Tag: welfare reform

The War On The Poor Has Many Fronts And Armies, Professor Krugman

Paul Krugman’s column yesterday lamented Republican policy towards the poor. He has particular gripes with Ben Carson’s changes to housing subsidies, increased work requirements for those seeking food stamps, and waivers granted to states to enable new work requirements for Medicaid.

I’m not going to get into these specific policy changes here. But let’s take Krugman’s analysis of the changes and the motivation for them at face value, and pose a question: how robust is an anti-poverty agenda that depends so much on political and societal attitudes to the poor?

As I outlined in a recent blog, it’s a mistake to think of policy towards the poor being merely about government transfers, services and benefits-in-kind. In fact, this focus on income and services has blinded the debate about poverty from the truth that there are lots and lots of state, local and federal policies that increase the price of goods and services the poor spend a disproportionate amount on.

Zoning laws and urban growth boundaries raise house prices. Regulations make childcare more expensive. Sugar, milk programs and the ethanol mandate increase food costs. Tariffs on clothes and footwear have particularly regressive effects. Energy regulations which seek to subsidize renewables rather than being “technology neutral” can raise prices. CAFE standards, constraints against ride sharing, and some regulations on gas taxes raise some transport prices too. Not to mention the broader effects of protectionism and occupational licensing in both raising prices and reducing efficiency across the economy.

Some of these things affect families by orders of magnitude greater than the changes Krugman is concerned about. Combined, they would have a huge impact for many households. What’s more, most of the status quo interventions make the economy less efficient too, reducing market-wages and, in the case of housing and childcare, deterring the mobility of labor over different dimensions. One cannot talk about a “war on the poor” without acknowledging these fronts and the armies which battle on them, not least because these bad policies in part drive significant demands for redistributive transfers in the first place.

In my view, it would be far more fruitful for liberals concerned with the well-being of the poor to focus on all these issues as part of a “first do no harm” poverty agenda. Why?

1. There’s evidence that fiscal transfers may have hit diminishing returns in terms of their role in poverty alleviation.

2. The fiscal environment is not conducive to huge new expenditures on programs, and evidence from other countries (not least Britain) suggests working age welfare is the first port of call for cuts when a fiscal crisis hits.

3. There are clear economic trade-offs where transfers are concerned. As this accompanying Twitter thread by Paul Krugman acknowledges, even increasing the availability and generosity of transfers to more people disincentivizes people from earning more income.

4. And crucially for Krugman’s column, attitudes to redistribution are volatile, and support can be replaced by narratives about “moochers” or “welfare queens” relatively quickly.

In contrast, a pro-market agenda seeking to undo existing damaging regulations at the local, state and federal levels could: reduce poverty, reduce the demands for redistributive activity, would not undermine work incentives and would be harder to undo given its dispersed nature. Those in favor of extensive redistribution should see this too: you do not have to believe existing anti-poverty programs have failed to acknowledge they can have negative unintended consequences, hit diminishing returns, or that their effectiveness is undermined by bad policies which drive up living costs.

A pro-market cost of living agenda would not “solve” poverty, of course. And there are major vested interests in each of these areas who would resist reform. But there are clearly lots of different wars on the poor being raged, even if inadvertently. As long as the poverty debate focuses on just income transfers and government services, the more bountiful battles against vested interests who drive up the poor’s living costs go unfought.

Did Welfare Reform Increase Naturalizations?

The 1996 Welfare Reform Act (PRWORA) made it more difficult for non-citizens to access means-tested welfare benefits.  However, that law also allowed states to use their own funds to extend means-tested welfare benefits to non-citizens and some took advantage of this.  After 1996, the only sure-fire way for a non-citizen to get welfare benefits was to naturalize and become a citizen. 

Twelve states did not change non-citizen eligibility for four large welfare programs (TANF, SNAP Medicaid, and SSI) in response to PRWORA while the other 39 states and the District of Columbia became more restrictive.  If non-citizens responded to welfare reform by naturalizing in order to gain access to benefits then there would be a larger increase in naturalizations in states with more restrictive post-PRWORA policies.  The evidence bears this out for immigrants based on country of origin.  The state by state evidence is more mixed. 

I then compared the increased percent in the number of naturalizations per state from the 1993-1995 period (first period) to the 1997-1999 period (second period).  Unfortunately, the 1996 data is unusable because some of it is unavailable and computer problems delayed naturalizations for that year, causing a 100 percent drop off in some states that had nothing to do with welfare reform.    

Clinton vs. Obama

Over the weekend I stumbled upon C-SPAN’s broadcast of Bill Clinton’s 1992 speech accepting the Democratic nomination for president, and I remembered how he seemed like a “different kind of Democrat” at the time. As I started watching, I heard Clinton saying:

The most important family policy, urban policy, labor policy, minority policy, and foreign policy America can have is an expanding entrepreneurial economy of high-wage, high-skilled jobs …

Soviet communism has collapsed and our values—freedom, democracy, individual rights, free enterprise—they have triumphed all around the world.

And then he got into the meat of the “new Democrat” message:

To turn our rhetoric into reality we’ve got to change the way government does business, fundamentally. Until we do, we’ll continue to pour billions of dollars down the drain.

The Republicans have campaigned against big government for a generation, but have you noticed? They’ve run this big government for a generation and they haven’t changed a thing. They don’t want to fix government; they still want to campaign against it, and that’s all.

But, my fellow Democrats, its time for us to realize we’ve got some changing to do too. There is not a program in government for every problem, and if we want to use government to help people, we have got to make it work again….

Now, I don’t have all the answers, but I do know the old ways don’t work. Trickledown economics has sure failed. And big bureaucracies, both private and public, they’ve failed too.

That’s why we need a new approach to government, a government that offers more empowerment and less entitlement. More choices for young people in the schools they attend- in the public schools they attend. And more choices for the elderly and for people with disabilities and the long-term care they receive. A government that is leaner, not meaner; a government that expands opportunity, not bureaucracy; a government that understands that jobs must come from growth in a vibrant and vital system of free enterprise.

He made his famous promise to “end welfare as we know it.”

That’s not President Obama’s style. He’s not that kind of Democrat. He doesn’t talk about free enterprise as an American value, not even when speaking of freedom to students in China. Search for “free enterprise” on the White House website, and the first hit is to his famous “You didn’t build that” speech in Roanoke—which doesn’t include the word “enterprise,” or the word “free.” He doesn’t say that big bureaucracies have failed, or that we need more choice in education and health care.

Which presumably means Bill Clinton will have to write a different speech when he nominates President Obama for reelection on Wednesday night.

Now don’t get me wrong. There was plenty of old-fashioned Democratic liberalism in Clinton’s 1992 speech. He talked about “what all of us must give to our Nation,” which fits well with Obama’s view. He denounced outsourcing, he proclaimed that “health care is a right,” he promised billions in new federal spending and lots of programs.

He even deplored polarization and “the stereotypes that blind us,” reminding us that today’s complaints about polarization are nothing new. And I was struck by the way he delivered that complaint. He said that “for too long politicians have told the most of us that are doing all right that what’s really wrong with America is the rest of us—them.” And he elaborated:

Them, the minorities. Them, the liberals. Them, the poor. Them, the homeless. Them, the people with disabilities. Them, the gays.

All good points. Too much stereotyping. Too much polarization. Too much partisanship. Except that his list of stereotypes was very partisan. What about “Them, the conservatives”? “Them, the rich”? Aren’t those polarizing stereotypes too? You’d think a different kind of Democrat would have deplored all the stereotypes that politicians use to divide people.

David Maraniss writes in today’s Washington Post that “on most of the big issues, there is little or no space between [Clinton and Obama] as pragmatic liberals.” Maybe so, but in his campaign—and in his response to a midterm electoral rebuke—Clinton certainly gave voters the impression that he was a “different kind of Democrat,” one who appreciated the limits of government and the virtues of free enterprise. This week he’ll presumably have to give a full-throated defense of a president who never said that the era of big government is over, who increased the food stamp rolls by 14 million after Clinton reduced them by 11 million, who increased the national debt by $5 trillion compared to $1.6 trillion in the Clinton years. No doubt he’ll do a great job.

End Federal Welfare - Don’t Mend It

Rep. Jim Jordan (R-OH), the chairman of the conservative House Republican Study Committee, recently introduced “The Welfare Reform Act of 2011.” The legislation’s two key components are the imposition of work requirements on food stamps recipients and the capping of total spending for 77 welfare programs at 2007 levels (adjusted for inflation going forward) when unemployment drops below 6.5 percent.

From the RSC press release:

Congressional Republicans and President Bill Clinton enacted reforms in 1996 that required beneficiaries of a new welfare program (TANF) to either work or prepare for a job. President Clinton triumphantly declared these reforms would “end welfare as we know it,” and in fact millions of families have since moved off the TANF rolls and begun to provide for themselves.

Still, TANF is only 1 of 77 federal programs that provide benefits specifically to poor and low-income Americans. Despite the success of these reforms, combined state and federal welfare spending has almost doubled since 1996. Since President Lyndon Johnson declared a War on Poverty in 1964, Americans have spent around $16 trillion on means-tested welfare. We will spend another $10 trillion over the next decade based on recent projections. Even with all these resources devoted to assistance for the poor, poverty is higher today than it was in the 1970s.

The bold text is my emphasis. I emphasized it because I have a hard time calling the reform of one welfare program a “success” when dozens of other federal welfare programs more than took its place. In my opinion, it’s analogous to winning a battle but losing the war – badly. Or, in keeping with the military theme, it was a Pyrrhic victory.

The aftermath of TANF is one reason why I’m not enthusiastic about the RSC’s legislation. Assuming the bill becomes law (it won’t anytime soon), will the scope of federal government’s powers have become more limited? Will the now commonplace attitude that the federal government exists to provide for us at our neighbor’s expense begin to recede? Will the tangled mess that is the relationship between the federal government and the states be unsnarled?

While I don’t take issue with the House conservatives’ desire to rein in welfare spending and limit the pathologies that the food stamp program engenders, it’s disappointing that the propriety of the federal government’s role in providing welfare remains virtually unchallenged on Capitol Hill.

The designers of the Constitution gave the federal government a tidy, defined list of powers – everything else was to be left to the states or to the people. Yes, that set-up has gradually been eviscerated. Yes, the federal government isn’t going to return to its more constrained origins in the near future. However, across the country there is renewed interest in reinstituting limits on federal power. Thus, there is hope for the long-term.

Policymakers who claim to share that interest would better serve this long-term hope by introducing legislation that returns powers the federal government has assumed to the states. Instead of tinkering with federal welfare programs, let’s have the public discussion and debate over the fundamental justness and desirability of letting Washington dictate how to meet the needs of the less fortunate.

[See these Cato essays (here, here, and here) for more on federal welfare programs and why both taxpayers and those in need would be better off if they were abolished. See this Cato essay for more on the desirability of fiscal federalism.]

How Gov. Cuomo Can Fix New York’s Budget Mess

New York’s budget problem is actually a Medicaid problem.  In Sunday’s New York Post, I offer advice to New York Governor Andrew Cuomo (D) on how to fix a budget gap that will grow to $17 billion during his term:

Gov. Cuomo can’t fix Medicaid by himself. He needs the help of Congress.

There is a solution…

Block grants are how President Bill Clinton and a Republican Congress reformed welfare back in 1996, to spectacular success. Welfare reform forced New York to be smarter about welfare spending, just as a block grant would force New York to rededicate Medicaid to its original mission — providing necessary medical care to the truly needy.

There’s one place Gov. Cuomo can start on his own: Close the loopholes that allow well-to-do New Yorkers to feign poverty on paper so that Medicaid underwrites their long-term care. Medicaid exists for the poor, not to help well-off baby boomers protect their inheritance.

Steve Moses of the non-partisan Center for Long-Term Care Reform recommends that Cuomo take steps to ensure that New Yorkers with means pay for their own long-term care. These include reducing New York’s home-equity exemption from $750,000 to $500,000 (and seeking a federal waiver to reduce it to $0), expanding the use of liens and estate recovery and ending the abusive practice of “spousal refusal.”

Reducing Medicaid abuse won’t be easy. But Cuomo doesn’t have much choice.

In fact, what he has is an opportunity to become the leading national spokesperson for block grants, the quickest and easiest course to relief for states toiling under the unsustainable yoke of Medicaid spending.

For more on Medicaid reform, click here.  For more on abuse of Medicaid’s long-term care subsidies, click here.

WaPo’s Fiscal Truths

A Washington Post editorial today discusses the National Academy of Sciences “Fiscal Future” study. The NAS report modeled four possible tax and spending paths for the nation over the next 70 years.  I was one of the NAS report’s co-authors.

The Post focuses on the “low spending and revenue” path, which would keep federal revenues below about 19 percent GDP and keep spending below about 21 percent of GDP. The Post argues that both tax hikes and spending cuts will be needed to fix the government’s budget problem because the “pain and sacrifice” would be too large if we just cut spending, as under this “low” path. But the Post’s conclusion is based on faulty one-sided accounting, only considering the recipients of government largesse.

The reality is that every dollar the government spends imposes ”pain and sacrifice” on current or future taxpayers. Thus, spending cuts may impose temporary pain on people whose benefits are withdrawn, but they create equal or greater pain on the taxpayers who foot the bill. Indeed, standard economic theory suggests that the economy gets a “free lunch” when spending and taxes are reduced in tandem because the deadweight losses caused by government coercive actions are reduced.

Note that I say “temporary” pain because to a substantial degree, benefit recipients will adjust their lives as subsidies are withdrawn, and most people will prosper without government help, as we saw following welfare reform in 1996.  Misguided government spending programs–like welfare–cause damage to society and the economy, so that reducing spending doesn’t increase pain, it ultimately reduces it. Consider how government housing subsidies ended up causing widespread damage, including for many people who initially benefited. For a guide to damaging federal programs, see www.downsizinggovernment.org.

The Post is right that the NAS study’s “low spending” path would require “broad areas” of federal spending to be cut, such as K-12 school subsidies and other state aid programs. But that would be a good thing for citizens, the economy, and for responsible government. Federal spending on properly state and local activities has been a giant failure, and it should be ended whether or not there is a budget deficit. 

The Post is on sounder footing with its observation that many Republicans do not seem to grasp the magnitude of spending reforms that are needed in the years ahead. The GOP does need to “get specific” and push for particular cuts. Let’s have national debates on federal involvement in K-12 schools, raising the Social Security retirement age, and cutting the corporate welfare programs mentioned by the Post. Let’s start that “adult conversation” right now, because as the NAS report warns, the longer we wait, the more the federal debt monster grows.

For the record, the NAS report did not endorse tax hikes or any other particular fiscal solution. It simply provided four possible combos of future tax and spending levels as starting points for discussion. It also usefully described how to overhaul the income tax and replace it with a much simpler and flatter tax system, as I’ve described here.