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Reforming our patchwork welfare system

Conor Durkin | Sunday, September 22, 2013

Last week, Republicans in the House of Representatives passed a controversial bill that would cut spending on food stamps and institute harder work requirements for food stamp eligibility, on the grounds that spending on the program has grown exponentially and must be curtailed. But this ignores the obvious. In the aftermath of the largest financial crisis since the Great Depression and a ‘jobless recovery’ that has left millions out of work and in poverty, of course spending on welfare programs will grow, and cutting that spending is, at best, incredibly and fundamentally ill-timed.
But that’s not to say that our welfare programs couldn’t stand to be reformed – by changing not the amount we spend, but the manner in which we spend it – in an effort to make our current system simpler, fairer and more labor market-friendly.  As it presently stands, our government has a slew of programs all devoted to fighting different aspects of poverty, like Medicaid, SNAP (food stamps), energy subsidies and public housing, to name a few. All of these programs have specific eligibility requirements outlining the amount one can receive based upon income, and allow you to receive subsidies targeting their specific element of poverty. I happen to think there’s a better way: Get rid of all these programs and replace them with cash payments.
That might sound odd at first, but replacing our current system with a system of cash transfer payments would yield a number of positive results. For one, it could deal with some of the incentive problems in our current system. Economists have long known that people respond to incentives, and welfare is no different. As you increase the benefits someone is able to receive, their incentive to work is reduced. That’s not an inherently bad thing – when people are facing deplorable poverty and standards of living, it’s safe to say we should step in to help regardless of what it might do to their incentives – but with the way our system is currently set up, it has a few particularly bad incentives, particularly with respect to welfare cliffs.
An article from the American Enterprise Institute last summer did an excellent job explaining the problem of welfare cliffs, there are a number of times when actually earning more money from a job can dramatically reduce your net income, as the welfare benefits you lose outweigh the higher income from your job. A single mother with two young kids, for instance, is actually better off at a job paying $29,000, where her net income and benefits total $57,327, than working a job paying $69,000, with net benefits and income of $57,045. To some, this is evidence of a need to scale back the size of our welfare programs. I have trouble with that logic, but I do think it indicates the need to change our programs. Switching from a system of many departments providing vouchered benefits to one department providing cash transfers to low-income people would allow us to ensure that these welfare cliffs would no longer exist, making sure people never have to choose between welfare or work.
More fundamentally, however, it also allows for variation in needs and gives beneficiaries the ability to make their own decisions as to what’s best for them. Under our current system, the government gets to decide exactly how much each person can spend on food, energy, housing, healthcare or anything else without considering the idea that the needs of each individual aren’t the same. With cash transfers, the decision-making authority rests with the beneficiary, meaning that if someone decides they’d rather accept worse housing conditions in exchange for better food on the table, they have that right.
It’s easy to imagine some of the criticisms of a switch to cash transfers, with some arguing that doing so would allow beneficiaries to spend money on whatever they feel like it, even products like drugs or alcohol. But even if one ignores evidence from places like the National Institute of Health or the state of Florida which indicates that welfare recipients are actually less likely to use drugs, there’s a more fundamental question here: So what? As a society, we have an obligation to ensure a minimum standard of living for one another, that’s the basis for our social safety net.  Yet we do not – and should not – have the right to make decisions for one another, and once we have ensured a certain standard of income for our members of society, they should be allowed to make their own decisions as to what spending is best for them.    
    This idea isn’t new. Milton Friedman supported a “guaranteed minimum income” as far back as 1962 as an alternative to the welfare state. I happen to think we should have listened to him. Let’s switch from one Medicaid system to letting people choose their own plans in the Affordable Care Act’s new insurance exchanges. Let’s switch from public housing projects to letting people choose where they’d like to live. Let’s switch from a patchwork set of programs to one broad system of cash transfers to ensure a minimum standard of income for everyone.  And most importantly, let’s stop relying on government agencies to decide how our poorest members of society must spend their money, and let’s trust that they can decide for themselves.

Conor Durkin is a senior studying economics and
political science. He can be contacted at
[email protected]
The views expressed in this column are those of the author and not necessarily those of The Observer.