welfare

Does Family Structure Really Matter When It Comes to Poverty?

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Image result for single mother

Not according to a recent op-ed in The New York Times. The authors–sociologists all–argue based on findings from their new study[ref]Working paper version here.[/ref]

that reducing single motherhood would not substantially reduce poverty. Single-mother families are a surprisingly small share of our population. Among households headed by working-age adults, 8.8 percent of people lived in single-mother households in 2013 — the most recent year we were able to analyze. The share of people in single-mother households actually declined from 10.5 percent in 1980 and has increased only modestly since 18=970, when it was 7.4 percent. True, compared with other rich democracies, America does have a relatively high portion of families headed by single mothers. Nevertheless, we still fall below Ireland and Britain and are quite similar to Australia and Iceland.

Because fewer people are in single-mother families than you’d think, even large reductions in single motherhood would not substantially reduce poverty. 

However, sociologist W. Bradford Wilcox takes issue with the way the NYT piece presents the evidence. He explains,

Nobody…is claiming that reducing the number of single-mother households will lead to lower poverty rates among elderly or childless men and women. The concern among poverty scholars has always been that single motherhood leads to higher rates of child poverty. And there is no denying the close connection between single parenthood and child poverty in America.

To begin with, children living in single-mother families are about five times as likely to be poor, compared with children living in married, two-parent families. This is clear in a recent analysis of trends in the official poverty rate from our colleague Ron Haskins at the Brookings Institution.

Moreover, research done by one of us, Isabel Sawhill, indicates that if the share of children in single-parent families had remained steady at the 1970 level, then the current child-poverty rate would be cut by about one-fifth, even after adjusting for the fact that single mother have different characteristics from married mothers. In other words, dramatic increases in single parenthood — from about 12 percent of children in 1970 to about 27 percent now — more recently have played an important role in fueling child-poverty rates.

Single parenthood is not the factor driving child poverty in America, but it isa factor.

What about Europe?

Well, it turns out that even in Europe children are more likely to be poor if they are living in a family headed by a single parent. Research done by social scientists Janet Gornick and Markus Jäntti indicates that children being raised by a single parent are about three times as likely to be living in a poor family as children being raised by two parents, even after accounting for generous welfare policies in Europe.

In fact, this is true even in Scandinavia. Relative to children in two-parent families, children in single-mother homes are about three times as likely to be poor in Denmark and Sweden, more than four times as likely to be poor in Norway, and nearly five times as likely to be poor in Finland, after taking into account their welfare policies.

Now, it’s true that the levels of child poverty in Scandinavia are markedly lower than those in the United States — indeed, about 75 percent lower because of their social policies. And it’s also true that the unique poverty risk associated with single parenthood generally goes away when you control for other factors, such as age, education, and employment, as Brady and his colleagues have done. What that misses is that mother-headed families are more likely to be formed as the result of an unplanned birth outside of marriage or a committed relationship, and that these unexpected births tend to occur at young ages, to interrupt a young woman’s education, and to make it less likely that she will ever marry or form a stable partnership and have the second income that such a partnership makes possible.

In other words, even today, one reason that two parents are generally better than one parent, economically speaking, is that having two parents in the home dramatically increases the odds not only that at least one parent is working full-time but also that there are two parents working on behalf of the children. And this is true even in Europe.

What’s more,

The social science tells us that children raised by single parents are significantly more likely to have children young, to drop out of high school, and to work less as young adults. Not surprisingly, the children of single-parent families are more likely to end up poor as young adults.

…Indeed, new research from economists Melissa Kearney and Phillip Levine indicates that young adults are at least ten percentage points less likely to be poor at age 25 if they were born to married parents, as opposed to an unmarried mother. These effects are especially strong for children born to mothers in the middle of the educational and age distribution — that is, for “children of mothers with high school degrees and mothers in their early/mid-20s.” In other words, in America at least, the long arm of single parenthood seems to extend into adulthood, increasing the likelihood that children of single parents will be poor as adults, compared with adults who were raised in intact, two-parent families.

Wilcox concludes, “It’s useful to point out that family structure is not destiny. But the evidence suggests it remains important and shouldn’t be dismissed as one important factor affecting children in particular.”

 

Should government food assistance programs have nutritional requirements?

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Some of the foods you can purchase through WIC.

Probably.

There’s good reason to believe that adding nutritional requirements to government food programs is a better use of money and leads to better health outcomes for the people in said programs.

WIC (Women, Infants, and Children) is a state-run program that helps low-income women and children purchase healthy food. WIC has specific guidelines for the quantities and types of food recipients can purchase, all of which have to meet certain health standards. In this program there is no way to purchase soda, candy, pizza, baked sweets, ice cream, etc. SNAP (Supplemental Nutrition Assistance Program, often referred to as “food stamps”) is a federally-funded program helping low-income people purchase almost any food.

The USDA explains that SNAP is for purchasing any food or food product for home consumption and that this definition includes “soft drinks, candy, cookies, snack crackers, and ice cream” and similar items. Data suggest these types of purchases make up at least 17% of SNAP spending .[ref]To get this number I added the percentages for the following categories: soft drinks, candy – packaged, frozen pizza, ice cream ice milk & sherberts, cookies, cakes, bacon, baked sweet goods, candy – checklane, sweet goods, ramen, frozen desserts, popcorn, dry mix desserts, pies, cookie/cracker multi packs, cocoa mixes, sweet goods & snacks, salty snacks, refrigerated desserts, single serve sweet goods, single serve cookie/cracker, and cake decor. There were many other categories that could arguably be categorized as unhealthy food or “junk food,” but if they were debatable I left them out.[/ref] In 2017, about 42 million people used SNAP at an average of $125.79 per person per month, meaning the government spent about $11.3 billion that year buying junk food for low-income people. What are the arguments for spending so much on junk rather than using those funds to ensure low-income people have high quality food?

Opponents of SNAP nutritional requirements give many reasons for why nutritional requirements are not feasible or effective: we can’t come up with clear standards for what is “healthy,” it would be too complicated and costly to implement such standards, restrictions wouldn’t stop people from buying unhealthy food with their own money, and people in higher income brackets purchase similar amounts of unhealthy food.[ref]Whether this last argument is true or not is a bit tangential. Research shows lower SES people have poorer nutrition and health outcomes than people with higher income. Improving nutrition is one (important) approach to bridging that gap.[/ref]

Yet WIC has managed to define what constitutes healthy food and implement a program based on those boundaries. In fact the USDA describes WIC as “one of the nation’s most successful and cost-effective nutrition intervention programs.” There is evidence to suggest people participating in WIC (especially children) have better nutrition and health outcomes than their peers. Conversely, there is evidence to suggest people who receive SNAP benefits have worse nutrition than income-eligible people who don’t participate in SNAP. For example:

Changing WIC changes what children eat – May 2013

Comparing July to December in 2008 and 2011, increases were observed in breastfeeding initiation (72.2-77.5%); delaying introduction of solid foods until after 4 months of age (90.1-93.8%); daily fruit (87.0-91.6%), vegetable (78.1-80.8%), and whole grain consumption (59.0-64.4%) by children aged 1-4 years; and switches from whole milk to low-/nonfat milk by children aged 2-4 years (66.4-69.4%). In 1-year-old children, the proportion ≥95th percentile weight-for-recumbent length decreased from 15.1 to 14.2%; the proportion of children 2- to 4-year-old with body mass index (BMI) ≥95th percentile decreased from 14.6 to 14.2%.

Trends in Obesity Among Participants Aged 2–4 Years in the Special Supplemental Nutrition Program for Women, Infants, and Children – November 2016

The prevalence of obesity among young children from low-income families participating in WIC in U.S. states and territories was 14.5% in 2014. This estimate was higher than the national estimate (8.9%) among all U.S. children in a slightly different age group (2–5 years) based on data from the 2011–2014 National Health and Nutrition Examination Survey (7). Since 2010, statistically significant downward trends in obesity prevalence among WIC young children have been observed overall, in all five racial/ethnic groups, and in 34 of the 56 WIC state agencies, suggesting that prevention initiatives are making progress, potentially by impacting the estimated excess of calories eaten versus energy expended for this vulnerable group (8).

The Supplemental Nutrition Assistance Program – September 2015

Child SNAP recipients consume more sugary beverages, processed meats, and high-fat dairy products, but fewer nuts, seeds, and legumes than income-eligible nonparticipants. Similarly, adult SNAP recipients consume more fruit juice, potatoes, red meat, and sugary beverages, but fewer whole grains than income-eligible nonparticipants. In another study, SNAP participants had lower dietary quality scores overall, and consumed significantly fewer fruits, vegetables, seafood, and plant proteins, but significantly more added sugar than income-eligible nonparticipants.

The study specifically compares SNAP nutrition to WIC nutrition:

In one study comparing the grocery store purchases of SNAP and WIC households in New England, SNAP households purchased more than double the amount of sugary beverages per month (399 ounces) than WIC households (169 ounces), 72% of which were paid for with SNAP dollars. In a 3-month study, new SNAP participants significantly increased their consumption of refined grains compared with low-income people who did not join. In a study of Hispanic Texan women, SNAP participants consumed 26% more sugary beverages and 38% more sweets and desserts than low-income nonparticipants.

Furthermore, most of the people who use SNAP believe the program should not allow recipients to purchase unhealthy food:

54% of SNAP participants supported removing sugary drinks from SNAP eligibility. In another survey of 522 SNAP stakeholders, 78% of respondents agreed that soda, and 74% agreed that “foods of low nutritional value” such as candy and sugar-sweetened fruit drinks should not be eligible for purchase with benefits. Seventy-seven percent of respondents believed that SNAP benefits should be consistent with the DGAs [Dietary Guidelines for Americans], and 54% thought that SNAP should be reformulated into a defined food package similar to WIC.

I want to live in a society where people are healthy and no one goes hungry. SNAP can and should serve both goals.

Do the Poor Eat More McDonald’s?

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According to the CDC, no. A 2017 study came to the same conclusions. As the authors explain at Vox,

Our research, recently published in the journal Economics & Human Biology, examined this assumption by looking at who eats fast food using a large sample of random Americans. What we found surprised us: Poor people were actually less likely to eat fast food — and ate it less frequently — than those in the middle class. And the poor are only a little more likely to eat fast food than the rich.

In other words, the guilty pleasure of fast food is shared across the income spectrum, from rich to poor, with an overwhelming majority of every group reporting having indulged at least once over a nonconsecutive three-week period.

…What we learned from our research is that pretty much everyone has a soft spot for fast food. We analyzed a cross-section of the youngest members of the baby boom generation — Americans born from 1957 to 1964 — from all walks of life who have been interviewed regularly since 1979. Respondents were asked about fast-food consumption in the years 2008, 2010 and 2012 — when they were in their 40s and 50s.

…The data also show middle earners are more likely to eat fast food frequently, averaging a little over four meals during the three weeks, compared with three for the richest and 3.7 for the poorest.

They continue:

Another problem with the stereotype about poor people and fast food is that by and large it’s not actually that cheap, in absolute monetary terms.

The typical cost per meal at a fast-food restaurant — which the US Census calls limited service — is over $8 based on the average of all limited service places. Fast food is cheap only in comparison to eating in a full-service restaurant, with the average cost totals about $15 on average.

Moreover, $8 is a lot for a family living under the US poverty line, which for a family of two is a bit above $16,000, or about $44 per day. It is doubtful a poor family of two would be able to regularly spend more than a third of its daily income eating fast food.

Many have argued that the poor don’t have access to healthy food. But as one writer notes,

Government data also shows that people on food stamps purchase soda (#1) and bag snacks (#4) at higher rates than non-SNAP households. It certainly seems possible that these unhealthy items are being purchased in larger quantities than they would absent food stamp (or “EBT”) income.

Now, there is an old argument that suggests that poor people eat unhealthy food because they cannot afford to eat healthy food. But I’ve always found this argument unpersuasive.

The America Farm Bureau Federation says the price of eggs, arguably the healthiest food on the planet, is $1.32 per dozen. Other highly nutritious foods – beans, rice, and bananas, to name a few – are similarly inexpensive. It seems more likely that most welfare recipients choose to eat unhealthy food because it’s easy (no prep), tastes good, is designed to be addictive, and they have the resources to buy large quantities of it thanks to their monthly government benefit.

Nonetheless, would access to healthier foods make a difference? Not really, according to the research. As Slate reports,

Obesity levels don’t drop when low-income city neighborhoods have or get grocery stores. A 2011 study published in the Archives of Internal Medicine showed no connection between access to grocery stores and more healthful diets using 15 years’ worth of data from more than 5,000 people in five cities. One 2012 study showed that the local food environment did not influence the diet of middle-school children in California. Another 2012 study, published in Social Science and Medicine, used national data on store availability and a multiyear study of grade-schoolers to show no connection between food environment and diet. And this month, a study in Health Affairs examined one of the Philadelphia grocery stores that opened with help from the Fresh Food Financing Initiative. The authors found that the store had no significant impact on reducing obesity or increasing daily fruit and vegetable consumption in the four years since it opened.

Earlier research suggesting that better fresh-food access improves diet and would therefore improve the health of people living in poverty was drawn from small samples or looked at store availability in narrow geographical slices—often without information about how or where the people who lived there shopped. “They never link the neighborhood characteristics to actual individuals,” explains Helen Lee, author of the Social Science and Medicine study. “Without that, all you have is speculation.”

Lee also notes in her study that, on closer inspection, food deserts don’t actually exist in the U.S., at least not as a national problem—on average, poor neighborhoods have more grocery stores than wealthier neighborhoods. Even before Obama’s Healthy Food Financing Initiative was announced in 2010, studies suggested that the food desert explanation for obesity wasn’t right. A report from Department of Agriculture researchers presented to Congress in 2009 also showed more grocery stores in poor neighborhoods. In 2012, USDA researchers crunched the data again and found once more that low-income neighborhoods had more—not fewer—grocery stores.

What’s more, the poor ignore “proven weight-loss strategies, relying instead on quick fixes like diet pills.” As The Atlantic explains,

For a new study published in the American Journal of Preventive Medicine, researchers from Concordia University looked at the incomes and health habits of more than 3,000 children and teens between the ages of 8 and 19 and more than 5,000 adults over the age of 20.

At least two-thirds of the study subjects reported attempting to reduce food intake or exercising in order to lose weight in the past year. Despite these efforts, the adults in the study gained an average of three pounds, while the youths gained about 12 pounds. The people in the lower income brackets gained about two pounds more than those in the highest one.

One reason for the disparity might have to do with the tactics they used to try to shed pounds: Compared to adults making $75,000 or more, those making less than $20,000 were 50 percent less likely to exercise, 42 percent less likely to drink a lot of water, and 25 percent less likely to eat less fat and sweets. And adults making between $20,000 and $75,000 were about 50 percent more likely to use over-the-counter diet pills, which aren’t proven to work.

The data for the young people were similar: The poorest among them were 33 percent less likely to exercise, but they were twice as likely to skip meals as the richest ones. Skipping meals, too, isn’t a sure-fire way to slim down.

The piece offers this more likely explanation:

…[I]t might be that the stressful lives of poor people make sticking to a diet and exercise plan more difficult. It’s hard to exercise when you live in an unsafe neighborhood. Stress leads to emotional eating. You can’t plan for gym time when you only know your work schedule three days in advance. 

An emerging body of research helps explain how the stress of poverty hampers the decision-making process. A study in Science last year found that poverty equates to a mental burden similar to losing 13 IQ points. Another study just published in the Journal of Personality and Social Psychology found that people who experienced economic uncertainty gave up on solving a difficult puzzle faster.

As Maria Konnikova wrote in the New York Times, living an unpredictable, erratic life can erode self-control: “If we’re not quite sure when the train will get there, why invest precious time in continuing to wait?”

Often, low-income people aren’t sure what tomorrow will bring. So why waste time trying to diet?

 

Does Means-Tested Welfare Affect Family Formation?

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Image result for marriage welfare

Do the marriage penalties of the welfare system have effects on family formation? According to a 2016 AEI/IFS report, the evidence is mixed:

  1. Our data show that the presence of marriage penalties does not affect marriage patterns among unmarried couples in urban America who have just had a baby, or among couples with children two and under whose income falls close to the lower threshold of the marriage penalty facing such couples, that is, for couples whose joint income is close to a level where they would still qualify for means-tested benefits were they to marry. Most in this latter group are in the lowest two quintiles of family income for families with children two and under (less than $48,000). We also find no evidence that marriage penalties associated with Temporary Assistance to Needy Families (TANF) reduce the odds of marriage among lower-income couples.
  2. However, we do find that couples whose oldest child is two or younger whose income falls closer to the upper threshold of the marriage penalty—couples where each partner’s individual income is near the cut-off for means-tested benefits—are about two to four percentage points less likely to be married if they face a marriage penalty in Medicaid eligibility or food stamps. Most of these couples are in the second and third quintiles of family income for families with children two and under ($24,000 to $79,000).
  3. Almost one-third of Americans aged 18 to 60 report that they personally know someone who has not married for fear of losing means-tested benefits.

You can see the full report here.

Be Like Sweden

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Image result for sweden

This is a common rallying cry among Americans (e.g., Bernie Sanders) who are disturbed by income inequality in the U.S. and the supposed excesses of capitalism. So what can the United States learn from Sweden? Swedish author Johan Norberg writes,

As a native of Sweden, I must admit this makes me Feel the Bern a bit. Sanders is right: America would benefit hugely from modeling her economic and social policies after her Scandinavian sisters. But Sanders should be careful what he wishes for. When he asks for “trade policies that work for the working families of our nation and not just the CEOs of large, multi-national corporations,” Social Democrats in Sweden would take this to mean trade liberalization—which would have the benefit of exposing monopolist fat cats to competition—not the protectionism that Sanders favors.

In fact, when President Barack Obama visited Sweden in 2013, the three big Swedish trade unions sent him a letter requesting a meeting. Their agenda: a discussion of “how to promote free trade.” The chairman of the largest Social Democratic trade union scolded the American president for his insufficient commitment to the free flow of goods.

Norberg acknowledges that Sweden is “still-high public spending and high taxes, at least compared to the U.S….The governments provide the citizens with health care, child care, free colleges, and subsidized parental and medical leave. We Scandinavians have our quarrels with these systems and how they function, but at least they have not ruined our societies; indicators of living standards and health are impressive.” So how come this amount of government services doesn’t cripple the economy? Norberg explains,

One reason is that we compensate for them with a more open economy than others. In the summary Fraser Institute rankings, Sweden and Denmark are more economically free than the United States when it comes to legal structure and property rights, sound money, free trade, business regulation, and credit market regulations. We don’t have the multitude of occupational licensing laws that block competition in the United States.

We also pay for the welfare state in a fairly brutal way, but one that doesn’t hurt production as much: by squeezing the poor and the middle class. Unlike the rich, poor and middle-class people don’t flee or dodge when they’re taxed aggressively.

The Social Democrats knew all along that they couldn’t fund such a generous government by taking from the rich and the businesses—there are too few of them, and the economy depends on them too much. So Sweden and Denmark take in lots of revenue via highly regressive value-added taxes at a normal rate of 25 percent of sales—the only tax where the rich and poor pay exactly the same amount in kronor. On the other hand, the corporate tax is just 22 and 23.5 percent respectively, compared to the U.S. rate of 35 percent.[ref]Check out this analysis of the Scandinavian tax systems at the Tax Foundation.[/ref]

In fact, rich people in Sweden enjoy several economic advantages not offered to their lower-class counterparts. Sweden always admitted very generous tax deductions for capital costs. Labor regulations are tailored to benefit big companies. To attract highly educated specialists from abroad, Sweden now has a beneficial “expert tax” for them, which shields 25 percent of their wages from taxation for a three-year period. “Sure, it is unfair, but we have no better solution,” the Social Democratic minister of finance said in 2000, when he implemented special tax exemptions for individuals and families who owned a large share of a listed company.

Unlike Sanders, Scandinavian socialists have concluded that you can have a big government or you can make the rich pay for it all, but you can’t do both.

The shape of welfare state also has roots in Swedish culture:

Two Scandinavian economists, Andreas Bergh and Christian Bjørnskov, have documented that a high degree of trust is an old legacy, and that descendants of those who emigrated from Scandinavia 100 years before the welfare state are also more trusting. Their conclusion is that trust in others and social cohesion creates the welfare state rather than the other way around, since it is more tempting to give power to politicians and money to strangers if you believe that they are decent people who would never cheat the system.

Scandinavians have always frowned on those who take money they are not entitled to. Sweden is, after all, the country where the leading candidate for prime minister in 1995 had to resign because it was revealed that she had used her official credit card to pay for some small private expenses, even though she always, every month, paid the credit card debt herself.

When asked, “Under what circumstances is one justified in accepting government benefits to which one is not entitled?” in 1991 and 1998, the Nordics led the world in saying “never.” (Only Malta says it is more upstanding, and a brief canvass of Maltese of my acquaintance suggests that they are rather likely to have lied on the survey.) Oh, and the United States is 16th, lower on the list than even the Italians.

Unfortunately, Sweden has recently seen “increased unemployment among immigrants. Now the employment gap between natives and foreign-born in Sweden is twice the European Union average, even though we express less racist and discriminatory attitudes than others. In response, Swedish politicians have recently decided to abandon liberal immigration policies and do whatever they can to scare people away. It was easier to have a one-size-fits-all approach when we were all alike, from the same background, with the same faith and attitude and a similar education. We need a more flexible model now that we are becoming a little bit more like…well, the United States.”

Economist Andreas Bergh mentioned above has documented the economic history of Sweden in hopes of answering the following questions:

  • How did Sweden become rich?
  • What explains Sweden’s high level of income equality?
  • What were the causes of Sweden’s problems from 1970 to 1995?
  • How is it possible that Sweden, since the crisis of the early 1990s, is growing faster than most EU countries despite its high taxes and generous welfare state?

His conclusions?

In many aspects, Sweden is not very different from other countries. The accelerating economic growth in Sweden around 1870 was most likely largely a result of liberalizations and well-functioning capitalist institutions. In this respect, there is no Swedish exceptionalism.

When it comes to equality, the most important conclusion is that most of the decrease in income inequality in Sweden occurred before the expansion of the welfare state. A number of seemingly unrelated reforms, such as land reforms, school reforms and the occurrence of unions and centralized wage bargaining, are likely explanations. Interestingly, at least parts of gender equality in Sweden seem to be an unintended consequence of the need to increase labor supply by using women in the workforce.

Thus, when it comes to the roots of prosperity and equality, the lessons from Sweden are not very different compared to the lessons from mainstream institutional economics: Well-functioning capitalist institutions, especially property rights and a non-corrupt state sector, promotes prosperity. Primary schooling, risk sharing social insurance schemes and labor unions contribute to a more equal distribution of income (pg. 21).

He notes that Sweden’s lagging economy between 1970 and 1995 was due to a

combination of unsuccessful macro-economic policies and a very generous welfare state…During the period of lagging behind, excessive state interventionism hampered structural adjustment and economic development in general. The economy was much less capitalist, rules were unstable, policy unpredictable, and work incentives were weakened by the design of taxes and benefits. This leads to the conclusion that to successfully combine a large welfare state with economic growth, macroeconomic factors are crucial and a high degree of economic openness may actually foster policies that promote competitiveness. Analyzing the fact that Sweden was ranked the second most competitive country in the world according to the Global Competitiveness Index 2010–2011 (just slightly behind Switzerland). Eklund et al. (2011) emphasize the role of market deregulations, inflation control and stricter budget rules – but also some lowering of taxes and benefit levels. The upshot is that the policy implications from the case of Sweden are hard to classify along a simple right-left scale: the welfare state seems to survive because it coexists with high levels of economic freedom and well-functioning capitalist institutions (pg. 22).[ref]You can read about the Swedish reforms since the 1990s here.[/ref]

So, be like Sweden. But be like it in the right ways.

The Welfare State & Social Capital

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Samuel Hammond, the Poverty and Welfare Policy Analyst at the Niskanen Center, has an interesting post at LearnLiberty.org on the welfare state. He describes the role religion has played in social assistance, explaining that “philanthropy had to be earned through reciprocal relationships rooted in trust and goodwill. Churches relied on their member’s contributions and self-sacrifice to measure their strength of commitment to Christian ideals and bond the community together.” But then he points out how religion’s social assistance “began to unravel in the early 20th century”:

First, the social spending of the New Deal crowded out significant amounts of church-based welfare. By one estimate, New Deal spending caused church charitable spending to fall by 30 percent.

Then came President Lyndon Johnson’s “Great Society” and “War on Poverty,” and with it the creation of Medicaid and the expansion of food stamps and other income supplements targeted at the poor. Spending on Medicaid and Social Security rose exponentially after 1990, following a landmark Supreme Court decision that greatly expanded eligibility and a misconceived federal budget that promised to match state spending on low-income hospitals dollar for dollar, essentially turning Medicaid into a money pump.

Data shows that commitment to religious community in the United States has been steadily decreasing, and in a way that seems correlated to spending on public welfare. Since 1990, America’s non-religious population has grown from about 5 percent to over 20 percent and is climbing. A comparison of U.S. state rankings reveals a striking negative relationship between the generosity of the welfare system and the size of the self-identified “very religious” population.

So does the welfare state lead to a decline in social capital? When we look at the data from Europe, the “evidence by–and–large contradicts the U.S. narrative. Indeed, empirical studies tend to talk of welfare being “trust enabling”. Consider Sweden, which has one of most comprehensive welfare states in the world but also ranks near the top in measures of social capital.” So why the difference?:

The key factor appears to be the high level of decentralization in many social programs. For example, inSweden delivering healthcare is the responsibility of County Councils, while welfare, disability, and programs for the elderly are controlled by municipalities. Swedes also have very high rates of union membership. Yet instead of being confrontational with the employer, the norm is mutual advantage. In turn, unions are entrusted to manage stuff that in the U.S. would be cynically regulated, like unemployment insurance and parental leave. 

Economists extol the virtue of this kind of decentralization, known as subsidiarity, for reasons of asymmetric information. That’s just jargon for the truism that, in tight communities, everybody knows everybody. I was astonished to learn, for instance, that 75% of Swedes report attending “study circles,” 10% on a regular basis. These are regular meetings of a dozen or so people organized by larger voluntary associations that “range from the study of foreign languages to cooking to the European Union question.”

Elsewhere, Hammond proposes three ideas for decentralizing the U.S. welfare state:

  1. Medicaid wavers: “The first is the 1915(c) Home & Community-Based Waiver, which allows states to provide long term care under Medicaid through community based settings. An example might be an individual with severe intellectual or developmental disabilities. Traditionally, under Medicaid the individual will receive long term care through an agency and may even become institutionalized. Using the HCBS waiver, the eligible individual can self-direct their care from top to bottom, appoint a friend or family member as caretaker, and take control over their living environment. In some cases, the individual may even become the de facto employer, with the aid of a fiscal intermediary to handle payroll and other tasks beyond their capacities. So not only does the waiver redirect program delivery in a way that re-engages family and community, it also greatly enhances individual autonomy and self-determination.”
  2. Prevention programs: “A second, more recent example, is the Department of Health and Human Services’ initiative to channel Medicare spending on diabetes prevention through local YMCAs. The program launched as part of an innovation grant under the Affordable Care Act and is still being independently evaluated, but initial findings are promising. It’s a perfect case study in why community matters. By bringing pre-diabetic participants under one local roof, any direct educational benefits are reinforced by the peer-effects of other participants who may begin to form a loose network, check in on how well each is holding to their new diets, and so on. The best part is that, in theory, peer networks can persist long after the initial intervention. That means if this particular program were ended its effects may continue to reproduce overtime. The “cultural channel” for social policy is thus underrated by many progressives who automatically associate the enforcement of social norms through shame and stigma with conformity or oppression. Yet such social structures also serve as robust mechanisms for enhancing an individual’s self-control.”
  3. Universal basic income: “[Charles] Murray argues that [a lump sum transfer] only works if all or most other transfer programs are eliminated. It is in essence a strategy for eliminating the “hidden information” problem of poverty. With a basic income deposited monthly, it is no longer credible for someone who gambles their stipend away to claim total desperation, since their income stream is common knowledge. The remaining alternative is to appeal to friends and family. With the incentives set just right, the economies of scale and insurance benefits of pooling resources could lead to a dramatic community revival; however, Murray’s theory has yet to be put to the test.”[ref]See my previous posts on UBI along with economist Tyler Cowen’s latest Bloomberg article.[/ref]

This is why conservatives and libertarians need to “declare peace on the safety net” and seek out innovative ways to make it more effective and efficient.

The Capitalist Welfare State

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The merits of the social democratic Nordic countries have once again become popular in American political discourse due to their praise by presidential candidate Bernie Sanders. This revival of the “U.S. vs. Sweden” debate reminds me of the following interview with Swedish economist Andreas Bergh:

Bergh presents a fairly clear view of the difference between what some have called the administrative state vs. the social insurance state.[ref]Understanding this difference has made me more open to welfare policies such as a guaranteed basic income (mainly as a replacement of current policies): an idea put forth by libertarian thinkers such as F.A. Hayek and even Milton Friedman via a negative income tax.[/ref] For those interested in his research–which is quite relevant to the current political climate–check out his aptly titled blog The Capitalist Welfare State.

Does a Welfare State Encourage Entrepreneurship?

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It might, according to some economic research.[ref]Though economists like Alex Tabarrok think too much money is spent on welfare and not enough on research.[/ref] As AEI’s James Pethokoukis explains,

Image result for welfareOver at The Atlantic, Walter Frick offers economic literature roundup that suggests the latter. A strong safety net encourages startups by making the effort seem less risky, he argues. For instance, a 2014 paper found the expansion of food stamps “in some states in the early 2000s increased the chance that newly eligible households would own an incorporated business by 16 percent.” Another paper by the same author found that “the  rate of incorporated business ownership for those eligible households just below the cutoff was 31 percent greater than for similarly situated families that could not rely on CHIP to care for their children if they needed it.”

However, he notes,

Now it is one thing to argue that a more robust safety net would be good for US entrepreneurship broadly understood — I think that would be the case in some areas, though I would be careful about eliminating welfare work requirements — and quite another to make the same claim about  mimicking the Scandinavian social democracies. In “Can’t We All Be More Like Nordics?”, Daron Acemoglu, James Robinson, and Thierry Verdier argue that “technological progress requires incentives for workers and entrepreneurs [and] results in greater inequality and greater poverty (and a weaker safety net) for a society encouraging more intense innovation.” If cut-throat, inegalitarian US capitalism became more like cuddly Scandinavian capitalism, the US might no longer be as capable of pushing the technological frontier…Indeed, the researchers have found a large per-capita gap between Scandinavia and the US when it comes to highly cited patents. The US also has a high-impact entrepreneurship rate three times as high as Sweden. (Of course, open economies benefit from innovation first produced elsewhere.) In short, the US has a pretty special thing going, and we should be careful not screw that up.

Worth checking out.

Did Welfare Reform Increase Upward Mobility?

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“One possible force for greater upward mobility is the welfare reforms of the 1990s,” writes Manhattan Institute scholar Scott Winship in Forbes. “Hear me out, because I think the case is stronger than is generally admitted. We probably won’t know the answer for a few more years, because the oldest children born in the 1990s are only 25 years old today, and the youngest are barely 15 years old.” Nonetheless, what’s his case?

To begin with, liberals tend to believe that parental income per se is important for upward mobility. If true, welfare reform was far more effective than the War on Poverty at expanding opportunity. Child poverty, according to a carefully constructed measure developed by a Columbia University research team, was 26 percent in the peak year of 1969 and 27 percent in 1990 (also a peak). It continued rising until 1993, the year after a presidential campaign in which the winner routinely pledged to “end welfare as we know it” and the year that the Earned Income Tax Credit was substantially expanded by the new president. Child poverty then fell from 28 percent to 17 percent by 2006. It rose during the Great Recession, but not by much; 19 percent of children were poor in 2012.

Economic growth deserves some of the credit for the decline in child poverty; even without taking federal taxes and transfers into account, poverty would have fallen between 1993 and 2000. However, economic growth might not have actually lowered child poverty much if not for the work incentives built into welfare reform. The 1990s expansion was the first one since 1960 in which poverty among single-mother families responded as much to falling unemployment as it did among married-parent families, and poverty fell by more among single-mother families than their married-parent counterparts from 1996 to 2000. The strong economy of the late 1990s was fortuitous, but child poverty declined slightly even after 2000, rising only very modestly, if at all, during the two recessions since then.

…Through 1990, taxes and transfers had essentially no impact on the poverty rate they estimated. To be sure, the safety net moved some families up from deep poverty to less-intense hardship. But the Columbia poverty levels are pretty much the same from 1967 to 1990 whether or not the safety net is taken into account. Beginning in the early 1990s, however, taxes and transfers began to reduce child poverty rates below the levels they would otherwise have attained. The safety net was only effective at reducing poverty once the national mood was strongly in favor of fundamental reform and once those reforms began.

But was there an even bigger reason for the decrease in poverty? According to Winship, the answer (suggested by the evidence) has to do with intact families and a decrease in out-of-wedlock births. Check it out.

Economists on the Welfare State and the Regulatory State Symposium

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The latest issue of Econ Journal Watch has papers from the Mercatus-sponsored symposium “Economists on the Welfare State and the Regulatory State: Why Don’t Any Argue in Favor of One and Against the Other?” The issue features articles from economists like Robert Higgs, Arnold Kling, and Scott Sumner. However, the two that seem the most interesting to me are the articles by Swedish economist Andreas Bergh and social psychologist Jonathan Haidt. I’ve referenced Bergh’s work elsewhere due to his dispelling of several of myths regarding the Swedish welfare state (from both the Right and Left). His symposium contribution argues that a Hayekian welfare state can exist in theory by combining “low regulation with social insurance schemes that are not terribly vulnerable to the knowledge problem.”[ref]This might go well with philosopher Erik Angner’s view on Hayek and redistribution.[/ref]

In Haidt’s paper (with co-author Anthony Randazzo), the two surveyed economists and “found a relationship between views on empirical economic propositions and moral judgments.” Furthermore, in footnote #3, it says that Haidt is working on a book on capitalism and moral psychology. I imagine it will look something like his Zurich.Minds presentation.

Definitely worth checking out.