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December 17, 2006
David Warsh, Proprietor


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Bad Apples and Good Bets

Something like 150 years have passed since the emerging industrial economies of Europe began systematically constructing social programs and safety nets.  Before that, life was mostly lived at the local level. There was plenty of loss-sharing and charity, but it was usually home-grown and face-to-face.

With an eighteenth century revolution in transportation, inventions proliferated and the market system spread. Cities grew. And so in the nineteenth century emerged the institutions of public health and education; unemployment, welfare and retirement systems; medical insurance; risk regulation; housing and other programs — all designed to enhance living standards of the many and prevent the few from falling beneath a certain level.

In the first half of the twentieth century these social programs became widespread.  In the second half, they grew rapidly, until they began to hit a ceiling of some fraction of national income spent through taxes — “Clark’s law,” conservatives called it for a time, after Colin Clark, a famous empirical economist who postulated in 1945 that there would prove to be a limit of around 25 percent of GNP which could properly be spent through borrowing and taxation. During the 1980s, the law morphed into a limit — “Lindbeck’s Limit” after Assar Lindbeck, the Swedish political economist who conjectured more mildly that such a nebulous constraint on social spending must exist.

Today the existence of a ceiling seems to be a more-or-less established fact. As Samuel Brittan wrote in the Financial Times last week, “[E]ven left-of-center parties now assume that there is little public tolerance for a further increase in the share of tax in national income.”

Thus only recently has the debate shifted and serious analytic thinking begun about making social programs work better, more often than not under the banner of neoliberalism. “Hard Heads, Soft Hearts” (Princeton economist Alan Blinder’s phrase) was mainly a political slogan for the 1990s. Welfare reforms provided some much-needed content to the program, from their experimental beginnings among the states to the federal welfare reform law of 1996.

Now Peter Schuck and Richard Zeckhauser have given a solid analytic underpinning to the business of reforming the reforms of earlier eras, in a remarkably clear-headed and good-hearted little book, Targeting in Social Programs: Avoiding Bad Bets, Removing Bad Apples, Schuck, a Yale Law professor, was deputy assistant secretary for planning and evaluation in the Department of Health, Education and Welfare under President Carter.  Zeckhauser, professor of economics at Harvard’s Kennedy School of Government, has written more than 200 technical papers, most of them about mechanism design. There book was published by the Brookings Institution.

Together, the pair pretty well exemplify the “militant middle,” in the title of one of Schuck’s earlier books, except insofar as their ambition to ameliorate social ills through public policy also puts them in the present-day van of the long tradition of American social reform stretching back to Louis Brandeis and Oliver Wendell Holmes.

Schuck and Zeckhauser are leading proponents of what in the realm of social policy are called “targeting” measures. The basic idea is to spend money where it will do the most good. Conservatives dislike targeting because they think that it lends credibility to a “welfare state” they are still trying to abolish. Traditional liberals don’t like it because they think it smack of triage — assigning priorities among aid recipients as if they were battlefield casualties with varying chances of survival, and writing off some altogether..

The basic vocabulary developed by Schuck and Zeckhauser underscores the problem. They programs they are concerned with are those that seek to ameliorate the lot of unfortunate, disadvantaged, usually low-income individuals that they call “bad draws.”  “Bad draws” are party to a social contract that insures them against certain random misfortunes, they say. “That is why the government pays for medical care for the sick, unemployment benefits for those who lose their jobs, and food stamps for those who otherwise would be hungry or malnourished.”

But among the population of “bad draws” are two groups whose situations warrant special attention, the authors say.  There are “bad bets” and “bad apples.”  Bad bets are persons who receive benefits from which they are likely to gain little relative to other bad draws — the 90-year-old candidate for a heart transplant, for example. Bad apples are persons whose conduct in the past (and, presumably, the future) is undeserving of a stream of benefits — the drug dealer in a public housing project, the habitually disruptive child in a public school.  Bad apples’ behavior usually is self-destructive, too, but it is their effect on others with which the authors are principally concerned.

(There are plenty of bad apples among life’s “good draws,” as well, the authors note — tax cheats, corporate charlatans, loophole-exploiters of all sorts who make life harder and more expensive for others.)

Especially pernicious has been a general unwillingness to talk about the existence of bad apples, amounting to a “conspiracy of silence,” the authors argue. Excessive delicacy, they say, is often cited as a means to avoid “blaming the victim,” and it hasn’t been confined to the discussion of social programs designed to help the poor and disadvantaged.

Italian-Americans refused to admit or many years that the Mafia had become a serious problem; the Catholic Church for many years denied the problem of its sexually-predacious priests.  And the 1965 Moynihan Report, with its warning of the disintegration of many African-American families, was a topic of political discomfiture for many decades.

A quintessential bad apple is “Million Dollar Murray,” the subject of a two-part profile last winter by Malcolm Gladwell in The New Yorker.  A chronic substance abuser, Murray disrupted his homeless shelter to the point he was removed by social workers and installed in a single-room occupancy apartment of his own. When he rendered it uninhabitable, he was moved to another, not only siphoning off resources that might have been applied to better bets, but undermining local support for homeless programs in general.

Wrote Gladwell, “Thousands of people in the Denver area no doubt live day to day, work two or three jobs, and are eminently deserving of a helping hand — and no one offers them the key to a new apartment.  Yet that’s just what the guy screaming obscenities and swigging Dr. Tich gets.  When the welfare mom’s time on public assistance runs out, we cut her off. Yet when the homeless man trashes his apartment, we give him another.”

If removing bad apples from social programs — from public housing projects, homeless shelters, public school classrooms — is to become a goal of policy, then it is obviously important to think hard about predictive accuracy and procedural attention. So the authors devote a chapter to describing various mechanisms designed to classify and protect people against erroneous classification. Better information about individuals and screening institutions are the keys, they say.

It’s necessary, too, to think hard about what is done for those who are screened out. America is justly proud of its reputation as a land of second, even third chances. Bad apples can’t be abandoned entirely, even if they never get any better.

A strange topic for the holidays, you say?  Not at all. Improving social programs is one of the great frontiers of twenty-first century politics, along with developing sound macroeconomic, environmental and long-term growth policies.  The world of Goldman Sachs, of private equity and hedge funds, of multinational corporations, will, by and large, take care of itself. It is political leadership that is sorely needed. 

Adopting targeting practices in social programs that benefit the poor not a matter of abandoning our dreams of equality. It is about recognizing the extent of the various inequalities that have arisen, and making some tough judgments about personal responsibility and interpersonal comparisons of welfare.  We’ve already got a world that is good for rich people. To make it better for the poor and disadvantaged, without undermining public trust in the programs that are designed to help them, means first learning to speak frankly and think carefully about bad bets and bad apples.

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