Two Comments on the New York Times Safety Net Article

Binyamin Appelbaum and Robert Gebeloff have an epic article in the Sunday New York Times, Even Critics of Safety Net Increasingly Depend on It.  It is an in-depth look at the changing social safety net that focuses both on aggregate national data (including a fascinating interactive map) and interviews with struggling working-class people in a town near Minneapolis.

It’s highly recommended, and it’ll likely form a core of what the 2012 elections are about – the kind of social insurance state we want to have in this country.  With that in mind there are two things that deserve comment.

First, the authors describe the social safety net as having shifted from meeting the needs of the poor to one that is only focused on the middle-class.  New York Times:

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.  And as more middle-class families like the Gulbransons land in the safety net…

I’ve heard some conservatives make similar arguments – the social safety net has been hijacked by middle-class people over the interests of the poor, where the secondary mission has become primary  – while also referencing the same CBO report.  But is that the right way to read the CBO report in question?  Let’s go to the document.  CBO:

The shifts in the relative importance of different transfer programs since 1979 moved the distribution of transfer benefits away from households in the lower part of the income spectrum to some extent (see Figure 14 on page 24). Rapid growth in Medicare, which is not means tested (in other words, not provided to people based on a test of need determined by their income and assets), tended to shift more transfer income to middle- and upper-income households. At the same time, spending on Aid to Families with Dependent Children and its successor, Temporary Assistance for Needy Families, has declined relative to market income; benefits from those means-tested programs are heavily concentrated at the bottom of the income scale. As a result, households in the lowest-income quintile received 54 percent of federal transfer payments in 1979 and 36 percent in 2007.

Rather than a middle-class hijacking of the welfare state, the government decided to End Welfare As We Knew It.  As such, there is significantly less resources going towards those in the bottom 20%.  As Medicare is split across all income, with Medicare costs expanding and the caseloads of TANF being dropped at an amazing clip, almost by definition the relative shares are going to grow across the non-bottom.  This isn’t a middle-class increase but an abandonment of the poorest among us.

[The critics of Welfare As We Knew It assumed that the “rules of the game” in the benevolent labor market would be better for the poor if they were confronted without government support.  I imagine in the go-go 1990s it was easier to see the labor market that way, rather than in the current market.  You know, the one with record unemployment duration, massively high unemployment-to-vacancy ratios and where Federal Reserve elites are abandoning the Solow Growth Model rather than adopt a NGDP target, adopt a higher-inflation rate, announce QE3 to bring mortgage rates down to 3% or use any of the numerous tools at its disposal to bring about full employment.]

I’m assuming a Voltron of wonks at CBPP are being assembled to deal with the general second issue (the Jared Bernstein Voltron limb is already in motion) – how out of control is the social safety net these days?  This isn’t usually my territory but I’ll give it a shot.

The second issue has to do with the article’s use of the the following statistic: “Dozens of benefits programs provided an average of $6,583 for each man, woman and child in the county in 2009, a 69 percent increase from 2000 after adjusting for inflation. In Chisago, and across the nation, the government now provides almost $1 in benefits for every $4 in other income.”

The interactive map includes the following: “The share of Americans’ income that comes from government benefit programs, like Medicare, Medicaid and Social Security, more than doubled over the last four decades, rising from 8 percent in 1969 to 18 percent in 2009.”

Those are some scary numbers.  But how does the current recession impact them?  I use the BEA data to recreate their numbers in the chart – let’s chart out the share of Americans’ income that comes from government benefit programs:

As we can see, the number jumps in 2009, which is the last year they use (as it is the last year the county-level data is available).  This number is total government benefits over total personal income – and we see both personal incomes collapse and automatic stabilizers kick in during 2009, which both increase this value.  What would this number look like if the opposite was true?  If total personal income grew 4% instead of dropping 4% in 2009, and unemployment insurance stayed at the same levels?

And if we back out the jump in Medicaid and income support spending it would be even closer to trend. Another way of saying this is that the safety net worked – it got money to people when demand and the economy were collapsing.  Instead of seeing the safety net run amok it’s the safety net doing exactly what it is supposed to be doing.

It’s interesting how much the people interviewed don’t see it this way .  They see the increase in the deficit, a natural result during a recession, as a harbinger of doom times, and automatic stabilizers as a marker of shame.  Does this have implications for how we view the safety net?  And how worse would this be if we block-granted Medicaid and turned Unemployment Insurance into a personalized, faux-insurance account, which are both policies at the top of the Republican agenda?