“When Children Grow Up Poor, the Nation Pays a Price” (nytimes) is by Mark Rank, a sociologist and “professor of social welfare”. It turns out that a nation can get rich as easily as spending money on welfare:
Our analysis indicated that for each dollar spent on reducing childhood poverty, the country would save at least $7 with respect to the economic costs of poverty.
Back in 2011, spending on federal welfare programs was roughly $60,000 per family (Senate Committee on the Budget). Adjusted for the inflation that the government assures us does not exist, that’s $68,000 today. At least in theory, nearly all of this money, free housing, free health care, free food, and free phone service shoveled out to adults is for the benefit of children. So if we use the sociologist’s arithmetic and assume that each welfare family has an average of two children, that would be $612,000 per child spend by taxpayers over an 18-year period. The return on investment will be $4.3 million, according to Professor Rank’s arithmetic.
Between 21 and 43 percent of children in the U.S. are eligible for welfare (source) and there were roughly 74 million children in 2010 (Census). Taking an estimate in the middle of the range, that’s roughly 25 million children who were on welfare in 2010. Each child will yield a return on investment of roughly $4.3 million. That’s a total of $100 trillion in profit to the U.S. government, 5X the national debt and sufficient, one would hope, to cover pension and health care liabilities that are not on the books as official debt, as well as money that has been borrowed by state and local governments.
Crazy rich soon? Why hasn’t it happened already?
I’m sure the study regards all monies currently going to poverty programs as merely maintaining status quo or perhaps already educing the additional 7x spend that would otherwise occur. To get ahead of things we need additional spending specifically targeted at reducing childhood poverty.
I am no mathematician but it seems that Professor Rank has discovered the proverbial golden goose — that if every dollar spent yields “the country” a 700% return pretty soon “the country” would have infinite money. And i guess no one would then have to pay taxes — or even could pay taxes because “the country” would have all the money. Well, I am not all that good with numbers but this sounds like a winner to me.
Remember the real purpose of the social welfare programs is not to help those in poverty, but to provide jobs for all those Liberal arts graduates that would be otherwise unemployed. That $68k/person is not for those in poverty, it is to provide useful employment for arts graduates, and they also need office, a pension, medical and all the other benefits. All these liberal arts graduates can then feel like they have a purpose in life instead of being unemployed.
$100 trillion is 25% of GDP over 18 years. The counterfactual implied by this post imagines cutting 850 billion (25 million * 612,000 / 18) per year in government spending on children. That means eliminating ALL public education spending, ALL Medicaid spending on children, and HALF of TANF, SNAP and HUD (assuming half of those benefits go to children). Would eliminating all public education (on all children) and all medical spending on poor children cost 25% of GDP over two decades? I don’t know, but it doesn’t seem so preposterous to me.
“Back in 2011, federal spending on welfare was roughly $60,000 per family . Adjusted for the inflation that the government assures us does not exist, that’s $68,000 today”.
The adjustment appears to be based on the government’s own measurement of inflation. How exactly does using the government’s inflation adjustment indicate the government assures us that inflation does not exist?
Neal: The Congressional Research Service did not include spending on K-12 or subsidized colleges and universities in their calculation of “welfare”. It was mostly free housing, free health care, free food, free phone service, etc. consumed primarily by the adults in the welfare household. So any counterfactual would not involve cuts to education spending.
Here’s an example of a government-run media outlet saying that inflation is practically non-existent: https://www.npr.org/2016/01/11/462676307/state-of-the-obama-economy-far-better-but-still-with-many-troubles (“Throughout the recovery, consumers have seen relatively little inflation. In fact, over the past 12 months, the consumer price index has risen only 0.5 percent,…”)
philg: Your numbers require 850 billion a year in cuts. You don’t like how I’ve allocated them, how would you allocate them?
What experiment would would be a good counterfactual to see if $850 billion/year in welfare cuts would shrink the GDP by 25%?
Obviously this will only be a thought experiment because government bureaucracies would be able to resist any actual cuts, but let’s try it…
Let’s see, eliminate all welfare to be consumed by non-disabled adults. So that means running dorms for poor kids rather than giving free apartments to their parents. Giving clothes to poor kids rather than giving TANF cash to their parents. Health care is the tricky one because the U.S. doesn’t have a market for health care so you can’t cut people off from Medicaid and then tell them to buy health care with cash or a credit card. They would get reamed out for 10X the Medicaid price and/or have to get free care. Without eliminating Medicaid for adults I don’t think there is a way to cut $850 billion. The whole idea of a low-income person living in what is essentially the world’s highest cost of living country (because health care is so expensive and everyone needs at least basic health care) is kind of impossible.
But whatever we were able to cut would, I think, grow the GDP. Able-bodied adults who are currently in a government-provided house watching TV would be out working at least a minimum wage job in order to sustain themselves. When a person switches from leisure to work that is GDP growth (though obviously the person becomes worse off, an example of why GDP can’t be used to measure a society’s overall quality of life).
philg: With respect to inflation, “does not exist” is not a synonym for “low”.
“Without eliminating Medicaid for adults I don’t think there is a way to cut $850 billion.”
Even WITH eliminating Medicaid for adults you can’t get to $850 billion. The numbers in your post just don’t add up.
Neal: The U.S. Senate Budget committee page to which I linked says that spending in “2011 was approximately $1 trillion.” If spending was $1 trillion in 2011 that’s $1.13 trillion in 2018 mini-dollars. I don’t see why it would be impossible to spend $280 billion on welfare instead ($850 billion less). Certainly there have been periods in U.S. history when welfare spending was much lower as a percentage of GDP than $280 billion is today.
But the post wasn’t about cuts. It was about how we are going to be crazy rich soon because we HAVE been investing in welfare, theoretically to benefit children (but we send the cash and services to adults?), and $1 invested in a poor child yields a $7 return.
“The counterfactual implied by this post[…]”
The counterfactual is implied by Mark Ranks, not Phil : “the country would save at least $7”.
He did not, however, state that as Phil creatively re-interpreted, that there will be a 7x gain. Perhaps, the empowered labor force will just break even.
philg: To get to “crazy rich” you are extrapolating a claim Rank made about child anti-poverty spending to all anti-poverty and healthcare spending and using the number $100 trillion without putting it in the context of 18 years of US GDP.
That Senate report is misleading. Plenty of non-poor households receive means-tested benefits. And your assumption about families having a average of two children is a wild, probably false, guess. Plenty of people are born poor, work as hard as they possibly can their whole lives and nevertheless remain poor until they die, long after their children, if they have any, have grown to maturity.
It’s nearly impossible to be born poor, work as hard as you possibly can, and remain poor in the United States with or without children.
Practical: It seems obvious that you’re right with respect to folks with average or higher intellectual ability and no psychiatric disabilities.
However, let’s look at the left side of the intellectual distribution. What do you mean by “poor”? The main point of the book The Bell Curve is that advanced economies, including the U.S., have become unfriendly to those unfortunate enough to have below-average IQs. A person with an IQ of 90 can work hard and make $25/hour? Times 60 hours per week = $75,000 per year? Is that “poor” or “not poor”? (still eligible for welfare here in Massachusetts, by the way, as long as he or she has a couple of kids!)