There are lots of big questions about welfare programs and how to design them. I am not going to answer any of those questions here, but I am going to ask a few, specifically these two:

1. Should receipt of welfare be means-tested for need (e.g. TANF) or universal (i.e. a minimum income for everyone)?
2. Should receipt of welfare be conditional on employment?

The good arguments for means-testing usually boil down to maximizing impact. If we have a fixed amount of resources we can redistribute, then we can maximize the impact of those resources by directing them towards the people with the greatest need (rather than spreading it thinner across everyone). The good arguments against means-testing revolve around changing incentives at the margin. Even when designed with gradual phasing out as a person’s income rises, there remains the unavoidable reality that means-tested welfare reduces the value of every marginal dollar earned within the phase-out window.

The good arguments for requiring employment to receive a form of welfare are, again, incentives to work, this time at the extensive margin (i.e. how many people in the population choose to work at all). The good arguments against requiring employment are the obstacles that poverty places between people and finding work. It becomes a classic Catch-22 – you’re poor because you can’t find work, but you can’t find work because you are poor. Welfare unconditional of employment can help people get over the hump and into their next job.

None of these observations are new, and these very much remain hard questions. Yes, we should be concerned with incentives to work at the margin, but the fact remains resources are finite, and many people will, at some point in their lives, need a lot of help. The more we can give them the better. This pushes me towards means-testing. But then I remember that those marginal incentives to work at the intensive margin (how much to work) depend on phasing out of benefits with increasing visible income. For people living in poverty, there exist a number of viable earning options that are not visible to the institutions testing their means. A dollar earned in legal wages might reduce TANF benefits by $0.15, but a dollar earned in the black/gray market leaves those benefits untouched. Yes, illegal earnings come with risks, including future access to benefits, but the possibility remains that means-testing benefits could have the perverse effect of increasing the relative value of any and all “off-the-books” income, be it cash labor in the gray market or explicit criminal earnings.

Considering whether a source of welfare should be conditional on employment raises the question of wage subsidies versus cash welfare, but it’s really just the same question we were pondering previously, but with greater emphasis on incentives to work or not. These questions at the extensive margin, much like those at the intensive margin, become far more interesting when placed in the context of not just whether to work or not, but which market to work in. In a world of prohibitions scattered across a variety of extremely high demand (and high profit) markets, where licensing, educational norms, and discrimination all work to create a collage of cash opportunities outside of the well-lit protections of legal labor markets, there is no shortage of work that goes unseen. Welfare transfers conditional on legal labor can serve as incentive to pull people out of these market, and begin building a record of accomplishment that serve them going forward. This speaks in favor of conditioning welfare on employment, so long as everyone has access to employment.

This this thought experiment leaves me mostly where I started (no surprise, an hour’s reflection rarely changes my priors), namely that wage subsidies have a place in our welfare system, as does means-testing, but as welfare benefits rise, they should become more universal in their access across the income distribution, a lesson I expect we will learn in retrospect as we come out of “The Great Resignation”. A “universal basic income” need not be fully universal, but there are good reasons for it to reach well passed the median income. Or median voter, for that matter.

But maybe I repeat myself?

That sentence is one that I repeat every time I teach economic history. It is repeated because a common misconception in history is that there are “different mentalities”: a pre-capitalist mentality versus a capitalist mentality; a western mentality versus a non-western one etc. The variations are endless but the common denominator is quite simple: there are discontinuities in economic rationality and these discontinuities explain economic change.

That, as I explain to my students, amounts to labelling people of the past as “irrational morons” who would leave $100 bills on the sidewalk. There are no variations in rationality, merely variations in constraints and incentives. That is what I tell my students. And the thing is, that statement is actually testable! Indeed, arguing that something in people’s brain changed is an argument that can never be tested because they are dead and cannot testify. In fact, even if they were alive, their statements would be meaningless because nothing speaks louder than actions (i.e. preferences are revealed by action). Making statements about the rationality of X or Y action is easily testable as we can observe what people did (or do now). And its really easy to refute differences in “mentalities”

Let me give you an example from my native Canada. In Canada, there is a large French minority (the majority of which lives in Quebec) which has long been argued to hold different economic mentalities than the neighboring English majority. Peddled (yes, that is a strong term but I think it applies) by both French and English historians (and economists), this view is used to explain the relative poverty of the French minority (which has historically been 60%-75% as rich as the English majority). As far back as the early 19th century, French-Canadians are argued to have clung on to archaic farming techniques even though they observed better techniques from their English-speaking neighbors. Their “traditional conservative” outlook (in the words of an eminent Canadian historian) pushed into economic stagnation (and even retrogression by some accounts). This view continues today. I vividly remember a debate on French-Canadian TV with former Quebec premier (like a governor for Americans) Bernard Landry telling me that there was a difference between my “anglo-saxon economic worldview” (i.e. neoclassical economics) and that which most French-Canadians held.

The virtue of this example is French-Canadians are deemed to be of a “lesser” mentality than English-Canadians at the same moment in time. Thus, it is easy to test whether this is the case. In multiple works, notably in this paper at Historical Methods, I have used simple tools from economic theory to assess this lesser mentalities hypothesis. Start from a simple Cobb-Douglas production function:

Where A is technology residual (also known as total factor productivity or TFP), Y is total output, K is the capital stock and L is the labor supply. The exponents are just the elasticities of capital and labor. If the English and French in Canada are separated, there are two production functions (with one for each) and they can be divided by each other. But the neat part about the Cobb-Douglas function here is that you can rearrange the equation and solve in terms of A rather than Y. As A is total factor productivity, it tells us how effectively people combine inputs K and L to produce Y. And then you can express A in the French sector (1) as a ratio of A in the English sector (2) as in the formulation below

Technically, if the French farmers were less efficient than the English farmers the ratio on the left-hand side should be less than 1 (as A₁ < A₂ ). Using data from the 1831 census of Lower Canada (as Quebec was known then), I compared farms in French areas to farms in English areas. The results? Yes, the French farmers were poorer (income Y₁ < Y₂ ) but there were very small differences in efficiency of input use (A) between French and English farmers as can be seen in the table below. French areas were 4.3% to 0.5% less efficient than English areas.

But when you controlled for land quality, distance from urban markets, recency of settlement, complementary industries and other controls, there are no statistically significant effect of culture (proxied in the table below by share of Catholics as all French-Canadians in 1831 were Catholic and very few English-Canadians were Catholic). In other words, the small differences have nothing to do with culture or differences in mentalities.

Notice that this was a relatively simple logical test. The farming actions of French-Canadians were observed in the data. We know which inputs they chose to use (in which quantities as well). The results of these actions are easily observable through the output data in the census. Irrationality on their part is thus easy to test as a simple Cobb-Douglas model suggest that irrationality would be manifest by an inferior ability to use and combine inputs. They used inputs equally well as English Canadians and so that claim of inferior mentalities was wrong.

One could reply that I am just picking an easy case to dismantle the “mentalities” claim. But I am actually late to that party by adding the French-Canadians. Similar claims have been made for Russian, French, Italian, Chinese, Vietnamese, Korean, Mexican, Indian, Polish, New Englanders (yes, you read right), Danish, Irish, Kenyans, Algerians, Egyptians etc. Hundreds of economic historians and economists have shown that these cases do not hold.

If you wish to explain economic change (or economic disparities), you have to look elsewhere than “changes in mentalities” (or differences in mentalities). If you dont, you are essentially claiming that people of the past were irrational morons who simply lacked your expert knowledge.

The Take Economy demands not just that you distinguish yourself with opinions that deviate from the median person, but that the manner in which your opinion deviates is immediately distinguishable from everyone else who is similarly deviating. This leaves us with a tendency to focus on what we don’t like – enjoying something is further evidence of the monoculture, while hate comes in a million shades of beige.

I bring this up because hating Thanksgiving foods, particularly turkey, oven-baked turkey, has been in vogue for years, and I’m sure stuffing is next. Everything is too dry, too bland, yada yada yada. It’s a boring take most often made by boring people. Not that such things usually matter to me, but in this case it does because Thanksgiving as a meal is not an epicurean holiday, it’s an attempt to solve a coordination game across families, friends, and geographies. When solving a coordination problem with so many players, with preferences and cost-constraints that make broadly amenable large-scale get-togethers increasingly difficult. Between navigating travel costs, sleeping arrangements, and the inevitable negative political externalities that some jackass in your family is going to pollute the familial air with, the last thing you have the resources to cope with is culinary coordination. So what do we do? We come up with a pseudo-national, heavily regional menu that we coordinate on, a$1.99 per pound Schelling point that’s a steal at thrice the price.

The turkey’s too dry? Drown it in gravy. The stuffing is too bland? Your aunt has hot sauce in her purse. Your cousin is explaining the vagaries of 18th century 2nd amendment judicial rulings? There’s a bottle of brown liquor quietly being shared on the porch this very minute that you can partake in for the price of nothing more than a pleading glance and keeping your politics to your self.

The food isn’t the point, but if you’re still feeling the pain of a sub-optimal meal, you can order Chinese with us later, and I’ll happily explain to you why you’re not just ordering the wrong dishes, you’re ordering off the wrong menu. Because I got food takes, just not when the meal isn’t about the food.