The Government as Robin Hood; E. C. Pasour, Jr.

Informationand Incentive Problems Poverty programs assume that decision makers in the political process, being im bued with supernatural power like Aladdin's magical lamp, have both the knowledge and .desire to act in ways that promote the public Dr. Pasour is Professor of Agricultural and Resource Economics at North Carolina State University. weal. However, information and incentive problems stymie collective efforts to allevi ate poverty. First, there is the question of why poverty exists. In the case of the minimumwage and similar governmental restrictions on com petition, poverty results from constraints beyond the control of the individual. In other cases, such as poor job skills that can be traced to dropping out of school, poverty results from choices made by the individual. Second, there is a difference between short-run and long-run effects offood stamp and other poverty programs. Recipient ben efits are highly visible in the short run, but an important part of the costs-the effects of the programs in fostering dependency occur in the long run. However, whatever the time period, the greater the stigma associated with poverty relief, the greater the effort people will make to be self-reliant and, hence, the smaller will be the poverty problem.

The effectiveness of poverty relief is eroded over time because the programs create perverse incentives that affect both the poor and the nonpoor. First, any pro gram that transfers income to the poor decreases the incentives of the poor to provide for themselves. Consequently, do nors face what has been termed a "Samar itan's dilemma" (the term is based on the biblical parable of the Good Samaritan).2 A dilemma arises because the assistance rendered will lead to a decrease in self reliance and, consequently, an increase ill the amount of need. An increased willing670 THE GOVERNMENT AS ROBIN HOOD 671 ness on the part of the state (the Samaritan) to offer food stamps, for example, will reduce the incentive to work which, in turn, will increase numbers of people seeking and qualifying for this type of dole. Moreover, both welfare recipients and decision-makers in the political process have incentives to overstate the need. In transfer programs subject to a means test, there is an incentive to underreport income because the penalty is likely to be quite low.

In the school lunch program, for example, individual schools are responsible for mon itoring but have no way to verify incomes reported on students' application forms. Moreover, such programs provide an im portant source of support for members of Congress having large low-income constit uencies and a livelihood for officialsadmin istering the programs. Why Poverty Programs Are Ineffective Let us now consider other reasons why poverty relief may be counterproductive in the long run. In a competitive system, one's income is earned in the process of producing and marketing goods and services and is deter mined largely by the individual's contribu tion to output, as evaluated by consumers. Government transfers inevitably influence individual choice, adversely affecting the production of goods and services. As mar ginal tax rates increase, leisure is substi tuted for work, people work more on jobs where they are less productive, and more resources are used to avoid and evade taxes.

In short, redistribution reduces productivity and, consequently, the creation of wealth. Moreover, government relief tends to prolong and intensify the very disease it seeks to cure. Henry Hazlitt draws two lessons from the effects of the dole in ancient Rome.3 First, once public relief programs are introduced, they almost invariably get out of hand. Second, once this happens, the poor become more numerous and worse off than they were before. The programs be come counterproductive not only because of their harmful effects on recipients' self reliance, but also because the sources of wealth and production on which the poor depended for either doles or jobs are ad versely affected. The nature of the state has not changed since the Roman days of providing bread and circuses for the masses.4 Historically, the state has been a device for producing affluence for a few at the expense of the many. Poverty programs in a majoritarian democracy are not produced in isolation; instead such programs emerge as part of a package of programs affecting education, agriculture, and other sectors that redistrib ute income mainly among the middle class.

It is naive to expect the political process to implement only programs that assist the destitute while ignoring special interest pro grams that transfer income mainly among middle-and upper-income groups. Over time, the redistribution destroys wealth and weakens the very means of achieving income security. Thus, there may well be a direct relationship between the size of the transfer sector and the incidence of poverty.5 In short, there are practical implementa tion problems related to the effectiveness of governmental efforts to improve the lot of the poor-even if there were a consensus that people should be protected against severe deprivation. During the past forty years in the United States, for example, distribution of income has barely changed despite huge outlays by government osten sibly designed to assist the poor.6 The relief programs have had virtually no effect on the rate of poverty because almost all of the expenditures tend to promote self-destruc tive behavior among the poor.7 Ethical Considerations As F. A. Hayek has shown, the concept of a fair distribution of income has little meaning other than the distribution of in come as determined by market forces. 8 Certainly there is little evidence that the political process is superior to the market process in this respect. Indeed, it is likely 672 THE FREEMAN • DECEMBER 1994 that most citizens agree that a system in which financial rewards are unrelated to one's contribution is not fair. This attitude is reflected in the chronic complaints about government handouts to able-bodied people.

Some people contend that government relief is objectionable because redistribution is wrong in principle. The law can be an instrument of equalization only as it takes from some and gives to others. Frederic Bastiat provided an argument against redis tribution through state power that continues to be persuasive. In this view, the mission of the law is to protect persons and property, but once the state exceeds this proper limit "you will then be lost in an uncharted territory. . . because fraternity and philan thropy, unlike justice, do not have precise limits. Once started where will you stop?,,9 Hazlitt's objection to redistribution on ethical grounds is no less clear cut. "It is clearly wrong in principle to allow the gov ernment forcibly to seize money from the people who work and to give it uncondition ally to other able-bodied people whether they accept work or not. ,,10 Indeed, Madi son and other Founding Fathers of the U.S.

Constitution held that justice was obtained in the process of protection of private prop erty and destroyed in the process of forced transfers. 11 In this view, individuals have no legal obligation to help others because this would imply that potential recipients have a right to take what is not theirs, which is inconsistent with the laws of justice. 12 In dividuals acting on their own are free to help the less fortunate of course and, indeed, as moral persons "ought" to do so. Conclusions and Implications Coercion is inherent in government redis tribution. Robin Hood behavior that is ob jectionable on the part of the individual is no more legitimate on the part of the state. That is, if it is not right for two people acting privately to take the property of a third, neither is it legitimate for them to do so when they form a political majority and invoke the name of government in their behalf.13 Any government transfer program is sub ject to the "law of unintended rewards"-it increases the net value of being in the condition that prompted the transfer. 14 Con sequently, responses by both poor and non poor people to the perverse incentives in herent in poverty relief programs over time erode the effectiveness of such programs.

Moreover, the reduction in productivity and destruction of wealth accompanying gov ernment redistribution weaken the very means of achieving financial security. In short, government acting in the role of Robin Hood is neither ethically defensible nor effective. 0 1. Some of the following discussion is adapted from E. C. Pasour, Jr., "Redistribution and Constitutional Political Econ omy," Constitutional Political Economy, Winter 1994, pp. 81-98. 2. J. M. Buchanan, "The Samaritan's Dilemma," pp. 71-85 in Edmund Phelps, ed. Altruism, Morality, and Eco nomic Theory (New York: Russell Sage, 1975). 3. Henry Hazlitt, The Conquest of Poverty (New Roch elle, N.Y.: Arlington House, 1973), p. 71. 4. Yale Brozen, "Welfare Without the Welfare State," The Freeman, December 1966, pp. 40-52. 5. D. R. Lee and R. B. McKenzie, "Helping the Poor Through Governmental Poverty Programs: The Triumph of Rhetoric Over Reality," in J. D. Gwartney and R. E. Wagner, eds., Public Choice and Constitutional Economics (Green wich, Conn.: JAI Press Inc., 1988), p. 92.

6. D. R. Lee and R. B. McKenzie, Regulating Govern ment: The Positive-Sum Solution (Lexington, Mass.: D.C. Heath and Co., 1987), p. 169. 7. R. Rector, "Requiem for the War on Poverty: Rethink ing Welfare After the L.A. Riots," Policy Review 61 (Summer, 1992), pp. 40-46. 8. F. A. Hayek, Law, Legislation, and Liberty, Vol. 2: The Mirage of Social Justice (Chicago: The University of Chicago Press, 1976). 9. Frederic Bastiat, The Law (Irvington-on-Hudson, N.Y.: The Foundation for Economic Education, 1964), p. 69. 10. Hazlitt, op.cit., p. 116. 11. J. D. Gwartney and R. E. Wagner, "Public Choice and the Constitution: A Madisonian Perspective," Ch. 3 in Public Choice and Constitutional Economics, p. 92. 12. Ibid., p. 92. 13. R. E. Wagner, To Promote the General Welfare: Market Processes vs. Political Transfers (San Francisco, Cal.: Pacific Research Institute for Public Policy, 1989), p. 206.

14. Charles Murray, Losing Ground (New York: Basic Books, 1984).