With unemployment lingering above 7 percent for the longest period since the Great Depression, and Republicans attacking the Obama administration for presiding over a record-high 47 million Americans receiving food stamps, social welfare concerns are back in the news. The conservative Cato Institute argues in a recent study that in a majority of states, including New York, the total cash value of basic welfare payments (aka Aid to Families with Dependent Children), food stamps, housing subsidies and medical care is more than twice the minimum wage, thus making it almost irrational for someone on welfare to take a minimum-wage job and give up the free benefits.
The conservatives are right that the current welfare system is not working. It isn’t moving people out of poverty and it costs too much. But their solution of either abolishing the programs outright or cutting them to the bone hasn’t worked either. Cato’s own analysis shows that conservative states like Mississippi have both the lowest welfare benefits and the highest poverty rates. (http://object.cato.org/sites/cato.org/files/pubs/pdf/pa240.pdf)
From 1981, under the Reagan administration, until 2008, social programs for the non-elderly poor were cut or frozen. Yet these largely conservative policies did not spur a majority of the poor to work harder.
It is highly likely that a proposal that combines the conservative principle that everyone must make a contribution (i.e., work) with the liberal goal of increasing benefits for the poor is the best way out of this mess.
But first, a brief history. In 1964, President Lyndon B. Johnson famously launched an ambitious set of programs to build a “Great Society,” forcefully proclaiming in his first State of the Union address: “This administration unconditionally declares war on poverty.” The Great Society consisted of laws and programs to end racial discrimination and break the cycle of poverty by providing cash supplements, jobs and opportunities for low-income Americans. A partial list would include the Civil Rights Act of 1964, the Voting Rights Act of 1965, the Open Housing Act of 1968, Medicare, Medicaid, federal aid to education and vast amounts of federal funds for highways, housing projects and other assorted anti-poverty programs. The amount of social spending tripled from 1964 to 1969, when Johnson left office.
Some of the ideas worked quite well: the Civil Rights Act helped expand the black and Hispanic middle classes, and the Voting Rights Act was so successful that black voters supporting President Obama in 2012 had their highest turnout ever. On the poverty front, there was some success as well: the Census Bureau reports that the national poverty rate for all people dropped by nearly half: from 22.4 percent in 1959 to 12.1 percent in 1969.
But without a doubt, the Great Society programs were somewhat disappointing. All of the laws and programs passed couldn’t stop many cities from exploding into riots in the 1960s. The poverty rate never dropped below 10 percent, taxes and spending consistently had to be raised to maintain funding levels and middle-class voters eventually rebelled, resulting in almost four decades of conservative dominance from 1968 until Obama’s win in 2008.
Since the ’60s, the Gallup Poll repeatedly showed that vast majorities of voters believed that able-bodied welfare recipients under retirement age should be required to work in exchange for their benefits. And since the Great Recession, which began in late 2007, both the poverty rate and the raw number of poor people have increased. With more than 46 million below the poverty line (roughly 15 percent of the population), America now has more poor people than since Franklin Roosevelt saw “one-third of a nation ill-housed, ill-clad and ill-nourished” during the depths of the Great Depression. Some inner cities, like Detroit, have become strongholds of joblessness, crime and now bankruptcy. As Ronald Reagan used to joke, “The Democrats fought a war on poverty and poverty won.”
So what can be done? Is the nation stuck with such lousy economic opportunities? Not necessarily. If we can learn from what has and has not worked in the past and synthesize a new approach that strengthens low-income families, rewards work and focuses on lower living costs, we can reduce poverty to below the 5 percent level within a generation.
First, what works to reduce poverty? Simple common sense tells us – and economists of all stripes agree – that a strong job market is the poor person’s best friend. For example, the unemployment rate in 1939 was close to 20 percent. Six years later, due to the massive economic stimulus of World War II, it was below 2 percent. In the peace-time 1990s, a boom keyed by high-tech industry reduced unemployment to just 4 percent. In both cases, the poor and the unemployed gained the most on a relative basis because they were starting from such a low level.
What hasn’t worked in the anti-poverty efforts? Conservatives have a point when they blame poverty on broken families. Census Bureau data show that single mothers with children are three times more likely to be poor than homes with two parents, regardless of race or ethnicity – a fact Daniel Patrick Moynihan made clear nearly 50 years ago. Whether social programs cause family breakdown or are just the symptom is unclear. But the overwhelming evidence proves the wisdom of promoting two-parent homes.
Conservatives have also argued for years that welfare undermines the work ethic of the poor by discouraging them from taking entry-level minimum-wage jobs. The recent study by the Cato Institute arguing that in many places welfare is more lucrative than the minimum wage overstates its case. While everyone on welfare receives some cash assistance and food stamps, very few receive every benefit listed by Cato. But the point remains: for some folks, it’s both easier and more logical to stay on welfare than work.
With all this in mind, what kind of welfare reform stands the best chance of success? Probably the best program would be a hybrid that combines the conservative principle of a work requirement with the liberal ideal of increased assistance and opportunities to two-parent poor families. A smart welfare reform would include:
Strengthening families: There is nearly unanimous agreement that two-parent families are economically better-off. Conservatives are right when they say the current welfare system provides little or no incentive to form family units. But liberals have a logical answer: Why not remove this distortion in the welfare system by allowing benefits to go to intact poor families? Businessweek magazine, not exactly a socialist publication, made precisely this argument in endorsing welfare reform: “The cruel injustice of denying aid to fathers who have the courage to stay with their families in times of trouble would be ended.”
Promoting work: Conservatives are right to require able-bodied younger welfare recipients to work. Liberals are right to ask for more benefits when both parents are willing to work entry-level jobs. Why not award more food stamps as a “bonus” to minimum-wage families if both parents are working? Reforming welfare so that the more hours parents work, the more “bonus” benefits they get makes much sense. Combining an iron-clad work requirement with making benefits available to two-parent families kills two birds with one stone.
Health care reform: Obamacare is crucial because it removes a banner work disincentive – the fear of the poor that they will lose their Medicaid benefits by taking a low-paying job. The Affordable Care Act may prove to be a highly effective weapon against poverty.
Relocating the poor: Another big factor in the persistence of poverty is that many live in expensive cities like New York, Chicago, Los Angeles or San Francisco. It is undeniably true that the federal minimum wage of $7.25 per hour buys a lot less in New York than say, Peoria, Ill.; Dayton, Ohio; Waco, Texas; or Fresno, Calif. For example, the median rent is $1,168 in New York City and $1,407 in San Francisco. By contrast, it is $615 in Dayton, $651 in Peoria, $681 in Waco and $866 in Fresno. New York, L.A., Chicago and San Francisco are all in the top 10 largest metro areas and have a total of roughly 4 million poor people or 10 percent of the national total. It’s probably a good idea to provide the big-city poor with vouchers to assist them to move to less expensive locations where their minimum-wage salaries will go much further.
A two-parent family where both mother and father earn the minimum wage of roughly $300 per week would elevate a family of four above the poverty line of nearly $24,000. Adding several hundred dollars’ worth of food stamps plus the guaranteed health coverage under Obamacare should greatly improve their quality of life. While families that earned less than $30,000 per year would really struggle in New York or San Francisco, they might even become homeowners in Dayton, Waco or Fresno, where median home prices are up to 80 percent lower than in New York City.
Needless to say, these proposed ideas won’t work for every poor family. There likely will always be some “hard-core” cases where, for instance, a mother with a severely handicapped child can’t work. Governors should set aside a small fraction of their social spending budgets to deal with such families.
None of these ideas will work quickly to reduce poverty or welfare dependency. It will take at least a generation to begin to solve these problems. But the status quo isn’t good for the nation. The more people we have being productive and contributing revenues, the stronger the country will be.
Patrick Reddy is a Democratic political consultant in California. He is the co-author of “California After Arnold” and the author of the forthcoming “21st Century America,” a study of national politics.