Wednesday, July 13, 2005

Can a country be too poor for a safety net?

Yes. Given that I care about long run growth, the problem of safety nets is reducing incentives to work and innovate and all that blah blah. Here the difference between an advanced industrialized capitalist society, and a poor country matters. For in America even if we instituted a safety net as dramatic as universal basic income people would still work, because most people can anticipate living far above subsistence, and thus would still want to work even if guarenteed subsistence. But in a really poor country, a welfare state that guaranteed people subsistence would discourage most people from working for they already live at subsistence, so why work at all? Thus because of the differential impact on incentives it's not inconsistent to oppose safety nets in poor countries (which aid can end up approximating) while still supporting the welfare state at home.

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