Would Tea Partiers Favor Wealth Redistribution Without the Bureaucracy?

The Gongwer Michigan Report newsletter that is primarily read by Lansing insiders (subscription required) recently did a story on the status of welfare programs today compared to past recessions. The gist was that cash welfare is much reduced compared to the past, but Medicaid and food stamps are much increased, which generates challenges for both welfare recipients and state policymakers trying to balance the budget.

Reporter Breanna Camarillo asked the Mackinac Center to comment, which I did, but with nuance difficult to condense in a 1,200-word article (reprinted with permission below). Ms. Camarillo nevertheless did a good job of conveying the essentials. Still, the luxury of a blog allows me to "revise and extend" my remarks (hopefully not too much!).

Welfare actually does two things. The first is wealth redistribution, which is what attracts most of the controversy and attention. The second is requiring bureaucracies to micromanage the lives of welfare recipients. Because of the political sensitivity of welfare and the inevitable scarcity of resources, politicians write all kinds of rules and conditions for getting it. The rules are necessarily implemented by bureaucrats, and thus the micromanagement.

Bureaucracies are capable of doing many hard things (like processing millions of complicated income tax returns), which require the application of relatively simple, straightforward rules to specific factual situations. But there is one thing they absolutely cannot do, which is to meet complex human needs. By definition, they cannot be expected to use open-ended "judgment," and solve in a creative fashion every possible challenge (or dysfunction) that each person in poverty must overcome. No conceivable set of one-size-fits-all rules can ever do that. Thus the failure of welfare to lift people from poverty — and the almost inevitable burn-out of welfare workers.

Here's where it gets interesting: There is actually a third option that is neither a pure voluntary charity approach to complex human needs (civil society) or the welfare state's wealth-redistribution-plus-bureaucratic-micromanagement.

The best known proposal for this "third way" was Milton Friedman's idea of replacing all welfare  with a "negative income tax" that would provide a basic level of income maintenance to all citizens. Friedman eventually concluded that the politicians would never replace existing welfare programs but merely augment them, and so dropped the idea. (He was right — today we have welfare and an Earned Income Tax Credit, which is a form of negative income tax.)

Not long ago, a more provocative form of non-bureaucratic wealth redistribution was proposed by social scientist Charles Murray in a short book and article titled "In Our Hands: A Plan to Replace the Welfare State." Murray would give every American adult $10,000 each year in monthly checks, and that's it - no Social Security, no Medicare or Medicaid, no food stamps, no welfare, etc.

The $10,000 stipend would phase out above $50,000 in income, except that it also includes a $3,000 health insurance voucher for everyone. Murray's research showed that given a specified set of specific patient-centered, market-based health care system reforms, this is all it would cost to provide every person a high-deductable policy with no "pre-existing condition" exclusions and one flat price for all.

The immediate response of people accustomed to the current welfare state is often, "You can't live on $10,000 per year." That's right, one person cannot, but two people can live on $20,000, and three on $30,000, etc. Plus, everyone is free to earn extra cash to supplement the stipend. As for those who truly cannot work because they're disabled or for other reasons, this is where civil society really can fill the gaps, probably much more humanely and generously than welfare.

That also applies to individuals who blow their monthly check in the first week and find themselves hungry and on the street. Murray says the following:

A person who asks for help because he has frittered away his monthly check will find people and organizations who will help (America has a history of producing such people and organizations in abundance), but that help can come with expectations and demands that are hard to make of a person who has no income stream. Or contemplate the effects of a known income stream on the young man who impregnates his girlfriend. The first-order effect is that he cannot evade child support--the judge knows where his bank account is. The second-order effect is to create expectations that formerly didn't exist . . .

By which he refers to an expectation that's become alien in many welfare-dependent communities — marriage. Murray also says, "Many questions must be asked of a system that substitutes a direct cash grant for the current welfare state... I think all of the questions have answers, but they are not one-liners; I lay them out in my book." He lays some of the answers out in a richly rewarding Wall Street Journal article, here.

BTW, Murray's plan would cost no more than the current welfare state. Obviously the transition would create challenges, but none that cannot be overcome. Most importantly, his plan solves what Murray characterizes as the chief defect of the welfare state: "(N)ot that it is ineffectual in making good on its promises (though it is), nor even that it often exacerbates the very problems it is supposed to solve (though it does). The welfare state is pernicious ultimately because it drains too much of the life from life."

Related to all this, members of the Tea Party movement are sometimes criticized for an apparent contradiction between their preference for smaller government and a reluctance to eliminate welfare state programs like Social Security and Medicare (especially when they've been forced to pay into these programs their entire working lives). I believe that the real source of this seeming disconnect is conflating the income redistribution concept with an intrusive bureaucracy micromanaging lives and markets: people believe they're the same thing, but the above discussion shows they are not.

In fact, I don't believe most Americans — including Tea Partiers — really object to some level of wealth redistribution. What troubles them is a bureaucratic welfare state that is fiscally unsustainable and "exacerbates the very problems it is supposed to solve." Further, they (correctly in my view) believe that the welfare state is in some way responsible for the social and cultural breakdown that has occurred since its inception — for draining "too much of the stuff of life."

When the Tea Partiers (and millions of others) say things like, "We want our country back," I believe that reversing this breakdown is what they are really referring to.

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Addendum: A new Rasmussen poll finds that 43 percent of Americans believe that government programs increase poverty, while just 22 percent think they decrease poverty. Twenty-three percent say they have no impact. Sixty-two percent of voters say government anti-poverty programs not effective, while 33 percent think they're at least somewhat effective.

Gongwer Michigan Report, Sept. 10, 2010

Reprinted with permission.

NEWSMAKER FRIDAY: WELFARE SHIFTS FROM PAST RECESSIONS

The economy has predictably pushed state public assistance rates higher each month, but policy changes, and some say social pressure, over the last 20 years have changed the type of programs that are accessible to most, causing Medicaid and food assistance rates to soar, while the number of people who get cash assistance remains relatively low compared to former recessions.

The latest Department of Human Services report from July shows Medicaid and food assistance recipient totals at record levels, nearly doubled from the 1980s recession when unemployment surpassed 17 percent.

"We've seen an unprecedented increase in the demand for services," said Gisgie Gendreau, DHS spokesperson. "Today, it is more likely than ever before that your neighbor or relative collects one of five welfare, food or medical assistance, state disability assistance or child development and care programs."

In July, there were more than 1.8 million food assistance recipients and 1.9 million Medicaid recipients, compared to the 1982-83 fiscal year when there were 1.08 million food assistance recipients and just more than 1 million Medicaid recipients. In the 1991-92 fiscal year, when unemployment hovered around 10 percent, there were 994,230 food assistance recipients and more than 1.1 million Medicaid recipients, according to DHS records. Those two budgets were hammered by the 1981-82 and 1990-91 recessions.

Yet, in large part due to federal reforms in 1996 meant to push assistance as "a welfare to work" program, it is much less likely that families collect cash assistance from the Family Independence Program today than in the last two decades. For example, in July, there were 225,061 cash recipients, compared to 750,914 recipients in FY 1982-83 and 673,502 recipients in FY 1991-92.

Federal reforms were further boosted by cuts under former Governor John Engler, who not only aggressively supported federal changes but also shrank benefits with moves such as eliminating General Assistance, a program that served thousands able-bodied adults without children by allowing them to receive limited benefits.

While it's impossible to predict how many people might be taking advantage of General Assistance if it were available in the current downturn, it could be comparable to the 1982-83 fiscal year, which had 156,634 recipients. By 1992, the last year the program existed, there were only 36,336 General Assistance recipients.

"Programs that were implemented under Engler changed the view of welfare," said Doug Howard, who served as director of DHS (then the Family Independence Agency) from 1999 through 2002 under Mr. Engler.

The shift from high levels of FIP recipients to record numbers of Medicaid and food assistance recipients has also shifted the responsibility for payment largely onto the federal government, dollars from which cover most of the food assistance program and recently up to about 65 percent of Medicaid costs, depending on match rates with the state each year.

While it is helpful for Michigan to aggressively pursue enrollment in programs that use federal dollars, and maybe most especially in this economy, the state should invest more in its safety net, said Judy Putnam with the Michigan League for Human Services.

But "the fact that welfare doesn't do what it is supposed to do - to lift people out of poverty -is a much bigger issue than how the state is going to pay for the programs in next year's budget," said Jack McHugh, senior legislative analyst for the Mackinac Center for Public Policy.

He said it is also futile to argue which programs have grown or shrank since the last two recessions and whether the state or federal government is paying a larger share because it is all just "deck chair rearranging."

For example, he said, while reforms have indeed limited cash assistance, other changes have expanded other programs, still resulting in greater overall welfare spending, but not better results for those in need.

As of July, DHS has spent $332.9 million for FIP (cash assistance) and $2.27 billion for food assistance (a majority of which is federal funds), compared to an estimated $514.6 million on cash assistance and $1.08 billion on food assistance in fiscal year 1983, and in fiscal year 1992, $1.04 billion on food assistance and $845.9 million on cash assistance. Figures for Medicaid were not immediately available.

But that spending is going toward providing a safety net for record numbers of people, who presumably must find a way to support themselves at some point because assistance is a temporary solution, said Christina Fecher, DHS spokesperson.

"People aren't on assistance forever," she said. "Once they're off, we hope they've moved closer to self-sustainability."

But a better solution would be to reduce taxes and allow Americans, who have demonstrated their compassion over their history to take care of each other without the expense or mismanagement of government programs, Mr. McHugh said.

He said federal policy changes that have lessened cash assistance, which many found "corrupting", but allowed for soaring Medicaid and food assistance show societal attitudes that people shouldn't starve or die from curable illnesses, leading one to believe that if the government got out of the way altogether and let "a civil society" take care of the poor, it would.

Mr. Howard agreed that people likely view welfare as less of an entitlement program since the Engler-led reforms, but said those changes are likely enough to prevent some types of caseloads, such as cash assistance, from ever rising to past current levels.

He said it is likely that many people qualify for cash assistance, but choose not to apply for it because of the strict work requirements or because they are able to survive by accessing other programs such as food assistance.

Ms. Putnam disagreed, saying there are fewer and fewer people who qualify for cash assistance because of the state's failure to adjust earning qualifications with inflation.

For example, a family of three would not have lost their cash benefits until their earnings put them at 85 percent of the poverty level in 1982, but that same family will no longer qualify for cash assistance today if it reaches 34 percent of the poverty level, an equivalent of $814 a month, said a report by the League.

Policy changes also require a recipient to work up to 40 hours a week to qualify for benefits, but the salary from even a minimum wage job would disqualify most families from receiving cash assistance, said the report.

Before the 1996 reforms, about two-thirds of children in poverty received some cash assistance, compared to about one third of children in poverty receiving a cash stipend now, Ms. Putnam said.

"You have to be poorer and poorer to qualify for cash assistance," said Ms. Putnam. "The income limits fail to capture so many people who don't make enough to pay for basic needs, but can't qualify for cash assistance."

Mr. Howard agreed that given high unemployment, perhaps it is time to look at some temporary state policy changes to allow those who can't find a job in a time of high competition to receive help.

Though the state has less flexibility now than it did pre-federal reform to decide who will qualify for benefits, it should allow people pursuing an education or training to qualify for benefits while they are looking for work, he said.

However, he cautioned, against "going too far" with changes and reversing the motivation put in place by work requirements.

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