Rational expectations

My first two years of high school were endured in what we can call a “demographically eclectic” setting. The sons and daughters of professors and attorneys were cheek to jowl with the offspring of inner city welfare mothers. School was an armed camp, complete with full time police officers working there, scores of security guards, and all sorts of crime that would bring squad cars with sirens wailing in response to our stabbings and assaults.

It was easy to understand that there were differing schools of thought within that school. Some kids had plans and goals–they wanted, generally, to go on to college, go into the military, or pursue a vocational skill. Others, though, having seen that it’s fully possible to get by in life without working, simply regarded school as a place to hang out, goof off, fight, steal stuff, and bide time until they rotated back out the mean streets, only to breed another generation to perpetuate another turn in the welfare cycle.

The situation was probably the first time I pondered economics in a philosophical and social light. I didn’t know it at the time, but I was knee deep in a topic known as “rational expectations.”

We can’t say that it is irrational to goof off in school, emerge semi-literate, breed ratty children, and live on welfare. It certainly is no less rational than working hard in school, only to get saddled with student loans in college, only to have to toil like heck afterwards to pay off those loans and, of course, only to support the folks who have chosen the permanent welfare route. In fact, if we can inject any objectively rational ideas into this, the welfare angle would seem to be a lot more rational than the college-salaryman life. In the former case, you’re a net receiver of wealth. In the latter case, you’re a net contributor of that wealth. Maybe it’s more blessed to give than to receive, but in economic terms it’s more rational to receive than it is to give.

So I’m perplexed when I hear that the welfare state “doesn’t work.” Sure it works. If it didn’t work, nobody would volunteer to be on the rolls. The people get their freebies, and the government gets power over them.

Better yet, they’ve created an entire segment of society that is a permanent and entrenched constituency for the politicians. That’s not rational? That’s mega-rational. That’s steely eyed Machiavelli realpolitik rational. Like farmers planting crops, the Great Society has grown an electoral segment that can be harvested time and time again when the votes come due. The welfare strata is the ultimate politically renewable resource. That’s more than rational–that’s pure genius.

Not everybody wants to work. Not everybody has a passion for a profession, nor a calling in his heart that gets him out of bed in the morning so he can greet the day with gumption and enthusiasm. Some folks just want to get by with minimal effort. When government programs can make such a lifestyle possible, it is a rational choice for some people to pursue. Choosing poverty is not counter to economic theory, it can be entirely consistent with it.