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The Frayed Social Safety Net


Today's New York Times takes a look at the state of the social safety net as the economy enters what is certain to be a serious recession. Unsurprisingly, unemployment insurance, welfare, Medicaid, and other forms of public assistance are harder to come by these days than during past recessions. For example:

According to the report [by the Center for American Progress and the National Employment Law Project], tighter rules mean that just 37 percent of unemployed Americans are receiving jobless benefits today, down from 42 percent during the 1981-82 recession and 50 percent during the 1974-75 downturn. Americans today receive a maximum of 39 weeks of unemployment benefits, down from 65 weeks in the 1970s. The average weekly benefit is $293. And low-income workers -- a category that tends to include women and those in part-time employment -- are one-third as likely to receive unemployment insurance as higher-income workers.

Another liberal group, the Center for Budget Policy and Priorities, said that as states have imposed tougher restrictions on welfare, just 40 percent of very poor families who qualify for public assistance today actually end up receiving it, compared with 80 percent in the recessions of 1981-82 and 1990-91.
Downturns like this one are a good reason to have a sturdy and adequately funded social safety net. Unfortunately, apart from extending unemployment insurance, it's not likely that any meaningful spending increases for public assistance programs will come until the the FY 2010 budget passes, many months (or even a year) from now. It could happen sooner--the FY 2009 budget is still on ice thanks to a continuing resolution that expires in March--but Obama and Congress will have bigger things to worry about in their first 100 days than, say, expanding low-income housing assistance.

One other thing about the NYT piece, incidentally. Toward the end, there is some rather curious phrasing of the relationship between social programs and the economy:

Economists say that it is sometimes hard to determine whether certain social programs fuel recessions or fight them. As 1.2 million workers have lost their job this year, for instance, many have turned to Medicaid, causing some states to spend more on health care, boosting the economy in the process. At the same time, some cash-strapped states have cut Medicaid, losing federal matching funds and slowing down the economy.

Some see a similar effect with the Earned Income Tax Credit. "The E.I.T.C. is a fantastic wage subsidy program that's been hugely effective in reducing poverty, but when jobs disappear, the E.I.T.C. doesn't help you," said Jared Bernstein of the Economic Policy Institute, a liberal research group. He was one of the economists invited to a meeting of President-elect Barack Obama's top economic advisers on Nov. 7. "When people lose their jobs, they often stop receiving E.I.T.C., and I fear that the program becomes less countercyclical and more pro-cyclical, meaning it reinforces recessionary forces," he said.

Perhaps I'm misunderstanding here, but this doesn't make sense. It's not that Medicaid or the E.I.T.C. themselves run the risk of fueling a recession. In Medicaid's case, the problem is that states are "cash-strapped", and in the E.I.T.C.'s case, the problem is higher unemployment. Medicaid cuts and reduced E.I.T.C. benefits are symptomatic of a recession, but just because they're less available doesn't mean they're pro-cyclical.

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