FAREWELL, WELFARE

Wednesday, April 23, 1997

Hoover fellow Thomas MaCurdy and Eugene Smolensky, Chair of Public Policy Dept., UC Berkeley discuss President Clinton's welfare reform legislation.

Recorded on Wednesday, April 23, 1997

ROBINSON: Welcome to Uncommon Knowledge. I'm Peter Robinson, a fellow at the Hoover Institution. Our show today: welfare reform. In August 1996, the Republican congress passed, for the third time, and President Clinton signed, finally, a sweeping reform intended to end welfare as we knew it. What was welfare as we knew it? Primarily three programs. Medicaid provided health services to the poor--it's often said that those interested in welfare reform have no heart, and it appears to be true--food stamps for, well, for food, and AFDC, or Aid to Families with Dependent Children. AFDC is payments in cash. Although food stamps and Medicaid were certainly debated, it was this program, AFDC, that was the subject of the hottest dispute. And I think you can see why: AFDC is cash, cash from hard-working taxpayers to people who aren't working at all. There's something about that that just seems to violate the American norm of fairness. But there's another side to the AFDC issue--that cash goes in large measure to support children, poor children--and who would want to take away from them the necessities of life?

That, as I say, was welfare as we knew it--a two hundred billion dollar undertaking. Now, what will welfare be like as the 1996 reform legislation takes effect? Well, that turns out to be a very good question. With us, two guests. Tom MaCurdy is a senior fellow at the Hoover Institution and Eugene Smolensky is the dean of public policy at the University of California at Berkeley. I began by asking a basic question: Has welfare, originally intended to give welfare temporary help, fostered permanent dependency instead?

YOU'VE GOT TO HAND IT TO THEM

ROBINSON: These programs were put together over the years. American people supported them and so forth, because of the notion of the helping hand, helping people who were truly in need, and I think there was also a notion of temporariness involved. Right? You're out of a job; there's a temporary hardship--something like that.

SMOLENSKY: A hand up, not a handout.

ROBINSON: And instead what I sense--as a layman reading the newspapers and so forth--I sense, instead, the development of a so-called underclass, or "welfare culture," a large number of Americans who are on welfare and get stuck there. Now is that an accurate criticism?

MACURDY:I wouldn't say it's a large number. First of all, one important point is, the situation now isn't really any different than it was twenty years ago.

ROBINSON: Either in terms of cost or number of participants?

MACURDY: Participants have not increased. Cost--

ROBINSON: So this is not a program that's been burgeoning wildly out of control for the past two decades?

MACURDY: Quite the contrary. Most of these have been falling as a percentage of the federal budget, so it's not the case now that we have any more dependent people than we had in the mid-seventies.

ROBINSON: As a proportion of the population?

MACURDY: Or as a proportion of the participants. Absolutely. So if you ask, How does the population, in some sense, break down? It's, roughly speaking--a little over half of individuals who participate in AFDC are on the program for a very short period, certainly less than two years, one to two years. But there is a segment of the caseload that's on for extensive periods of time--say, on the order of eight years or more. And if you ask about the caseload in any particular month, that's on the order of about 40 percent of the caseload is on for very long periods of time with essentially no work activity.

ROBINSON: Why was the reform legislature last year such a big deal?

MACURDY: Well, it was big deal because it essentially moved the primary responsibility for one of the programs, AFDC, from the federal government to the states.

ROBINSON: Primary funding responsibility? It's already funded by the federal government and administered by the states, right?

MACURDY: Well, administered, but under the old system, the federal government defined the rules for eligibility, essentially entirely. The states and local governments had, for all practical purposes, no role in the design of the program.

SMOLENSKY: Too strong. But on the other hand, there is a big weakening of the federal capacity to influence what the states are going to do.

ROBINSON: And that was a big deal in your view?

SMOLENSKY: Oh, yes, it's a very big deal. It creates the possibility that the fifty states will engage in a race to the bottom.

ROBINSON: Let me just back up and make sure I understand this. So, what the change was--the federal government still funds it, but now the states get to decide who gets the money and who doesn't. That's the big change, roughly speaking, Gene?

SMOLENSKY: That's the big change, roughly speaking.

MACURDY: You have to go back. The federal government doesn't completely fund it. I mean, it funds on the order of about two-thirds, and my guess would be, over time, it will fund less and less.

SMOLENSKY: I understand that's less than half--

MACURDY: I bet half in California.

SMOLENSKY: --in a state like California.

MACURDY: So, in California there's enormous latitude.

ROBINSON: Okay, so the big deal, though, was no longer would Washington decide the eligibility requirements for getting on Aid to Families with Dependent Children. Now, the states would be permitted to decide who got on and who didn't. That's the big one. So the states have already been given substantial control over the welfare system. Now, what will they do?

HEADING SOUTH

ROBINSON: Now we come to the big one, this notion that the states might engage in a race to the bottom. What did you mean by that?

SMOLENSKY: Well, the possibility now arises, because we didn't put any floor--at least after the five years out, certainly--we didn't put any floor--

ROBINSON: "We" meaning the federal government reform legislation.

SMOLENSKY: --under what the benefits of states contain. States are now in competition. We in California would love all of our poor people to move to Arizona, wouldn't we? So, why don't we lower our benefits and have them move out to the "kitty-litter" state. But Arizona is not any more anxious to have our welfare population than their own, and so the possibility exists--the possibility exists. Now how far will we proceed in this? I don't foresee benefit levels in California ever falling to the levels of Mississippi. I really don't see that happening. But I can see a substantial--

MACURDY: California had the option to lower them to Mississippi a long time ago, and they chose not to.

ROBINSON: When? When?

MACURDY: Throughout the program. See, there's always this argument that, in fact, under the federal system the benefit structures were more equalized across states. But let me tell you how equal they were. You take benefit levels in Mississippi for, say, a family of three.

ROBINSON: Mississippi's at the rock bottom of the fifty states?

MACURDY: Close. Maybe Alabama.

SMOLENSKY: But they contest.

MACURDY: They contest.

ROBINSON: Okay, so--

MACURDY: But it's on the order of a hundred dollars. That's what you've got as a monthly payment. In California, it was on the order of six-fifty.

ROBINSON: That is a huge difference.

MACURDY: And under the old system it wasn't equalized.

SMOLENSKY: Well, it's worse than that, if you want to stay on that point--

ROBINSON: This is the old system we're talking about?

SMOLENSKY: In the old system, you could have been a poor person in Kansas City, Missouri, and getting two hundred and fifty a month, and cross the city to Kansas City, Kansas, and you get three-fifty--or the other way around, I can't remember. That is, all you have to do is walk across the bridge for a hundred dollars a month. There's a second change, which we haven't talked about in this program, is that we've limited the amount of time in which you can receive the benefits.

ROBINSON: Okay, explain that to me, Tom, would you, please?

MACURDY: Let me make one change. It's not the case, Gene, that there is no floor any more, since the federal government requires the state to put in 80 percent of what they did before--

SMOLENSKY: Up for five years.

MACURDY: Up for five years, right--

ROBINSON: There is a floor.

SMOLENSKY: It's not immediate; it's not an immediate thing.

ROBINSON: The floor disappears, the floor dissolves, after five years?

MACURDY: Well, but that's not exactly what happens to the program at that point. So, I mean, it's kind of up for grabs.

ROBINSON: Do you sense any race to the bottom in the state legislatures?

MACURDY: No.

SMOLENSKY: Yes, there has been! There's been a race to the bottom over the last ten years, and this has just been accelerated. Welfare benefits, AFDC benefits, have been declining since 1973. So, substantially, in real terms--

ROBINSON: Okay, next question: Are poor people moving from state to state as a result? Are they responding to these incentives?

SMOLENSKY: No.

MACURDY: There's very little evidence of that.

SMOLENSKY: There's some at the margin.

MACURDY: Even for marginal discrepancies, there's very little evidence.

SMOLENSKY: I just said, you can cross a bridge for a hundred dollars, and people don't do it in large numbers.

ROBINSON: So the idea is you can't get welfare unless you get a job. But can welfare recipients move permanently from welfare to work?

STITCH IN TIME:

ROBINSON: Now, time limits. You mentioned this issue. Would you explain what's new about this? How does it work and what's new about it?

MACURDY: Well, the time limits--the program that replaces AFDC, which is called Temporary Assistance for Needy Families, TANF--

SMOLENSKY: Still a four-letter word.

MACURDY: Still a four-letter word.

ROBINSON: But they got the word "temporary" in there. There's a political point being made.

MACURDY: Yes, the way that the program works at this point is, as far as the federal money goes, the rules are that a family cannot be collecting TANF benefits for longer than a two-year period consecutively without working--they're taken off.

ROBINSON: Somebody in the family has to work. You say a family--

MACURDY: Yes, someone in the family has to work. And they can't collect benefits from the federal government if they're on TANF for more than five years cumulative over their lifetime. So the time limits come in two forms; there's a two-year limit consecutive and there's a five-year limit total. But that's only the federal contribution. It doesn't say, in fact, what the states can do.

ROBINSON: Okay, so, to take the extreme case, somebody's on the thing for two years, they can't find a job or they don't find a job, and then they get cut off--do they starve?

MACURDY: It's not that they get cut off; it's the state's option in terms of whether they want to cut them off from benefits altogether. The rules are that it's the federal government money that cannot be used to support the family any further. So, in a state like California, for example, where the federal government only contributes half of the moneys to the program anyway, that just means you can't use the federal half to support that family.

ROBINSON: So, your support could get cut in half, roughly.

SMOLENSKY: It could, but what if the state benefits are zero?

MACURDY: The state really has flexibility.

ROBINSON: And you think these time limits are a good idea?

MACURDY: I actually don't think they're a good idea.

ROBINSON: You don't? (To Smolensky) What do you think?

SMOLENSKY: I don't think they're a good idea, but I'm astounded that we agree.

ROBINSON: Okay, then let's back up a ways. Since I can't get anybody to take the "good idea" side of it, tell me why those who say it's a good idea think it's a good idea. There has to be at least a rationale.

MACURDY: Well, sure, the idea of the time limits--one's attitude towards time limits really depend upon two factors. The first factor is how you think the recipients will respond to the time limits. And then the second factor is how you feel about imposing what's called a "family sanction" in this area. A family sanction means that you remove all members of the family from benefits, including children. Now, my experience is that most people do not disagree on the second factor; namely, most people do not have the idea that they're going to remove all support from children. That's not really where the disagreement is. The disagreement is over the first factor--namely, what will be the response. For those people who favor time limits, their notion is that, if you impose the time limits, the welfare population will respond vigorously and almost all will find employment and those who don't find employment will be able receive income from charities and possible family members. So, everybody will be provided for, and you'll induce more people to work. But my reasoning, my reading of the literature, is that I think there's going to be many families that are going to hit the time limits for which there aren't going to be a lot of possibilities to have gainful employment and there is going to be insufficient income, and I think family sanctions are politically inviable, because you don't need very many families--there has to be a safety net for children, I think, at a very basic level. Now, what it's form will be, you know, we could debate, but say there's not going to be one--that's like a no-brainer to me, I don't think that's going to be possible, I don't think it would be publicly supported.

ROBINSON: Do you subscribe to this--time limits are bad?

SMOLENSKY: I subscribe for all the same reasons.

ROBINSON: We've been wrestling with welfare for twenty years. Why?

BETWEEN THE DEVIL AND THE AFDC

ROBINSON: For twenty years, the political apparatus has been trying to find some way to provide incentives to get people off welfare and into jobs. The two of you are discussing the pros and cons of this current reform--just why is this such a hard problem?

MACURDY: Welfare's in the conundrum of the sort that--[inaudible]. Welfare is a choice among very unattractive options, and there's nothing that can change that. The conundrum is the following form: You can have less poverty and more welfare or you can have more poverty and less welfare--and those are your choices.

ROBINSON: You just plain don't buy the view that a lot of people are on welfare who don't need to be there, that less welfare would mean more people who are now in the welfare culture would go out and get jobs.

SMOLENSKY: No, no, no, no.

MACURDY: No, there's a different way; there's a different issue around here. I strongly favor the work requirement.

ROBINSON: And you do, too?

SMOLENSKY: Absolutely.

MACURDY: Nobody disagrees with the issue. There's another issue--

SMOLENSKY: The unions disagree.

MACURDY: Exactly. They do. There's another problem with the time limits. I think it really focuses on a misleading measure of welfare dependency. Let me give you an example. Suppose you take a mother with two children, so a family of three; she works twenty hours a week; suppose she makes--

ROBINSON: She's a single mother?

MACURDY: She's a single mother; she works twenty hours a week at eight dollars an hour. Her children are taken care of either in school or in some kind of child care for those twenty hours. This woman will hit the time limits, by construction, because she--

ROBINSON: But working twenty hours a week at that pay scale, she still qualifies for welfare?

MACURDY: Absolutely.

ROBINSON: But she's working!

MACURDY: See, that's the point. What you really have to do is you have to raise that woman's earnings by having her work, say from twenty hours to forty hours a week, but to have her work that extra twenty hours a week you have to provide child care for her children, so it's not going to save you money. See, it makes a very big deal--this is all value judgments, right--personally, it makes a very big deal to me if the woman's working at all. From zero to twenty, as a taxpayer, I'm willing to put money in the kitty to see that she works and contributes to her self-sufficiency. But twenty to forty--

ROBINSON: This is a moral statement: People should work.

MACURDY: Value judgments are what's--I mean, everybody's opinion is kind of equally valid here. Value judgments are the key factors here, and, you know, mine isn't any more valid than yours. But this is a case where personally I don't understand the rationale necessarily to have this woman's children put in child care for an extra twenty hours a week, just to have her work forty hours a week to get her off the program. Let me give you another example--

ROBINSON: It doesn't save anybody any money.

MACURDY: It definitely does not save any money.

ROBINSON: Keeps her away from her children. Gets her home even more tired at night. Does no good anywhere at all.

MACURDY: In fact, what you're really doing is you're paying someone else to take care of her children for the twenty hours, rather than having her take care of the children, and what you're accomplishing there--

ROBINSON: You're getting the government involved in the business of childrearing.

SMOLENSKY: Well, supporting--you're funding, you're not rearing.

MACURDY: Yeah, funding, right. But the point here is, you know, is that really what we wanted to do was to essentially have that woman go from twenty hours to forty hours? Is that really the objective? And I don't think that it is. Let me give you another example. Let me take this woman, then: Suppose she has two children; she's working forty hours a week at minimum wage. In California, she'll hit the time limits. Now, the question is, well, okay, what do you want to do in this circumstance? She's really working full-time. Okay, she can't make more than minimum wage, but I'm not really sure what you're going to do about that.

ROBINSON: As a moral matter, nobody could ask more of her.

MACURDY: Right, but the issue is what you're going at the end of the five-year limit. If you really were going to impose the time limits, what you would do is you would drop her income, because you'd take her off the program. So, that's what I mean by time limits being a very misleading measure of dependency. So what I think is a much better measure of dependency is, What fraction of your income or your resources do you get from public assistance? And that's an area where my view is that, if you have someone who's getting the majority of their income from public assistance, that's a situation that I would want to change, and I'd be willing to--

ROBINSON: You'd apply pressure?

MACURDY: Absolutely.

ROBINSON: What do you think of that? Simply that way of looking at the problem.

SMOLENSKY: It's a good way, and it's a very useful way, but it's contentious in a way in that maybe Tom and I don't represent enough of the spectrum of differences of opinion here. There just seems to be a large proportion of the decision-makers--Pete Wilson among them--

ROBINSON: Governor Wilson.

SMOLENSKY: Governor Wilson among them--who don't want to think in terms of welfare and work occurring at the same time, but all of our experience, all of the research that we both draw on, tells you that you've got to expect work and welfare, that if we're going to have adequate care for the children, we're going to have work and welfare both simultaneously.

ROBINSON: Taxpayers want to get rid of welfare--that much is clear. But how?

BEWITCHED, BOTHERED AND BEWILDERED

ROBINSON: Here we have spent a good deal of time, and what we're doing is fleshing out one complexity after another. It's a complicated set of programs; the problems are complicated. What you're doing is facing unattractive objectives. There's not a single option which in itself is appealing. That's a very complicated bundle of issues to ask the voter to think through, don't you think, or am I wrong about that?

SMOLENSKY: We do get awfully confused about this goal problem and what we're trying to do in welfare reform or in welfare. In defense, in any other part of the governmental processes we look at, that you look at in the show, if you can show that for anything you did the benefits exceeded the costs, you would say that's a good thing. If we could get that, five times out of ten, in the defense department, we would love it. In welfare, if you show that the benefits exceed the costs of a training program or whatever, it doesn't convey, it doesn't carry, it doesn't win--

ROBINSON: To the public and the politicians--

SMOLENSKY: --because we have defined the problem as one of eliminating welfare, and we don't know how to do that. We've defined the goal wrong; we keep hammering at this goal that we can't achieve; and then we are frustrated as hell when we don't get there.

ROBINSON: So, a true and noble and generous statement on the part of a politician who wants to tell the public the truth would be as follows: "Not only the poor we will have always with us, but welfare we will have always with us, and we're going to need to keep working on it, from now until the end of the republic."

SMOLENSKY: Exactly.

ROBINSON: You'd subscribe to that?

SMOLENSKY: But we can make it better, year after year.

ROBINSON: How would I, as a layman, know that things are getting better or worse?

MACURDY: Peter, actually, I should have you step back for a moment. You have to realize, we're only talking about one of the programs, the AFDC. The thing to keep in mind here is we're talking about time limits really on one program, so your notion that, in fact, we now have these--

SMOLENSKY: But it's important that we talk all this time about a [inaudible] you'd like us to quit, that we talk all this time about AFDC, which is one small program in a large set of programs. It's the program that inflames the population, that drives the discussion always.

ROBINSON: On account of?

SMOLENSKY: I think, on account of, it seems to violate what we think of as the social contract and proper norms of behavior on the part of people. It's not the money; it's that people can get money for not working, can have more children, have children out of wedlock--all these things that a large part of our American population thinks their taxpayers money shouldn't go for. Right?

MACURDY: Also, Peter, I think it's important--yeah, I agree with that. I think it's important. I don't necessarily accept the premise you had earlier that there isn't a consensus among the American public as to what they'd like to see in welfare programs. I agree that the politicians have defined the problem as getting rid of welfare, but I don't know if you go to the public that that's there view. I mean, I think the item that inflames the public the most is the fact that you would have even a small fragment of the AFDC population that can be on the program for very long periods of time where they don't contribute to their own self-sufficiency.

ROBINSON: I am still unclear about this. Do the state legislatures--do the voters--even know what kinds of reforms we should want?

HELP WANTED

ROBINSON: This is confusing. I'm a regular guy, a layman. I live in California. I'm aware that this big reform legislation that was enacted last year now puts important decisions in Sacramento. What should we want to accomplish?

MACURDY: Well, I think it is the case that we want to have support for low-income children, and we want to have programs that provide very strong incentives for the adults in those families to contribute to their own self-sufficiency. Now the levels of support and exactly what you mean by contributing to their self-sufficiency is an issue that's open to debate; in other words, how much they contribute, how much the income is--that's a place where we the people can disagree.

SMOLENSKY: We would all agree that if the number of hours worked by people on welfare went up, that that would be a good thing. Nobody disagrees with that. We'd have to worry about business cycles and recessions and all of that, which I think are very frightening, however. But if we really believed that this work issue was the fundamental issue, then I don't think we would be having the debate we're having on whether or not, if people can't find jobs, the government should supply them. My own view would be that, having established that people need to work and should work, that if the private sector is not providing them, then the public sector ought to provide them, but that's very controversial.

ROBINSON: You've got a whole new layer to welfare--the jobs.

SMOLENSKY: I've got a whole new layer of reference.

ROBINSON: Would you go for that?

MACURDY: Well, yeah, that there's a--

ROBINSON: You would?

MACURDY: I want to clarify here. The debate really comes up--I think the main area of contention with regard to these public service jobs is the cost of providing jobs.

SMOLENSKY: Yeah, it costs a ton.

MACURDY: Exactly. It's more of an issue that they cost a lot. If, in fact, we could provide--

ROBINSON: It would be cheaper just to keep people on welfare?

SMOLENSKY: You're at the guts of it.

MACURDY: Oh, yeah--this is the cheapest system.

SMOLENSKY: The cheapest system was the system we had, and the reason we kept going back to it was because, whenever we add requirements and then we say, "But there are no jobs there," then the next step is, "Well, we have to create the jobs." How much will it cost to create the job? Eighteen thousand dollars. Why don't we just give them the money? Ronald Reagan did this in this state in the early 1970s. We went down this road; we saw the cost; we backed off. So, it's not just jobs, it's not just that we want them to be working, because we want somehow to let these people to have these jobs at some cost--it's not feasible for us to--

MACURDY: So, creating jobs in the public sector is extremely expensive, and that is the problem.

SMOLENSKY: And inefficient.

MACURDY: I don't think it's so much the issue--

ROBINSON: Give me your predictions. 1997. By the year 2000--we started out by saying the federal government is spending about two hundred and fifty billion dollars a year on welfare. By the year 2000, will the federal government be spending more or less?

SMOLENSKY: More.

ROBINSON: (To Macurdy) More or less?

MACURDY: It'll be spending more, but--

ROBINSON: I mean, in real terms.

MACURDY: That's mostly because of Medicaid. Medicaid's the only program that's been growing over time.

ROBINSON: The other programs will fall.

MACURDY: Yes.

ROBINSON: You'd buy that? Medicaid will go up, but the other programs will fall?

SMOLENSKY: You asked an odd question. You asked about the federal costs.

ROBINSON: Yes.

SMOLENSKY: And my response was that I think the total cost will go down but the federal cost will go up--and it will go up because these time limits are going to kick-in and the federal government is going to have bail out that population--

ROBINSON: So, then, basically, these reforms won't work?

SMOLENSKY: As we now define it, they won't work.

ROBINSON: Tom MaCurdy, Gene Smolensky, thank you very much.

CLOSING

ROBINSON: The welfare reform of 1996 gives considerable power to the states but does nothing to alter the fundamental welfare conundrum. If we give poor Americans cash, won't we undermine their self-respect and encourage them to become dependent on government? But if we don't, how will they be able to care for their children? I'm Peter Robinson. Thanks for joining us.