Is it unwise to let the perfect be the enemy of the good? Sure. But many seemingly free-market reforms are in fact worse than original problem.
Take the negative income tax (NIT) for example. The NIT is supposed to make the welfare state more “efficient” (but why should libertarians help the government do evil more efficiently?) and rebut objections of the ideological Left by providing a guaranteed safety net. John Humphreys has come up with the 30/30 plan in a monograph published by the Centre for Independent Studies.
Many credit Friedman as being the originator of the idea, but they are wrong. Well before Milton Friedman received credit for the NIT, Austrian School economist Henry Hazlitt had already thought of the idea. However, Hazlitt later discarded it as unworkable. The objections of the Austrian School have been ignored by most Australian commentators, but now is a good time to understand their arguments. Let Hazlitt make the case:
[K]nowing what we do of political pressures, and of the past history of relief, “social insurance,” and other “antipoverty” measures, we are forced to conclude that once the principle of either the NIT or the straight guaranteed income were accepted, it would be made an addition to and not a substitute for the present conglomeration of relief and “antipoverty” programs. And even alone it would drastically reduce the productive incentives of those earning less than the guaranteed amount and seriously reduce the incentives of those earning more, because of the oppressive taxation it would necessarily involve. Its overall effect would be to level real incomes down, not up.
Murray Rothbard raises other objections:
The one element that saves the present welfare system from being an utter disaster is precisely the red tape and the stigma involved in going on welfare. The welfare recipient still bears a psychic stigma, even though weakened in recent years, and he still has to face a typically inefficient, impersonal, and tangled bureaucracy. But the guaranteed annual income, precisely by making the dole efficient, easy, and automatic, will remove the major obstacles, the major disincentives, to the “supply function” for welfare, and will lead to a massive flocking to the guaranteed dole. Moreover, everyone will now consider the new dole as an automatic “right” rather than as a privilege or gift, and all stigma will be removed.
The NIT is innovative only in an administrative sense. As Robert Murphy puts it, the NIT is “a welfare program that is novel only in the method by which the amounts of the checks are calculated”. It changes how cheques are sent out to dole recipients, but it’s hardly the type of radical reform that will end the culture of dependency fostered by the welfare state.
Unfortunately, there’s no easy-fix for the welfare state. We must argue for its complete abolition, not tinker with cures like the NIT that are worse than the original disease.