If you build it they will come and exploit it

There’s no way to build a program for people in need that can’t be taken advantage of by unscrupulous people who aren’t in need. I have a friend, an attorney, who used to work cases involving people who defrauded the foster care system, taking state money for the care of children who didn’t exist, or who weren’t really in their care. It’s maddening. She eventually quit that job, partially because it was so dispiriting to come in daily contact with people being awful. But what can you do? You can’t build a fence strong enough to keep out all fraud without making the administrative burden impossibly high for the many honest people doing the hard, humane work of raising kids who need parents. There’s some optimal level of vigilance that leads to some optimal level of fraud and that optimal level of fraud isn’t zero.

I thought of my friend when I read this story, about developer Dan Gilbert getting an “opportunity zone” tax break officially intended for spurring development in impoverished areas:

Gilbert’s relationship with the White House helped him win his desired tax break, an email obtained by ProPublica suggests. In February 2018, as the selection process was underway, a top Michigan economic development official asked her colleague to call Quicken’s executive vice president for government affairs about opportunity zones.

“They worked with the White House on it and want to be sure we are coordinated,” wrote the official, Christine Roeder, in an email with the subject line “Quicken.”

The exact role of the White House is not clear. But less than two weeks after the email was written, the Trump administration revised its list of census tracts that were eligible for the tax break. New to the list? One of the downtown Detroit tracts dominated by Gilbert that had not previously been included. And the area made the cut even though it did not meet the poverty requirements of the program. The Gilbert opportunity zone is one of a handful around the country that were included despite not meeting the eligibility criteria, according to an analysis by ProPublica.

Maybe there’s no way to design a program like this without billionaires with phalanxes of lawyers and friends in high places being able to sop up some of the money. Even before the “opportunity zones,” Jared Kushner was able to game a similar program by drawing a gerrymandered “low-income district” that snaked its way through Jersey City to include the site of his luxury skyscraper and also some poor neighborhoods miles away. But I have to believe the optimal enforcement level is higher and the optimal malfeasance level lower than what we have now.

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6 thoughts on “If you build it they will come and exploit it

  1. JSE says:

    I mean, why do I think there’s too much malfeasance? Maybe Dan Gilbert and Jared Kushner are the only ones gaming the system and almost all the incentives are going to people using the program as intended! I don’t have any data on this. So maybe I’m being too cynical. My friend the attorney, hardened by experience, no doubt thinks I’m not being cynical enough.

  2. byesac says:

    Cynicism isn’t good for you. However, you’re right that there is an ‘optimal’ level of fraud. A conservative might say that any government p

  3. byesac says:

    rogram invites more fraud than a free market would invite. It is sad, though, that we can never completely fix these things.

  4. Dr. Math says:

    I don’t want to play Kushner’s advocate here, but surely nobody is claiming Kushner and associates did anything strictly illegal here. The project in question was, if not adjoining, then within blocks of the Low Income District, and I’m sure whatever proposal they made to the state (or whatever bureaucrats or elected officials were involved) included estimates of how many people living in that neighborhood would be employed by/would benefit from the project/etc; construction workers, and then service workers in the building etc.

    I don’t know if comparing this kind of grifting to people who perpetrate literal criminal fraud upon our welfare programs is apt. I think a better comparison might be to the many people who legally qualify for services, but don’t really belong there (for examples close to academia, the rich upper-middle class grad students whose TA salaries nevertheless qualified them for Obama-era food stamps was one example that comes to mind, or the most wealthy 20% of Americans who hold the majority of federally subsidized student loan debt).

    Or more generally, the numerous ways that the upper middle class pushes to expand social spending programs which were started to benefit the poor, to instead benefit the upper middle class. Maybe most notoriously the welfare reforms of Clinton era, but also housing tax credits, the student loan program, and everything in between. I’d recommend adding John F. Cogan’s “The High Cost of Good Intentions” to your reading list.

    Well-intentioned social spending combined with our pay-to-play legal establishment means programs will perpetually be pressured to expand to benefit those with the most resources to advocate for why they are most deserving.

  5. JSE says:

    Yes! As always, what is legal is often just as morally noxious as what’s illegal. I’m sure as a grad student my income was technically poverty level, but I had a hand-me-down car from my parents and financial backup from them if I needed it. Maybe it would have been legal for me to apply for some kind of government assistance, but it kind of would have been stealing; legal or not. Do you really think a lot of grad students with ample family resources are using SNAP? I’ve honestly never heard of it. On the contrary, I have always had the impression that the difficulty was with people in real need being stymied by red tape from getting it, more than wealthy folks with nominally low income swanning around on food stamps.

  6. Dr. Math says:

    @JSE Sorry Jordan, I can’t seem to reply under your comment, but responding:

    I don’t necessarily want to focus on TAs with food stamps, more of an off-hand comment, and I’m not a social worker or qualified to comment on other people’s financial situations. Of course there are grad students with a range of financial situations, some with dependent families etc.

    But yes, I’ve talked to young single people who had very well off parent support situations, would definitely not have described themselves in the terms SNAP uses in its purpose statement, but whose attitude was: if there is any government benefit or tax break or anything else that you can legally qualify for, then you should apply for it. Not doing so is thought of like volunteering to pay more taxes.

    More generally, a lot of the line items the Bernie Bros in my generation focus on are things like the student debt “crisis” and the like, with regressive plans to address the issue: https://www.urban.org/urban-wire/which-households-hold-most-student-debt. Regarding food stamps, “hunger” and “malnutrition” are replaced with “food insecurity” etc to shift the purpose of the program upwards along the income spectrum.

    Adding more red tape certainly doesn’t prevent this kind of grifting. If anything, the more well-to-do you are, the more resources you have to wade through the red tape. This is very apparent in the tax code, for example. And as for SNAP, it’s easy for a grad TA to simply present their proof of income/hours worked and qualify for food stamps (or at least it definitely was during the past administration). It’s hard for someone in a more precarious situation, with uncertain employment etc, to keep on benefits.

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