Savage Budget Cuts

We are now at that time of year when the President proposes what we laughingly call a budget for the Federal Government. The Republicans are nominally in charge so garment rending and howls of outrage are the inevitable by product of the budget proposal. We will hear endless tirades about “savage budget cuts” designed to punish the poor to give tax-cuts to the ever changing definition of “the rich”.


Perhaps it’s time to stop the hysteria and look at what is really going on, which is that government has spent, is spending, and will likely continue to spend enormous amounts of money on various anti-poverty efforts. Much of which will do more harm than good. See for instance, “War on Poverty Turns 50: Are We Winning Yet” published by the CATO Institute.


In Fiscal Year (FY) 2016, Federal, State and local spending on “means-tested” programs was estimated at slightly over $1 trillion. This includes the provision of services to the poor by various levels of government in addition to cash benefits. Medicaid services, which cost about $653 billion, accounted for the largest portion of services provided. Means tested programs include the Supplemental Nutrition Assistance Program (SNAP) popularly known as Food Stamps and Temporary Assistance for Needy Families (TANF) as well as a host of other programs.


These programs are jointly financed by the Federal and State governments and administered by the States. It would be a mistake to assume that these programs only service the truly needy. For instance, the SNAP Program in New Jersey caps eligibility at up to 185% of the federal poverty level, which is currently $24,300 for a family of four. So eligibility caps out at just under $45,000 in New Jersey. Note though, that New Jersey is one of the nation’s wealthiest states with a median household income if about $71,000. Nationally some 17 million Americans participated in the SNAP Program in 2000 at a cost of about $18 billion. By the end of 2013, 48 million Americans received benefits from the SNAP program at a cost of $48 billion. See “SNAP Failure: The Food Stamps Program Needs reform” also published by CATO.


Additional programs include Housing Assistance, Supplemental Security Income (SSI) and various types of aid directed to Senior Citizens. The list is long because $1 trillion goes a long way. But, as with SNAP, the threshold for receiving assistance is well above the poverty level for some programs. The idea of a threshold poverty level is itself problematical as calculated because it does not take into account all types of non-cash assistance that is available to low-income families.


In order to keep the spending machine humming, advocacy groups routinely exaggerate the number of poor people. Right now it is generally thought to be in the neighborhood of 14.5% of the population. But that calculation doesn’t take into account non-cash benefits and refundable tax credits, each of which would take 3 percentage points off the poverty calculation. Those adjustments alone would reduce the poverty rate down to about 8.5% of the population. Replace the all-urban CPI Index with the arguably better Personal Consumption Expenditure Index and the percentage of the population living in poverty drops to around 5%. (See this article in Forbes Magazine.)


While important, discussions about the percentage of people living in poverty and the proper measurement thereof are largely technical issues. More important are relationships between the incidence of poverty, the state of the macro-economy, and the success (or failure) of governmental policies designed to alleviate it.


The real question is: why are there persistent pockets of poverty around the U.S.? As demonstrated by the progressives’ bête noire Charles Murray in his 1984 book “Losing Ground”, the poverty rate in the U.S. dropped more or less continuously until the advent of the Great Society. Then progress stopped cold. It was (and remains) Murray’s thesis that social welfare programs (as implemented in America) tend to increase the incidence of poverty by creating incentives that reward myopic behavior rather than behavior that is conducive to escaping poverty. He also argued that the welfare state was a moral disaster in the way it separated accomplishment and effort.


Murray followed up in 2012 with “Coming Apart” in which he examined the divergence between two emerging classes of whites, which he labeled the New Upper Class and the New Lower Class. In “Coming Apart” Murray correlated the economic divide between the two classes with the acceptance or rejection of what we may call traditional values. Murray provides evidence that the New Upper Class continues to be more religious, have a stronger work ethic, and be more likely to maintain an intact family life compared to the New Lower Classes. (This jettisoning of traditional values among the New Lower Classes explains in part the emergence of the blue collar Trump vote.)


Murray’s arguments were (and are) extremely controversial. But as time goes by, the gathering evidence certainly seems to suggest that he is in fact largely correct.


So we seem to have a paradox on our hands, explainable by Murray’s thesis. Poverty has indeed declined by virtue of government assistance, but the magnitude of the decline is unclear. More to the point we have not answered the counterfactual–namely what would poverty have been in the absence of government anti-poverty programs? Murray has presented evidence that government assistance (as we know it today) has created a dependent class that is myopic, has given up on traditional values, and by virtue of that fact is ill equipped to help itself out of its rut, and as a result, may be worse off for the assistance. This hardly represents a policy victory to be built upon; if anything it points to the continuing social destruction brought about by the welfare state.


So progressives can wail all they want about savage budget cuts. But the truth of the matter is that the real damage done to our society is the result of savage progressive attacks on traditional values and institutions that left ordinary people unable to defend themselves and their families as their communities collapsed around them. The public schools they attended did not prepare them for the economy of the 21st century.  Nor are those schools preparing their children. But they are teaching them to feel good about themselves even as their test scores continue to sink and public institutions continue to fail.










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