Closed Minds: Some Additional Ideas From the Past

In my previous post, I rehashed some arguments that were made when federal tax policies now in effect were first proposed, and showed that the promises of the time were not realized. Yet the same arguments are still made for the same policies, by national Republicans and certain economists. Without much thought about why things went wrong, and with no thought of adjustment. The Republican era at the federal level, now seemingly coming to a close, was not without its successes, but even in those cases lessons were not learned.

Take the case of federal welfare reform. Looked at from a fiscal point of view, as I have in my two compilations of federal expenditures and revenues as a share of GDP over time, welfare reform amounted to a large shift in spending from poor people who do not work to poor people who do. At the same time that “welfare as we know it” was drastically cut back, spending on support for low-wage workers in the form of child care assistance, food stamps, the Earned Income Tax Credit (EITC), and Medicaid health insurance, was substantially increased. And work requirements were imposed on traditional welfare recipients. The idea was that the government had been encouraging dependency rather than work, to the long-term detriment of society and the beneficiaries themselves.

The increase in support for the working poor happened three ways. In part it was the result of formal changes in program rules, as the EITC and Medicaid eligibility were made more generous with bi-partisan support. And in part it was the result of efforts to make sure low-wage workers received the benefits they had already qualified for. Pre-welfare reform, while welfare recipients were automatically enrolled in non-cash programs such as food stamps and Medicaid, equally needy working people were not savvy about how to navigate the bureaucracy, and often received nothing.

This bi-partisan policy worked far better than most people who had opposed welfare reform at the time would have expected. The cash welfare rolls fell, but destitution did not increase. Substantial numbers of poor people never entered the welfare system, and instead developed work histories.

But when the Great Recession arrived, the cost of benefits for the working poor soared. And the Republicans then turned against their own policy, and the people who relied on it. They replaced the race-based and nativist hostility to the non-working poor -- to Blacks, immigrants, and those living in older central cities – with a class-based hostility to the entire lower half of the population, to people busting ass in multiple part time minimum wage jobs regardless or race or country of birth. They are now applying the same language about a culture of dependency to those who work, or used to work, very hard that they used to reserve for “welfare queens.”

Why has the cost of programs for the working poor exploded? Two reasons.

First, because more poor people were working, more people qualified for work-related benefits when they lost their jobs. The U.S. actually has two “welfare” systems – one for those who don’t work, including SSI, TANF and Safety Net Assistance, and one for those who do work, including unemployment insurance, workers compensation and full Medicare and Social Security benefits. The latter two programs require ten years of work experience. The programs for those who work are more generous.

Since during the late 1990s economic boom, post-welfare reform, more people were in the formal workforce, rather than hustling for whatever off-the-books work they could get, more people qualified for unemployment insurance when they lost their jobs years later. Previously those people would have been on welfare. (Young people have been increasingly frozen out of those formal jobs and work related benefits, and forced to work as “self employed” “freelancers” or “independent contractors” since the year 2000).

Second, because wages have been falling for 30 years when adjusted for inflation, more people who might have been middle class 30 years ago are now working poor. And thus qualify for food stamps, the EITC, Medicaid benefits, etc. It isn’t because people are lazy. It isn’t because they aren’t working. It is because their wages have been cut, in a win for business in the labor market. That win turns into a loss when businesses they try to find someone to sell to, now that Americans are no longer going deeper and deeper into debt to cover the difference.

Expect this trend to continue. The U.S. standard of living has been inflated, and the impact of rising inequality disguised, by 30-plus years of soaring public and private debts, and imports in excess of exports. At some point, after one macro-economic calamity or another, the U.S. will no longer be able to import cheap products from abroad and pay for them with IOUs. Some of those goods will have to be made at home, and some will have to be done without.

Thus, I expect the current U.S. labor surplus to disappear, but businesses are not going to increase wages to attract workers. Because they can’t raise prices, unless they sell necessities. Because their customers are broke. We are heading for an economy with plenty of jobs that start at the minimum wage and peak at $15.00 per hour or less, perhaps freelance work or temporary jobs that are less than full time with lower earnings per year, assisted by benefits such as food stamps, Medicaid, and the EITC. Or not so assisted, if the Tea Party has its way.

Another “conservative” idea that had some success was the “broken windows” theory of crime. Previously police departments had ignored quality of life crimes in low-income neighborhoods, in part to reduce social conflict with the locals, in part because a low quality of life and squalor is what the better off thought the poor deserved. According to the “broken windows” theory by allowing minor crimes, the police were encouraging ever more brazen victimizations, eventually leading to murder.

So during the 1990s, the police in New York City and elsewhere began applying the same standards of behavior to poor neighborhoods that they used in affluent neighborhoods. People weren’t allowed to harass and disadvantage their neighbors through vandalism, litter, and intimidation, deal drugs or engage in open prostitution. And while the cause and effect is unproven, the number of more serious crimes fell at the same time that the crackdown on “quality of life” crimes was put into place. Police, and conservative theorists, took credit.

But as in the case of supporting the working poor, the Republicans/conservatives turned their back on their own policy with disastrous results. When it came to the sort of white collar quality of life crimes committed by the affluent, they took the same sort of conflict avoidance approach that inner city cops had previously taken with vandals, drug dealers and petty thieves in poor neighborhoods. Don’t have the government harass these people for petty violations, they howled. Don’t “stop and frisk” the financial sector, affluent taxpayers, and others who might be hiding something to prevent some crime you can prove is going to happen.

The result, as “broken windows” theorists might have predicted, was a greater and greater level of white collar crime, and more and more serious victimizations that should have been crimes but were not made illegal. In the end, the U.S. ended up with a devastating white collar riot involving millions and millions of people. Middle class people lying about their income on mortgage applications, in effect committing fraud, to cash out paper equity in their homes and blow the money. Rich people lying about the credit quality of mortgage bonds, and the prospects of stocks. Hedge funds and private equity managers claiming their pay was a capital gain on money they had invested. And a big increase in tax fraud.

Everyone, not just those who benefitted, is being made to pay for the reckoning. Virtually no one has gone to jail. Instead, Republicans are seeking to pander to the perpetrators by scaling back the limited and completely inadequate steps that were taken to make sure they can’t do it again. They have vowed to repeal Dodd Frank and Sarbanes Oxley, when what they ought to be doing is demanding even harsher measures.

I’ll conclude with one more failure. Medicare Managed Care, Medicare plans offered by private companies rather than managed by the government, were supposed to take advantage of the superior efficiency of the private sector to provide more benefits for less money. It made sense at the time, and President Clinton signed on to the deal.

Well it’s now nearly 20 years later, and we find that instead the health insurance companies used their lobbying power to charge more than the cost of traditional Medicare. Instead of more benefits and lower costs from private sector efficiency, we got higher costs for the same program due to private sector influence peddling. Thus proving the adage what if you want to be ripped off by politically connected unions vote Democratic, but if you want to ripped off by politically connected contractors vote Republican.

Rather than admit that their policy failed to deliver what they promised, the national Republicans doubled down. First they claimed that a cutback in Medicare managed care insurance payments to the same level as traditional Medicare was a “Medicare cut,” rather than just the end of a ripoff. Next they proposed eliminating traditional Medicare for younger generations, and cutting the reimbursement levels hugely compared to the benefits Generation Greed has promised itself, to pay back Generation Greed’s debts. And then claimed that the efficiency of the private sector would assure that younger generations were no worse off. In the face of evidence that private insurance companies require more money to provide the same benefits. What did they say about that evidence? Nothing.

I’m not saying Democrats are any different at the local level here in New York, where the claim is always ordinary people either need to accept less or pay more, or both. I don’t vote for them. But I don’t vote for the national Republicans either. They are also the brain-dead servants of selfish self-interest groups, rather than a party with an ideology.

NYC Democrats beware. As you can see, I have a long memory. If anyone tries to say that we need tax increases to improve public services and benefits, I’ll be the first to point out that this is probably a lie, and retroactive pension enhancements are the likely result. Particularly if money or other support has been sought from the advocates of the serfs being forced to pay more for less. This time, I’ll know that lie when I see it.