A Proposal for Universal Paternalism

Last week, I asked why shouldn't we have paternalism for factor income (i.e. labor and capital income)? My point was that the arguments for why we need to use paternalism for transfer income (i.e. welfare income) also apply to factor income. Some people who live on transfer income make bad consumption choices that are harmful to themselves and others (and most especially their children). Some people who live on factor income do so as well. Thus, it makes no sense to paternalize over transfer income and not paternalize over factor income. Is a kid any less deserving of the protections paternalizing over their parent's expenditures delivers just because that kid's parents blow factor money instead of transfer money? It sure doesn't seem so.

One half-baked response to my argument on this front was to say that we don't need to paternalize over factor income because we have institutions, such as Child Protective Services, that will step in to protect children harmed by their parents' bad consumption decisions. The reason this argument is half-baked is that it is equally true for transfer income. Institutions such as CPS will step in to protect children harmed by their parents' bad consumption decisions regardless of their parents' income source. When it comes to transfer incomes, the pro-paternalism people do not think that CPS is enough. That is, when it comes to transfer income, they believe that adding paternalistic restraints on top of CPS brings additional benefits. This means that, if they are being consistent, they should also want to add the same additional paternalistic restraints to factor income, assuming again that they care about the children in families that rely on factor income.

To be super-clear about my point here, consider the following three scenarios of how much protection to provide children in transfer-income families and children in factor-income families.

Scenario One

Factor Income Kids: CPS only

Transfer Income Kids: CPS only

Scenario Two

Factor Income Kids: CPS only

Transfer income Kids: CPS + expenditure restraints

Scenario Three

Factor Income Kids: CPS + expenditure restraints

Transfer Income Kids: CPS + expenditure restraints

Analysis

If you believe that CPS by itself is enough to deliver an adequate level of protection to kids, then you would pick Scenario One. But pro-paternalism conservatives do not pick Scenario One. This means that they do not believe the CPS by itself is enough.

Instead, the pro-paternalism conservatives opt for Scenario Two. And when you press them upon it, their argument is that expenditure restraints provide an additional benefit over only having the CPS. That is to say, conservatives making this argument necessarily believe that some number of marginal childhoods are made better by moving from "CPS only" to "CPS + expenditure restraints." If they didn't believe that, then they'd opt for Scenario One.

But if pro-paternalism conservatives believe there is a marginal benefit to adding expenditure restraints on top of CPS, then that raises the question why they don't go for Scenario Three. According to their own argument, choosing Scenario Two over Scenario Three entails the destruction of at least some number of childhoods (specifically factor-income childhoods). That's monstrous! Right?

Proposal

This is all quite abstract so far, but it doesn't have to be. You can imagine a world where we added expenditure restraints to factor income quite easily. All you'd need to do is mandate that the first (let's say) $5,000 of factor income people receive will be paid out as EBT money that could only be spent on food, clothing, shelter, and utilities. The rest, of course, would be paid out in cash. By restricting expenditure through a universal EBT-type system, we would protect children in factor-income families the same way as we protect children in transfer-income families.

Such a system would not do much to negatively affect incentives. After all, you'd still get the same amount of income for the same amount of labor/investment. You'd just be restrained in where you could spend $5,000 of it. Responsible people would already spend at least $5,000 of income on food, clothing, shelter, and utilities. And so for them, the EBT scheme makes no difference. Anyone who (but for the EBT scheme) wouldn't spend at least $5,000 that way would be forced to do so by the system and thus would obviously be affected in some way. But that's a good thing. Indeed, that's the whole point of paternalism: to protect people (and especially) kids from bad consumption decisions.

If you believe in paternalism and you believe adding expenditure restraints provides important additional protections, then what could your objection to this scheme (or something similar to it) possibly be? Why should kids in particular receive less protection from their parents' bad consumption choices just because of the manner in which their parents collect their income?

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