Postmaterialism and Cohen's Maxim

It is a commonplace on the left that “programs for the poor are poor programs,” the second ‘poor’ meaning “poorly funded.” Call this “Cohen’s Maxim” after Wilbur Cohen, a chief architect of Social Security. Cohen’s Maxim is likely true when wealth transfer programs targeted to the poor are very unpopular relative to “social insurance” that is heavily marketed as “universal.” Yet if the idea is to secure a certain level of benefits for the genuinely needy, the universal social insurance scheme (which will waste a lot of money by taking it from the middle and upper classes and then giving most of it back to them later) will tend to be much more expensive than the targeted transfer scheme. Other things equal, one should prefer the means-tested program, since it frees up resources that can be used to (a) make the targeted benefits larger, (b) sent back to taxpayers while leaving the poor no worse off, or (c) spent on other desirable social programs. The only reason to prefer the social insurance scheme (if the point is to help the poor) is if there will otherwise be insufficient political support to keep benefits for the poor at a decent level.

Under what conditions would we expect Cohen’s Maxim to be true? Conditions under which the middle and upper classes tend to resist financing welfare transfers. They might resist for ideological reasons, in which case Cohen’s Maxim will rise and fall with trends in ideology. But they might also resist for reasons of perceived economic self-interested, which in turn might to some degree drive trends in ideology. What if past a certain threshold in income and wealth, voters became more concerned with questions of fairness and justice and less concerned with their own perceived economic interest? That’s Ronald Inglehart’s “postmaterialism” thesis in a nutshell, and it appears to be well-supported by evidence. We may be seeing it in the move of wealthy voters toward the Democratic Party. Obama’s win over McCain among the wealthiest voters might be because he promised to tax them more and spread the wealth around. 

Suppose this trend continues and, as the median income rises, an ever larger portion of voters above the median comes to prioritize social justice over tax rates. Under those conditions, why think Cohen’s Maxim would hold? 

By the way, I’ve always rejected Cohen’s Maxim. Unemployment benefits are targeted, but generous and popular. My favorite argument against making Social Security into a means-tested program is that benefits would likely to be too generous, generating serious moral hazard while being unjust to boot. The core of this argument is the disproportionate heft of retirees as a voting bloc, and the relative unity of their interests. Forced intrapersonal transfers are preferable, my argument goes, to exploitative, class-based (younger to older) interpersonal transfers. But if economic growth makes us ever less fixated on our narrow our economic interest in the voting booth, this argument could break down, too.

So could postmaterialization someday put us in a position where it becomes feasible to get rid of elaborate schemes like social security and medicare–and even the personal account alternatives to these–and go with the most direct, efficient, and transparent safety net policy? Provide government assistance to people who fall beneath a certain minimum of resources. Otherwise, don’t. 

Related: Here’s my colleague Jagadeesh Gokhale smacking down some bad arguments for the Social Security status quo.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center