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Sunday, April 08, 2012

Cutting welfare in a recession: what doesn't go round doesn't come round

Today the Times reports on the effects of the 1996 welfare reform law in the Great Recession: the new rules enabled state governments to further cut their welfare rolls as unemployment and state budget shortfalls soared

In addition to the widespread misery caused by bumping resource-less people off the welfare rolls or reducing benefits, the welfare cuts enabled by the 1996 law must be one enabler of the overall reductions in government spending that distinguish this recession from previous ones. Paul Krugman has contrasted the  growth of state and local government spending in the wake of the Reagan recession by this point in Reagan's first term with the overall drop in such spending that has taken place during Obama's term, arguing that the difference more than accounts for the difference in the rate at which unemployment dropped in the two periods. (Unemployment in Reagan's first term dropped from a peak of 10.8% in December 1982 to 7.4% in October 1984. In Obama's term, unemployment peaked at 10.4% and has so far dropped to 8.2%. Krugman, using government purchases as a proxy for government spending, notes that purchases had risen 11.6% by this point in Reagan's term, while they've fallen 2.6% during Obama's.)

Reducing welfare benefits in a recession means reducing money that beneficiaries would doubtless spend immediately, stimulating the economy, as well as reducing employment in benefits administration. What doesn't go around doesn't come round.

This is not to say that there's not a difficult balance to strike between encouraging welfare dependence and enabling suffering that hurts children and itself further mires people in poverty. But too many states in today's America err on the side of self-defeating cruelty.

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