Topic: Cato Publications

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.

At Cato Unbound: The Private Digital Economy

What if money were private?

One very correct answer is, simply: Money already is private. Sure, there’s the old familiar legal tender of the U.S. government, but the idea of money, and the practices that surround it, are not necessarily tied to the greenback. We all know how money works, and other things can certainly be used in the dollar’s place – if a buyer and a seller agree. From there, if more buyers and sellers agree, the items they use may become a medium of exchange – a class of things held with the intention of passing them along in the market rather than using them directly.

As most of you probably know, that’s exactly what’s happening right now with bitcoin. But is bitcoin sound money? For that matter, what is it that makes a thing sound money? Gold wasn’t sound money just because of its inherent goldiness; it had (and has) distinct, identifiable properties that make it a pretty good money – properties that, say, land, automobiles, or hydrogen conspicuously lack.

How does bitcoin stack up? Will an all-digital private currency one day supplant fiat money? If so, will it be bitcoin or something else? There are alternatives, and some of them are quite successful, albeit less highly publicized in the West. 

Cato’s own Jim Harper discusses these issues in his lead essay for July 2013’s Cato Unbound. Coming up we have essays by Internet security consultant Dan Kaminsky, tech policy analyst Jerry Brito of the Mercatus Center, and Ph.D. candidate Chuck Moulton, who is writing his dissertation on transitions from unsound to relatively sound monetary systems. 

On Iran’s Inflation Bogey

With Friday’s Iranian Presidential election fast approaching, there has been a cascade of reportage in the popular press about that opaque country. When it comes to economic data, Iran has resorted to lying, spinning and concealment – in part, because of its mores and history, and more recently, the ever-tightening international sanctions regime. In short, deception has been the order of the day.

The most egregious example of this deception concerns one of Iran’s most pressing economic problems – rampant inflation. Indeed, while the rest of the world watched Iran’s economy briefly slip into hyperinflation in October of 2012, the Statistical Centre of Iran and Iran’s central bank both defiantly reported only mild upticks in inflation.  

It is, therefore, rather surprising that the major international news outlets have continued to report the official inflation data without so much as questioning their accuracy. Even today, with official data putting Iran’s annual inflation rate at a mere 31 percent, respectable news sources faithfully report these bogus data as fact.

As I have documented, regimes in countries undergoing severe inflation have a long history of hiding the true extent of their inflationary woes. In many cases, such as the recent hyperinflation episodes in Zimbabwe and North Korea, the regimes resort to underreporting or simply fabricating statistics to hide their economic problems. Often, they stop reporting economic data all together; or, when they do report economic statistics, they do so with such a lag that the reported data are of limited use by the time they see the light of day.

Iran has followed this course – failing to report important economic data in a timely and replicable manner. Those data that are reported by tend to possess what I’ve described as an “Alice in Wonderland” quality. In light of this, it is fair to suggest that any official data on Iran’s inflation be taken with a grain of salt.

So, how can this problem be overcome? At the heart of the solution is the exchange rate. If free-market data (usually black-market data) are available, the inflation rate can be estimated. The principle of purchasing power parity (PPP), which links changes in exchange rates and changes in prices, allows for a reliable estimate. Indeed, PPP simply states that the exchange rate between two countries is equal to the rates of their relative price levels. Accordingly, if we can obtain data on free-market exchange rates, we can make a reliable estimate of the inflation rate.

In short, changes in the exchange rate will yield a reliable implied inflation rate, particularly in cases of extreme inflation. So, to calculate the inflation rate in Iran, a rather straightforward application of standard, time-tested economic theory is all that is required.

Using this methodology, it is possible to estimate a reliable figure for Iran’s annual inflation rate. At present the black-market IRR/USD exchange rate sits at 36,450. Using this figure, and a time series of black-market exchange rate data that I have collected over the past year from currency traders in the bazaars of Tehran, I estimate that Iran’s current annual inflation rate is 105.8 percent – a rate almost three and a half times the official annual inflation figure (see the accompanying chart). 

(Unintentional) Praise for ‘50 Vetoes’

The Fiscal Times:

So far, officials in 34 states have elected not to create insurance exchanges under the law where the uninsured can go to purchase affordable or subsidized health care coverage. And only 20 states and the District of Columbia have agreed to expand Medicaid programs for the poor and disabled…

Earlier this year, Cannon published a lengthy Cato “white paper,” a handbook of sorts for gumming up the works. Entitled “50 Vetoes: How States Can Stop the Obama Health Care Law,” the report urges governors and state officials to refuse to set up insurance exchanges in their states and to refuse to opt into an expanded Medicaid program for the poor…

Ron Pollack, executive director of Families USA, and a board member of Enroll America, complained…that Cannon’s handbook was designed to “throw sand into the machinery of state implementation of the Affordable Care Act.”

“So has it been a factor? Of course,” added Pollack.

Click here to read “50 Vetoes.”

George Smith’s Long-Awaited Book: The System of Liberty

The System of LibertyGeorge H. Smith is one of the best-read, most insightful libertarians living today. He is the author of most of the Cato University Home Study Course, which you should definitely download. He writes a weekly article for Libertarianism.org titled “Excursions into the History of Libertarian Thought.” He is the author of Atheism: The Case Against God (1974), Atheism, Ayn Rand, and Other Heresies (1991), and audio series on “Great Political Thinkers,” “The Meaning of the U.S. Constitution,” and “The Ideas of Liberty.” And finally – finally – he has been persuaded to write down much of what he knows about the history of classical liberal thought in a new book from the Cato Institute and the Cambridge University Press, The System of Liberty: Themes in the History of Classical Liberalism.

It’s a great study of classical liberalism and the relations among such liberal ideas as individualism, natural rights, utilitarianism, self-sovereignty, and what Lord Acton called “the polar star of liberty.” Along the way he answers such criticisms of liberalism as “atomistic individualism” and “social Darwinism.” It’s a college course in political philosophy in just 217 very readable pages. Buy it now for the low low price of $24.95.

Obama on Perpetual War: Less “Hope,” More Handwringing

There was something almost otherworldly about President Obama’s big national security speech last Tuesday at the National Defense University in DC. At times, Obama seemed to position himself as the loyal opposition to his own administration—or just one of many concerned citizens who worry that perpetual war “will prove self-defeating, and alter our country in troubling ways.” A few examples from the speech:

Look at the current situation [at Gitmo], where we are force-feeding detainees who are being held on a hunger strike…. Is this who we are?  Is that something our Founders foresaw?  Is that the America we want to leave our children? 

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I’m troubled by the possibility that leak investigations may chill the investigative journalism that holds government accountable.

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Unless we discipline our thinking, our definitions, our actions, we may be drawn into more wars we don’t need to fight…. this war, like all wars, must end.

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The very precision of drone strikes and the necessary secrecy often involved in such actions can end up shielding our government from the public scrutiny that a troop deployment invites.  It can also lead a President and his team to view drone strikes as a cure-all for terrorism.

A president”? Anyone in particular? Who’s been president all these years, anyway?

The Misery Index: A Look Back at Bulgaria’s Elections

With Bulgaria’s May 12th election fast approaching, it is useful to reflect on past elections and the resulting economic performance of each elected government. To do this, I have developed a Misery Index inspired by the late Prof. Arthur Okun, a distinguished economist who served as an adviser to U.S. President Lyndon Johnson.

The Misery Index measures the level of “misery” in the economy. My modified Misery Index is equal to the inflation rate, plus the bank lending rate, plus the unemployment rate, minus the annual percent change in GDP.

An increase in the Misery Index indicates that things are getting worse: misery is increasing. A decrease in the Misery Index indicates that things are improving: misery is decreasing. The accompanying chart shows the evolution of Bulgaria’s Misery Index over time.  

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The Socialist Party government of Prime Minister Zhan Videnov created hyperinflation and a lot of misery. The Misery Index under the Videnov government’s watch peaked at 2138 in the first quarter of 1997. That number isn’t shown on the accompanying chart—if it was, the chart would take up an entire page of Trud.

So, the chart starts in the second quarter of 1997, with the Kostov government. Shortly after Kostov took power, Bulgaria installed a Currency Board System, based on a draft Currency Board Law, which I authored at the request of President Petar Stoyanov. The Currency Board brought an end to Bulgaria’s hyperinflation, which peaked with a monthly inflation rate of 242%, in February 1997.