America's Welfare State fails

[Siege]

Article arguing the failure of the government programs to help the poor.



A New War on Poverty 

The old one has totally failed — we need a new one that encourages work and opportunity. 

By Michael Tanner




Examples of the failures of government, large and small, are pretty easy to come by. Solyndra, the Iraq War, the response to Hurricane Katrina, Obamacare: Take your pick. But in terms of both wasted money and human suffering, it's hard to find a more egregious government failure than the War on Poverty.

It was 50 years ago today that Lyndon Johnson announced, as the centerpiece of his first State of the Union address, an "unconditional war on poverty in America." No one could deny that poverty was a serious problem at the time. Roughly 19 percent of Americans were poor, although the numbers had been falling steadily since the end of World War II. Fully 23 percent of children lived in poverty. The poverty rate for African Americans ran to an obscene 42 percent.

American government responded to Johnson's call by throwing money at the problem — massive amounts of money. Since 1965, federal, state, and local governments have spent more than $16 trillion on a panoply of anti-poverty programs. Last year alone, the federal government spent nearly $1 trillion on 126 anti-poverty programs, ranging from Medicaid to the Undergraduate Scholarship Program for Individuals from Disadvantaged Backgrounds.

There are 33 federal housing programs run by four different cabinet departments, including, bizarrely, the Department of Energy. There are currently 21 different programs providing food or food-purchasing assistance. These programs are administered by three different federal departments and one independent agency. There are eight different health-care programs, administered by five separate agencies within the Department of Health and Human Services. And six cabinet departments and five independent agencies oversee 27 cash-allocation or general-assistance programs. Altogether, seven different cabinet agencies and six independent agencies administer at least one anti-poverty program.

And the result of all this spending? Fifteen percent of Americans still live in poverty. Among children, the poverty rate is nearly 22 percent, barely a point below where it was in when the War on Poverty began. The poverty rate has declined significantly for African Americans, but that has more to do with efforts to end overt discrimination than with anti-poverty programs. Besides, it still remains far too high, at roughly 34 percent.

To oversimplify the math: Federal, state, and local anti-poverty spending totals more than $20,000 for every poor person in America, more than $60,000 per poor family of three. Given that the poverty line for that family is just $18,530, we could theoretically just mail a check to every poor family, wipe out poverty in America, and still save money.

Clearly, we are doing something wrong.

In fact, not only do government programs fail to lift people out of poverty, in many cases they undermine those things that actually do. For example, both academic research and experience provide a pretty solid idea of the keys to getting out of and/or staying out of poverty: (1) Finish school; (2) don't get pregnant outside marriage; and (3) get a job, any job, and stick with it.

But government programs discourage those efforts.

In 1964, just 6.4 percent of children were born out of wedlock. Today, nearly 41 percent are. Among African Americans, more than 70 percent of children are born to single mothers. At the same time, children growing up in a single-parent family are almost five times more likely to be poor than children growing up in married-parent families. Yet, as Charles Murray demonstrated years ago in Losing Ground, the overwhelming body of research shows that the increased availability of welfare benefits is directly correlated with an increase in out-of-wedlock births.

Welfare also undermines the work ethic. The best route out of poverty remains a job. Fewer than 3 percent of full-time workers are poor, compared with nearly 25 percent of those without a job. Even an entry-level, minimum-wage job can be the first step on the road out of poverty. But in 35 states, someone receiving each of the seven most common welfare programs could receive benefits that exceed what they could earn from a minimum-wage job. In 13 states, welfare effectively pays more than $15 per hour. And, in the eight most generous states, someone on welfare could receive benefits in excess of wages from a $20-an-hour job. For many people, we have made welfare a smarter choice than work.

Of course, even if we didn't discourage the poor from working, high taxes and excess regulation are making it harder for them to find jobs anyway. In 1965, the unemployment rate was just 5.4 percent. Today, it remains at 7 percent, a number that may underestimate the true level of those unable to find full-time work because many discouraged people have dropped out of the labor force altogether. With the full impact of Obamacare about to hit American businesses, and Democrats seeking both new business taxes and an increase in the minimum wage, we can expect the prospect of a job to remain outside the grasp of millions of poor Americans.

And one merely has to look around in any big city to see how government schools, despite ever more money, have failed low-income children.

We all seek a society where every American can reach his or her full potential, where as few people as possible live in poverty, and where no one must go without the basic necessities of life. More important, we want a society in which every person can live a fulfilled and actualized life.

Throwing more and more money at more and more government programs doesn't work. It is time to try a different approach.

Instead of attempting to make poverty more comfortable, we should focus on creating wider prosperity. We should end those government policies, such as high taxes and regulatory excess, that inhibit growth and job creation. We should protect capital investment and give people the opportunity to start new businesses. We should reform our failed government-school system to encourage competition and choice. We should encourage the poor to work, save, and invest for their future.

That might be a winning strategy for the War on Poverty.


— Michael Tanner is a senior fellow at the Cato Institute and author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

http://www.nationalreview.com/article/367825/new-war-poverty-michael-tanner#comments

[Siege]

I like this guy, William Tanner.




Obama's 2014 War on the Poor



By Michael D. Tanner


To put it in today's standard D.C. terms, Democrats sure must hate poor people.

That's silly, of course. But there's no doubt that Democrats are preparing to push policies that are likely to hurt struggling low- and middle-income Americans.

Both the Obama administration and the Democratic leadership in Congress have announced that their top priority when Congress returns later this month will be extending unemployment benefits and raising the minimum wage. Both policies are likely to leave more Americans jobless — especially low-income workers with few skills, the very people Democrats claim they want to help most.

Take the extension of unemployment insurance. Labor economists may disagree on the extent to which unemployment benefits increase or extend spells of unemployment, but the fact that they increase the duration of unemployment and/or unemployment levels is not especially controversial. As Martin Feldstein and Daniel Altman have pointed out, "the most obvious and most thoroughly researched effect of the existing UI systems on unemployment is the increase in the duration of the unemployment spells."

In fact, even Paul Krugman, in the days when he was an actual economist rather than a partisan polemicist, wrote in his economics textbook:

"Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect.... In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of "Eurosclerosis," the persistent high unemployment that affects a number of European countries."


President Obama's former Treasury secretary Larry Summers estimated in The Concise Encyclopedia of Economics that "the existence of unemployment insurance almost doubles the number of unemployment spells lasting more than three months."

It's not hard to understand why. Incentives matter. Workers are less likely to look for work or accept less than ideal jobs as long as they are protected from the full consequences of being unemployed. That is not to say that anyone is getting rich off unemployment or that unemployed people are lazy. It's just simple human nature that people are a little less motivated as long as there is a check coming in. Indeed, research shows that, in the weeks just before benefits run out, workers spend more hours looking for a job and are as much as three times more likely to find jobs.

Of course, one should be careful not to overstate the effect — the overall impact on unemployment is likely to be modest. Studies suggest that the 2009 extension of unemployment benefits to 99 weeks, for example, raised the unemployment rate by 0.5 to 1.5 percentage points.

Still, that's hardly good news. And those most likely to suffer from extending this policy are the long-term unemployed. The longer a worker stays unemployed, the more his skills deteriorate. By extending the period spent without a job, extending benefits makes it less likely that an unemployed worker will eventually find a job, and reduces the workers' wages when they do find work. And low-income workers, with limited skills and frequent spells of unemployment, may find this a particular problem.

The second part of this one-two punch against employment is an increase in the minimum wage. Again, the overwhelming consensus among economists is that an increase in the minimum wage reduces available employment. In fairness, that consensus is not unanimous: Some studies, notably one by Princeton's Alan Krueger and Berkeley's David Card, suggest that at least small increases in the minimum wage have little or no impact on employment. But other economists have criticized the methodology of that study, and a comprehensive review of more than 100 papers on the minimum wage, by David Neumark and William Wascher for the National Bureau of Economic Research, found that 85 percent of them showed negative employment effects.

Given the current level of the minimum wage, the result of a small increase probably would not be catastrophic. For example, a study by Michael Hicks of Ball State University looked at the impact of the July 2008 minimum-wage increase in the United States and concluded that a 10 percent increase in the minimum wage results in a roughly 0.19 percentage-point increase in unemployment, meaning the loss of about 160,000 jobs.

But it is also important to understand that an increase in the minimum wage would not be taking place in isolation. Many businesses are already having to absorb a de facto increase in the minimum wage because of Obamacare. In 2015, businesses with more than 50 employees will have to provide health insurance to their workers or pay a $2,000–3,000 penalty. For a midsize employer that doesn't offer insurance today, that amounts to roughly a $1 per hour increase in a minimum-wage employee's compensation. And even those employers that provide insurance today will find their per-employee costs increasing as Obamacare drives up their premiums and requires that they provide more comprehensive and expensive insurance than they do now.

Increasing the minimum wage on top of this would almost certainly have a significant impact on employment.

Of course, Keynesians argue that extending unemployment benefits and increasing the minimum wage have a simulative effect on the economy, creating jobs. But for anyone not in total thrall to Mark Zandi's "multiplier effect," the evidence for such a stimulus is scant. In fact, a strong body of research suggests that, at best, spending on unemployment benefits adds only a few cents to economic growth for every dollar in outlays. Almost any other use of that money would provide more bang for the buck. There is even less evidence that minimum-wage increases are stimulative. The combination of Obamacare and a minimum-wage hike, in reality, would slow already weak economic growth.

Besides these two central proposals, Democrats are always willing to throw a few dollars to the poor in the form of increased welfare payments (witness the current debate over food stamps), but those programs, too, can discourage work. As the Cato Institute has shown, in most states the combined value of the most common welfare programs exceeds the earning potential of an entry-level job, discouraging welfare recipients from seeking those jobs and taking their first step up the economic ladder.

Democrats, then, seem to favor making poverty just a bit more comfortable rather than making serious attempts to reduce it through economic growth. The route out of poverty, and to a fulfilling and self-sufficient life, is through the dignity of work. Just 2.6 percent of full-time workers live below the poverty level, and the overwhelming majority of the poor would prefer the opportunity to stand on their own to continued dependence on government.

This year mark's the 50th anniversary of Democrats' declaration of a War on Poverty. Ironically, it seems as if President Obama and congressional Democrats have decided to mark the occasion by declaring a war on the poor.


Michael Tanner is a senior fellow at the Cato Institute and the author of Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution.

http://www.cato.org/publications/commentary/obamas-2014-war-poor

[MadImmortalMan]

Somebody finally admits America has a welfare state?The sky must be falling.

[Eddie Teach]

The Singularity will give us a successful Welfare State.

[Valmy]

To put it in today’s standard D.C. terms, Democrats sure must hate poor people.

Yeah the Federal Government has been a one party dictatorship for 100 years.  The Republicans have absolutely zero influence over any policies of any sort.

[Zanza]

So the pre-eminent libertarian think tank of the US thinks that the welfare state is a failure? Who would have thought...

[Admiral Yi]

Yeah the Federal Government has been a one party dictatorship for 100 years.  The Republicans have absolutely zero influence over any policies of any sort.

I think you missed the point (such as it is): that well intentioned progressive policies such as a minimum wage and unemployment insurance extensions cause harm to the people they're trying to help.

[Valmy]

Yeah the Federal Government has been a one party dictatorship for 100 years.  The Republicans have absolutely zero influence over any policies of any sort.

I think you missed the point (such as it is): that well intentioned progressive policies such as a minimum wage and unemployment insurance extensions cause harm to the people they're trying to help.

I have heard those arguments many times.  I just enjoyed the notion that the Democrats are entirely responsible for 80 years of government policy.  How often have they controlled the government in that time?

[Admiral Yi]

Seriously?  Raising the minimum wage and extending UI are bipartisan issues?

[Valmy]

Seriously?  Raising the minimum wage and extending UI are bipartisan issues?

Republicans have expanded benefits and government assistance for all sorts of people over the decades.  There is very little that happens consistently for decades on end that both parties have not basically agreed to.

[celedhring]

So the pre-eminent libertarian think tank of the US thinks that the welfare state is a failure? Who would have thought...

Helping the poor isn't actually helping the poor, so we should stop helping the poor.

[Valmy]

So the pre-eminent libertarian think tank of the US thinks that the welfare state is a failure? Who would have thought...

Helping the poor isn't actually helping the poor, so we should stop helping the poor.

And everybody agrees and the evidence is overwhelming.  Therefore the only reason one would want to help the poor is because you hate the poor.

[Zanza]

So the pre-eminent libertarian think tank of the US thinks that the welfare state is a failure? Who would have thought...

Helping the poor isn't actually helping the poor, so we should stop helping the poor.

Except neither article actually shows anywhere that it isn't helping the poor. It merely compares figures from the past and present. The conclusion that welfare spending doesn't help is invalid though as we do not have figures to compare how the development would have been without welfare spending. And if you define poverty in a relative way you'll always have a roughly similar amount of poor people due to the income distribution following some kind of curve that probably stays similar, so if you cut of at e.g. 60% of median income or whatever, you'll always have about 15% of the population counting as poor. An absolute measure of poverty is probably no more useful than a relative measure though as it is just as arbitrary.

[Berkut]

Instead of attempting to make poverty more comfortable, we should focus on creating wider prosperity. We should end those government policies, such as high taxes and regulatory excess, that inhibit growth and job creation.

The second sentence does not follow from the first. Or rather, there is a giant whopper of an assumption built into the second sentence that oddly enough has nothing to do with the "War on Poverty", and pretty much scuppers the rest of an otherwise interesting observational piece on the failure of government intervention to prevent poverty.

[Admiral Yi]

Except neither article actually shows anywhere that it isn't helping the poor.

Sure they do.  Raising the minimum wage causes unemployment and unemployment insurance disincentivizes job searching.