In Our Hands: A Plan to Replace the Welfare State Hardcover – Feb 21 2006
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From Publishers Weekly
Libertarian Murray's Losing Ground laid the groundwork for controversial welfare reform proposals. His latest volume continues in the same vein, positing that government support has exacerbated dysfunctional underclass behavior, and offering a compromise to social democrats who call starve-the-beast policies cruel. In "The Plan," all the money currently used in transfer programs Murray doesn't deem universal (Social Security, agricultural subsidies, corporate welfare, as opposed to national defense, clean air, etc.) would be redirected into a new program that gives each citizen an annual $10,000 cash grant, beginning at age 21. The plan would slice one Gordian knot: everyone would be required to buy health insurance, insurers would have to treat the entire population as a single pool and changes in tort and licensing laws would enable low-cost clinics for minor problems. But Murray's purposes are larger: to enable the search for a vocation by making it easier to change jobs; to encourage marriage among low-income people; and to move social welfare support from bureaucracies back to Tocquevillian civil society—a nostalgic argument that deserves a more cyber-era analysis. His volume makes an intriguing contrast to 1999's left-meets-libertarian book The Stakeholder Society (unmentioned by Murray), which proposed $80,000 grants, financed by taxing the rich. Given Murray's track record—he coauthored The Bell Curve—and his think tank backing, expect much discussion of this book in print and on air. (Mar.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.
Murray has ardently advocated scrapping the welfare state since well before his best-seller Losing Ground (1984) cogently argued that welfare harms recipients. He has been criticized most for not proposing something to replace welfare. Now he does. Give $10,000 (to begin with) per year, tax free, to every adult over 21, with the stipulation that $3,000 of it be spent on health insurance and the strong recommendation that $2,000 be invested toward retirement income. Once an individual's earned income reaches $25,000, surtax on the grant begins, and those making $50,000 and more would pay back half the grant. The grant plan is accompanied by not that many legal changes, and they're worth doing, anyway (e.g., creating a single pool of the insured for health insurance, greatly compressing rate differentials). After a first few expensive years, the plan would develop much less expensively than the present welfare system. Gone would be Social Security, Medicare, and the rest, and everyone would have at least $5,000 annual discretionary income. Sweet? As lucidly argued by Murray, seems practical, too. Ray Olson
Copyright © American Library Association. All rights reserved
Top Customer Reviews
Most of this book is dedicated to arguments that explore the feasibility of this new scheme, as well as providing the theoretical evidence that the scheme would in fact bring the desired outcomes. The biggest underlying assumption is that the US economy is finally large and strong enough to actually implement this plan.Read more ›
Most Helpful Customer Reviews on Amazon.com (beta)
This terrific book is a brief discussion of what Murray calls "The Plan" (for lack of a better term) that would actually end poverty as we know it, make everyone more free and end dependence on politicians and bureaucrats for so much of our lives. Of course, this means that anyone who benefits from things as they are is going to instantly attack this book or ignore it and hope it just goes away. I hope for just the opposite. I hope there is a big debate and the real motives and power seeking of the establishment goes on display.
The Plan is quite simple. Everyone over the age of 21 - regardless of status - who has a bank account gets $10,000 per year paid monthly. Once your income reaches and passes $25,000 per year your payment begins to get taxes until your reach $50,000 where you end up with only $5,000 that year. That is really it. In return, ALL transfer programs are ended. This means no agricultural supports, no Medicare or Medicaid, no social security, and so on. He spends a few chapters discussing the reasons why this is a better deal for almost everyone (single women who don't work but have kids on a regular basis will be worse off because they will end up with less income per mouth to feed).
The most interesting chapters for me were those that discuss the increase in freedom and the wonderful social implications it would mean for everyone in our society to be more enabled to take their life more fully in their own hands. People would be freer to live as they saw fit, not as someone else thinks they should. They wouldn't have to jump through hoops to qualify for this or that credit or payment. Just reading Murray's discussion reminds us about what the idea of freedom is fundamentally about.
Of course, there are things that critics can pick at. For example, I saw no discussion of the effects of inflation on the $10,000 payment. Was an increase in the payment for inflation included in his costs? If not, the payment will shrink in real terms quite substantially. Maybe this is part of his plan for true Libertarian freedom. When the time arrives when the $10,000 payment is all but meaningless, it can simply be stopped and we will all be free to live as we choose.
Murray does discuss the indigent, and effects such payment would have on the incentives for work. Again, you can debate his points. However, at least consider them and debate them. Simply not listening makes us all worse off.
"The Plan" is simple. Everyone at the age of 21 receives $10,000 (tagged for inflation) per annum for life. No changes for marital status or any other demographic tag. Erring on the high side, this program will, at the most, cost about $1.73 trillion to start and, according to demographics, will descrease over time in equal-valued dollars. This replaces all entitlement spending at all levels of government which Murray states in 2002 totaled almost 1.4 trillion dollars. This includes business and agricultural subsidies and means tested programs for the poor. According to Murray, "The Plan" will effectively eliminate involuntary poverty.
Seems radical but it isn't. It makes more sense than other policy innovation I've ever heard of. The liberal skeptic needs to consider how much we spend on social assistance and take a sobering look at how far the battle over poverty is from being won. This plan gives every American, regardless of circumstances, the financial base to escape poverty. Failure is in "our hands". Virtually every extreme circumstance one can imagine is countered by "the plan". For the average and below average american it is a base to build from and protect oneself.
The conservative skeptic needs to see how much we spend and what it does and doesn't do. The funding of this program, erring on the high side, will be less expensive than the current system in a few short years...maybe sooner. By 2020, Murray estimates "The Plan" will cost over $500 Billion less annually than the current system. How's that for savings?
Some practical details: Murray also proposes smart healthcare reforms that will bring down the cost of healthcare. He estimates an annual premium cost per person of $3000 per year. The other $7000 per year is for the person to use to provide one's saftey net. He also suggests $2000 per year go into conservative retirement savings. It's important to note that $7000 after health insurance is the more important stat to Murray. If healthcare cannot be done for less than $3000, he demands increasing the 10,000 to a suitable number. At an anemic 4% annual growth over one's working life(unheard in America history except for someone who started working during the crisis of 1887 and retired at the Great Depression, in which case the return would have been 4%!) it gives a total of about $245,000, which in the form of an annuity will give a yearly income of about $20-24000 and you STILL get the $10,000! Double for an elderly COUPLE of limited means and you get a retirement income of at least $60,000 GUARANTEED. What government program can do that?! Save more, retire sooner!
Other important details: at 50,000 in income, you give back half the grant. Also keep in mind that all those FICA and Medicare withholding taxes are eliminated from payrolls...the most regressive wage taxes of them all. Plus, the lowered cost of employing people by eliminating these payroll taxes will lead to increasd payrolls.
People earn more, save more, retire better and when they want and the government averts fiscal crisis. Involuntary poverty is easily averted for virtually everyone. Some may argue that that is impossible. Maybe it is. But it is much easier to avoid poverty this way then by relying on the current system. Some people will always doom themselves to life of voluntary squalor...just like they do now. With the Plan, a minimum wage part-time job is all you need.
Murray leaves the details to the politicans. But he has painted the broad strokes of the idea so in can flourish into an intelligent national debate. The book is a quick, easy read. Read it, talk about it and pass it on.
This could be one of the influential policy innovations of our life time. It only needs the attention to give it its due scrutiny, which I'm sure it will pass.
Critiques of the finances
1. Murray is fairly careful to outline who the winners and the losers are in this plan. But in doing so, he ignores the transition, especially with older people. As I understand it, if we implemented "the Plan" tomorrow, retirees who had previously had Medicare and Social Security benefits would now get $10,000 and be forced to buy into the health insurance plan, leaving them with at most $7,000 per year. This new benefit level would represent a severe decrease for a significant fraction of the elderly, and for single retirees, it would not be sufficient to allow them to live above poverty. It is certainly true that a 21 year old might be able to save more over his lifetime and do better under "the Plan" than under the current social security system, but we wouldn't realize those benefits for 40 years. The pain of newly impoverished retirees would be immediate. In fact, it seems to me that the reason "the Plan" becomes more affordable than the current system in a few years is that baby boomers (to whom we currently owe Medicare and social security) would start receiving incredibly reduced benefit levels. If I understand the proposal correctly, this seems like a glaring omission from Murray's analysis of winners and losers. I found a little discussion of this buried in Appendix D, but there's never a direct comparison of someone already now retired under the current system and under "the Plan".
2. Another somewhat misleading piece of analysis is when Murray discusses how a 21-year old making $20,000 each year will save for his retirement. Murray suggests that by putting $2,000 of his grant into a retirement plan, he can end up with an annuity that is far better than what he would have earned through social security. While this is likely true, it ignores another hidden detail. In order to make "the Plan" financially feasible, Murray has held government revenues constant, including taxes entering the system through the payroll tax. If we assume for the sake of argument that all government revenues are being collected from the same people in the same amounts, then this 21 year old worker is simply robbing Peter to pay Paul. He sends the government $2000 in payroll taxes, which they then send back to him to put away for his retirement. His only gain is that his private account can do better than social security. While this is potentially a meaningful gain, the discussion in the book makes it sound as if he gets out of paying payroll taxes and also gets money to put into retirement. Again, this is a significant omission from the discussion.
3. Another smaller critique is with his elimination of the student loans program. First, the direct student loan program actually represents a net positive flow of income into the government. This happens because the interest rates on the loans are higher than the discount rate used to discount future income. Eliminating the program, therefore, should be a net decrease if the accounting is properly done. Second, it's exceptionally misleading to say that we'll stop lending out money, but then to assume that government revenue will continue to follow current projections. If no one is able to borrow, then no one will pay the money back. Here, the relevant amount of money to add to the pot to pay for the plan is outlays minus the present value of expected future repayment, which is negative.
1. The basic structure seems sound to me. I like that the benefits are not taxed away until $25,000, and it seems that under this setup work disincentives will indeed be less than under the NIT experiments. In particular, I like that there is no (additional) distortion to labor supply at the extensive margin (choosing whether to work at all). The Plan would eliminate the EITC, however, which in theory provides an incentive to earn an initial amount of money. The evidence, though, suggests that it mainly acts as a one-time subsidy payment to workers who don't really understand how it works; so this isn't that big of a concern to me.
2. I like that child support payments are easily enforceable. Now the financial burden of childbearing is equally shared between father and mother whether or not they continue in a relationship, at least up to $7000 each year per father. What I don't understand then, is how Murray can claim that "the Plan" eliminates any financial gain to a young woman considering bearing a child. Certainly for mothers less than 21, they have lost the ability to get food stamps and TANF monies, but for women over 21, having a child and proving paternity is now worth a big chunk of the father's grant. If she's concerned that he's not pulling his weight, she can have a child, and ensure that he will continue to support her and the baby regardless of whether the relationship continues.
3. Everyone gets a bank account. This is good news as bank accounts lower transaction costs and can provide a good deal of financial security, except that now bank accounts are worth $800/month to everyone, and demand for them becomes relatively inelastic, allowing banks to lower interest rates on savings accounts and to increase fees and surcharges for account holders.
4. Immigrants. There is no provision for immigrants, legal or illegal, to receive any benefits until they become citizens. While I understand that we can't simply let people come to the country to get a free $10,000 each year, this seems particularly harsh and opposed the vision of this country. I'd like to see some sort of graduated benefit level based on length of residence or amount of income taxes paid, etc.
Mr. Murray lays out a plan to radically change the government benefits delivery system which is exactly what we will need starting in 2015, when Medicare starts to collapse under the weight of retiring baby boomers. It's not just Medicare of course, but that is the largest program and a proxy for the stress to all systems in the future when our system becomes "upside down" with more retirees than payees.
The budget deficits of 2015 and beyond are just now peeking above the political horizon. These deficits are so big and scary that there is little debate about it right now; however, waiting to fund them will be a disaster due to the lead time we need to reduce their impact.
A plan like the author's could help bring about the kind of radical thinking needed to act now to save our systems. One of the great things about this book are the tables which account for all the government transfers. I have never seen all of the government subsidies laid out in one place and it is staggering to think that $60b goes to "corporate welfare".
If we could only implement this plan coupled with a flat tax and a national health plan, those deficits would dissapear. If we do nothing, a Financial Armageddon awaits us all.
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