Wealth of Nations April 2006

Why Murray's Big Idea Won't Work

Charles Murray has an intriguing plan to dismantle the welfare state and give every adult $10,000. Too bad his numbers don't add up.
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Charles Murray's new book, In Our Hands: A Plan to Replace the Welfare State, is what you would expect from the author of Losing Ground and Bell Curve—a bold and provocative piece of work. As before, only this time more so, Murray thinks big and then dares to share his thoughts out loud.

In Our Hands calls for the whole apparatus of the welfare state to be dismantled—not pruned or reformed, but abolished outright. No more Social Security, no more Medicare or Medicaid, no more unemployment benefits. Nothing. These and all such programs that directly transfer income from one group (taxpayers) to others would be not merely terminated but forbidden: Murray calls for a constitutional amendment to that effect. Taking their place—at, Murray says, far lower cost and with vast side benefits for the country's social well-being—would be a payment of $10,000 a year to every American adult. No more poverty, no more welfare state. Simple as that.

Does Murray think it could ever happen? Yes and no. The plan, he agrees, is politically impossible right now. But look ahead, he argues, and it is not just feasible but maybe even inevitable. The welfare state is doomed, not because it causes enormous damage to the social fabric (which, he says, it does) but because it will be financially insupportable. As he wrote in The Wall Street Journal on March 22, "The welfare state as we know it cannot survive. No serious student of entitlements thinks that we can let federal spending on Social Security, Medicare, and Medicaid rise from its current 9 percent of gross domestic product to the 28 percent of GDP that it will consume in 2050 if past growth rates continue."

In Our Hands deserves to be widely read and debated. It is hugely thought-provoking, hugely challenging to the intellectually complacent modes of discussion that prevail in modern politics. Murray also deserves praise for casting his proposal in a concrete form, exposing himself to proper argument and rebuttal. And, in my view at least, many of his larger ideas are right. The main one, to be sure, is extremely attractive: Empower and oblige individuals to take responsibility for themselves and others, not just as a way to confront poverty, but because individual self-determination is the correct organizing principle for society. For many of Murray's critics, that will be the sticking point—but not here. I buy the big idea. It's the details that slow me down.

Murray is less interested in costs, one surmises, than in social transformation. Yet he insists that his plan is affordable, much more so than the current system, and he goes to some trouble in the book to explain why. As just noted, he aims to motivate his readers by arguing that, in the longer term, the issue of affordability is going to swing the political calculus his way. So it isn't nit-picking or beside the point to question this.

At first blush, the claim that every American adult could be paid $10,000 a year at less cost than the present array of piecemeal welfare payments is indeed startling—even if, as Murray proposes, part of the $10,000 would be clawed back through taxes for Americans earning more than $25,000. Throughout, Murray takes pains to point out that he rests this claim on the least favorable assumptions for the argument he is advancing. But can it really be true? If it is, the idea surely deserves serious consideration.

Unfortunately, Murray is not claiming that it is true straight away. Using his own numbers, switching instantly and comprehensively from the present system of benefits to his plan would leave a shortfall of $355 billion a year—which, at 3 percent of GDP, is a very large sum. His point is that the cost of his plan would grow much more slowly than the projected costs of the welfare state. "I will not bother," he says, "to consider ways of closing that gap through increased taxation or additional budget cuts, because the gap will disappear on its own in a few years."

There are several problems with this. First, even if everything else Murray says is true, financing that enormous gap for the next few years, with the public finances already deep in deficit, would be, well, challenging.

Second, this is to say nothing of the full transition costs of Murray's scheme, which the book makes no attempt to estimate. That gap of $355 billion, beginning in Year One, is not a transition cost; it's just the financial shortfall in a hypothetical equilibrium. Transition costs—which, at a guess, would be enormous—come on top of this, and would persist for decades.

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