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handicap.jpgIt is an oft repeated canard that the “American economy is not working for the vast majority of middle and lower-income Americans.”  What follows from this are recommendations that have vitually nothing to do with making it work better for these people, but are elaborate schemes to get politicians re-elected, to cater to powerful interest groups, and to speak nobly about helping the less fortunate, while justifying the plunder of the productive.

I recommend we take a lesson from the United States Golf Association (USGA). I love golf, and especially its traditions. The USGA organizes a golf handicapping system that should be the model for our welfare state. In golf, the handicapping system is a voluntary way to make the game fair and equitable for players of all different skill levels.

 The major features of the system include:

  • Any player wishing to compete against another, on a level playing field, must carry a USGA handicap index;
  • This index is public information, and is available for all to see; also public is the information used to compute the index (see below);
  • The index is supposed to estimate the potential of the golfer, not the typical performance of the golfer;
  • It is computed based on an average of the ten best rounds of golf played, out of the last 20 rounds used for scoring;
  • Adjustments to the index are made for the difficulty or lack of difficulty the golf rounds are played on. For example, a golfer would have a lower handicap index if he registered 10 rounds of 80 at Kiawah Island golf club than if he carded 10 rounds of 80 at your local municipal golf course (with this exception).
  • The index is adjusted down (you get a smaller advantage) the better golfer you become, and adjusted up if you get worse.

So, for example, assuming you and me are playing golf on a course of “average” difficulty. If my handicap is a 10, and yours is an 8, then when we play a round of 18 holes against one another, in order to make the competition “fair” on the two toughest holes on the golf course, I would get an extra stroke advantage over you. If your handicap were scratch (zero), I would get a one stroke advantage on each of the 10 most difficult holes on the course. Of course, nothing forces the two of us to play using our handicaps, we could just as easily play straight up – but the system allows for us to compete in a match on terms that should make it more competitive than if we played straight up (e.g. in the last scenario, you would beat me by roughly 10 strokes each time we played, after a while that might not be fun).

Notwithstanding the many reservations I have about such a system, I think it could be gainfully applied to the US welfare state.  If politicians wish to take tax dollars from me and redistribute them to other citizens, do I not have a right to know who is getting these dollars and why? It seems odd (unethical) that there is not a problem with taxpayers having their property confiscated without recourse, but for the sake of “privacy” we are not able to access information on who the tax recipients are. So, if we adopted an economic handicapping system:

  • Anyone who wished to receive direct support from the government, in any form, would have to carry an AEA Economic Handicap Index;
  • This index would have to be public information, and not only this, the data used to make the computation would have to be available for all to see;
  • This index would estimate the economic earnings potential of a tax recipient, not their current economic situation (e.g. when I was a grad student in economics, I had an income that put me right near the federal poverty level – but I am hardly worthy of support);
  • The index would be competed based on measures of schooling attained, work ethic (you get penalized for sloth), parental education, and perhaps occupational choice and a few other factors;
  • Adjustments for the index would be made for both regional cost of living differences, and other circumstances, and would be adjusted up or down as your economic potential changed;

People that did not carry an AEA Economic handicap index would not be eligible for any government support, and anyone that did receive support would have their index known to any and all who wished to see it, as well as their level of support (just like I know how many strokes I get when I play against Tiger Woods). Citizens with higher indexes (i.e. they are worse off) would be eligible for more benefits. Nothing in this program would alter the current level of government welfare payments (welfare broadly speaking), and I would, in fact, support an even larger welfare state (e.g. more generous health coverage) if this simple system were adopted. I suspect cultural norms would rapidly evolve making the majority of current welfare benefit recipients wish to maintain their privacy – and thereby dramatically reduce the amount of government transfer spending. Such a proposal would insure that those who were the neediest in society would be guaranteed to be generously taken care of – just as left-wingers claim to want, and would introduce personal responsibility and accountability into the system (just as the right-wingers claim to want), without any byzantine rules and regulations.

The idea obviously could be refined a good deal; its simplicity and transparency doom it, of course.

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