home | Tea Party Economist | Housing Vouchers: Equal Opportunity . . .

Housing Vouchers: Equal Opportunity Crime-Sharing

Gary North - August 23, 2013
Printer-Friendly Format

Remnant Review

The Department of Housing and Urban Development (HUD) has adopted housing vouchers as a way to finance families' escape from the inner city. The program is described here. It is part of a much larger program. HUD has launched a comprehensive program to move inner-city residents into the suburbs. HUD will do this at taxpayers' expense. The story is here.

The city of Memphis adopted this strategy in the mid-1990s. The statistical results began to be evident in 2005, the year I moved from Arkansas to just south of Memphis on the Mississippi side of the city line. Guess what happened to the crime rate in suburban Memphis -- neighborhoods often occupied by middle-class blacks. You don't need to guess. You know. The story is here.


A voucher is a government subsidy to people who are economic failures. This is the bottom line, but with no sugar coating. The voucher system is another welfare state program. It takes money from successful people, turns it over to unsuccessful people, thereby allowing unsuccessful people to buy into a little of the lifestyle of successful people, but without becoming middle class.

A voucher is a government subsidy of a specific kind. It is a partial subsidy. In the language of economic theory, it is a subsidy at the margin. It allows a few people living on the bad side of town to rent or buy on the better side of town. I use the word "town" as a substitute for "lifestyle." The bigger the federal program, the more people who can buy into the preferred lifestyle.

The recipients of vouchers need not change internally to be eligible. In fact, they are subsidized not to change internally. If they go out and get jobs, they will lose their vouchers. So, they sit tight, culturally speaking. Their attitudes do not change. Their view of economic cause and effect does not change. Only their income changes . . . at the margin. They do not become middle class. They merely buy some of the visible trinkets of the middle class. To put it insensitively -- the way I love to put things -- they buy middle-class bling. This annoys a lot of members of the middle class, because they worked hard for their bling.

The person who receives a voucher from the government turns the voucher over to someone who makes money by selling goods or services. The seller does not care how the buyer got his money, as long as it was legal. Money talks. Personal histories don't. So, he sells the items, collects a voucher, and then turns the voucher over to the government. The government pays him money for the voucher.

It's easy money for the buyer. It's easy money for the seller. It's easy money for the government agency administering the program. And, because hardly any voters follow the money for specific voucher programs, most voters don't notice. The programs grow.

A billion here, a billion there, and pretty soon it's big money.


About 47 million people receive food stamps these days. The program has become so popular that the government decided to change the name of the program. The words "food stamps" are widely understood -- accurately -- as a government welfare program. There is therefore a stigma attached to people who receive food stamps. They are seen as failures. This is because they are failures. They cannot or will not compete.

Government intervention is a major cause of their failure. Either they are paid by the government not to compete, or else the government makes it illegal to hire them. Minimum wage laws are the main factor here.

People on welfare do not learn the basics of deferred gratification. Necessity does not become their personal mother of invention.

As the program grew popular, the U.S. Department of Agriculture had a public relations problem: visibility and stigma. Middle-class people in a grocery store check-out line can see the food stamps used by the person ahead to buy food. This creates resentment. Second, the person using the stamps might sense this resentment. So, the government did two things. It substituted a debit card for physical food stamps. This way, no one behind a person at a grocery store can see that the person in front of him is on the dole. Second, the government changed the name of the program to SNAP. Isn't that a snappy title? SNAP stands for Supplemental Nutrition Assistance Program.

Food stamps/SNAP cards increase the demand for food. This increases the price of food. This program redistributes food from people who work in order to eat to people who do not work in order to eat. Successful people pay more for their food, and unsuccessful people do not. Meanwhile, agribusiness firms make lots of money by means of food stamps. Agribusiness firms are big supporters of food stamps. In other words, special interest groups always favor voucher programs. There are three major special interest groups in all voucher programs. First, there are the recipients of the subsidy in the form of lower-cost goods and services. Second, there are the suppliers of these goods and services. Third, there are the government bureaucrats who administer the programs. This is the inherent nature of all vouchers.

When you think "vouchers," think "food stamps."

The federal government is about to launch a new program of housing vouchers. To understand how housing vouchers will work, you must understand how the food stamp program has worked. It has expanded relentlessly. When you offer something for free, you find a lot of takers. Free food gets a lot of takers.

For a powerful graphic on just how much money this program costs taxpayers, in stacks of $100 bills, click here.

The number of people trying to get in on this program is huge, and the U.S. Department of Agriculture is spending millions of dollars a year to advertise the availability of the program.

The voucher program has created special-interest groups that receive money from the government by means of the vouchers, and this special interest group will defend the program until the government finally goes bankrupt. These programs are never cut. They only grow.


HUD has always been the primary federal agency for disrupting neighborhoods by means of government subsidies. That is its entire function. It has had this function from the very beginning. It was created for this purpose. Half a century ago, Martin Anderson wrote about this in his book, The Federal Bulldozer.

HUD now promotes vouchers. This voucher program was originally promoted by Milton Friedman, as a way to make public schools better. The logic of it is simple: (1) tax people who are successful; (2) create vouchers for people who are unsuccessful; (3) let the unsuccessful people send their children into the government-funded schools in upscale neighborhoods, whose residents spent a lot of money to escape from the presence of the unsuccessful people.

The economics department of the University of Chicago has promoted various plans over the decades that are variants of vouchers. These programs are based on this assumption: it is possible to make government programs more efficient, and more liberty-supporting, by creating pseudo-market subsidies funded by the state. These subsidies will supposedly make the state resemble the private sector. It will make the state less wasteful. This way, we can cut state costs.

The University of Chicago first made its reputation in this area in its defense of school vouchers. The great promoter of this scheme was Milton Friedman. Friedman was always looking for ways to make state more efficient. He wanted more bang for the taxpayer's buck. In contrast, I have always favored making the state less efficient. I want less bang for my bucks. I want less bureaucracy than I pay for. But this idea was always regarded as nonsense by Milton Friedman.

This is why he helped to develop the original case for income tax we withholding. He knew that it would increase the ability of the federal government to collect additional tax revenues. He always claimed throughout his post-Treasury career that this plan was an error of his youth. He always claimed this was not consistent with his philosophy. On the contrary, it was the heart, mind, and soul of his philosophy: how to make institutions more efficient. This included the state.

He also taught, as all University of Chicago economists teach, that if you make something more efficient, you can lower its price. But there is a huge theoretical challenge with this argument when applied to the state: the law of demand. Economic theory teaches that when you lower a price, more will be demanded. So, the University of Chicago, by its commitment to reducing inefficiency, and by making the state more effective, has always inescapably promoted an idea which, if successful, would lead to the expansion of the state. More will be demanded. That is inherent in the very nature of economics. Yet the Chicago School economists like to think of themselves as limited-government advocates. Their position is therefore schizophrenic: more demand for state programs in the name of a minimal state.

What has saved us is this: bureaucrats resist making their departments more efficient. In the state's micro-economy, bureaucrats prefer waste. This is known as Parkinson's Law. This unofficial but universal policy creates macroeconomic waste on an unprecedented scale. It helps keep us free. We get less bang for our bucks.

What keeps us free is this: the University of Chicago's economics department only rarely convinces any politician or bureaucrat to make the state more efficient. This is a tremendous benefit for American society. The federal government remains inefficient, and therefore there is taxpayer resistance against the expansion of taxation. Here is the rule: when prices rise, less is demanded. Resistance increases. This is why, in the United States, the federal government has never been able to extract as much as 21% of GDP in tax revenues. Even in 1944, when Milton Friedman's recommended program of income tax withholding was in its preliminary stage, in the midst of World War II, the federal government only collected about 20.8% of GDP in revenues. The American public simply will not vote to let politicians extract more than 20% of GDP in the form of revenues. Debt, yes. Not revenues. The voters have the picture.

Chicago School economists try to find pseudo-market arrangements to make government-controlled, government-regulated, and government-funded non-markets function marginally better, because of some minor degree of volunteerism that becomes the cutting edge for more government intervention. Chicago School solutions of this type are based on the idea that it is not a good idea to walk away from all government regulation, all government subsidies, and all of the privileged monopolies created by the state. That would be way too radical for Chicago School economists. So, they find ways of creating pseudo-market arrangements, where state money does not control people's behavior directly, such as a policeman sticking a gun in your belly. Instead, the subsidies act as indirect ways to control people's behavior. The state still extracts money from one group of taxpayers to transfer the funds to another group of politically favored taxpayers. These solutions are not market-based solutions. They are simply some version of the combination of government and business, which in the 1930s was called fascism, and which today is called the corporate state.

Keynesians think state regulations can make businesses more ethical. Chicago School economists think business-like reforms can make the state more efficient. Both groups reject Ludwig von Mises' analysis of bureaucracy, which showed that the two management systems are fundamentally distinct. They cannot be mixed successfully.

Doubt me? Find a Chicago School economist who says that the Federal Reserve System is a statist monstrosity, a monopoly created by the federal government, for the federal government, for the big banks, and against the interests of the people.


I have been an opponent of education vouchers for over 50 years. There may be somebody around who has been opposed education vouchers longer than I have, but I have never met that person.

I oppose vouchers for a philosophical reason. I oppose all tax funding for education. I do not believe that anybody should be forced to pay for the education of anybody else's child. I do not think the state is in any way responsible for education. Parents are responsible in the early years; parents and children may be responsible for college; and adults are responsible for the education of themselves and their own children thereafter. At no stage does the state have any moral claim on the authority to educate anybody.

I first heard about school vouchers in a lecture by Robert Cunningham at the West Coast summer seminar of the Intercollegiate Society of Individualists in 1962. A year later, his article on vouchers was published in New Individualist Review. The journal was published by graduate students at the University of Chicago. Milton Friedman became the major proponent of school vouchers in his book, Capitalism and Freedom (1962).

I never accepted the idea. It is a program based on coercion: badges and guns.

In 1976, I wrote an article for The Freeman on this: "Vouchers: The Double Tax." I debated this issue with Milton Friedman in The Freeman in 1993. Yiu can read the exchange here.


Here is one case where the entrenched bureaucrats have done the right thing. The teachers' union hates vouchers. It hates vouchers for the same reason that Milton Friedman favored vouchers. Vouchers would force some degree of competition into the tenured monopoly known as public education. It would give parents a limited choice of where to send their children. The schools would still have to be state-licensed and secular. The Supreme Court would see to that. The program would be funded by the local government. The thought of government funding allowing parents to pull their children out of rotten inner-city schools, and send those children into upper-middle-class schools in the suburbs, outrages the teachers' union, which will not take responsibility for the rotten quality of the public schools in the ghettos.

To some extent, this attitude is correct. Study after study has been produced, beginning with the Coleman Report (1966), that there is not much that inner-city schools can do to improve student performance. The reason is this: the fundamental difference between good public schools and bad public schools is this: the commitment of the parents to good education. Parental support for their children's education, emotionally as well as in the home environment, is the most important single factor in the success or failure of students.

This is one of those cases where it is best not to blame the government's schools. Yes, the government's schools are failing. Yes, the inner-city government schools are terrible. But if we are consistent, and if we really do believe that the fundamental responsibility for education is parental, then it is time to stop blaming the government's schools. The fact that formal education is terrible in the inner cities reflects the fact that parental support for education in the inner cities is weak. These are mostly single-mother-run families. The husbands are absent. There may not even be husbands. The male progenitors are absent.

To blame the government's schools for the social disintegration of the inner city is misleading. It is one factor, but it is not the major factor. We should blame government schools for the rotten institutions they are, based on the rotten policy of forcing one group of parents to pay for the education of the children of another group of parents. But the main problem with the inner-city schools is not primarily government funding. It is the collapse of the social institution of the family. The only thing that the government can do to reduce this is to stop funding the programs that subsidize irresponsible behavior. This would include the schools, but more important are the family income programs. The state is not in a position to make families better. But the state is in a position to stop subsidizing the creation of single-mother households. It is politically incorrect to say this, so this is never said in public.

The public schools' teachers don't want competition. They are bureaucrats. Bureaucratic funding is always geared toward employee seniority, and only rarely geared toward student performance. This subsidizes mediocrity. This subsidizes timer-servers. The worst teachers are fired in the early years, before they get tenure. The really good teachers are pressured to quit. Jaime Escalante is a classic example. Marva Collins is another.

The next group that opposes education vouchers is made up of parents in the suburbs. They understand what vouchers really are. Vouchers are a way to get forced integration, at government expense, into their schools. Parents pay a lot of money to get out of the cities, in an attempt to get away from the social environment of the inner city. This includes getting away from inner-city schools. Now, with government money behind them, parents in the inner cities are going to be able to get their kids out, but without going to the expense of getting the educational background themselves, or earning enough money to buy their way into neighborhoods where there is less crime, more parental support for education, and better public schools. In other words, education vouchers are government subsidies for social escape of the next generation.

The Coleman Report found that black kids do better academically only when placed in schools where whites are in the majority. This means suburban schools. White voters can see where this is heading. They oppose vouchers.

The parents of the children were enrolled in suburban schools do not want their schools invaded by students who have grown up in the ghetto. They don't want their children in the same classrooms with poorly trained students who are two years older than the kids around them. They cannot compete with the suburban students who are their own age. Because the schools do not want to push those older students downstream, and because their parents resent the policy, these poorly educated students are put into the classrooms filled with children their own age, but who are two years ahead of them academically. The voucher-funded students will be resentful because they cannot compete, and they will make trouble. The parents who live in the suburbs know this, and they will fight vouchers every time.

So, there is an alliance. Libertarians do not like tax-funded education, so they oppose vouchers. The teachers' union does not like inter-school academic competition, so they oppose vouchers. Suburban parents do not like forced integration, so they oppose vouchers. All in all, vouchers have been a gigantic failure.


Education vouchers have failed politically. They are subject to voters' approval locally, and voters will not vote for them.

After 50 years of failure, HUD has decided to use another form of vouchers: vouchers that are not subject to local voting. Education vouchers let the children escape. This strategy has failed. So, HUD has broadened the scope of vouchers. Entire families will be granted tickets out. HUD will offer subsidies of all kinds to persuade cities to let the inner cities of America spread into the suburbs.

If this is not de-funded, your city may become Memphis.

Printer-Friendly Format