Buried under the pandemic, elections, violent riots, and social media shutdowns, an obscure report issued in January by the Federal Reserve Bank of Atlanta (FRBA) never had much hope for oxygen. But as we catch our breath and consider the best way to dig out of our national messes, we should revisit our assumptions about the report’s topic—the negative effect of welfare on economic mobility.
For the last 10 years, income inequality and wage growth have dominated economic debates. The pandemic has only sharpened the divides.
In the search for villains and scapegoats, some attack the wealthy. Others point to a decline in entrepreneurship and slowing productivity rates.
But as we tell kids, when you point one finger, there are three fingers pointing back to you. The root causes of the economic problems for lower-income Americans are complex. But one of them, surely, is the rest of us.
For decades, we have been seduced into building an elaborate system of dependency that provides cash, food stamps, housing, and Medicaid to help lower income families—or at least to make us feel helpful. And now, as we pick a path for recovery from this pandemic, policymakers are asking us to double-down on the dependency mentality.
The Federal Reserve’s report should dispel any notion that more public assistance is the answer. The report tracks the kind of person we want welfare programs to help—Leia—a fictionalized young single mom with a job at a movie theater that pays about $9 an hour and the desire to better herself and earn more.
Leia explores opportunities in nursing but learns that if her income rises, her assistance will gradually fall. In other words, welfare has trapped her. Despite transitional benefits that dispel much of the Left’s sensationalizing of a "welfare cliff," Leia would need to earn $53,000 per year just to break even with the resources available to her now based on her income of $11,000 per year.
Ironically, Leia only faces a trap of this magnitude if she receives benefits from every single assistance program for which she is eligible. This is fairly rare. But isn’t it telling that the more programs Leia enrolls in, the worse off she is if she tries to advance and earn more?
Leia, and those like her, know it would take years to progress in her nursing career to reach an income level that rivals what she receives on public assistance. The gift of independence, as much as Leia might believe in it, does not help her make rent this month. Nor does the promise that taxpayers will save almost $400,000 over Leia’s life if she chooses the path of self-sufficiency.
Does that not, in a nutshell, explain why more spending and expanded eligibility are not the solutions they’re promised to be?
For Leia, the lesson is clear. In our welfare state, where almost no programs have lifetime benefit limits for able-bodied adults, it is continued dependence—rather than work—that our nation rewards. Indeed, the FRBA report points out that, in two rounds of grant programs targeted for low-income workers, only three percent and six percent of certified nursing assistants advanced to become higher-paying nurses. In our system, dependency pays.
Every day that we tolerate these incentives, we push Americans into long-term dependency. And we suffocate the most explosive part of the American economy—personal growth.
Commentators talk inequality, politicians talk mobility, academics talk productivity.
But it’s all about movement.
On an individual level, when a cashier at a movie theater becomes a nurse, she does more than raise her income and save the public tax-dollars. By breaking into the middle class, she pushes the outer boundaries of potential for her family and community.
She could help open a new medical office that creates more jobs. Her family could move into a safer neighborhood with better schools. She might even invest in a friend’s new restaurant and help yet another family escape dependency and poverty.
We’ll never know because programs and politics have created a self-serving discourse in which the only proposed solutions simply deepen the disincentives for advancement. Public assistance programs spend more. We feel better. Low-income Americans do worse. And on and on we go.
On a community level, it is difficult to imagine a more toxic force than subsidizing not earning more or working at all. The government is, in effect, investing in areas to remain stagnant. At the same time, with a flood of checks unattached to work, the government crowds out private investment. Perhaps the road to the rust belt is the road paved with good intentions.
The pandemic did not create this problem, of course. When 2019 began, unemployment was only 3.5 percent and the economy was 22 percent bigger than the economy was before the Great Recession. Yet, the proportion of men between 26 and 54 working still had not fully recovered—at only 86.6 percent compared to 87.2 percent before the Great Recession.
But the pandemic and our rush to pump short-term money into bank accounts rather than long-term strength into the economy should raise some deeper questions.
Can’t we be a little more imaginative and focus on reopening the economy safely rather than writing more and bigger checks? We should take this moment to consider more welfare phase-outs lower on the income ladder, lifetime benefit limits, more consistent work requirements, and child support cooperation requirements across all public assistance programs. And if, after all that, we still need to subsidize, shouldn’t we subsidize work, rather than not working?
Whatever we do, the broader economy will recover, at least somewhat and at least eventually. As Warren Buffett says, it's never paid to "bet against America." He should know.
But the gamble we’re making now seems to involve higher stakes—the heart, not just pocketbooks. As the list of our problems seems to grow, the list of things which unite us seems to shrink.
Is movement now on the first list? Or is it still on the second list? Inside capitol buildings across the nation—universally adorned with massive images of Americans fording rivers, raising barns, and forging steel—will we watch their descendants double-down on mailing checks, lowering expectations, and staying where we are?
The answer may decide our fate.
Scott Centorino is a senior fellow at The Foundation for Government Accountability.