The US Welfare state:
Kill It or Keep It ?

Published Jul 2011

US welfare state & poverty

A war of attrition ?

In the history of social assistance, the US welfare state was always met with a lot of opposition, maybe more than in other advanced economies. Several decades ago, it seemed to a majority of politicians to be an unsustainable economic aberration. But many economists today affirm that wealth redistribution policies – though not always in the form of pure welfare – make sense for the greater good and to foster the capabilities of all citizens.

Only 15 years ago many “experts” were still arguing that government welfare programs had failed to eradicate poverty and created a form of welfare dependency (the infamous "hammock") that drove people away from work. In any case, public management was still a very new discipline and US welfare like many others was indeed too rigid and too costly. Except that compared to other European countries for example, it was also far below the average spending which economists today point at the reason for America's high poverty rates, especially with children.

“Neither generosity nor niggardliness seems to make much difference to the spread of the underclass.” (Krugman 1994)

This quote shows how misleading the debates have become. But in fact what it says isn’t really true and research in the 2000s have overwhelmingly pointed at the fact that all previous research was relying on insufficient data, poor causal relationships and also that the management of public resources has become much more efficient since then.

In the end most social scientists agree today to say that US welfare has been a somewhat effective solution to reduce poverty. The critics of welfare assistance are said to have been “mistaken” and to have offered “premature” judgment. And yet this is too rarely conveyed in the mainstream media, and you can still hear every day people burying the whole concept without really understanding its effects.

Worse, with digital technology and the development of social science-research you now have a quality data and results like never before. And that good stuff shows that no matter what political regime you're in - US welfare, UK, Sweden or other - some types of social assistance such as social security transfers and health care are unquestionably efficient strategies to fight poverty.

Looking for hard data? Start by having a look at these welfare statistics.

US welfare: The war that was never fought

Impact of US welfare on poverty

A quick word on comparing government welfare programs in the US and elsewhere in the “developed world”. Now if you’re “in” – as “in” the nerdy world of public policy – you'll know there are two big differences that separates the US from the rest: the US lacks a coherent, coordinated social security program, most likely the result of beefs between democrats and republicans, which makes it more inefficient than elsewhere.

This program has also long been underfunded. Until Obama’s Medicare was voted, the US was paying only as much as 30 to 40% of what other European countries were paying in welfare assistance, even though the country has a much higher GDP than them. Of course America’s always been more a proponent of “small government”, and even if in theory it sounds good, in practice it’s often an excuse for leaving people alone in their mess. And mostly an excuse for not solving the real issues and causes of poverty.

In the American case, there’s a lot to do concerning the structure of the economy and wages. But that’s just technical stuff no one wants to hear about. If the market alone is so perfect it can solve all social and economic problems, then it’s already had plenty of time to do so. So what, is it taking its time? “You don’t get it, there are still too many imperfections”, neoliberals always say. But you know what? Perfection doesn’t exist.

Secondly, because of the absence of a coherent US welfare system its family support policies are still focused on (if not obsessed with) a traditional notion of family, thus forgetting that there are quite a few million single-parent families out there. It means that one is doing the work of two (usually the mother, being a parent and a worker on her own), on top of what she’s not getting any of the tax credits normal families have. What’s missing in particular are some social welfare programs aimed at protecting children: from child allowances, to educational grants, maternity leave, child day care, etc. Maybe that’s one reason why child poverty rates in the US are so high.

The 1996 welfare reform

US welfare reform of 1996 - TANF (social assistance)

The main novelty of the 1996 Welfare reform – aka the end of welfare as we know it – was the creation of the TANF: Temporary Assistance to Needy Families. It made the granting of welfare conditional on employment, in the form of assistance for working adults only. It does sound good on the whole, doesn't it? Following the reform more than 3 million families were cut out of cash assistance. That includes a lot of single black moms with babies and no day care opportunities. But it did send them to find some work, upon what they received cash assistance again, and 5 years later child poverty in the US fell from 20 to 15%.

But from 2001 to 2009 it rose by 10% again. Why? Because those moms were receiving just enough to live above the US poverty line and when the 2008 economic crisis kicked in, they were among those who suffered the most from it. Many lost their jobs and consequently their social welfare too. How is it their fault if there aren’t jobs anymore? In particular when you live in a poor part of town where new jobs aren't something you see everyday. That’s why experts insist on providing education-related welfare so that those moms and their kids eventually get to improve their social condition. That’s the best known and proven way to break the poverty cycle so far. An educated workforce is what supposedly makes a developed country.

But truth be told in the initial draft of the 1996 welfare reform, the conditions to receive cash transfers were “work activities” that included training and education. It was almost a very good reform and it ended up being one that worked so long as the economy was booming (in other words it didn’t work so much). Lots of American researchers were actually worried that the TANF was actively discriminating against single mothers and penalizing them for not being more “traditional”.

Since this reform of US welfare, the budget for cash assistance was reduced by more than 85%, mostly because the participation rate to the program fell from 85% of eligible families to 40% in ten years. The reasons why some 3 million families decided not to participate are diverse: all the conditions for receiving assistance (including too rigid work activities requirements) drove many away, along with the decline of cash benefits making the deal not so interesting. At the same time many states adopted strategies to prevent people from applying, with systems of sanctions and excessive paperwork and requirements.

This made it even harder for parents suffering from mental or physical health issues, who always have more trouble finding a job. Most of them got simply cut out from all US welfare of any kind. Finally another big part of those who didn’t apply were those who had somewhat higher income and education and decided to try make it on their own. Why? Out of pride. Because socially speaking, being poor you know isn’t that trendy... Now if those 45% who decided or were passively forced not to apply had received TANF welfare from 1996 to 2005, it’s estimated that there would have been 800,000 less children in poverty in the US. But the truth is that that number could be a lot higher too. However even higher participation in TANF wouldn’t solve it all because:

  1. Those eligible to US welfare need to be living on less than half the federal poverty guideline (some $20,000/year for a family of four, so it would be mean living on less than $10,000/year for that family which is mind-blowingly insane);
  2. TANF cash assistance is not even enough to raise household’s income above the poverty line. They just stay within the normal poverty level, that’s to say between $10,000 and $20,000/year for four people.
US families receiving TANF welfareassistance

Percent change in the number of families receiving TANF cash assistance in 2009: there was usually no real change if not many increases due to the crisis. Only Texas took the opportunity to decrease its cash distribution despite receiving the same budget (and being much wealthier than others)

Who deserves welfare ?

Who deserves welfare in the US?

One essential aspect to understand how anti-poverty programs are influenced by decision makers and voters is to analyze their perceptions of who among the poor deserves welfare assistance and who doesn’t. So what have our champions of morals decided? The results of most surveys show very contrasted and contradictory opinions. In general, the majority people approved liberal policies when social assistance was attributed to some kind of poor (at random, let’s say the white poor), and on the other hand they seemed to be more supportive of conservative policies toward other kinds of poor (at random, let’s say the black poor).

In both cases it meant that they thought either group did or did not deserve US welfare. This study is actually applicable across many ethnic groups in the country, and is kind of understandable in the end. We all feel closer to those like us, who share more similar problems. No? Yes? Maybe. But it’s very revealing to see the shift from liberal to conservative positions, with support for liberal policies suggesting that society’s flaws were responsible for poverty and not the individual. So, it means that support to US welfare doesn’t really depend on economic standpoints but more on social and racial bias.

Especially since mainstream economists now support – to some degree – systems of redistribution of wealth. It makes sense when you consider that most corporations have never been doing so well (article by Krugman, 2008 Nobel Prize in Economics), and that wages haven’t increased by even an ounce all that time. So of course that means there’s a lot of work to do in the media and in communities to nurture a sense of solidarity and deeper bonds, rather than trying to split everyone against one another. That surely sounds naive but shouldn't it be the bare minimum in a nation?

Deciding who deserves welfare and who doesn’t based on racial criteria is just nuts, partial and unfair to say the least. But to be fair, stereotypes and cliches aren’t always a very conscious process in people's minds. That's what makes it hard to smash them down, but right now the stakes are high and the crisis could be an opportunity to turn things around. Just daydreaming I suppose…

US welfare as an investment

The TANF program isn’t all that bad but there’s a need for more extensive coverage, for including training and education so that people can adapt changes and economic crises. You need to give people the tools to their own empowerment, and that begins with education. Other complementary programs would provide better help to workers, especially social welfare to single black moms who live in high unemployment area, with trashy public service, no day care or anything that might help at all.

But then again all that is useless if in the end nothing is done to get those whole places out of poverty. That’s why US welfare need much more coordination between different programs and with the market. A real long term plan, a vision of how to solve things. That’s what welfare is in the end: investing in people. It shouldn’t be done blindly, it should be done with the idea in mind that this investment will bring you back twice, three times your money in 20 years. Of course it’s a long term investment, but what are politicians for if not for providing a long term vision that will better their country. Especially now that you do have all the data you need on welfare.

A republican once said (can’t remember the name sorry) that the situation didn’t make any sense as you now have the proof that for every dollar that went to child care and child assistance in the 80s, 3 to 4 dollars came back to the government 20 years after. That’s a pretty good investment, but the truth is that neither social sciences nor facts matter anymore. Debates around US welfare sound more and more like political extremism (on both sides), and this trend seems to be emerging in other countries as well. And for now just keep in mind that a great deal of full-time American workers were still not making enough to live above the poverty line even when the economy was great. Even before 2008, top managers’ salaries were running wild and those of the bottom of the pyramid were stagnant at best.

US federal tax revenue sources

Share of federal tax revenue: corporate tax (red) vs. payroll tax (yellow)

This is a simple observation that shows how economic growth does not always equate less poverty. In the US welfare is part of the temporary solution as in many other countries, but there are still major changes that should be done in the economy and the job market to better redistribute the wealth.

On the other side, a major problem of the Census Bureau is that it doesn't take into account welfare when counting the poor in the US. As this article on US welfare explains, welfare has actually helped a lot reduce poverty for the past 50 years. It's very much a work in progress.


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