No money no love
DANIELLE HUGHES wanted to graduate from high school. But after gangsters shot up her family home in New York, her mother ordered her to grab her baby son and flee. Now living with relatives in Baltimore, the 21-year-old single mother has no qualifications, no stable job and, having unsuccessfully sought government aid while interning as a receptionist, no prospect of a steady income. “I feel like I have lived through so much already,” she says. She has applied for a job as a cashier, but, in a city where the unemployment rate among blacks is twice that among whites, is not optimistic. “Sometimes you feel like giving up.”
A dismal feature of this year’s election season is how little either of the main candidates has raised the endemic poverty that underlies such tough stories. Almost 15% of Americans are poor, including one in five children, and almost one in three households headed by a woman. That represents a level of deprivation, which rises and falls with the economy but has never dipped into single figures, higher than that of almost any other developed country.
Donald Trump’s views on poverty alleviation are hazy; he is against teenage mothers getting welfare, “unless they jump through some pretty small hoops”. Hillary Clinton’s reticence on the issue is more telling, given her zeal for social policy. It reflects the complexity of the problem, the partisanship surrounding it and the degree to which both are exacerbated by a festering row over the merits of America’s last major welfare reform, which was signed into law by her husband 20 years ago on August 22nd 1996.
The reform made a huge change to how America treats poverty, which liberals still decry. In search of hard-edged credentials, Bill Clinton had promised to make a life on dole less commodious for the nearly 14m single mothers and their children then surviving on handouts. “Make welfare a second chance, not a way of life,” was his slogan. Yet the bill concocted by Republicans in Congress was tougher than he wanted. It replaced an open-ended promise of federal support for needy women and children with a stricter regime, which capped the largesse, henceforth known as Temporary Assistance for Needy Families (TANF), at $16.5 billion a year, and put the states in charge of it. It also made TANF payments conditional on the recipient trying to find work; and it decreed that no one could receive them for more than five years in total.
Daniel Patrick Moynihan, a Democratic senator, predicted the reform would lead to half a million children in New York “sleeping on grates”. Instead, it led to a huge drop in TANF claimants—their number fell by 66% in the first post-reform decade—which appeared, in the early years of the new regime, during which poverty fell, to come with no social cost and considerable gains. At a time of thrumming growth, most former claimants found jobs. This enabled them to enjoy both the dignity of work and a simultaneous increase in subsidies for low-paid work, including tax credits, which last year were worth around $70 billion. For those unable to work, there was increasingly little cash available. Adjusted for inflation, spending on TANF has declined by a third—to $11.1 billion in 2015 and, because some states divert it to other needs, such as child-care services, less than half of that was actually handed out. A big expansion in non-cash benefits, such as food stamps and housing vouchers, was meant to cover the shortfall.
The reform still looks broadly positive. Fewer Americans are dependent on TANF than ever; yet, even in the pits of the 2007-09 recession, the poverty rate did not surpass a recent high of 15.1%, recorded in 1993. But the fact that it has not increased the share of people in poverty is not much to shout about. And in the tougher economic conditions of the past decade, shortcomings have been evident in the welfare system at every level.
One concerns the quality of the jobs former claimants find themselves in. It was envisaged that, energised by honest toil, they would steadily climb the income scale. Yet the failures of the reform to provide the guaranteed public-sector jobs Mr Clinton had originally promised, and of the states to provide much useful training, have made that hard. A shift to low-grade services jobs across the labour market has done worse damage; the result is millions are stuck round about the poverty line. And for the minority who do prosper, high marginal tax rates, occasioned by the too-sudden withdrawal of tax credits and other in-work benefits, are a disincentive to progress. A single parent with children, climbing from the federal poverty threshold of $11,770 a year, could pay an effective tax rate of 60%. Factor in child care and other costs and she may see no gains from doing more or better-paid work at all.
A more worrying contention is that dwindling payments have fuelled the creation of a new cash-poor underclass. Estimates by two scholars of poverty, Kathryn Edin and Luke Shaefer, suggested that, as a direct consequence of the two-decades-old reform, in 2011 there were 1.5m households, with 3m children, surviving on cash incomes of no more than $2 per person, per day—the World Bank’s global definition of poverty. A book published last September in which they advanced this thesis (“$2.00 a day: Living on Almost Nothing in America”) has been influential, especially on the left. While campaigning for the Democratic primaries in April, Mrs Clinton felt compelled to soften her erstwhile support for her husband’s reform, suggesting it was time “to take a hard look” at its legacy.
Other wonks—on the right but also including former members of the Clinton administration—take issue with the claims made by Ms Edin and Mr Shaefer. A forthcoming paper by Scott Winship of the Manhattan Institute, a think-tank, argues that, after factoring in non-cash benefits and underreported income, a sunnier picture emerges. The only groups he finds to be worse off than they were in 1996, including childless households, were unaffected by the reform. Meanwhile, he argues that “children, in particular those in single-mother families—are significantly less likely to be poor today than they were before.” As for Ms Edin’s and Mr Shaefer’s most emotive claim, he says, “no one in America lives on $2 a day.”
Mr Winship is right that consumption is a better measure of poverty than income, and that there is scant evidence the reform increased the ranks of the poor. Yet cash is important; without the means to pay a phone bill or a haircut, no one, however well-nourished and sheltered, is liable to kick on. It is hard not to conclude that, even allowing for underreporting, the reform has denied too many poor Americans such means; between 1993 and 2013 the percentage of households on food stamps who had no cash income more than doubled.
Instead of quibbling over the past, it would be better to ponder what America should do to cut poverty—and here there is more agreement, or at least potential for compromise. Concerned Republicans such as Paul Ryan, the Speaker of the House, argue for work-requirements to be extended to food stamps and other benefits. The record suggests that is a good idea; especially if, as Democrats want, in-work benefits such as tax credits are also boosted. But the safety-net for the least capable needs strengthening. That should include giving them more cash, by increasing TANF or limiting the ability of states to plunder it.
If Mrs Clinton, the favourite to win in November, could strike such a compromise, she would emulate the best of her husband’s reform. If not, the debate over its merits may continue, for another decade or so, without easing the wretchedness of millions of American lives.