Marx,Veblen and Contemporary Institutional Political Economy : Henry on O'Hara

Welfare was reformed significantly in 1996, and the Earned Income Tax Credit (EITC) was expanded substantially during the last decade. In the wake of these events, welfare rolls have shrunk dramatically and employment among the poor has increased, leading many to conclude that these policies have achieved important equity and efficiency goals. It is argued here that these conclusions are too strong. The work requirements and time limits of welfare reform create equity outcomes that are dubious and leave the potential for inefficiencies in the allocation of labor. The EITC excludes almost half of the poor population under age 65, rewards poorer working families less well than it does less poor working families, and provides a sizable work disincentive for a large proportion of its recipients. It is shown here that the poor are not homogeneous. Specifically, the very poor have a much higher incidence of physical and other disabilities. The ability to work varies substantially with income among the poor. There is a case to be made for a much more straightforward form of redistribution, such as the Basic Income Guarantee (BIG). It is quite possible that a BIG would accomplish goals of equity and efficiency more fully than the current mosaic of redistributive programs.