Stimulate the Economy by Mending Our Safety Nets
Lots of talk this week about the proposed stimulus. One high priority
ought to be the most vulnerable members of our society. The safety net
created in the 1930s to protect Americans from extreme poverty is in
tatters. Now that we¹re in the worst downturn since the Depression, that
safety net needs mending. This should be a key part of any stimulus plan.
Unemployment insurance, for example, was created in 1935, when most people
who lost jobs had held those full time positions for some years. But most
people who are losing jobs now have not been in them all that long.
Typically, the last ones hired are the first fired. And many job losers
have only worked part time.
Either way, they don¹t qualify for unemployment benefits. In fact, fewer
than 40 percent of people now losing their jobs qualify. So a necessary
step toward mending our safety net is to get unemployment benefits to
everyone who loses a job. And if it's a part-time job, partial benefits.
Or take welfare. Remember it? It was also started in the depths of the
Depression. We officially abolished it in 1996, during the strongest
job-creating recovery in memory. We substituted a new law that gives
people a maximum of 60 months in their lifetimes to get aid for themsleves
and their kids. Over the last dozen years, as more and more people hit
that 60 month limit, the nation's welfare rolls naturally declined -- even
though the percent of families in poverty stayed roughly the same, just
under 10 percent.
But now that we're in a Mini-Depression, many more families are moving
toward poverty. So that 60 month limit should be lifted, at least until
the economy turns up again.
Food stamps are another strand of the safety net. As of September, 2008, a
record 31.5 million Americans were receiving them. That's roughly 10.3
percent of the population, each receiving $100 per month per family
member. These numbers can be expected to rise considerably in 2009 and
2010. The current economic emergency is putting many more Americans at
risk. Food stamp allocations should be increased.
Finally, let's make the Child Tax Credit fully refundable. Right now, it's
not fully refundable to low-income families who don't pay enough income
taxes to qualify. As a result, an estimated 10.6 million children were
ineligible for it in 2007, and an additional 11 million received less than
the full amount.
Giving American families more economic security during this meltdown isn't
just fair. It's also good policy, because the money they get to buy goods
and services keeps other people in jobs. In fact, strengthening our
national safety net is one of the fastest and most direct ways to
stimulate the economy.
And, after all, if executives and directors on Wall Street and in Detroit
deserve a safety net, why should American families be left out in the
cold?
And now a word (or two) from the President-elect-in-two-weeks: My fellow Americans, this is what I REALLY want to say about our recent economic turmoil but can't say because..... I DON'T WANT TO END UP LIKE PRES GARFIELD AND LINCOLN by the greater powers of the Central Bank and the pseudo governmental institution of the Federal Reserve so I will channel my inner thoughts through my successful internet campaigning methods. With that in mind, check out this Youtube video--it's long, about 3.5 hours, produced in 1995 (that foresaw and warned about the recent financial crisis of 2008!) The title of the Youtube video is called The Money Masters - How Bankers Gained Control of America or link here: http://www.youtube.com/watch?v=OnwLgrSJZKs&feature=email
I'm almost POTUS Barack Obama and I approve this week's address to the nation.
January 5, 2009 4:46 PM | Reply | Permalink
Another thing -- we should offer unemployment benefits to out of work contractors as well. Just because you're self employed doesn't mean you can't become unemployed.
January 5, 2009 4:58 PM | Reply | Permalink
I am all for assisting the poor and I think there are ways to do that such as national health care insurance that covers part time workers, the unemployed and the disabled but I don't know about the 300 billion dollars in tax cuts for the middle class and corporations. Here is an oppurtunity to change the direction of the US by focused government spending on renewable energy, infrastructure etc. With tax cuts for businesses and the middle class people can go out and by SUV's and TV's and basically the US is back where it started. This post is directed not so much at the above post about the safety net but the idea that tax cuts to businesses and the middle class are the way to stimulate the econonomy. I totally agree that assisting indviduals already hit by disaster makes sense - improved unemployment insurance, Food stamps etc, continued funding of programs for the mentally ill but this assistance would be disaster assistance rather than a foundation stone in the economic stimulus package.
January 5, 2009 5:17 PM | Reply | Permalink
'...disaster assistance...'
Wow. You know, that is EXACTLY the phrase that needs to be sent to our officials. This economic mess truly is a disaster...just as much of one as Katrina or the flooding this summer in the midwest or any other natural misfortune. Only this one is manmade. And it is affecting the entire country, not just one geographic area.
Yep. That's what we need...DISASTER ASSISTANCE.
January 5, 2009 7:29 PM | Reply | Permalink
I too consider health care for all part of the social safety net. Singe payer would certainly fit the bill.
Lovely essay. I applaud all of it!
January 5, 2009 5:47 PM | Reply | Permalink
Indulge me as I make a point many have made before: how bizarre is it that it was the Democrats who finally realized the "conservative" (or laissez-faire, or whatever the best term is) project of eliminating welfare?!
January 5, 2009 7:08 PM | Reply | Permalink
Nice to see someone calling for some kind of restoration of concern for the really poor. Clinton about kissed 'em off -- they don't vote after all. I'm in wait and see mode on Obama.
January 5, 2009 7:22 PM | Reply | Permalink
Just so long nobody thinks welfare is going to stimulate the economy.
Subsidizing the least productive members of society is not the way to invigorate business. Buying more pizza, beer, and toilet paper, doesn't do much for business confidence.
January 5, 2009 8:05 PM | Reply | Permalink
We just gave out what 350 billion to the least productive members of society. We give a trillion a year to people whose business is killing. Do you believe in Christ?
January 5, 2009 11:06 PM | Reply | Permalink
And what exactly does my attitude about religion have to do with whether welfare is stimulative? Nothing so far as I can see. Perhaps your breast beating would be better received addressed to someone who cares.
January 5, 2009 11:48 PM | Reply | Permalink
I appreciate this probably isn't a serious post, but as a matter of fact giving money to the folks most likely to pump it right back into the economy seems pretty stimulative to me.
January 5, 2009 11:40 PM | Reply | Permalink
Actually it was a serious post, and since you seem sincere, let me respond in kind. On the surface of it, giving people money seems like a good idea. They take it and spend it. Give everybody $500 and off you go.... for about a month and then everyone is back to square one except for the Government who just incurred an additional $100 billion debt.
Why doesn't the cash help? Because of human nature. We know it's temporary and no additional jobs are produced as a result. No extra pizza ovens are ordered, no more beer trucks are bought, and no more trees need to be cut to meet that blip in demand.
That said, I agree with Zeno that the $350 billion given to the AIG, Citigroup, and others is wasted as well. They are hoarding it, because they need it to stay out of bankruptcy. So, they don't lend it. Worse, the people who are the best risks don't want it.
Ultimately, fear of the future is what's holding things back. What most people don't realize is that economics is a social science, and can't really predict with certainty what will work and what won't. Sometimes, it's just like any wound anywhere. It will take time to heal.
January 6, 2009 12:25 AM | Reply | Permalink
? What blip in demand?
No, what that will do is prevent or lessen a slip in demand, that will certainly have deleterious effects on business confidence.
To put it another way - because these "least productive members of society" will have money to spend, there will be no greater number of pizza ovens shut down, no additional beer trucks parked, and fewer loggers laid off, along with the ancillary effects on those specific businesses and the follow-on effects on the larger economy.
The focus on additional jobs created is misplaced.
More important right now is that additional jobs are not lost.
And not simply because it prevents the welfare rolls from growing even faster.
January 6, 2009 1:34 PM | Reply | Permalink
The argument (Rothbard's?) that it was Roosevelt's war on businessmen ("They hate me and I welcome their hate.") that, more than anything else, prolonged the Depression seems right to me.
Business confidence -- even if not in full-out "animal spirits" mode -- leads an economy out of a recession/depression.
Nothing wrong with keeping people off the bread lines and out of the soup kitchens but as a treatment it's palliative, only -- and it comes at a substantial cost, that is, huge debt which will bog the economy down for years, nay decades, to come.
January 6, 2009 3:53 AM | Reply | Permalink
January 6, 2009 7:47 AM | Reply | Permalink
Nothing wrong with keeping people off the bread lines and out of the soup kitchens but as a treatment it's palliative, only -- and it comes at a substantial cost, that is, huge debt which will bog the economy down for years, nay decades, to come.
Non sequitur. An economy with bread lines and soup kitchens is already bogged down and will remain so until a degree of confidence is restored. Work, even busy work, is not just palliative. It can have great therapeutic value in restoring confidence.
While it may be arguable that business is better suited than government to create work, the fact is that then as now financiers and businessmen withdrew to the sidelines to wait out the crash and then panicked at the prospect that government might prove capable of getting along without them.
In their panic, they formed the American Liberty League and some of its dimmer members hatched the Business Plot, a feeble attempt to overthrow FDR in a coup. That is the context of the FDR quote you cited. In modern terms, FDR wasn't talking about Main Street, he was talking about Wall Street.
Here's an excerpt from the speech from your quote was ripped out of context:
Context counts.
January 6, 2009 12:20 PM | Reply | Permalink
I so agree, Emma. I so agree.
January 6, 2009 12:28 PM | Reply | Permalink
Buying more pizza, beer, and toilet paper - - - will help the economy, very much so.
At least the consumption is American products.
This causes a chain effect of consumption/employment (in America) ... ... ...
which keeps looping until the money is saved in the bank or foreign products are purchased.
Why do you hate America?
How is being unemployed related to be classified as the least productive people in society?
I have a Rocket Scientist friend that is unemployed. Probably outsourced that job to India.
January 6, 2009 11:12 AM | Reply | Permalink
Robert Reich and Dean Baker.
January 5, 2009 8:45 PM | Reply | Permalink
I do so cry for what the Democrats have become. Suspend the 60 month limit? No, recognize that all we did was toss a lot of poor women with children into a job market where they have no option but to leave their children with sketchy boyfriends so that they can work at minimum wage jobs and live in overpriced slums.
Deal with our healthcare crisis, as more people are left without insurance, either because they never had it at their former jobs, or because they can't afford COBRA. Begin by reversing the Carter Administration policy that eliminated Medicaid benefits for medically-indigent adults. Enroll all uninsured children in SCHIP. Open Medicare to those 55 and older who have lost their jobs, but aren't old enough to retire.
Increase unemployment benefits to something resembling 3/4 of what people made at their former jobs. Most people have no savings, and can't pay their rent or mortgage, keep their houses warm and buy food on the 1/2 or less that unemployment pays.
We should stop fiddling round the edges--the DLC snd its policies should be consigned to the trashbin of history.
January 6, 2009 12:33 PM | Reply | Permalink
Thanks for reminding me. 60 months? Five entire years of free money isn't enough? Five years of something isn't support, it's a lifestyle.
Here's an unoriginal thought, when you subsidize something you get more of it. Has it occured to you that you're part of the reason these people prefer the ease of the dole rather than the work of marriage, the job market, and staying in school?
January 6, 2009 1:03 PM | Reply | Permalink
There are certainly options open to the unemployed or unemployable, lucrative options.
Witness the rise of the Gangster Disciples, estimated at 100,000 members, with "revenues" in the dozens of billions, and sufficient chutzpah that they've been placing members in the armed forces to pick skillsets that can be employed in the future.
Be careful what you ask for.
January 6, 2009 1:44 PM | Reply | Permalink
I don't think Reich is wrong (in particular, a modernization of the unemployment benefits law is overdue, although the need for an overhaul intellectually is independent of the recession).
But Reich is an ideologue, and welfare, unemployment, and food stamps for him are ideas for any time, not just a recession. The problem is that the damaging and distortionary incentives of these programs persist long after their ameliorative effects are unnecessary.
We shouldn't let a purported crisis drive us to turn the clock back to bad policies we spent decades suffering simply because it seems like a nice thing to do this year.
In particular, raising further the already absurd subsidies granted to parenting in this country by adding to the revenue loss from the Child Tax Credit is fundamentally wrongheaded. The government should not be in the business of encouraging people who can't afford to have (more) children to go ahead and do it on the government dime.
January 6, 2009 2:03 PM | Reply | Permalink
I can't imagine that anyone would have a child because of the Earned Income Tax Credit. Unless they were as financially incompetent as the people who run our major banks.
January 6, 2009 2:33 PM | Reply | Permalink
The point is not that people will consciously make that decision. The point is that government is providing incentives to child bearing (at a time when resource scarcity is likely to be a problem within those children's lifetime).
It's just a dumb idea.
January 6, 2009 3:07 PM | Reply | Permalink
I don't think Abstinence Only sex-ed should be counted as an incentive to child-bearing ...
January 6, 2009 3:39 PM | Reply | Permalink
Neither do I.
My point was that by and large, the government shouldn't be providing distortionary incentives, period. And in this case, incentives to have children, or more children, is counterproductive.
January 6, 2009 4:31 PM | Reply | Permalink
Hmm. I can see the point that it's a perverse incentive, in some circumstances.
But it's not intended as an incentive from the get-go. It's intended to reduce the payroll tax burden on parents who make low wages.
Well, that's how it's been advertised. It's really intended to incentivize the lower classes from refreshing the tree of liberty with the blood of economic tyrants. Too bad about that 2nd amendment, it makes feudalism tough to pull off.
January 6, 2009 4:38 PM | Reply | Permalink
What's interesting is that countries that do provide incentives for children have remarkably little success in encouraging more births. France gives new parents everything but a nanny, and people still won't have more children. Is it something about Americans that makes us want to have more children for nothing more than the EITC?
But if the EITC is an incentive, what about the tax exemptions, federal grants for education, federally-subsidized student loans? These cost a lot more than the EITC. Or is it just that the EITC goes to poorer people?
January 6, 2009 8:28 PM | Reply | Permalink