Tag: social welfare

The Work vs. Welfare Trade-Off: A Response to Critics

Last week, the Cato Institute released a new study, The Work vs. Welfare Trade-Off, 2013: An Analysis of the Total Level of Welfare Benefits by State. It showed that a family collecting welfare benefits from seven common programs – Temporary assistance for Needy Families (TANF), food stamps, Medicaid, WIC, public housing assistance, utilities assistance (LIHEAP) and free commodities – could receive more than what a minimum wage job would pay in 35 states, more than a $15 per hour job in 13 states, and more than a $20 per hour job in the eight most generous states. We concluded that the high value of welfare benefits might create a disincentive for recipients to leave welfare for work.

Unsurprisingly, our study has attracted criticism from several quarters. Some of those critics make valuable points that might improve future research, but most criticism falls far short of the mark.

Among the most frequent criticisms:

SNAP should be the basis of the package instead of TANF

Some of our critics have essentially attempted to redefine “welfare” to mean a program other than TANF. Our analysis started with a family on TANF and then looked at what additional programs the family would receive. By starting with a much larger program, such as food stamps (SNAP), our critics are able to – correctly – argue that relatively few SNAP recipients also receive TANF benefits.

However, while SNAP has indeed grown in size and significance in recent years, TANF should continue to be the basis for determining welfare packages. TANF, and traditional cash assistance, have long been considered the quintessential “welfare” program, and its importance can be seen in legislative history. For example, it was the foundation and focus of the 1996 reforms that are cited as “welfare reform.” TANF is also more tightly targeted at the population we attempt to analyze in this paper; as is often cited, SNAP, in addition to serving low-income non-working families, also serves significant numbers of elderly and disabled people, as well as a higher proportion of working families. For instance, in 2011 almost 17 percent of SNAP households were above the federal poverty guidelines (FPL).

Single adults receive less/this hypothetical family is not representative

It is certainly true that a single adult would receive less than a family, due to the very nature of the welfare programs, but we feel our hypothetical family is more representative. The average household size for TANF in the most recent available data was exactly 3.0 people, while at the same time only six percent of TANF households were only one person. Looking at SNAP, a significant proportion of those single-person recipient households were either disabled or elderly, so a single, nondisabled, working age adult is not representative of that population either. In a larger sense, the majority of the expenditures for these programs are not on these childless adults, so the focus should remain on households with dependent children.

Not everyone receives all the benefits from these programs

Another critique notes that not everyone on welfare receives benefits from all seven of the programs that we included. Therefore, it is said, our study inflated the total amount of benefits.

We agree that not every family on welfare receives all benefits. In fact, the study specifically says, “Not every welfare recipient fits the profile used in this study, and many who do fit it do not receive every benefit listed.” It even included a chart (Figure 16) showing the value of a smaller package of benefits.

Fed Can’t Serve Two Masters

Last week Congressman Pence and Senator Corker announced a bill to end the Federal Reserve’s dual mandate of price stability and maximum employment.  Before getting into why this is a good start, what exactly is the dual mandate?  Section 2a of the Federal Reserve Act, which sets the Fed’s monetary policy objectives, directs the Fed to:

maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.

Building upon the notion of the Phillips curve, which suggests an historical relation between inflation and unemployment, some have read 2a as implying that the Fed should pick an inflation-unemployment trade-off that improves social welfare.  It is this perceived “trade-off” that dominates the current actions of the Federal Reserve. Quite simply, Fed leaders, such as Bernanke, believe with a little extra inflation we can get more employment.

The problem is that this isn’t so.  As soon as policymakers tried to exploit this trade-off, in the 1960s and 1970s, it disappeared.  From about 1961 to 1966, it did indeed appear that one could choose a mix of inflation and unemployment.  But from 1966 until 1980, when Volcker moved to bring down inflation, inflation and unemployment were positively correlated.  It appeared that all we got was more inflation and more unemployment.

Despite the painful experiences of the 1970s, Bernanke seems intent on repeating those mistakes.  Which gets to me to the point of removing the dual mandate.  It forces the Fed to focus on the only thing it really has any influence over: inflation.  It also removes the temptation to exploit an inflation-unemployment trade-off that never existed in the first place. 

Now given Bernanke’s views on price stability, eliminating the dual mandate can only be a first step.  We ultimately need to remove the discretion of the government to indulge in the Phillips curve fantasy.

Taking the Constitution Seriously

Today Politico Arena Asks:

Is Health Care Repeal Gaining Steam?

My Response:

It’s striking how POLITICO Arena contributors on the left like Professors Skocpol and Jost blithely dismiss the idea that the Constitution could actually limit what Congress may do in the area of “social welfare” – including such monstrosities as ObamaCare. It’s as if they had no conception, despite their years of schooling, of what the Constitution is all about. It’s not a document that authorizes the federal government to do whatever may be in “the public interest,” as conceived by those in power at any moment. It’s a carefully crafted plan for government that both grants and limits power, so that individuals may plan and live their own lives.

Judge Henry Hudson got it exactly right when he wrote: “While this case raises a host of complex constitutional issues, all seem to distill to the single question of whether or not Congress has the power to regulate – and tax – a citizen’s decision not to participate in interstate commerce.” The left may ridicule the suits that have been brought against ObamaCare by more than 20 states and others, but in doing so they ridicule nothing less than the American heritage of limited constitutional government. If ObamaCare revives that heritage, it will all have been worth it.