A Hillary-supporting retired insurance agent here in Massachusetts linked on Facebook to a panegyric about Barack Obama’s years of accomplishment. One of Obama’s accomplishments was the following:
Welfare spending is down: for every 100 poor families, just 24 receive cash assistance, compared with 64 in 1996.
I asked if he believed that, as a society, were spending “less on welfare (cash handouts, housing, food, health care, phones, etc.) compared to 1996.” The answer was “yes,” and he believed the welfare spending had been trending down to 2 percent of GDP.
I think this is interesting partly because the guy failed to notice the millions of Americans on SSDI/SSI+Medicaid+Oxycontin and guestimate that these folks alone should consume in the neighborhood of 2 percent of GDP (gobbling up 95 percent of the world’s prescription opiates has to cost something, right?). Also because Medicaid is one of the largest welfare programs and he’s been exposed to 20 years of news about how health care costs in the U.S. are skyrocketing. (Medicaid alone is about 3.6 percent of GDP and then you have to add in $43 billion of Obamacare subsidies and the portion of Medicare that is attributable to young Americans on SSDI (beneficiaries shift from Medicaid to Medicare after a couple of years, I think), so health care welfare consumes at least 4 percent of GDP.
He was also implicitly ignoring the shrinkage of the economy due to people being discouraged from working because it is more lucrative to collect welfare. (See this analysis of family law in the U.S. economy for some literature references and also Book Review: The Redistribution Recession.) If enabling Americans to collect alimony and profitable child support shrinks the U.S. economy 3 percent, the Welfare State has to be responsible for at least another 3 percent, no?
On the same day, a Cambridge government worker posted a chart from the Boston Federal Reserve Bank. It shows that white Bostonians have a “total wealth” of $256,500 while nonwhite households have essentially no wealth, e.g., $700 in total wealth for a black household (one iPhone? But they apparently don’t own that phone outright because “net worth” is $8). In other words, according to the Federal Reserve Bank experts, a typical black Bostonian is poorer than 226 million Africans who have an unencumbered-by-debt smartphone). I pointed out that even the lowest income Bostonian couldn’t have a net wealth of $8 because he or she would be entitled to (a) a lifetime of free public housing, (b) a lifetime of food stamps (SNAP), (c) a lifetime of Medicaid/Obamacare, (d) (typically) Social Security payments from the mid-60s until death. These were all forms of “wealth”. He deleted the comment, of course!
I wonder if we could quantify the wealth of someone entitled to welfare. An officially poor Bostonian, if living in Cambridge or Boston public housing, has a centrally located apartment that is worth far more than $256,500 (in some cases $1-2 million) and is generally entitled to live there until death and, oftentimes, to hand the apartment down to a family member. So he or she has all of the benefits of ownership without having to pay property tax, condo fees, maintenance, etc.
Of course, not everyone in the Boston area who is on welfare gets an apartment in a nice area. CATO’s Work versus Welfare Tradeoff 2013 looks at the aggregate. Four years ago, collecting welfare in Massachusetts was worth $50,820 per year on a pre-tax basis. The current yield of a 30-year Treasury bond is 2.9 percent. So you’d need roughly $1.75 million in Treasury bonds to earn $50,820 per year. Unless there is a significant risk of losing all of these welfare benefits, which doesn’t make sense anecdotally (the families that we know personally have been collecting welfare in Cambridge for generations), the “wealth” of a welfare household is actually at least $1.75 million.
[If you consider that the value of welfare benefits should rise with inflation, it is probably more accurate to use the “Treasury Real Yield Curve” for TIPS. That’s only 1 percent on the 30-years. So actually each welfare household has a wealth of closer to $5 million and, if you assume that there is no free lunch, this is also likely the minimum cost to taxpaying members of American society.]
This is only a couple of intelligent people, and their circle of friends clicking “like,” commenting approvingly, and condemning the Trumpenfuhrer for his purported hardhearted attempts to scale back government handouts. But I wonder if much of the anger of Hillary supporters can be attribute to their acceptance of ideas such as “welfare is only 2 percent of GDP and declining” and “Boston-area black households have a wealth, net of debt, of $8” (i.e., a Boston-based black family could become wealthier by emigrating to Burundi (GDP per capita, adjusted for purchasing power: $800/year)).
Related:
- Canvassing for Elizabeth Warren (a Massachusetts citizen who considers himself highly politically educated yet who was unaware of Medicaid)
Why comparison to 1996 for Obama? In USSR economist were comparing everything to 1913, year before WWI started.
Hillary lost. Why do white supremacists keep on bashing her?
This is only a couple of intelligent people, and their circle of friends clicking “like,” commenting approvingly, and condemning the Trumpenfuhrer for his purported hardhearted attempts to scale back government handouts. But I wonder if much of the anger of Hillary supporters can be attribute to their acceptance of ideas such as “welfare is only 2 percent of GDP and declining” and “Boston-area black households have a wealth, net of debt, of $8
There are a number of different quantities here: wealth, income, and consumption and a few different ways to calculate each. The Boston Federal Reserve’s method of determining wealth is probably similar to the way that most Americans would calculate an individual’s wealth – asset minus liabilities.
If you’re going to go on about Medicaid, SNAP and Social Security, it’s odd that you don’t mention national security. Think about the value of all of the national security provided to every American, rich or poor, through all of the spending on the armed forces and Homeland Security.
Perhaps we should compare the lifestyle of the typical Medicaid recipient with the typical American with a net worth of five million dollars.
Neal: The comparison that you suggest doesn’t make sense. The typical American with a net worth of $5 million has a job and is earning money. Whereas by design an 18-year-old collecting welfare with a net present value of about $5 million would not have a job. So of course the “typical American” with $5 million in total assets has a higher spending power, but that’s mostly from the job. (And if it comes from making investments at higher returns than the TIPS used above then the higher return is due to taking risks that the American on welfare doesn’t have.)
Vince: plainly “most Americans” do not discount the value of Social Security, Medicare, Medicaid, and welfare to zero, as the Fed did. If a middle class American discounted the value of Social Security to zero, why would he or she voluntarily stop working at age 70 with only minimal $$ in the bank? If a low-income American discounted the value of subsidized/free public housing to zero, why would he or she bother to apply for it and maintain a position on the waiting list?
I don’t see how “national security” can be assigned a cash value. If you have a free apartment in a building where the market rent is $5,000/month, that’s worth $60,000/year after tax. If you are getting Social Security at $2,600/month, with inflation adjustments, the value can be estimated according to what an annuity would cost from an insurance company (Social Security is worth more, though, because of the inflation adjustment and the fact that the guarantor can’t run out of dollars). If you are getting food stamps at $400/month that’s worth only a little less than $400/month (assuming that you actually want some food). If you want to argue that “national security” has tremendous value because otherwise we’d be taken over by a dictator and forced to live under laws that we didn’t support you could make a greater claim for the value of water, without which we would die quickly. So anyone with access to tap water is therefore almost infinitely rich.
ZZAZZ: “Hillary lost. Why do white supremacists keep on bashing her?”
I don’t know. If you’re friends with a lot of white supremacists, please let us know! (note that the original posting doesn’t mention Hillary except as background for the political sentiments of the Facebooker; due to the fact that Americans lack any kind of coherent political philosophy, it isn’t possible to label people as subscribing to a philosophy; the best that one can do is say whom they supported in the most recent election)
I wasn’t characterizing the way that people behave, just the way that they think. If you went and asked retired Americans how much wealth they have, how much they’re “worth”, they would determine that amount by adding up the value of their houses, investments, bank accounts and so forth. Very, very few would attempt to calculate the net present value of their Social Security checks. So ordinary senior citizens, most of whom didn’t attend college, would be in agreement with the PhD researchers at the Federal Reserve.
Also, we probably spend around 4% or 5% of GDP on the armed forces and Homeland Security. If that spending provides no value, that’s a huge waste of money! Quite a few of those Republicans in DC like to say that they want to eliminate entire federal departments. There’s two to get started with right there.
Vince: every single American citizen presumably benefits from national security spending. And from similar public spending like infrastructure. Yes, in some cases it makes sense to add those numbers. For example, when comparing living in United States vs other country (Burundi?). And people do implicitly take it into account when deciding to migrate. But it makes less sense to add those numbers when comparing US citizens. Because it raises everyone’s “wealth” by an equal amount.
On the other hand, not everyone is on the welfare. So it makes perfect sense to do what Philip has done – include welfare when comparing different people in the country.
>Yes, in some cases it makes sense to
>add those numbers…
>not everyone is on the welfare
Most Americans do or will draw on the major welfare state benefits (Medicare and Social Security), and all Americans could draw on most of the other benefits if the circumstances in their lives changed such that they qualify for those programs. Thus, it is not so unreasonable to net out those “assets” when comparing net worth among Americans. Granted, the resulting picture is somewhat misleading because the ignored “assets” are more significant (on a relative basis) for poor people than wealthier people. However, this approach is certainly less misleading than suggesting that the typical poor American actually has a net worth of five million dollars.
philg: I suggest a “typical Medicaid recipient” and you conjure a jobless eighteen year old drawing a lifetime of Cato’s mythical 50K basket of benefits which, if they exist at all, are about as common as a SV unicorn.
Neal: If the benefits are mythical, how do we manage to spend trillions of dollars on welfare? Where does the money go if not to the beneficiaries, either via cash or services such as free housing, free health care, free food, Obamaphones, etc.?
(See http://www.heritage.org/welfare/report/obama-spend-103-trillion-welfare-uncovering-the-full-cost-means-tested-welfare-or and https://www.cato.org/publications/policy-analysis/american-welfare-state-how-we-spend-nearly-%241-trillion-year-fighting-poverty-fail and http://www.ncpa.org/sub/dpd/index.php?Article_ID=25288 for some attempts to total up the cost (the last one says “The War on Poverty has cost $22 trillion” [through Feb 2015]))
philg: The largest share of the means tested spending (Medicaid) goes to provide a benefit which we both agree should be available to all Americans in a manner which we both agree is particularly inefficient.
Neal: I’m not sure that Medicaid is the only big program. New apartment buildings and condos in the most expensive cities are permitted only on condition that a percentage of the units be given to a government housing ministry. This is “off the books” welfare spending that can be worth $1-2 million per unit (other citizens pay for these units by paying higher prices for the remaining “market-rate” units). I think that this has been going on for at least a couple of decades.
http://www.millersamuel.com/change-is-constant-100-years-of-new-york-real-estate/
shows that Manhattan prices went from $8 per square foot in the World War I housing boom ($140 adjusted to 2017 mini-dollars) to around $1,200 per square foot today. The value of free housing, either on-budget when the apartment building is owned by the govenrment, or off-budget when private developers are coerced into providing it, therefore has gone up by 8X.
Alexey: National security spending has to be something benefits the rich more than the poor. Rich people in Dresden and Hiroshima certainly lost much more than the poor when their cities were reduced to rubble. In fact, some of the poorest in Dresden may have experienced an increase in their standard of living when it became part of communist East Germany.
Since 1945 the American armed forces have been in the service of an imperial state. For example, 1954 coups were engineered in both Guatemala and Iran. Those coups were arranged to benefit large corporations, in other words, wealthy Americans.
Vince, you are missing small point: people and nations have been fighting with each and has conquested other peoples and nations. Until recently aggressor who lost has rightfully had few chances to exist as an entity, and defender who lost had to become a vassal as best. Thus, armed forces spending is somewhat constitutional and customary. So-called ‘social’ spending is not exactly that. I am not against all of it but it is not comparable to defense spending per se and it is dangerous to mingle two together. When social spending started in late 19th century by likes of Kaiser it did drive warfare beyond what used to be custom and did inhibit free trade societies such as 19th century Britain, so you have a point here. There were no social programs for over 100 years after US war of independence so ‘common welfare’ phrase means not to inhibit people independent and personal drive to live as they want, something which is 90 degrees away from frequent modern interpretation of the phrase. I.e. some armed forces use is lawful in Constitutional sense and is it is insane having not sufficient military spending, all US government spent a lot on military starting with George Washington’s Continental army.
https://en.wikipedia.org/wiki/University_Village_(Manhattan) is an example of welfare housing that was built via this mechanism in 1967. NYU faculty live in two of the three 30-story towers, now smack in the middle of one of the most desirable and expensive neighborhoods on the planet, while people selected by a government housing ministry occupy the third tower. The land for the 30-story tower is rented to the city for $35,400 per year (see http://thevillager.com/2012/08/02/n-y-u-affordable-co-op-reach-deal-on-long-term-lease/ ), or less than the market rent for a small apartment in that neighborhood.
https://ny.curbed.com/2014/10/15/10035312/apply-now-for-hunters-point-south-rentals-from-494-month describes “925 non-market-rate rentals” and http://licpost.com/residents-use-airbnb-to-rip-off-lic-affordable-housing-for-500-night shows that the market price for one night of AirBnB is about the same as the monthly rent to someone who qualifies as “low income”.
philg: Nothing in comments 12, 15, or 16 supports your implication in comment 5 that “an 18-year-old collecting welfare” represents a “typical Medicaid recipient”.
True. An 18-year-old who is collecting welfare is probably a smarter-than-average person due to the fact that some of these programs have waiting lists and it pays to start young.
Thus, armed forces spending is somewhat constitutional and customary. So-called ‘social’ spending is not exactly that. I am not against all of it but it is not comparable to defense spending per se and it is dangerous to mingle two together.
Custom and the constitution are another matter altogether. I was just discussing big government programs and who benefits from them. You may choose to be governed by custom, but most would not. My grandparents told me about their childhoods in the 1920s when government was much smaller than it is today. Basically, life was miserable compared to the post-1945 world.
Vince, life was worse in part because many things were not yet invented or mass-produced. I agree that intellectual and manufacturing advances made both childhood easier and larger government possible. You are wrong that government was small for the time in 1920th, but of course those were boom years and comparing to next two decades, My grandparents told me about much freer and interesting world in 1910th, of course without possibilities afforded by modern technologies and with some truly terrible events inflicted on them by their non US government and by warring governments. You can ignore customary but you would not be able to ignore its consequences, as in if US military was too small to take on likes of former USSR or Saddam Hussein or modern troublemakers. Your position is dangerous, I think that 80% of modern US military interventions are driven by good wishing desire to re-build the world to mental image expressed by you. But there is not enough resources or personal resolve to do it.
It seems to me that the social safety net in the US, compared to other rich countries, has two big problems: it’s both weak and expensive.
Unfortunately this leads to paralysis. Trying to strengthen it also makes it even more expensive, which a huge part of public opinion regards as completely unacceptable (see: Republican opposition to Obamacare). Conversely, trying to make it cheaper is going to make it even weaker, which provokes even more vehement opposition (see: Republican inability to repeal Obamacare).
I don’t know if there’s any way to make the US social safety net stronger and cheaper at the same time. The Democrats are going to be pushing single-payer health care (our experience in Canada is that it’s far cheaper than the US system). I’m wondering if another option to lower prices would be the German system: they have private health insurance companies, but when they sit down to negotiate prices with health care providers in each state, they bargain as a cartel.
Russil: Good points. I have written about this before. The starkest inequalities in the U.S. are now among welfare recipients. Two people who work equally hard may receive packages of welfare with hugely different values. One is in a $60,000/year apartment. The other is on a waiting list and getting nothing in the way of free housing. So it is an expensive safety net ($30,000/year per “family” for welfare housing) and also a weak one (half of the people in this example are living on a relative’s sofa or on the street).