Chapter Eleven Of Capitalism And Freedom By Milton Friedman

In 1962, distinguished economist and Nobel Laureate Milton Friedman published Capitalism and Freedom, a collection of essays that departs from mathematical economic models and instead unpacks economics’ real world relationship with public policy issues. In Chapter Eleven of Capitalism and Freedom, Friedman proposed a social policy called negative income tax (NIT) – a measure where individuals and families below a certain income level receive cash from the government, instead of paying taxes. Friedman argued that the $33 billion dollars that America used to fund a “rag bag of measures” in place to alleviate poverty would be better spent if put towards a NIT program. He writes:
The advantages of this arrangement are clear. It is directed specifically
at the problem of poverty. It gives help in the form most useful to the individual, namely, cash. It is general and could be substituted for the host of special measures now in effect. It makes explicit the cost borne by society. It operates outside the market. Like any other measures to alleviate poverty, it reduces the incentives of those helped to help themselves, but it does not eliminate that incentive entirely, as a system of supplementing incomes up to some fixed minimum would. An extra dollar earned always means more money available for expenditure.

While NIT programs floated in the policy arena prior to Capitalism and Freedom, Friedman's writing on the topic popularized the idea alongside growing unrest with existing inadequate social welfare programs. Consequently, during the late 1960s and 1970s, four experiments launched across the country to test the viability of NIT programs. The largest and longest running experiment was the $70 million dollar Seattle-Denver Income Maintenance Experiment (SIME/DIME) .
Implementation
Formulation
SIME/DIME began in Seattle in 1970 and expanded to Denver in 1972. The experiment was fortunate enough to be the final NIT experiment in the series, allowing its formulators to design a program that repeated the successes of earlier experiments, while also bypassing their mistakes. Like its three predecessors, the main purpose of SIME/DIME was to observe how cash payments would affect the economic and social behavior of the poor. Therefore, the experiment provided no jobs and posed no work requirements in order for its participants to receive benefits. Meanwhile, unlike experiments that came before it, SIME/DIME administered more combinations of “treatment options” for three or five years; these options were (1) NIT only, (2) counseling/training only, (3) NIT and counseling/training, and (4) no treatment. In addition, SIME/DIME collected data on a more diverse collection of nearly five thousand individuals and families; black, white, and Mexican-American individuals and families were eligible to participate in the treatment groups.
Goals and Policy Tools The central goal of SIME/DIME was to provide poor families with an appropriate income based on their family size and level of need.
To reach this goal, the experiment’s formulators employed the tax system as a policy vehicle. By relieving participants of their income tax obligation and administering (1) NIT only or (3) NIT and counseling/training to participants in the program, the experiment attempted to simulate what might happen if a NIT policy was implemented on a larger scale. Families received a cash payment based on a declining tax rate system so that the payment participants received would be inversely related to their income. In addition to NIT treatment, SIME/DIME subsidized career counseling and job-related training; participants receiving treatment of either (2) counseling/training only or (3) NIT and counseling/training would be given a subsidy to cover 50% or 100% of the cost of counseling or approved courses at the contracted community
colleges.
Intergovernmental Relationships
Like many policies and programs that emerged during the late 20th century, the federal government recognized an opportunity to take public action, then delegated responsibilities to other contractors. The U.S. Department of Health, Education, and Welfare funded the States of Washington and Colorado for the experiment. In turn, these states contracted non-profit research group, SRI International (SRI) to manage the experiment. SRI subcontracted three other institutions –Mathematica Policy Research (MPR), Seattle Central Community College, and Community College of Denver – for on the ground work like data collection, dispensing cash payments, and executing counseling/training treatment.
In the Final Report of the Seattle-Denver Income Maintenance Experiment, the authors reflect that “one of the most importation operational lessons from the New Jersey Experiment was that a high degree of cooperation between the federal government, state welfare issues, and the contractors carrying out the experiment would greatly facilitate the operation of the experiment.” Therefore, SIME/DIME capitalized on intergovernmental relationships.
For example, the involvement of state welfare programs allowed participating families and individuals to be vetted through existing state agencies. Additionally, in cases where families would otherwise be enrolled in Aid to Families with Dependent Children (AFDC), the federal share of the AFDC benefits were retained and repurposed for SIME/DIME
payments.
Important Intrinsic and Extrinsic Factors
Because SIME/DIME was run within the framework of an already operational welfare system, many logistical aspects of the program were easily facilitated. Little information exists in regards to the nature or credentials of on the ground workers. However, it is likely that this would be an important reality to consider when examining the implementation of SIME/DIME because agency personnel is an influential intrinsic factor.
SIME/DIME’s analysts paid special attention to the experiment’s effect on work effort and marital status; therefore, as an experimental program to explore both economic and social effects of NIT, SIME/DIME was subject to a number of significant extrinsic factors. In regard to the payments that were administered, each family or individual’s amount had to be adjusted each year according to the consumer price index to account for price inflation and increasing cost of living. Moreover, to ensure that the results were representing the experiment as intended, MPR staff was fairly involved in the lives of participants. Mandatory periodic interviews were held with all participating families to keep track of changes in family structure and other developments. SIME/DIME’s sample changed frequently due to “family composition changes, attrition, and efforts to counter attrition.” Families who refused to be interviewed were unenrolled in SIME/DIME, while participants who completed questionnaires and actively informed the experiment managers of new information (such as, a change of address) were compensated with small payments of $8 to $11 dollars. Still, extrinsic factors like the participants’ behavior influenced the data rendered from SIME/DIME. Less than half of eligible participants actually took advantage of counseling/training and only a quarter of eligible participants enrolled in training and education courses.