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kevin_p comments on Open Thread, May 19 - 25, 2014 - Less Wrong Discussion
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Lots of people are arguing governments should provide all citizens with an unconditional basic income. One problem with this is that it would be very expensive. If the government would give each person say 30 % of GDP per capita to each person (not a very high standard of living), then that would force them to raise 30 % of GDP in taxes to cover for that.
On the other hand, means-tested benefits have disadvantages too. It is administratively costly. Receiving them is seen as shameful in many countries. Most importantly, it is hard to create a means-tested system that doesn't create perverse incentives for those on benefits, since when you start working, you will both lose your benefits and start paying taxes under such a system. That may mean that the net income can be a very small proportion of the gross income for certain groups, incentivizing them to stay unemployed.
One middle route I've been toying with is that the government could provide people with cheap goods and services. People who were satisfied with them could settle for them, whereas those who wanted something more fancy would have to pay out of their own pockets. The government would thus provide people with no-frills food - Soylent, perhaps - no-frills housing, etc, for free or for highly subsidized prices (it is important that they produce enough and/or set the prices so that demand doesn't outstrip supply, since otherwise you get queues - a perennial problem of subsidized goods and services).
Of course some well-off people might choose to consume these subsidized goods and services, and some poor people might not choose to do that. Still, it should in general be very redistributionary. The advantage over the basic income system is that it would be considerably cheaper, since these goods and services would only be used by a part of the population. The advantage over the means-tested system is that people will still be allowed to use these goods and services if their income goes up, so it doesn't create perverse incentives.
Another advantage with this system is that it could perhaps rein in rampant consumerism somewhat. Parts of the population will be habituated to smaller apartments and less fancy food. Those who want to distinguish themselves from the masses - who want to consume conspiciously - will also be affected, since they will have to spend less to stand out from the crowd.
I guess this system to some extent exist - e.g. in many countries, the government does provide you with education and health care, but rich people opt to go for private health-care and private education. So the idea isn't novel - my suggestion is just to take it a bit further.
"Those who want to distinguish themselves from the masses - who want to consume conspiciously - will also be affected, since they will have to spend less to stand out from the crowd" - maybe I've misunderstood this, but surely it would have the opposite result? Let's say rents are ~$20/sqm (adjust for your own city; the principle stays the same). If I want my apartment to be 50 sqm rather than 40 sqm, that's an extra $200. But if 40 sqm apartments were free, the price difference would be the full $1000/month price of the bigger apartment. You've still got a cliff, just like in the means-tested welfare case; it's just that now it's on the consumption side.
In practice this would probably destroy the market for mid-priced goods - who wants to pay $1000/month just for an extra 10 square meters? Non-subsidized goods will only start being attractive when they get much better than the stuff the government provides, not just slightly better.
Also, if you give out goods rather than money, you're going to have to provide a huge range of different goods/services, because otherwise there will be whole categories of products that people who legitimately can't work (elderly, disabled etc) won't have access to. And if you do that, the efficiency of your economy is going to go way down - not just because the government is generally less efficient than the free market, but also because people can't use money to allocate resources according to their own preferences.
Yes, that's what it's like (only the cliff is actually usually less steep under means-tested welfare). And you're also right about this:
To clarify, I should say that my idea was that these subsidized or free goods and services would be so frugal that they would in effect not be an option to the majority of the population. Hence, it's not exactly the market for mid-priced goods, but the market for "low-priced but not extremely low-priced goods" that would get destroyed.
To your main point: since some people go down in standard, thanks to the fact that they by doing so they can get significantly cheaper goods, the average standard will go down. Now say that to get the average standard before this reform you had to pay 1000 dollars a month, but after the reform you just have to pay 900 dollars a month (because the average standard is now lower). Then those who want higher than the average standard will only have to pay more than 900 dollars rather than more than 1000.
The actual story might be more complicated than this - e.g., what some people really might be interested in is having a higher standard than the mean, or the the eight first deciles, or what-not. But generally it seems to me intuitive that if parts of the population lower their standards, then this should mean that those who want to consume consipiciously will also lower their standards.
I don't see this as a comprehensive system: rather, you would just use it for some important goods and services: food, housing, education, health, public transport (in fact, the system is already used in the three latter; possibly housing too, though most subsidized housing is means-tested which it wouldn't be under this system). The system would be too complicated otherwise. Possibly it could be combined with a low UBI.