignorance of voters in order to support another agenda. The point, I think, was to highlight that when people base their conversation around an Us/Them framework, where "They" are people who receive government benefits and "We" aren't and that's unfair, that they're being too reductivist. While a 529 isn't like Food Stamps, Medicare/Medicaid is much more similar. Head Start is more similar. And while not similar per se to a 529 an interest deduction is a reward for buying the house. It isn't like the 529 that protects certain savings, it's a payment that gives you back money you wouldn't have paid.

    Again, I think your/Tabarrok's clarification is an important one, but it doesn't dismantle Yglesias, et.al's argument entirely.

    Alternately--it's been at least a day since I read Yglesias' post. If that is what he meant, let's just say that's not how I took it.

  2. I also haven't read the Yglesias post in a while now. Perhaps it was not even him but someone else who posted this chart. but the take-away I got from a couple of posts on this subject is that people only falsely believe they want smaller government in part because they don't understand the benefits. They wouldn't be so willing to cut spending if they only recognized they're also on the take.

    I won't dismiss Yglesias, Rampell, et al. I think things are much more muddled than "Us" paying taxes and "Them" eating them. I just think I draw very different conclusions about what this means. I seem to read people saying -- and maybe I am misreading this -- that "They" aren't so bad because we're all partly "Them" too. What this chart and this situation says to me is that we need to keep "Them" to a minimum because it is ultimately impossible to have all receivers and no payers.

  3. You know what? I just re-read the actual Yglesias post linked, and I must have been thinking of some other place or places I saw this chart posted. That other post (posts?) were combining with my mental image of "Matt Yglesias" and I was reacting to that, not what the actual Matt Yglesias wrote. That was careless of me.

    Nevertheless, I stand by my claim that it is powerfully sloppy to lump a 529 plan and social security into the same bin of "government social programs."