Thursday, October 29, 2015

Welfare often helps rather than corrupts the poor

A common view of welfare is that it corrupts the poor and creates a culture of dependency that needs to broken by cutting off benefits and forcing the poor to find jobs and break their addiction to welfare.
A recent article in the New York Times, by Eduardo Porter, shows that at least some of the contentions behind this viewpoint are not consistent with some of the facts about the effects of welfare. Of course there is nothing easier than to find specific incidents in which welfare has corrupted the poor and recipients are successfully gaming the system. This tells one nothing about the overall effects of welfare payments but creates a public bias against welfare that can be used to cut benefits without much negative fallout, except from anti-poverty groups, that can be branded as "special interests."
Often anti-welfare positions are associated with the conservative politicians and Republicans in the United States. Charles Murray of the American Enterprise Institute is a well-known critic of welfare. However Franklin Delano Roosevelt a staunch democrat who introduced the New Deal during the depression said that welfare was " a narcotic, a subtle destroyer of the human spirit." It was a Democrat, Bill Clinton, who passed legislation to end "welfare as we know it." There is little doubt that Roosevelt has a point that welfare can have the effect he claims. Much preferable to welfare is enabling the poor to have jobs and in Roosevelt's case that is what the New Deal helped do, but many also criticize government "make work" projects. Roosevelt's make work projects produced significant infrastructure within the US.
The NY Times article argues that the association of welfare with dependency ignores positive benefits that welfare payments can be bring: Actual experience, from the richest country in the world to some of the poorest places on the planet, suggests that cash assistance can be of enormous help for the poor. And freeing them from what President Ronald Reagan memorably termed the “spider’s web of dependency” — also known as forcing the poor to swim or sink — is not the cure-all for social ills its supporters claim.
In spite of the increasingly common view that welfare payments are counter-productive unconditional cash assistance is used in 119 countries, and 52 other countries have minimal requirements. A recent study released by Professor Abhijit Banerjee, who directs the Poverty Action Lab at MIT that looked at seven cash-transfer programs in Mexico, Morocco, Honduras, Nicaragua, the Philippines and Indonesia found "no systematic evidence that cash transfer programs discouraged work." A common view about cash transfer payments is that they will be spent on alcohol and tobacco, making the recipients and their families worse off than before. A World Bank report looked at cash assistance programs in Africa, Asia, and Latin America and found that such behavior is atypical. Stereotypes trump data when it comes to issues such as this.Banerjee suggests that an anti-welfare ideology that is common in the U.S. may be spreading throughout the world: “Many governments have economic advisers with degrees from the United States who share the same ideology, Ideology is much more pervasive than the facts.”
Some of the common views in the U.S. about welfare are not born out by experience in the U.S. itself. A 1995 analysis of birth rates to unwed mothers by Hilary Hoynes of the U. of California at Berkeley found that welfare payments did not result in more births to single mothers and ending welfare payments to them did not reduce it.
Welfare payments can discourage those on welfare from getting work to some extent. Often part time jobs may be available to recipients but if they chose to work, welfare payments will be immediately reduced. It makes little sense to take a job when you will receive very little more than if you just stayed on welfare. Even here, studies show that the disincentive effects are magnified. James Ziliak haed of the Center for Poverty Research at the University of Kentucky claims: “There is some disincentive effect consistent with theory, but the economic magnitude is not large. Oftentimes these disincentive effects are overstated in the policy discourse.” I expect that most people would not choose to stay on welfare if they were able to get a reasonable paying job. Research shows that children who are in families who receive welfare early in life have improved educational attainment, nutritional status, and income in adulthood.
In the first years the effects of welfare reform in the U.S. were positive. Numbers of families on welfare declined and child poverty declined as more single mothers had jobs. However, this was a period of a growing economy. Over time there was an over-supply of poorly-educated single mothers and child poverty rose again. Researchers now think that a strong economy in the late nineties helped produce the observed effects, plus a program of wage subsidies to business through a tax credit. When the Great Recession struck it was the poor and those who formerly received welfare who suffered most. Ziliak claims:“What we lost is a commitment to the poor who face significant barriers to work, whether because of child care or physical or mental disabilities. We have walked away from cash for that group and that group has suffered considerably.”
Personally, I think that welfare by itself is often not a way of getting people out of poverty. It needs to be combined with training programs, and government job programs, and other policies that provide the poor with a means to earn a living without simply receiving cash from the government. However, this does not mean that cash payments to the poor should be abandoned since they provide needed aid. The idea that welfare should be done away with, as the article notes, rests on the argument that "poor people will never act responsibly, get a job and stay in a family unless they are thrown into the swimming pool and left to struggle with little support from the rest of us."

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