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Welfare Reform Is Expensive
How the Welfare Reform Debate Shows that Our Political
System Is Broken
Brad De Long
Proponents of welfare reform always hope to move people off of welfare rolls
and onto payrolls: this was the hope of the 1960's War on Poverty, of reforms
passed in the 1970s and 1980s, and of Clinton Administration proposals in
Now the Congress has passed a welfare reform that it hopes will move people
off the rolls and save taxpayers tens of billions of dollars.
Given the popularity of moving people from welfare to work, why have past
efforts at reform failed? As usual with tough political questions, the answer
is simple: Time and Money. Time, because it takes years for the investment
in welfare reform to pay off, and Money, because it is expensive to enable
single mothers to support their families.
Consider the easier task faced by mothers in non-welfare, two-parent households.
Fewer than one in three married women work full time year round. Even these
women face difficulties juggling child care (especially when a child is
sick), parental responsibilities, and work. Welfare recipients and other
single mothers--many of whom have not graduated high school, have disabled
children, or live where jobs are scarce--find full-time work particularly
difficult to find and keep.
Thus, real welfare reform requires money: for child care, for health care,
for training, and for job search assistance.
It is plausible that real welfare reform could save the federal budget money
in the long-term. But real welfare reform costs money in the short term:
the support services needed to end welfare as we know it without making
hundreds of thousands of children homeless cost tens of billions of dollars
in the first five and ten years. Without such initial investments in reform--for
child care, training, job search assistance, and so on--it will fail, and
leave a much worse mess to be dealt with in a decade.
So what makes the Republican Congressional leadership confident that it
can reform welfare and save $10 billion or so in each of the next 7 years?
Unfortunately, they have not discovered a magic bullet that reduce the cost
of training, job search assistance, and childcare.
Moreover, they are not relying on state governments to kick in the extra
resources to give reform a chance. State spending on welfare has always
been lower than most voters wish because of the fear that more generosity
will lead welfare recipients to move in. Thus there has been a potential
"race to the bottom" in which states cut spending, hoping to induce
their welfare caseloads to move out.
For the past sixty years this "race to the bottom" has been held
off by the federal "match" incorporated into our current welfare
system: states that cut their own spending lose federal welfare dollars
as well. States lose at least one dollar dollar in federal welfare support
for each dollar they cut from their budget. The high budgetary cost of reducing
spending has discouraged states from cutting welfare and racing to the bottom.
The welfare reform bill eliminates the federal match: states suffer no financial
penalty from cutting back on their own welfare expenditures. Thus, this
version of welfare reform will kick off the the race to the bottom and lead
states to cut back--not expand--their spending on welfare.
Thus the likely outcome of welfare "reform" is catastrophe: hundreds
of thousands of additional homeless children as mothers without skills,
without childcare, without help to search for jobs in the low-wage sector
of labor markets that already have considerable excess supply are cut off
from welfare benefits for the rest of their lives.
Given this bleak forecast, what failures in our political system have made
this welfare "reform" politically polatable? Once again the answer
is "Time and Money" that pressure Congress into passing laws that
make no sense.
Money plays a role because politicians from many Congressional districts
face strong pressure to vote against programs that do not directly benefit
their voters. Many suburban voters (erroneously) believe that the poor are
only to be found in central-city ghettoes. (If fact, only about 1 in ten
poor person lives in an urban neighborhood with highly concentrated poverty.)
Time plays a role because the savings from welfare reform appear early,
while the social and financial costs of a botched welfare reform do not
show up for years or decades. In the short run, the Republican leadership
has gained $70 billion to spend on tax subsidies for political supporters.
As long as politicians run for re-election every 2 or 4 years, it is difficult
for them to turn down offers that they enjoy now, when others must pay later.
Moreover, this welfare reform shifts administrative responsibility for welfare
to the states: Congress not only benefits from having $70 billion more to
allocate today, but its fingerprints will not be on the state-level policies
that will appear to be the proximate causes of next decade's social policy
disasters. In a decade we will hear national politicians claim that: "This
social catastrophe is deeply saddening. But it is not the result of welfare
reform. It is the result of the poor implementation of it by the incompetent
state bureaucracies. It just proves, once again, that you can't trust government."
The Federal government will avoid the blame; the state governments will
take the heat.
So why is there so little state-level opposition to this welfare reform?
Governors Wilson of California, Pataki of New York, and the other large-state
Republican governors know their states will have multi-billion dollar holes
in their safety net budgets five to ten years out. They know full well that
the future governors will be blamed if they close these holes by raising
taxes, and blamed if they rip the safety net into shreds.
So why do they support this reform?
Again, timing is everything. For the next four years, the federal money
continues to flow to the states at almost its present rate. Most of the
federal strings attached to its use are removed. So for the next four years
state governors will have a party: they have extraordinary freedom to shift
money around, start initiatives, cut ribbons, reward political supporters,
and get favorable press coverage as can-do guys.
The budgetary disasters come after 2000, as spending falls far short of
what is projected under current law. For better or for worse, most Republican
governors do not plan to be in governors a few years from now when a generation
of poor children hit the streets. Many will be pushed out by term limits.
A number of them hope to be pulled into national politics to serve as vice
president (or president).
Good policies require a willigness to take the long view, and to invest
in the country's future--particularly in this country's children. But children
neither vote nor make campaign contributions. And the long view is hard
to take for politicians who need action now and who expect to be doing other
jobs ten years hence.
The fact that the current welfare reform has gotten as far as it has--and
may become law--is a measure of how very, very badly our political system
Go to Brad De Long's Home
Associate Professor of Economics Brad De
Long, 601 Evans
University of California at Berkeley; Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax