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“Doesn’t Remotely Comport With The Evidence”: Why The GOP’s War Against Welfare Programs Is Both Cruel And Pointless

Why do people work?

That question is at the center of the conservative case against anti-poverty programs. Republicans like Rand Paul conclude that policies like disability insurance or the Earned Income Tax Credit take away a key motivation — putting food on the table — that propels people to look for work. Thus these policies must be reducing labor supply and economic growth.

Liberals often don’t confront this point head-on, arguing instead that it’s unjust for people to starve because they’re out of work. It’s an inevitability, given that conventional understandings of market capitalism require around one out of 20 people to be unemployed at all times.

This is a good point, but the conservative argument is worth confronting on the merits. While there is an inherent trade-off between work and economic output, the story is not so simple as conservatives make out. Austerity — which often requires cutting anti-poverty programs — also kills labor supply.

For an example of the conservative position, let’s go to Daniel Mitchell, who wrote up some new findings from the National Bureau of Economic Research:

The mid-1990s welfare reform apparently helped labor supply by pushing recipients to get a job. Disability programs, by contrast, strongly discourage productive behavior, while wage subsidies such as the earned-income credit ostensibly encourage work but also can discourage workforce participation for secondary earners in a household. [The Federalist]

There is some surface plausibility to this argument. Social Security reduced poverty among the elderly by 71 percent, but in so doing probably also reduced the number of old people working. On some margin, there is a trade-off between work and poverty reduction, because a lot of jobs suck and people will quit them if they can.

However, it leaves a great deal out. Most critically, it doesn’t consider the business cycle. At the bottom of the Great Recession, for instance, the ratio of job seekers to job openings was nearly seven to one. That means it was mechanically impossible for six out of seven unemployed people to get jobs then. In order for “pro-work” welfare reform to have a prayer of working, the jobs you’re pushing people into actually have to exist.

In other words, when there is a recession, fiscal and monetary stimulus is the way to preserve labor supply, and austerity is the way to destroy it. But if you refuse to accept the logic of aggregate demand, as Mitchell did back in the very pit of the Great Recession, you’re stuck arguing that soup kitchens caused the Great Depression.

The international context presents an even more obvious problem. The conservative account of anti-poverty programs straightforwardly implies that the larger the welfare state, the lower the labor force participation rate (that is, the fraction of people who are working or actively looking for a job). If people don’t have to work due to generous government benefits, then they won’t work.

This doesn’t remotely comport with the evidence. In point of fact, by developed world standards, the U.S. welfare state is extremely stingy and our labor force participation rate is quite low. Take Sweden, for instance. It boasts the welfare benefits of Ayn Rand’s deepest nightmares: universal health and dental insurance, 480 days of paid parental leave per child, a monthly child benefit of about $120 up through age 16, two weeks sick leave, government pension at age 65, and so on.

Overall, if we look just at market incomes, then Sweden has about the same market poverty rate as the U.S. — but its welfare benefits cut the actual poverty rate down to half that of the U.S. That’s the scale of transfers we’re talking about, and other Nordic nations do even better. Yet Sweden’s labor force participation rate was 64.1 percent as of two years ago, more than a percentage point better than the U.S. rate, which has been hovering below 63 percent for the last couple years.

Again, at some point there has to be a trade-off between work and output. In decades previous, the U.S. beat European nations in labor force participation, because those nations chose relatively more free time as they became richer, instead of maniacally ratcheting up GDP for its own sake.

But correct macroeconomic policy also matters a great deal. If there is a catastrophic collapse in aggregate demand that is not fixed for years and years, that’s also going to burn up labor supply — in a way that is both cruel and pointless.

 

By: Ryan Cooper, The Week, April 28, 2015

April 29, 2015 Posted by | Austerity, Conservatives, Poverty | , , , , , , , | 1 Comment

“Health, Work, Lies”: Losing Your Job And Choosing To Work Less Aren’t The Same Thing

On Wednesday, Douglas Elmendorf, the director of the nonpartisan Congressional Budget Office, said the obvious: losing your job and choosing to work less aren’t the same thing. If you lose your job, you suffer immense personal and financial hardship. If, on the other hand, you choose to work less and spend more time with your family, “we don’t sympathize. We say congratulations.”

And now you know everything you need to know about the latest falsehood in the ever-mendacious campaign against health reform.

Let’s back up. On Tuesday, the budget office released a report on the fiscal and economic outlook that included two appendices devoted to effects of the Affordable Care Act.

The first appendix attracted almost no attention from the news media, yet it was actually a bombshell. Much public discussion of health reform is still colored by Obamacare’s terrible start, and presumes that the program remains a disaster. Some of us have pointed out that things have been going much better lately — but now it’s more or less official. The budget office predicts that first-year sign-ups in the health exchanges will fall only modestly short of expectations, and that nearly as many uninsured Americans will gain insurance as it predicted last spring.

This good news got drowned out, however, by false claims about the meaning of the second health care appendix, on labor supply.

It has always been clear that health reform will induce some Americans to work less. Some people will, for example, retire earlier because they no longer need to keep working to keep their health insurance. Others will reduce their hours to spend more time with their children because insurance is no longer contingent on holding a full-time job. More subtly, the incentive to work will be somewhat reduced by health insurance subsidies that fall as your income rises.

The budget office has now increased its estimate of the size of these effects. It believes that health reform will reduce the number of hours worked in the economy by between 1.5 percent and 2 percent, which it unhelpfully noted “represents a decline in the number of full-time-equivalent workers of about 2.0 million.”

Why was this unhelpful? Because politicians and, I’m sorry to say, all too many news organizations immediately seized on the 2 million number and utterly misrepresented its meaning. For example, Representative Eric Cantor, the House majority leader, quickly posted this on his Twitter account: “Under Obamacare, millions of hardworking Americans will lose their jobs and those who keep them will see their hours and wages reduced.”

Not a word of this claim was true. The budget office report didn’t say that people will lose their jobs. It declared explicitly that the predicted fall in hours worked will come “almost entirely because workers will choose to supply less labor” (emphasis added). And as we’ve already seen, Mr. Elmendorf did his best the next day to explain that voluntary reductions in work hours are nothing like involuntary job loss. Oh, and because labor supply will be reduced, wages will go up, not down.

We should add that the budget office believes that health reform will actually reduce unemployment over the next few years.

Just to be clear, the predicted long-run fall in working hours isn’t entirely a good thing. Workers who choose to spend more time with their families will gain, but they’ll also impose some burden on the rest of society, for example, by paying less in payroll and income taxes. So there is some cost to Obamacare over and above the insurance subsidies. Any attempt to do the math, however, suggests that we’re talking about fairly minor costs, not the “devastating effects” Mr. Cantor asserted in his next post on Twitter.

So was Mr. Cantor being dishonest? Or was he just ignorant of the policy basics and unwilling to actually read the report before trumpeting his misrepresentation of what it said? It doesn’t matter — because even if it was ignorance, it was willful ignorance. Remember, the campaign against health reform has, at every stage, grabbed hold of any and every argument it could find against insuring the uninsured, with truth and logic never entering into the matter.

Think about it. We had the nonexistent death panels. We had false claims that the Affordable Care Act will cause the deficit to balloon. We had supposed horror stories about ordinary Americans facing huge rate increases, stories that collapsed under scrutiny. And now we have a fairly innocuous technical estimate misrepresented as a tale of massive economic damage.

Meanwhile, the reality is that American health reform — flawed and incomplete though it is — is making steady progress. No, millions of Americans won’t lose their jobs, but tens of millions will gain the security of knowing that they can get and afford the health care they need.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, February 6, 2014

February 8, 2014 Posted by | Affordable Care Act, Jobs | , , , , , , , | Leave a comment

   

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