This week marked the twentieth anniversary of the first Clinton administration's signature law on "welfare reform." So of course, pundits flooded the internet with a myriad of analysis on what worked and what didn't. In the Washington Post, Max Ehrenfreund has nine charts that show the effect of the law, noting fewer people receive benefits in some states and poverty is higher than what it was in 1996—especially for people not working while the government reaped no savings:
Over at the Atlantic, Kathryn Edin and H. Luke Shaefer provide analysis on the rise of extreme poverty in America:
Today, across the country, welfare is—at best—a shadow of its former self. In much of the Deep South and parts of the West, it has all but disappeared. In the aftermath of welfare reform, there has been a sharp rise in the number of households with children reporting incomes of less than $2 per person per day, a fact we documented in our book, $2 a Day. As of 2012, according to the most reliable government data available on the subject, roughly 3 million American children spend at least three months in a calendar year living on virtually no money. Numerous other sources of data confirm these findings. According to the most recent data available (2014), TANF rolls are now down to about 850,000 adults with their 2.5 million children—a whopping decline of 75 percent from 1996. TANF was meant to “replace” AFDC. What it did in reality was essentially kill the U.S. cash welfare system.
The Manhattan Institute's Scott Winship disputes this claim and in a new report argues poverty actually has declined:
The reality of poverty after welfare reform is not that portrayed by critics. Children—in particular, those in single-mother families—are significantly less likely to be poor today than they were before welfare reform. This is because income and poverty trends are poorly conveyed by official statistics and by most analyses of poverty data. Household surveys underestimate the cash income of these families and do not count as income a variety of valuable noncash benefits, including food stamps, housing subsidies, and Medicaid (the receipt and value of which are also underestimated). Meanwhile, the rise in the cost of living tends to be overestimated, pulling up poverty trends over time.
Slate's Jordan Weissman, meanwhile, says Winship's overall analysis is on shaky ground in part for using a nonstandard measure of inflation as well as using things such as conflating the benefits of Medicaid and other subsidies with cash:
Winship's attempt to debunk Shaefer and Edin's now-famous $2-a-day statistic is equally shaky. The point of the pair's research is that a slice of America is living largely without access to ready cash income, which leaves their lives especially prone to hardship and disaster. Food stamps and Medicaid are wonderful, but unless you illegally sell your SNAP benefits (which some people of course do), they don't let you pay a phone or electricity bill. They don't let you fill up your car to get to work or fix a leak that's destroying your house. Even if you do include the value of certain benefits as income, the researchers find that the number of Americans living below the $2-per-person-per-day mark still rose in the wake of welfare reform...
Winship's paper is long and detailed, and I can't possibly do it justice by addressing all of its arguments, point by point. But his main ones, again, do little in my mind to dispel the idea that something has gone wrong for the very poor in the two decades after welfare reform.
In her Bloomberg article, Megan McArdle tackles a more existential question of how poverty should be measured in an American context.
In FiveThirtyEight, Andrew Flowers notes on the savings issue that perhaps one of the biggest changes is that the lion's share of government spending on welfare does not go directly to poor people any longer:
Welfare reform replaced the old, federally run cash assistance program with a system of state-administered block grants. Under TANF, states can spend welfare money on virtually any program aimed at one of four broad purposes... In 1998, nearly 60 percent of welfare spending was on cash benefits, categorized as “basic assistance.” By 2014, it was only about one-quarter of TANF spending. That shift has happened despite a burgeoning economics literature suggesting that direct cash transfers are in many cases the most efficient tool to fight poverty.
Some of the money that used to go to cash assistance now goes to other noncash aid programs, such as child care assistance or work-related activities, and to refundable tax credits that are essentially a different form of cash transfer. But by far the biggest increase comes in what Pavetti’s group classifies as “other,” which the center says“covers a broad range of uses, including child welfare, parenting training, substance abuse treatment, domestic violence services and early education.” Those programs might be worthwhile in their own right, but they don’t have much to do with the original goals of welfare.
The Atlantic's Gillian White interviews Daniel Hatcher author of a new book on enterprises that profit off of these safety net programs and skim their benefit away:
With poverty's iron triangle, you have the relationship between the federal government, between the state government, and between the poverty-industry private contractors. Funds that are intended to help vulnerable populations are misused, either the states are misusing the funds and routing them into general coffers or sometimes other uses. And a significant amount of that federal aid is used to pay the private contractors...Part of the problem is a lot of the economic theory behind fiscal federalism has ignored the relationship between government and private contractors, and ignored the fact that state governments are cash-strapped, so they're looking for money wherever they can get it. They're going after these sources of federal aid not to provide the aid services as intended, but as a general revenue mechanism.
The Economic Policy Institute's Josh Bivens says if you want to know why the economic recovery was slow, then look to government spending austerity:
In other news, the Justice Department has declared that holding indigent defendants unable to pay bail is unconstitutional, reports David Savage in the LA Times:
The Constitution forbids “punishing people for their poverty,” the government’s civil rights lawyers argued in a brief to the 11th Circuit Court of Appeals in Atlanta. The 8th Amendment says “excessive bail shall not be required.” And the 14th Amendment, which protects the rights to liberty and equal protection of the laws, should be read to prohibit “bail practices that incarcerate indigent individuals before trial solely because of their inability to pay,” they said.
In Vox, public defender Rachel Marshall said the bail system is essentially a war on the poor despite a 40-year-old law that was supposed to prevent such outcomes:
By establishing a one-size-fits-all bail system, what we have really done is set up a one-size-fits-the-rich system, whereby those with money have little difficulty posting bail, while the poor have no ability to pay and are trapped in jails as a result. If we really believe people need a financial incentive to come to court and want to ensure that all people have an interest in returning to court, a proportionate bail system would be the answer...By eliminating our bail system, we need to create a presumption of release for those arrested for all but the most serious offenses. To support that release, we need rigorous and well-resourced pretrial services agencies whose sole task is ensuring that the accused show up in court.
Over at Fusion.net, Nidhi Prakesh looks at other bail reform efforts around the country and why it matters:
A study released this weekfrom the National Bureau of Economic Research found that being released before trial leads to defendants being 15.6% less likely to be found guilty, the International Business Times reported, and they’re 12% less likely to plead guilty.
That could be because being held makes it more likely that a defendant will plead guilty because of the psychological pressure of being detained, whether or not they actually are guilty, the paper says, or because judges and juries are likely to be biased against a defendant who enters the courtroom in shackles, clearly having been held in jail...
[I]n July last year, New York City announced that non-violent, low-risk suspects who can’t afford bail will be released under a supervised program instead of being detained. Washington, D.C. no longer uses money bail in their court system–instead, people who don’t pose a violent threat are released into a supervised program until their court date. In 2015, 91% of suspects were released into these programs, the Washington Post reported. Of those, 90% made it to their court date without being re-arrested, according to the D.C. Pretrial Services Agency.
Speaking of crime, there is an epidemic of it—both petty and violent—at Walmarts across the country reports Businessweek. Some of which may have to do with the retail giant's hiring practices:
There’s nothing inevitable about the level of crime at Walmart. It’s the direct, if unintended, result of corporate policy. Beginning as far back as 2000, when former CEO Lee Scott took over, an aggressive cost-cutting crusade led many stores to deteriorate. The famed greeters were removed, taking away a deterrent to theft at the porous entrances and exits. Self-checkout scanners replaced many cashiers. Walmart added stores faster than it hired employees. The company has one worker for every 524 square feet of retail space, a 19 percent increase in space per employee from a decade ago.
In terms of profit, all this has worked: Sales per employee in the U.S. have grown 23 percent in the past decade, to $236,804. For criminals, however, the cutbacks were like sending out a message that no one at Walmart cared, no one was watching, and no one was likely to catch you.
In the NextBillion, Santa Clara University's John Kohler provided an analysis of his time at this summer's Vatican gathering on how impact investing can tackle inequality:
The VIIC comprised two distinct groups: representatives of Catholic Church-affiliated social ministries, who accounted for around 60 percent of the attendees, and impact investors, meaning those who balance the social and environmental impacts of their investments with their financial returns. The first group’s “street cred” on serving the poor is unassailable. Go to any base-of-the-pyramid (BoP) community in the world, and you’ll likely encounter at least one Catholic social ministry.
The impact investors, on the other hand, have a more complicated reputation when it comes to helping those at the base of the pyramid. In fact, Catholic and other faith-based organizations traditionally have viewed the business and financial world with some suspicion – keeping them at arm’s length for fear that the mission of business, which is to make money, is fundamentally incompatible with the mission of the Church social ministries, which is to help the poor.
One main purpose of the VIIC was to help overcome this view, to present evidence and examples of how impact investing and social enterprises can be used to directly benefit the poor.
Heron's Clara Miller attended the conference and you might interested in her session on impact and enterprise.
Guess who's taking on hedge funds? Rani Weingarten head of the American Federation of Teachers, who has influence over $1 trillion pension assets has had enough of hedge fund guys taking their investment dollars while trying to put unions out of business, reports the Wall Street Journal:
She instructed investment advisers at the federation’s Washington headquarters to sift through financial reports and examine the personal charitable donations of hedge-fund managers. She says she focuses on groups that want to end defined-benefit pensions. Many of the same entities also back charter schools and overhauling public schools...
In early 2013, the union federation published a list of roughly three-dozen Wall Street asset managers it says donated to organizations that support causes opposed by the union. It wanted union pension funds to use the list to decide where to invest their money.
Nonprofit balked at new overtime rules from the federal government who survive using workers who are overworked and underpaid due to tight budgets, reports Jonathan Timm in the Atlantic:
In a 2013 report, the Urban Institute surveyed over 4,000 nonprofits of a wide range of types and sizes across the continental U.S. It found that all kinds of nonprofits struggled with delays in payment for contracts, difficulty securing funding for the full cost of their services, and other financial issues...
The pressure from funders to tighten budgets and cut costs can produce what researchers call the “nonprofit starvation cycle.” The cycle starts with funders’ unrealistic expectations about the costs of running a nonprofit. In response, nonprofits try to spend less on overhead (like salaries) and under-report expenses to try to meet those unrealistic expectations. That response then reinforces the unrealistic expectations that began the cycle. In this light, it’s no surprise that so many nonprofits have come to rely on unpaid work.