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Posts Tagged ‘Dependency’

Building on the success of state-level reforms in KansasMaine, Wisconsin, Alabama, and Georgia, the Trump Administration has proposed to tighten rules that impose work requirements on childless and able-bodied adults who receive food stamps.

Since I want to get Washington out of the business of redistribution, this is not the ideal solution.

But are work requirements better than the status quo?

Here’s some of what National Review wrote about the proposal.

Our food-stamp program has some bizarre loopholes… In theory, the program has a strict time limit for “ABAWDs,” or able-bodied adults without dependents… But in practice, the executive branch has broad discretion to waive the limit for large geographic areas with weak labor markets — and previous administrations used that discretion promiscuously. As of 2017, about a third of the U.S. population lived in waived areas. …Under the new rule, effective in April of next year, these waivers won’t be granted to areas with unemployment below 6 percent. And states will be far more limited in the geographical configurations they can request waivers for. …Many on the left complain about the rule simply because it will reduce the number of people on food stamps — by about 700,000, roughly 2 percent of total food-stamp enrollment… But…there is clearly room for cuts. (Despite the recovery, total enrollment is about double what it was in 2000.) …The 1996 welfare reform proved the effectiveness of this approach.

As you might expect, this proposal is causing angst for some lawmakers.

Congresswoman Marcia Fudge condemned the proposal in a column for the Washington Post.

…taking food from the tables of hungry Americans during the holidays…that’s the latest act of cartoonish villainy by the Trump administration. …the Agriculture Department played the part of the Grinch, finalizing a rule to cut billions of dollars from the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. The rule will remove nearly 700,000 from the program…, representing a callous escalation of the Trump administration’s war on people in need. …both red and blue states want the flexibility this rule will eliminate. The rule will dramatically reduce the flexibility of states to decide how best to serve the needs of their own citizens.

My view on food stamps (as well as other redistribution programs) is that Washington should have no role.

So if Congresswoman Fudge wants her state to give goodies to able-bodied adults with no children, that would be a decision for Ohio’s politicians (or, even more relevantly, Oregon’s politicians).

I’m fine with that type of flexibility, but there’s a catch that Ms. Fudge doesn’t mention. She wants taxpayers from across the country to subsidize that decision.

That’s not the way it should work. I’m all in favor of “the flexibility of states,” but that principle should apply to both raising money and spending money.

By the way, work requirements are not just an issue for the food stamp program.

There are also discussions about whether people getting Medicaid should have an obligation to work.

Writing for the Federalist, John Daniel Davidson applauds an initiative from the White House to move in that direction.

The Trump administration…will allow states to impose work requirements on abled-bodied adults to qualify for Medicaid. …it’s about time. …imposing work requirements on able-bodied adults will…help enrollees far more than Medicaid coverage will, mostly by giving them a strong incentive to secure full employment. …By putting millions of able-bodied adults on the Medicaid rolls, Obamacare created perverse incentive for those enrollees to limit their income so they could keep their Medicaid coverage. …Work requirements are a proven way to unwind perverse incentives and improve people’s lives. …progressives consider work requirements insulting and demeaning.

It was also a major focus of the very successful 1996 welfare reform legislation.

In an article for City Journal, Kay Hymowitz points out that law is still yielding big dividends.

…the Census Bureau released its report on the nation’s income, poverty, and health-insurance coverage for 2018. …poverty in single-mother households sank to its lowest rate . . . ever. What’s more, the decline took place entirely among black and Hispanic single-mother families. …this is a “Wow!” moment. …More black and Hispanic women have jobs and are working more hours. “The rise in full-time, year-round work led to an increase in incomes and earnings at the household level,” the Census Bureau found. Better yet, the growing number of hours worked by single mothers led to a decline in child poverty of 2.5 percentage points. …the 1996 welfare-reform law…overturned Aid to Families with Dependent Children, which had entitled poor single mothers to cash benefits. As a result, unemployment among the growing number of single mothers was high. Essentially, welfare reform said no more free lunch, instituting work requirements and replacing open-ended AFDC with a time-limited grant to poor mothers (TANF, or Temporary Assistance to Needy Families). …full-time, year-round work can reduce poverty and…poor minority women can improve their lives and the lives of their children through nine-to-five labor. Any “welfare-reform-is-a-failure” narrative should collapse under the weight of such demonstrated facts.

And it’s worth pointing out that one of America’s major redistribution programs – the EITC – is entirely based on work.

Recipients only get a handout if they also earn some money.

Regarding the desirability of work requirements, we can learn from what’s happened in other countries.

In an article from last year, Ryan Streeter of the American Enterprise Institute found good news from work-oriented reforms, especially in Nordic nations.

A majority of Americans, including 55 percent of people living in poverty, believe the purpose of welfare is to help people get on their feet, not just to dispense benefits. Eight in 10 low-income respondents believe working should be required to receive welfare benefits. …Welfare reformers might draw some lessons from unlikely places…the Scandinavian welfare systems are arguably more pro-work than ours… For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. …Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” …An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system.

Regarding the reforms in the United Kingdom, here are some excerpts from a report by Emily Top for E21.

The UK overhauled its welfare system with the Welfare Reform Act 2012. …In addition to simplifying the programs into one, the Act required claimants to agree to a “Claimant Commitment,” in which they sought the services of a work coach to improve their job prospects and get hired. …the program has led to an increase in UK labor force participation as well as a decrease in dependence on benefits. During the same period that the labor force participation rate in the U.S. declined from 84 percent to 82 percent for prime age workers, the rate in the UK increased from 84 percent to 86 percent.

Let’s close by looking at some academic research on work requirements in the United States.

Three professors studied the impact of Bill Clinton’s welfare reform on recipients and found significant societal benefits.

The US Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, often referred to as ‘welfare reform’, was a major policy shift in the US that sought to dramatically reduce dependence of single parents on government benefits by promoting work… The key strategy for reducing dependence was to promote employment by imposing work requirements as a condition for receiving benefits in concert with a lifetime limit on receipt of cash assistance. …The reforms have been successful in that welfare caseloads have declined dramatically – 78% since their peak in 1994. …In a series of recent papers, we investigated the effects of welfare reform in the US – which is still in effect today – on women’s illicit drug use and other types of crime… We found robust evidence that welfare reform led to a 10%–21% decline in illicit drug use among women at risk of relying on welfare, as well as associated declines in drug-related arrests (6%–7%), drug-related hospital emergency department episodes (7%–11%), and possibly drug-related prison admissions (11%–19%). These findings provide some support of the ‘mainstreaming’ argument underlying welfare reform. …We found that welfare reform led to decreases in female arrests for property crime – which is the type of crime women are most likely to commit (Campagniello 2014) – by 4–5%… The findings from this study point to broad-based work incentives – and, by inference, employment – as an important determinant of female property crime…

These are all good outcomes.

Though the best news – both for taxpayers and poor people – is contained in this chart from their research.

P.S. While the Trump proposal is not my ideal policy, it does compare well with the Obama Administration’s efforts to expand food stamp dependency – including bribes for states that signed up additional recipients.

P.P.S. With all redistribution programs, there is an ever-present challenge – highlighted by Thomas Sowell – of how to avoid trapping people in dependency with high implicit marginal tax rates.

P.P.P.S. There’s also a moral issue of whether people should feel ashamed for taking government handouts.

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While he’s not as outwardly radical as Elizabeth Warren, Bernie Sanders, and Kamala Harris, Andrew Yang has joined together two very bad ideas – universal handouts and a value-added tax.

Needless to say, I was not overflowing with praise when asked to comment.

At the risk of understatement, giving every adult a $12,000-per-year entitlement would be a recipe for bigger government and more dependency.

Even Joe Biden understands that this would erode societal capital.

And the ever-sensible Swiss, in a 2016 referendum, overwhelmingly rejected universal handouts.

Needless to say, it also would be a catastrophic mistake to give Washington several new sources of revenue to finance this scheme. A big value-added tax would be especially misguided.

Let’s take a closer look at Yang’s plan. As I noted in the interview, the Tax Foundation crunched the numbers.

Andrew Yang said he wants to provide each American adult $1,000 per month in a universal basic income (UBI) he calls a “Freedom Dividend.” He argued that this proposal could be paid for with…a combination of new revenue from a VAT, other taxes, spending cuts, and economic growth. …We estimate that his plan, as described, could only fund a little less than half the Freedom Dividend at $1,000 a month. A more realistic plan would require reducing the Freedom Dividend to $750 per month and raising the VAT to 22 percent.

If you’re interested, here are more details about his plan.

…individuals would need to choose between their current government benefits and the Freedom Dividend. As such, some individuals may decline the Freedom Dividend if they determine that their current government benefits are more valuable. The benefits that individuals would need to give up are Supplemental Nutritional Assistance Program (SNAP), Temporary Assistance for Needed Families (TANF), Supplemental Security Income (SSI), and SNAP for Women, Infants, and Child Program (WIC). To cover the additional cost of the Freedom Dividend, Yang would raise revenue in five ways: A 10 percent VAT…A tax on financial transactions…Taxing capital gains and carried interest at ordinary income rates…Remove the wage cap on the Social Security payroll tax…A $40 per metric ton carbon tax.

By the way, Yang has already waffled on some of his spending offsets, recently stating that the so-called Freedom Dividend wouldn’t replace existing programs.

In any event, the economic and budgetary effects would be bad news.

…his overall plan would reduce the long-run size of the economy and the tax base. The three major taxes in his plan (VAT, carbon tax, and payroll tax increase), while efficient sources of revenue, would tend to reduce labor force participation by reducing the after-tax returns to working. Using the Tax Foundation Model, we estimate that the weighted average marginal tax rate on labor income would increase by about 8.6 percentage points. The resulting reduction in hours worked would ultimately reduce output by 3 percent. We estimate that Yang would lose about $124 billion each year in revenue due to the lower output.

Here’s how the Tax Foundation scores the plan.

As you can see, the VAT, the financial transactions tax, the higher capital gains tax, and the increase in the payroll tax burden don’t even cover half the cost of the universal handout.

P.S. When the Tax Foundation say a tax is an “efficient source of revenue,” that means that it would result in a modest level of economic damage on a per-dollar-collected basis. This is why they show a rather modest amount of negative revenue feedback (-$124 billion).

I think they’re being too kind. Extending the Social Security payroll tax to all income would result in a huge increase in marginal tax rates on investors, entrepreneurs, and other high-income taxpayers. As explained a few days ago, those are the people who are very responsive to changes in tax rates.

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Even though I (correctly) doubted the Trump Administration’s sincerity, I applauded proposed reductions in foreign aid back in 2017.

I very much want to reduce poverty in poor nations, of course, but the evidence is very strong that government handouts don’t do a very good job.

Moreover, we also have lots of data showing poor nations can enjoy dramatic improvements in living standards so long as they adopt good policy.

Hong Kong, Singapore, Chile, and Botswana are very good examples.

Yet some people haven’t learned this lesson. Consider the current debate over Trump’s threat to end aid to Central America if illegal immigration isn’t reduced.

A column in Fortune makes the case that handouts to Central America are necessary to reduce human smuggling.

President Donald Trump ordered the State Department to cut funding for Guatemala, Honduras, and El Salvador this weekend in retaliation for the recent influx of migrants from these nations, reversing a longstanding policy that says aid helps abate immigration. …According to Liz Schrayer, president and CEO of the U.S. Global Leadership Coalition—a nonprofit coalition of businesses and NGOs dedicated to American development and diplomacy—pulling back aid “exasperates the exact root causes that are creating the migration numbers’ increase.” …“It will only result in more children and families being forced to make the dangerous journey north to the U.S.-Mexico border,” said the five Democratic lawmakers in a statement.

A piece in the New York Times makes the same argument.

The Trump administration’s decision to cut off aid to El Salvador, Guatemala and Honduras to punish their governments for failing to curb migration is a rash response to a real policy dilemma. …it will exacerbate migration from the region without twisting Central American politicians’ arms. …The decision to cut off aid is bound to drive up migration numbers.

Ironically, the author admits that aid is ineffective.

…we shouldn’t pretend that the aid itself was doing much good… it is mostly distributed inefficiently in large blocks by foreign contractors.

Though he seems to share the naive (and presumably self-interested) arguments of international bureaucrats about the potential efficacy of aid.

Central American governments and elites have gotten away with abdicating their fiduciary, social and legal responsibilities to their citizens. They have failed to collect tax revenue and to invest in social programs and job creation that alleviate the plight of their poor.

Even some small-government conservatives seem to think that more aid would make recipient nations more prosperous and thus reduce illegal immigration.

What President Trump is doing now — cutting aid — is wrong. …As former White House Chief of Staff and SOUTHCOM Commander, General John Kelly, has noted, “If we can improve the conditions, the lot in life of Hondurans, Guatemalans, Central Americans, we can do an awful lot to protect the southwest border.” …We risk undermining our longterm national interests by cutting foreign aid. We should, instead, spend it wisely in those countries to ensure stable governments that view us as allies and work with them to root out crime, corruption, and cartels. The present policy to cut foreign aid cuts off our national nose to spite our face.

This is not an impossible prescription.

But it’s also the triumph of hope over experience.

In the real world, we have mountains of evidence that foreign aid weakens recipient economies by subsidizing corruption and larger burdens of government.

Let’s look at some analysis on this issue.

In a piece published by CapX, Matt Warner recommends less redistribution rather than more.

…the poor know how to get themselves out of poverty. They just need more opportunity to do it. The question we must ask ourselves is: to what degree are our current development aid strategies aligned with this insight? …If the intervention itself is part of the problem, what can outsiders really do to help? Today there are at least 481 research and advocacy organisations in 92 countries pushing reform agendas to provide more economic opportunity and prosperity for all. The “Doing Business” report provides a blueprint for change. Local reform organisations, supported by private philanthropy, provide the leadership to achieve it and the world’s poor will show us their own paths to prosperity if we will all just learn to get out of their way.

Writing for Barron’s, Paul Theroux notes that Africa regressed when it was showered with aid.

Africa receives roughly $50 billion in aid annually from foreign governments, and perhaps $13 billion more from private philanthropic institutions… Africa is much worse off than when I first went there 50 years ago to teach English: poorer, sicker, less educated, and more badly governed. It seems that much of the aid has made things worse. …Zambian-born economist Dambisa Moyo calls aid a “debilitating drug,” arguing that “real per-capita income [in Africa] today is lower than it was in the 1970s, and more than 50% of the population — over 350 million people — live on less than a dollar a day, a figure that has nearly doubled in two decades.” The Kenyan economist James Shikwati takes this same line on aid, famously telling the German magazine Der Spiegel, “For God’s sake, please stop.”

Brad Lips of the Atlas Network explains why aid often is counterproductive.

The international community has donated more than $1.8 trillion to poor countries since 2000 – but this development aid hasn’t lifted many people out of poverty. Arguably, it has made some recipient nations poorer. …the aid has bred corruption, fostered dependence and impeded reforms that deliver sustainable economic growth. …Between 1970 and 2000 – a period in which aid to Africa skyrocketed – annual gross domestic product growth per capita on the continent fell from about 2 percent to zero growth, according to a study by an economist at New York University.

A column in the U.K.-based Times is very blunt about what all this means.

…the international development secretary should have abolished her department as soon as she was appointed to it… We kid ourselves that this aid works, to salve our consciences about being better off. But as we know, the money benefits charities, quangos, bureaucrats, tyrants and the predatory elite, and all these years later your average African is no better off.

Let’s close by looking at a thorough 2005 study from the International Policy Network. Authored by Fredrik Erixon, it documents the failure of foreign aid.

…the ‘gap theory’…assumes that poor countries are trapped in a vicious cycle of poverty because they are unable to save and hence have insufficient capital to invest in growth-promoting, productivity-enhancing activities. But there simply is no evidence that this savings/investment ‘gap’ exists in practice. As a result, aid has failed to ‘fill the gap’. Instead, it has, over the past fifty years, largely been counterproductive: it has crowded out private sector investments, undermined democracy, and enabled despots to continue with oppressive policies, perpetuating poverty. …The reason countries are poor is…because they lack the institutions of the free society: property rights, the rule of law, free markets, and limited government. … many studies point to the fact that government consumption in SubSaharan Africa has increased when aid has increased.

Here’s the evidence showing has more development assistance is associated with weaker economic performance.

By the way, the International Monetary Fund deserves unrestrained scorn for recommending higher tax burdens on Africans, thus making economic growth even harder to achieve.

Now let’s look at how two Asian regions have enjoyed growth as aid lessened.

Last but not least, here’s some very encouraging data from Africa.

I already mentioned that Botswana is an exception to the rule. As you can see, that nation’s success is definitely not the result of more handouts.

The bottom line is that President Trump is right, even if his motives are misguided.

Foreign aid is not the recipe for prosperity in Central America.

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One of the more elementary observations about economics is that a nation’s prosperity is determined in part by the quantity of quality of labor and capital. These “factors of production” are combined to generate national income.

I frequently grouse that punitive tax policies discourage capital. There’s less incentive to invest, after all, if the government imposes extra layers of tax on income that is saved and invested.

Bad tax laws also discourage labor. High marginal tax rates penalize people for being productive, and this can be especially counterproductive for entrepreneurship and innovation.

Though we shouldn’t overlook how government discourages low-income people from being productively employed. Only the problem is more on the spending side of the fiscal equation.

In today’s Wall Street Journal, John Early and Phil Gramm share some depressing numbers about growing dependency in the United States.

During the 20 years before the War on Poverty was funded, the portion of the nation living in poverty had dropped to 14.7% from 32.1%. Since 1966, the first year with a significant increase in antipoverty spending, the poverty rate reported by the Census Bureau has been virtually unchanged. …Transfers targeted to low-income families increased in real dollars from an average of $3,070 per person in 1965 to $34,093 in 2016. …Transfers now constitute 84.2% of the disposable income of the poorest quintile of American households and 57.8% of the disposable income of lower-middle-income households. These payments also make up 27.5% of America’s total disposable income.

This massive expansion of redistribution has negatively impacted incentives to work.

The stated goal of the War on Poverty is not just to raise living standards, but also to make America’s poor more self-sufficient and to bring them into the mainstream of the economy. In that effort the war has been an abject failure, increasing dependency and largely severing the bottom fifth of earners from the rewards and responsibilities of work. …The expanding availability of antipoverty transfers has devastated the work effort of poor and lower-middle income families. By 1975 the lowest-earning fifth of families had 24.8% more families with a prime-work age head and no one working than did their middle-income peers. By 2015 this differential had risen to 37.1%. …The War on Poverty has increased dependency and failed in its primary effort to bring poor people into the mainstream of America’s economy and communal life. Government programs replaced deprivation with idleness, stifling human flourishing. It happened just as President Franklin Roosevelt said it would: “The lessons of history,” he said in 1935, “show conclusively that continued dependency upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber.”

In another WSJ column on the same topic, Peter Cove reached a similar conclusion.

America doesn’t have a worker shortage; it has a work shortage. The unemployment rate is at a 15-year low, but only 55% of Americans adults 18 to 64 have full-time jobs. Nearly 95 million people have removed themselves entirely from the job market. According to demographer Nicholas Eberstadt, the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. …insisting on work in exchange for social benefits would succeed in reducing dependency. We have the data: Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%. But no reform is permanent. Under President Obama, federal poverty programs ballooned.

Edward Glaeser produced a similar indictment in an article for City Journal.

In 1967, 95 percent of “prime-age” men between the ages of 25 and 54 worked. During the Great Recession, though, the share of jobless prime-age males rose above 20 percent. Even today, long after the recession officially ended, more than 15 percent of such men aren’t working. …The rise of joblessness—especially among men—is the great American domestic crisis of the twenty-first century. It is a crisis of spirit more than of resources. …Proposed solutions that focus solely on providing material benefits are a false path. Well-meaning social policies—from longer unemployment insurance to more generous disability diagnoses to higher minimum wages—have only worsened the problem; the futility of joblessness won’t be solved with a welfare check. …various programs make joblessness more bearable, at least materially; they also reduce the incentives to find work. …The past decade or so has seen a resurgent progressive focus on inequality—and little concern among progressives about the downsides of discouraging work. …The decision to prioritize equality over employment is particularly puzzling, given that social scientists have repeatedly found that unemployment is the greater evil.

Why work, though, when government pays you not to work?

And that unfortunate cost-benefit analysis is being driven by ever-greater levels of dependency.

Writing for Forbes, Professor Jeffrey Dorfman echoed these findings.

…our current welfare system fails to prepare people to take care of themselves, makes poor people more financially fragile, and creates incentives to remain on welfare forever. …The first failure of government welfare programs is to favor help with current consumption while placing almost no emphasis on job training or anything else that might allow today’s poor people to become self-sufficient in the future. …It is the classic story of giving a man a fish or teaching him how to fish. Government welfare programs hand out lots of fish, but never seem to teach people how to fish for themselves. The problem is not a lack of job training programs, but rather the fact that the job training programs fail to help people. …The third flaw in the government welfare system is the way that benefits phase outs as a recipient’s income increases. …a poor family trying to escape poverty pays an effective marginal tax rate that is considerably higher than a middle class family and higher than or roughly equal to the marginal tax rate of a family in the top one percent.

I like that he also addressed problems such as implicit marginal tax rates and the failure of job-training programs.

Professor Lee Ohanian of the Hoover Institution reinforces the point that the welfare state provides lots of money in ways that stifle personal initiative.

Inequality is not an issue that policy should address. …Society, however, should care about creating economic opportunities for the lowest earners. …a family of four at the poverty level has about $22,300 per year of pre-tax income. Consumption for that same family of four on average, however, is about $44,000 per year, which means that their consumption level is about twice as high as their income. …We’re certainly providing many more resources to low-earning families today. But on the other hand, we have policies in place that either limit economic opportunities for low earners or distort the incentives for those earners to achieve prosperity.

I’ve been citing lots of articles, which might be tedious, so let’s take a break with a video about the welfare state from the American Enterprise Institute.

And if you like videos, here’s my favorite video about the adverse effects of the welfare state.

By the way, it isn’t just libertarians and conservatives who recognize the problem.

Coming from a left-of-center perspective, Catherine Rampell explains in the Washington Post how welfare programs discourage work.

…today’s social safety net discourages poor people from working, or at least from earning more money. …you might qualify for some welfare programs, such as food stamps, housing vouchers, child-care subsidies and Medicaid. But if you get a promotion, or longer hours, or a second job, or otherwise start making more, these benefits will start to evaporate — and sometimes quite abruptly. You can think about this loss of benefits as a kind of extra tax on low-income people. …Americans at or just above the poverty line typically face marginal tax rates of 34 percent. That is, for every additional dollar they earn, they keep only 66 cents. …One in 10 families with earnings close to the poverty line faces a marginal tax rate of at least 65 percent, the CBO found. …You don’t need to be a hardcore conservative to see how this system might make working longer hours, or getting a better job, less attractive than it might otherwise be.

To understand what this means, the Illinois Policy Institute calculated how poor people in the state are trapped in dependency.

The potential sum of welfare benefits can reach $47,894 annually for single-parent households and $41,237 for two-parent households. Welfare benefits will be available to some households earning as much as $74,880 annually. …A single mom has the most resources available to her family when she works full time at a wage of $8.25 to $12 an hour. Disturbingly, taking a pay increase to $18 an hour can leave her with about one-third fewer total resources (net income and government benefits). In order to make work “pay” again, she would need an hourly wage of $38 to mitigate the impact of lost benefits and higher taxes.

Agreeing that there’s a problem does not imply agreement about a solution.

Folks on the left think the solution to high implicit tax rates (i.e., the dependency trap) is to make benefits more widely available. In other words, don’t reduce handouts as income increases.

The other alternative is to make benefits less generous, which will simultaneously reduce implicit tax rates and encourage more work.

I’m sympathetic to the latter approach, but my view is that welfare programs should be designed and financed by state and local governments. We’re far more likely to see innovation as policy makers in different areas experiment with the best ways of preventing serious deprivation while also encouraging self-sufficiency.

I think we’ll find out that benefits should be lower, but maybe we’ll learn in certain cases that benefits should be expanded. But we won’t learn anything so long as there is a one-size-fits-all approach from Washington.

Let’s close with a political observation. A columnist for the New York Times is frustrated that many low-income voters are supporting Republicans because they see how their neighbors are being harmed by dependency.

Parts of the country that depend on the safety-net programs supported by Democrats are increasingly voting for Republicans who favor shredding that net. …The people in these communities who are voting Republican in larger proportions are those who are a notch or two up the economic ladder — the sheriff’s deputy, the teacher, the highway worker, the motel clerk, the gas station owner and the coal miner. And their growing allegiance to the Republicans is, in part, a reaction against what they perceive, among those below them on the economic ladder, as a growing dependency on the safety net, the most visible manifestation of downward mobility in their declining towns. …I’ve heard variations on this theme all over the country: people railing against the guy across the street who is collecting disability payments but is well enough to go fishing, the families using their food assistance to indulge in steaks.

It’s not my role to pontificate about politics, so I won’t address that part of the column. But I will say that I’ve also found that hostility to welfare is strongest among those who have first-hand knowledge of how dependency hurts people.

P.S. If you want evidence for why Washington should get out of the business of income redistribution, check out this visual depiction of the welfare state.

P.S. The Canadians can teach us some good lessons about welfare reform.

P.P.S. The Nordic nations also provide valuable lessons, at least from the don’t-do-this perspective.

P.P.P.S. Last but not least, there’s a Laffer-type relationship between welfare spending and poverty.

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America has a major dependency problem. In recent decades, there’s been a significant increase in the number of working-age adults relying on handouts.

This is bad news for poor people and bad news for taxpayers. But it’s also bad news for the nation since it reflects an erosion of societal capital.

For all intents and purposes, people are being paid not to be productive.

Guided by the spirit of Calvin Coolidge, we need to reform the welfare state.

Professor Dorfman of the University of Georgia, in a column for Forbes, pinpoints the core problem.

The first failure of government welfare programs is to favor help with current consumption while placing almost no emphasis on job training or anything else that might allow today’s poor people to become self-sufficient in the future. …It is the classic story of giving a man a fish or teaching him how to fish. Government welfare programs hand out lots of fish, but never seem to teach people how to fish for themselves. The problem is not a lack of job training programs, but rather the fact that the job training programs fail to help people. In a study for ProPublica, Amy Goldstein documents that people who lost their jobs and participated in a federal job training program were less likely to be employed afterward than those who lost their jobs and did not receive any job training. That is, the job training made people worse off instead of better. …Right now, the government cannot teach anyone how to find a fish, let alone catch one.

And Peter Cove opines on the issue for the Wall Street Journal.

…the labor-force participation rate for men 25 to 54 is lower now than it was at the end of the Great Depression. The welfare state is largely to blame. More than a fifth of American men of prime working age are on Medicaid. According to the Census Bureau, nearly three-fifths of nonworking men receive federal disability benefits. The good news is that the 1996 welfare reform taught us how to reduce government dependency and get idle Americans back to work. …Within 10 years of the 1996 reform, the number of Americans in the Temporary Assistance for Needy Families program fell 60%.

Interestingly, European nations seem to be more interested in fixing the problem, perhaps because they’ve reached the point where reform is a fiscal necessity.

Let’s look at what happened when the Dutch tightened benefit rules.

A fascinating new study from economists in California and the Netherlands sheds light on how welfare dependency is passed from one generation to the next – and how to save children from lives of idleness.

A snowball effect across generations could arise if welfare dependency is transmitted from parents to their children, with potentially serious consequences for the future economic situation of children. …there is little evidence on whether this relationship is causal. Testing for the existence of a behavioural response, where children become benefit recipients because their parents were, is difficult… Our work overcomes these identification challenges by exploiting a 1993 reform in the Dutch Disability Insurance (DI) programme… The 1993 reform tightened DI eligibility for existing and future claimants, but exempted older cohorts currently on DI (age 45+) from the new rules. This reform generates quasi-experimental variation in DI use… Intuitively, the idea is to compare the children of parents who are just over 45 years of age to children whose parents are just under 45. .

Here’s the methodology of their research.

The first step is to understand the impact of the 1993 reform on parents. Figure 1 shows that parents who were just under the age 45 cut-off, and therefore subject to the harsher DI rules, are 5.5 percentage points more likely to exit DI by the year 1999 compared to parents just over the age 45 cut-off. These treated parents saw a 1,300 euro drop in payments on average. …the reform changed other outcomes as well. There is a strong rebound in labour earnings.

This chart from their research captures the discontinuity.

Here are the main results.

The second step is to see how children’s DI use changed based on whether the reform affected their parents. We measure a child’s cumulative use of DI as of 2014, by which time they are 37 years old on average. Figure 2 reveals a noticeable jump in child DI participation at the parental age cut-off of 45. There is an economically significant 1.1 percentage point drop for children if their parent was exposed to the reform, which translates into an 11% effect relative to the mean child participation rate of 10%. …welfare cultures, defined as a causal intergenerational link, exist.

This second chart illustrates the positive impact.

But here’s the most important part of the research.

Reducing access to redistribution to parents is a good way of boosting income and education for children.

…we examine whether a child’s taxable earnings and participation in other social support programmes change. Cumulative earnings up to 2014 rise by approximately €7,200 euros, or a little less than 2%, for children of parents subject to the less generous DI rules. In contrast, we find no detectable change in cumulative unemployment insurance receipt, general assistance (i.e. traditional cash welfare), or other miscellaneous safety net programs. Looking at a child’s educational attainment, there is intriguing evidence for anticipatory investments. When a parent is subject to the reform which tightened DI benefits, their child invests in 0.12 extra years of education relative to an overall mean of 11.5 years. …these findings provide suggestive evidence that children of treated parents plan for a future with less reliance on DI in part by investing in their labour market skills.

And it’s also worth noting that taxpayers benefit when welfare eligibility is restricted.

These strong intergenerational links between parents and children have sizable fiscal consequences for the government’s long term budget. Cumulative DI payments to children of the targeted parents are 16% lower. This is a substantial additional saving for the government’s budget, especially since there is no evidence that children substitute these reductions in DI income for additional income from other social assistance programmes. Furthermore, there is a fiscal gain resulting from the increased taxes these children pay due to their increased labour market earnings. Overall, we calculate that through the year 2013, children account for 21% of the net fiscal savings of the 1993 Dutch reform in present discounted value terms. This share is projected to increase to 40% over time.

Ryan Streeter of American Enterprise Institute explains that other European nations also are reforming.

Welfare reformers might draw some lessons from unlikely places, such as Scandinavia. While progressives like to uphold Nordic democratic socialism as a model for America, the Scandinavian welfare systems are arguably more pro-work than ours… For instance, to deal with declining labor force participation, Denmark eliminated permanent disability benefits for people under 40 and refashioned its system to make employment central. Sweden reformed its welfare system to focus on rapid transitions from unemployment to work. Their program lowers jobless assistance the longer one is on welfare. The Nordic model is more focused on eliminating reasons not to work such as caregiving or lack of proper training than providing income replacement. Similarly, the British government combined six welfare programs with varying requirements into a single “universal credit.” The benefit is based on a sliding scale and decreases as a recipient’s earnings increase, replacing several differing formulas for phasing out of welfare programs with one. An evaluation of the new program, which encourages work, found that 86 percent of claimants were trying to increase their work hours and 77 percent were trying to earn more, compared to 38 percent and 55 percent, respectively, under the previous system. …Scandinavia and Britain learned a while ago that successful welfare reform is not just about how much money a country spends on people who earn too little. It’s really about how to help them find and keep a good job. It’s time for America to catch up.

Amen.

For what it’s worth, I think we’ll be most likely to get good results if we get Washington out of the redistribution business.

In effect, block grant all means-tested programs to the states and then phase out the federal funding. That would give states the ability to experiment and they could learn from each other about the best way of helping the truly needy while minimizing incentives for idleness.

P.S. This WIzard-of-Id parody is a very good explanation of why handouts discourage productive work.

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There is a lot of good news about the job market in America.

The official unemployment rate, released just yesterday, is down to 4.1 percent, which is the lowest its been since the end of the Clinton years. Even more impressive, the number of people getting unemployment benefits (i.e., getting paid not to work) has dropped to the lowest level since the early 1970s.

I don’t want to rain on this parade, but the numbers aren’t as good as they seem.

Back during the Obama years, I repeatedly pointed out the real health of the labor market should be measured by looking at either the rate of labor force participation or the employment-population ratio.

These are the numbers that give us a more accurate picture of the extent to which labor is being productively utilized (remember, national income is determined by the quality and quantity of labor and capital in the economy).

So let’s dig into the government’s database on labor force statistics and see where we stand when examining these more-insightful numbers.

We’ll start with the data on the rate of labor force participation, which is basically a measure of those working and looking for work as a share of the adult population. As you can see, that rate dropped significantly at the end of the Bush years/beginning of the Obama years. And it hasn’t recovered even though the recession ended back in 2009.

By the way, we shouldn’t expect this rate to be 100 percent, or even anywhere close to that high. After all, the 16-and-up population includes plenty of full-time students, retired people, disabled, stay-at-home moms (or dads), and others.

But I worry about the downward trend.

Now let’s look at the employment-population ratio, which is slightly more encouraging. We see a precipitous drop during the recession, but at least the number has been trending in the right direction for several years.

Though it’s nonetheless semi-depressing that the increase has been rather slow and we haven’t come anywhere close to recovering from the downturn.

To help understand the rate of joblessness, here’s a video from the Mercatus Center.

And to better understand the rate of employment, here’s a video from Nicholas Eberstadt at the American Enterprise Institute.

As far as I’m concerned, the key factoid is near the end, where he points out that we would have 10 million additional working-age men productively employed if the rate of employment today was the same as it was in 1965.

And that’s largely the fault of government programs – such as unemployment insurance, disability, Obamacare, licensing, etc – that make it easier for people to choose to be unproductive.

Speaking of which, let’s close with some excerpts from one of Jason Riley’s columns in the Wall Street Journal.

Peter Cove dropped out of a graduate program at the University of Wisconsin-Madison more than 50 years ago to enlist in Lyndon Johnson’s War on Poverty. These days, he’s fighting a war on dependency. …Mr. Cove moved to New York in 1965 to work for the city’s new Anti-Poverty Operations Board… Mr. Cove…noticed… “The government’s unprecedented expenditures failed to bring about the decline in poverty that Johnson had promised. Instead, they made things worse.” Between 1962 and 2012, the percentage of the U.S. population receiving government assistance in the form of cash transfers almost doubled to 21% from 11.7%. …Between 1965 and 2011, the official poverty rate was essentially flat, while government spending per person on poverty programs rose by more than 900% after inflation. “…But as welfare spending soared, the decline in poverty came to a grinding halt.” …Mr. Cove…came to understand that the answer to poverty is prosperity, that the private sector is the better generator of prosperity, and that the best antipoverty program is a job. “Not only does big government get in the way when it provides disincentives to work, it also has a profoundly negative effect on community,”… The increase in government dependency that Mr. Cove laments predates President Obama by decades, but it did accelerate on Mr. Obama’s watch.

Great points, particularly about how the welfare state actually undermined progress on reducing poverty and also eroded societal capital.

All of which is captured in this Wizard-of-Id satire.

P.S. Some honest leftists admit that the welfare state has caused collateral damage.

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Federalism is the gold standard for reforming redistribution programs. This was the approach used in the very successful Clinton-era welfare reform, and it should be replicated for other means-tested programs.

The core argument is that the federal government does a very poor job of managing such programs, resulting in a maze of handouts that produce lots of fraud and dependency.

If states were in charge of such programs, by contrast, there would be lots of innovation and experimentation. This would help policy makers understand the best way of taking care of the truly destitute while helping others transition to productive and self-sufficient lives.

Today, let’s look specifically at food stamps. I’ve already explained why federalism is the right way of fixing the program.

And here are some additional reasons to support reform.

Writing for USA Today, Jim Bovard opined on the program’s glaring shortcomings – many of which were exacerbated by the Obama Administration’s efforts to expand dependency.

Why did the food stamp program spiral out of control? The Obama administration believed that maximizing handouts would maximize prosperity… So the feds bankrolled massive recruiting campaigns to sway people to abandon self-reliance. A North Carolina social services agency won a USDA “Hunger Champions Award” for attacking “mountain pride” as a reason not to accept government handouts. In Alabama, people received fliers proclaiming: “Be a patriot. Bring your food stamp money home.” The state of Florida paid individual recruiters to sign up at least 150 new food stamp recipients per month. …enrollment also skyrocketed after Obama effectively suspended the three-month limit for able-bodied adults without dependents to collect food stamps. From 2008 to 2010, the number of able-bodied recipients doubled.

Jim points out several reasons why the program is bad for the economy and bad for poor people.

A 2012 Journal of Public Economics study concluded that receiving food stamps sharply reduces work hours by single mothers. …state governments have little or no incentive to police the program because losses from fraud or waste don’t come out of state budgets. …the program is a dietary disaster. Walter Willett, chair of Harvard University’s Department of Nutrition, observed in 2015, “We’ve analyzed what (food stamp) participants are eating and it’s horrible food. It’s a diet designed to produce obesity and diabetes.” A 2017 study published in BMC Public Health found that food stamp recipients were twice as likely to be obese as eligible non-recipients. …A 2016 USDA report revealed that soft drinks and other sweetened beverages are the most common purchase in food stamp households, accounting for almost 10% of monthly expenditures. “Desserts, salty snacks, candy and sugar” account for another 10% of food stamp expenditures.

And it’s definitely bad for taxpayers. In a column for the Wall Street Journal, Kristina Rasmussen explained how rich people are able to bilk the system.

Consider the food stamp program’s longstanding policy of “broad-based categorical eligibility.” You probably assume that food stamps go to poor people only. But this policy, which the U.S. Department of Agriculture instituted during the Clinton administration, allows state food-stamp programs to grant benefits to anyone who has moderately low wage income, regardless of net worth. A family with a seven-figure bank account can be eligible for food stamps. That’s how lottery winners—including actual millionaires—wind up getting food stamps. In 2012 Amanda Clayton of Detroit was revealed to be receiving $200 in monthly food aid despite having won $1 million the year before. “I feel that it’s OK because I have no income,” she said, “and I have bills to pay. I have two houses.” In 2011 Leroy Fick of Bay County, Mich., was found to be receiving food assistance despite having taken home $850,000 in lottery winnings the previous year. …more than 30 states continue to have no asset limits. All you need to collect food aid is two things: an income below a multiple of the poverty line, ranging from 130% to 200%; and eligibility for some sort of benefit funded by Temporary Assistance for Needy Families (TANF), the main welfare program for single parents. And there’s the “one weird trick.” The state spends TANF dollars to print a welfare brochure. The brochure itself is defined as a “benefit,” which everybody is “eligible” to receive, thereby meeting the USDA requirement. Of the 47 million Americans who received food stamps in 2014, some four million got them under “broad-based categorical eligibility”—most because their wealth would have made them ineligible otherwise.

The good news is that the White House wants to reform the scandal-plagued program.

The bad news is that Trump and his people have chosen paternalism rather than federalism.

Here’s what is in the Administration’s budget (scroll to page 128).

The Budget would also create a new approach to nutrition assistance that combines traditional SNAP benefits with U.S. Department of Agriculture Foods provided directly to households. This cost-effective approach supports American agriculture, prevents certain types of program abuse, provides state flexibility in delivering food benefits, and ensures the nutritional value of the benefits provided. …Under the proposal, households receiving $90 or more per month in SNAP benefits will receive a portion of their benefits in the form of a USDA Foods package, which would include items such as shelf-stable milk, ready to eat cereals, pasta, peanut butter, beans and canned fruit, vegetables, and meat, poultry or fish. …This cost-effective approach will generate significant savings to taxpayers with no loss in food benefits to participants.

I can understand that people don’t like it when food stamp recipients are buying junk food. Or luxury items.

And I can also understand the desire to make dependency somewhat discomforting.

But I have zero faith in the federal government’s ability to send food boxes to people every month and somehow save money and avoid extra bureaucracy.

What’s frustrating about the plan in Trump’s budget is that they actually proposed a semi-decent policy of partial federalism last year. So I view this as a step in the wrong direction.

By the way, the fact that I don’t like the plan doesn’t mean I agree with some of the leftist critics. As this “perplexed meme” illustrates, the folks who correctly mock the White House’s proposal are also the same ones who want the government to have massive powers over matters that are far more complex than delivering food.

While the budget plan takes the wrong approach, the White House has done something good via the regulatory process by giving states more flexibility for work requirements.

Kansas, Maine, Wisconsin, and Alabama have achieved good results already, and now the same thing is happening in Georgia, as noted by PJ Media.

Thousands of Georgia residents who depend on food stamps are losing their benefits because they have failed to meet the state’s new requirements that force the able-bodied without children to find jobs. …“The greater good is people being employed, being productive and contributing to the state,” Bobby Cagle, director of the state Department of Family and Children Services, said. …State Rep. Greg Morris (R) said the fact that thousands of people have lost their benefits only showed the magnitude of the problem of welfare fraud in Georgia. He said the new mandate is working. “This is about protecting taxpayer dollars from abuse, and taking people off the cycle of dependency,” Morris said. However, Benita Dodd, vice president of the conservative Georgia Public Policy Foundation, wrote that saving taxpayer dollars was not the program’s ultimate goal. “The goal must be to focus aid on those who truly need help and restore the dignity of work to able-bodied adults,” Dodd wrote. “Reducing dependency and promoting economic opportunity help end the cycle of poverty, reinforce the temporary nature of assistance and encourage personal responsibility.”

The bottom line is that I don’t know how much work should be required, or what kind. I also don’t know whether the idea of direct food delivery in Trump’s budget is necessarily a bad idea.

Which is why I want decentralization of the program. Let states try different approaches and then learn from each other. That’s good for taxpayers and good for poor people.

Which is basically what I said in this interview more than six years ago.

P.S. Here’s a map showing which states (as of a few years ago) had the highest rate of food stamp dependency.

P.P.S. And here’s a table showing which states have the highest levels of food stamp dependency relative to the eligible population.

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