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When it comes to finding money: People vs Corporations, $535 billion over 10 years

As we continue this fight regarding the national budget, funding for the people, (food, unemployment, medical), entitlements and the overall moral position this nation has and will take with its money, let’s recall the truth about a program that was sold and is still sold as a benefit for the people.   It’s cost is intentionally excluded from the overall budget discussions and thus remains hidden as to the extent of the benefit and beneficiaries.

The Medicare Prescription Drug law. Billy Tauzin (former congressman and former president/CEO of PHRMA, Dem from ’72 to ’95, republican there after):

it’s been good for the patients whom the drug industry represents

Dan Burton and Walter Jones, republicans were against it, for to them it was a “sellout” to the drug companies.

No offsets were needed.  The 15 minute vote was held open for 3 hours and was in the middle of the night because it was going to be defeated.  The longest roll call in the history of the house.  Threats to those who did not want to vote for such a huge wet kiss to the industry were of the Tea Party type.  They would run a person against you.  The Medicare boss, Tom Scully Bush’s “lead” negotiator went to lobbying for the drug industry “10 days after the president signed the legislation”.  He was negotiating for his lobby job during the bill negotiations.


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Punishing Irresponsible Parents and Punishing the Children of Irresponsible Parents

by Mike Kimel

Punishing Irresponsible Parents and Punishing the Children of Irresponsible Parents

Not long ago, my wife came home a bit shocked. My wife has a small business: she buys houses, fixes them up, and puts renters in them. If I may brag about my wife a moment, I note she buys well, is good at fixing houses up, and charges slightly below market prices. The result is that she never has vacancies and that results in pretty good returns year in and year out.

Anyway, it seems she had been speaking to one of her tenants. At some point in the conversation, the tenant mentioned that her sister – a single mom on various forms of social welfare – had recently had another child with the specific purpose of getting increased assistance.

My wife’s politics, like my own, are  best described as just slightly left of center. (If you’ve read much of what I’ve written, you probably realized that we tend to reach our conclusions after taking a look at what the data says.) The tenant, as I understand it, also appears to be slightly left of center. But it was evident to the tenant that her sister was making a bad decision on many levels. From a financial perspective alone, despite the increase in assistance (welfare, food stamps, housing, etc.), over the long haul, raising a child costs more than that. Which is why, when some blowhard like Rush Limbaugh, says there are people out there having children they cannot afford for financial reasons, it sounds crazy. But sometimes those blowhards are right.

Which raises a question. What do we do about it? There are plenty of single parents with no prospect of having enough income to keep themselves afloat, much less a family, having additional children while on social assistance. There are plenty of men out there with no marketable skills whatsoever who have fathered multiple children, and then father more while on social assistance. What is worse, the problem is to some degree self-perpetuating. A child raised in squalor by parents who make bad, short-sighted decisions is, in many instances, not developing the skills necessary to do better when he/she reaches adulthood, including decisions about whether and when to have and raise children.

So there is a dilemma… in general, it makes no sense to incentivize or reward people who have few or no marketable skills or prospects for having children. On the flip side, without such support, the children they do have will be raised in worse conditions than they already are.

If there is a real world solution to this problem? Is there a way to ensure that children who are in a bad situation through no fault of their own are well cared for and, at the same time, that nobody benefits financially, receiving rewards from the public purse for having more children than the number for which they could possibly provide good care? And yes, I recognize that there are success stories out there – a single parent raises several children, one of whom becomes a basketball legend or a well-known entertainer jumps to mind – but how many of those are there in the scheme of things?

A few closing comments:

1. I really don’t know how to write this post. I’m more used to looking at statistics involving taxation and economic growth, and this was different and, frankly, uncomfortable to write. I tried to be as straightforward and inoffensive as possible while writing it, and if I failed, please bear in mind what I was trying to accomplish.

2. If you want to leave a comment, please do. But please stick to real world suggestions. Real world means practical, having any likelihood of having political support and being legal. Simply declaring one’s children a bank and getting bail-outs from the Fed and the feds doesn’t qualify.

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Welfare, I’m not hurting from it and neither are you.

A good friend and I got into an email debate. He sent me the latest message regarding how wonderful it is that Florida is going to be drug testing welfare recipients. I responded that I’ll consider the policy when we start testing all the CEO’s who get welfare for their sector of the economy, the lawyers, judges and all country club members.
I also noted welfare is not the problem He noted it’s not “the” problem, but it is “a” problem and he knows this from talking to people. I know of welfare too. I have served on two nonprofit boards, one for substance abuse and the other The Providence Center. My family adopted a family when I was in junior high. We had foster children. I was a day counselor for 2 weeks in the summer of ’73 for 7 to 12 year olds from 3 of the most horrible housing developments in the city of Providence. We had the “Institute” literally right around the corner from where I lived.  My daughter is doing a year with NeighborWorks America
Welfare is not the problem. But, my friend is a very smart person and an engineer, so I needed some numbers. Using this site I checked out what the ratio of spending on Family and Children and Housing is to our GDP. I used GDP and not the overall budget because hey, we all worked to earn that money and it might as well be used for something that is heart warming.  The following numbers are total national spending (Fed, State, Local).

The year 1962 is the first year that there is spending listed for both Family and Children and Housing. Prior to that only Housing is listed as having spending. For 1962, the combined total ratio was 0.0027. That is 0.27% of our GDP was spend on families, children and housing. I started with 1970 and went forward using the endings of the presidential terms starting with 1980.
1970: 0.0035
1980: 0.0092
1988: 0.0093
1992: 0.0134
2000: 0.0092
2008: 0.0097
2010: 0.0141
First of all, these are miniscule percentages of our GDP. Second, it sure looks to me like the best way to solve the “welfare problem” is to solve the economic problem.
Of course, this means nothing if we don’t have other government spending patterns to compare too. I mean, how do we know if welfare is “out of control” if we can’t compare it to other spending? The same data set has two other categories: General Government and Other Spending. You can click on each to see the sub categories. But, just so you know General Government consists of Executive and Legislative organ, Financial and General services. Other does not include: Pensions, Education, Health, Defense, Protection, Transportation or interest. Other is just that: Other. Here is how the numbers look.
This is how the numbers flow as log function.


Call me stupid, but it looks to me like what we spend on welfare is not much more than what the government is spending on just doing the government thingy, unless of course people can’t get a job. Interestingly enough, the share of GDP spent on welfare in 1992 and 2010 is the same. In fact, at the peak of unemployment of the 2001 recession which was 2003, we spent just 0.0098 on welfare.
Here is another comparison. In 2009 we spent $167 billion on Family/Children and Housing. That year, we also spent $161 billion in the Other category of “Economic Affairs”. I don’t know what that is, but if it has anything to do with what we are experiencing I don’t think we got our money’s worth. This item went from -7.0 in 1997 to 7.8 in 2002 to 17.5 in 2005 to 1.3 in 2007 back to 17.7 in 2008. It landed at -79.7 in 2010. Hummmmmmmmm. I think Glen Beck would like this category. You know, who’s been playing with the money in the cookie jar? In fact, why did we not know that a cookie jar exists?
It doesn’t make me feel good to think that we spend about as much on the top office operations of this country as we spend on helping people. Think about it. What percentage of the “welfare problem” do
you believe is a problem? You know those drug addled lazy moochers who are preventing all us moral and hardworking folks from living the good life of our congress persons. Be careful now. This is a trick question. See, it won’t take much of a “problem” subtracted from what we spend to find ourselves spending less to take care of families and their children than we spend on the top office operations in this nation. That’s just plain being cheap. Down right, out and out cheap SOB’s even if we leave in all of the “problem”.

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Elain Kamarck on Welfare Reform: a Critique

Elaine Kamarck wrote an article in The Washington Monthly’s blog “Ten Miles Square” entitled “NO Time to Go Wobbly on Welfare Reform”

Briefly for those who have not clicked the link, the article stresses that TANF (aka welfare) is a very small component of the social welfare safety net (as was AFDC before welfare reform). Kamarck argues that one would not have such a negative view of welfare reform if one considered the whole poverty assistance system. She presents data on the poverty rate and discusses its change over time. Then mixing political strategy and policy analysis, she argues that it would be very politically costly for Democrats to question welfare reform.

I agree entirely with the first claim, which is not related to the rest of the article (which discusses policy not politics and reality not the median voters’ perception of reality).

The article contains factual errors. They are not minor.

1) Kamarck shows a graph of total EITC and AFDC/TANF benefits and writes “As the following chart illustrates, spending on the EITC took off just as welfare reform was adopted.” This claim is false. As the graph shows, spending on the EITC took off in 1993 following the passage of the Clinton recovery bill (tax increase for rich people, .7 cent a gallon gas tax and massive expansion of the EITC). This was three years before the welfare reform bill signed in 1996. Kamarck asserts 1993=1996. In fact 1993
2) Kamarck writes “the welfare rolls, which, by supporting mothers only if they weren’t working and weren’t married.” In fact in 1996 (and earlier) some married women and some employed women received AFDC benefits. In 1996 AFDC was available to married couples with children (subject to availability for work rules) in 25 states. It is just not true that only unmarried women received AFDC (it is true that few married couples with children were poor enough to qualify but that is a fact about income distribution and not about the program in those 25 states). Also AFDC was available to women who worked but had very low incomes (benefits would be zero for someone who worked year round full time for the minimum wage). IIRC the effective marginal tax rate was around 70%. However, for Kamarck’s claim to be true, it would have to be infinite at labour income =0.

Now both of Karmack’s claims about AFDC are uncontroversial — they are something which everyone thinks he or she knows. They are also false. I think they should be corrected.

In addition to the two very important (central to the article) errors of fact mentioned above, Kamarck makes very serious errors of omission. She notes that Clinton vetoed an earlier welfare reform bill which converted food stamps to a block grant. She neglects to mention that the bill he signed massively cut food stamps. The projected savings from the bill were overwhelmingly due to the food stamps cuts not the transition from AFDC to TANF.

I suspect (just a guess not a claim) that the actual ex post cuts in the 90s were more than 100% due to the cuts in food stamps — the AFDC was an entitlement without a fixed budget so spending would have fallen during the late 90s boom. The federal TANF contribution is a block grant which does not depend on how many people are needy so it didn’t fall in the 90s. I guess that in the first years after welfare reform TANF cost the Federal Government more than AFDC would have cost.

But the cuts to the food stamps program were severe dwarfing the cuts to AFDC/TANF spending.

It is not at all possible to evaluate the effect of welfare reform on the poor by looking at the poverty rate. For one thing food stamps are not counted as income in the calculation of the poverty rate. The program and the massive cuts in 1996 just don’t appear in the headline data on poverty.

Much more importantly, neither TANF nor AFDC is designed to reduce the poverty rate. AFDC and TANF benefits are not high enough to bring income over the poverty line. The purpose of the programs is to prevent severe poverty while keeping the long long term unemployed poor so that they have an incentive to seek work.

The poverty rate is just one statistic which gives us some information about poverty. It would be the whole story only if a household with income one cent before the poverty line suffered as much as a household with 0 income. To find possible costs due to welfare reform, one has to consider the distribution of income among households below the poverty line. One easily available statistic is the severe poverty rate (also called the deep poverty rate) the fraction of people in households with income below half the poverty line.

Data on severe poverty rate only go back to 1975. The current level is the highest on record. The ratio of the severe poverty rate to the poverty rate has increased since welfare was reformed. The sever poverty rate and this ratio are useful if one wishes to determine whether welfare reform may have hurt the poor by making them severely poor and not just poor. Kamarck considers only the poverty rate. This is a serious conceptual error.

I believe that her article contains false claims of fact which should be corrected and that it makes a contribution to the discussion of no value whatsoever.

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Government Transfer Payments in the US: It’s All About Health Care

There’s been a rather silly news item floating around the internets and business press today about the role of government in the US economy. Here’s an example from the Investors Business Daily:

Is America Becoming A Welfare Nation?

More than one-third of all wages and salaries in this country are actually government handouts. We should be alarmed that we’ve become a nation of dependents.

Using data mined from the Bureau of Economic Analysis, TrimTabs Investment Research has found that 35% of wages and salaries this year will be in the form of a government payment. That’s up sharply from 2000, when it was 21%, which is more than double the rate — 10% — of 1960.

The payouts are primarily Social Security and Medicare benefits, and unemployment checks. But they are not limited to those programs.

In any case, we’re seeing before us a disturbing trend. A society can’t survive moving in this direction.

Sigh. Where to begin.

First of all, just to set the record straight: the press is reporting the numbers wrong. The true figure, according to the BEA data, is that about 18% of personal income in 2010 was in the form of transfer payments from the government. Meanwhile, exactly zero percent of wages and salaries were in the form of transfer payments, because wages and salaries were, well, wages and salaries. I suspect that many people are conflating “wages and salaries” with “personal income” as they report this statistic. But there’s actually a big difference, and wages and salaries actually make up only a bit more than half of personal income in the US.

Much more importantly, one must realize that of course transfer payments were higher than usual in 2010 – we were emerging from the deepest recession in 75 years. Transfer payments are crucial automatic stabilizers for the economy, and comprise our society’s safety net. They have been operating exactly as they’re supposed to, with payments rising during a recession to make up for the fall in other types of income. When you have the deepest recession since the invention of transfer payments, as we did in 2008-09, then of course you would expect to find them rise to their highest levels ever.

Finally, the alarming statistics cited in such articles are really just due to one, and only one, phenomenon: the incredible and seemingly unstoppable rise in health care costs in the US.

The blue line in the following picture shows transfer payments as a percent of total personal income. The red line shows transfer payments excluding Medicare and Medicaid.

With the exception of health care costs, there’s really no trend to see in this data at all. Really, it’s all about health care costs. Again. Still.

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Welfare vs Social Insurance in the USA

Robert Waldmann

Among experts, there is a widespread view that people in the USA support social insurance an oppose welfare. It is a fact that they support social security old age and disability pensions and hated AFDC. It is suspected that describing social security as a pension plan with mandatory participation is part of the explanation of this. Therefore, some (including the Clinton treasuries first assistant secretary for policy analysis Alicia Munnell) argue that it is important to preserve some link between contributions and benefits in the social security system.

I think that we have performed and experiment which refutes this hypothesis.

It is called Medicare. Medicare part A is a social insurance program like social security old age and disability pensions. Medicare part D sure isn’t – it’s an unfunded entitlement. I don’t know about parts B and C (I think they are basically funded from general revenues).

That’s the point. Compared to many angrybears I am very ignorant about Medicare, but I suspect that I know about as much as the median voter. If the form of financing had such an important impact on public opinion, why doesn’t the public know more about the form of financing ?

My reading of the evidence is that Medicare A through D is very popular, that different approaches to financing have so little effect on public opinion that it can’t be detected.

Frankly, I think this is proof that the social insurance hypothesis is false. At least I don’t see how the evidence could possibly conceivably be any stronger.

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