Created 7/29/1996
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Welfare Reform Is Expensive

How the Welfare Reform Debate Shows that Our Political System Is Broken

Brad De Long
David Levine

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 the 1990s.

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 is broken.


Created 7/15/1996
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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