You cannot subsidize irresponsibility and expect people to become more responsible.
~ Thomas Sowell
Knowledge is a funny thing, largely because it is entirely unquantifiable. It is divisive, not through its own existence, but because of the responses and reactions it provokes. It marks the difference between thriving or merely surviving.
While I have written before about the socio-economic divide in the wake of Margaret Thatcher and her policies and reforms, it is such a perfect illustration of the knowledge-action gap that it is worth revisiting. Summarizing her tenure as prime minister, she wrote in 2006:
The policies we introduced in the 1980s were fiercely opposed. Too many people and industries preferred to rely on easy subsidies rather than apply the financial discipline necessary to cut their costs and become competitive. Others preferred the captive customers that a monopoly can command or the secure job in an overmanned industry, rather than the strenuous life of liberty and enterprise. [….]
Where redundancies had to be made because of overmanning we were determined to ensure that those who lost their jobs would receive a capital sum related to the length of their service. For the first time in their lives this put capital into their hands and each industry helped them to find other jobs or to set up businesses of their own. Thus we made clear our concern to look after those who were losing their livelihoods as well as those who were staying on.
It was an unusual type of sale, buyers were not asked to pay anything for the land or for the plant. They were even offered substantial capital sums to cover the necessary redundancies and to help build a modern effective industry in the private sector.
Essentially by allowing a one-time subsidy to the cost of privatization, Thatcher created a different type of stimulus. Her intention was very clear: those made redundant were to take their severance compensation and use it to become financially independent, ideally through starting their own businesses, though education or new skills acquisition would probably have also been acceptable applications. However, in April 2019, BBC journalist Allan Little found a sharp divide, a border marked by culture, wealth, and well-being, between those who had used Thatcher’s “capital sum” properly and those who, presumably, had not. On one side, he found happy, confident, independent entrepreneurs and business owners; on the other, he found welfare dependency, despair, and people mired in multigenerational poverty.
Another example, from the other side of the Atlantic, is the US social security system, a mandatory federal pension supplement plan. The word “supplement” is important. At no point, was the Social Security Act of 1935 intended to replace proper savings and investment as a retirement and pension plan, which was clearly signaled by the fact that the original bill limited federal payments to a fraction of 1% of the monthly income earned through working. It clearly stated that the most anyone could receive from the system following retirement was 0.5% of his/her previous income. And that fractional amount was inversely proportional to tax bracket because those who earned more were expected to have made better provision for their old age.
In Franklin Roosevelt’s own words from the public address, broadcast nation-wide, in which he introduced the concept of social security in 1938:
The Act does not offer anyone, either individually or collectively, an easy life--nor was it ever intended so to do. None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold; and that is the kind of protection Americans want.
Yet today, thousands of Americans are retired and, having planned to live entirely off social security, are outraged that the sums are not enough to maintain their previous lifestyles, or even to live on. Entire political campaigns are built on social-security-isn’t-big-enough indignation syndrome.
But all of the indignation, be it about American social security or the poverty of the former English industrial heartland, is built on the self-deception and delusion of individuals and entire communities. At no point in history did the leaders, in this case Thatcher and Roosevelt, mislead about the nature of their policies or about the expectations attached to them. Nor was the knowledge of their intentions a secret, available only to a privileged few. In the case of Roosevelt, it is conceivable that that current American retirees never knew, or perhaps bothered to read the fine print, about the deliberate limitations on social security. Such an excuse, however, does not exist in the case of Thatcher, especially in light of the fact that Allan Little met people who credited her with creating the foundation for their success. In other words, those who used their severance compensation or social security correctly did not have more “knowledge” than those who did not.
When one purchases a household appliance, one finds in the packaging a users’ manual which includes a list of things the tool is not designed to do or ways it is not intended for use. Normally there is also a warning along the lines of “failure to comply with these instructions may result in injury or death.” These booklets are technically legal documents which indemnify the manufacturer and the seller against misuse and also provide a framework for their responsibility in the event of an appliance malfunction. If a buyer misuses a product and is injured in the process, he has only himself to blame. In a similar way, Thatcher and Roosevelt’s own words were users’ manuals for their policies.
Are there any constructive conclusions one can draw from the parallel cases of the use and abuse of Roosevelt and Thatcher’s different policies? Perhaps the only useful one is that there will always be a segment which will not truly benefit from any policy, be it redistributive and paternalistic, like FDR’s, or focused on independence and responsibility, like Thatcher’s. If these groups fail to profit from beneficial policies because of misuse, the fault lies with themselves. Instead of rushing to placate groups and to alleviate the situation, perhaps the best response is laissez-faire, especially since that is the same principle that allowed them to walk themselves off the cliff to begin with.