QotD: Moral Hazard and Safety Nets Redux

A few days back, I posted about the idea that the welfare state has led to a certain degree of moral hazard, and that there is a danger of a safety net (which is a good thing) becoming a hammock (which isn’t). Occasional commenter Huck differed, and cited the case of his own family, which took no more from the government than was absolutely necessary to keep the wolf from the door. His story is admirable, and an example of what government programs should be — a hand up rather than a handout.

Unfortunately, that isn’t always the case, and in the NYT, Nicholas Kristof takes a look at things in Breathitt County, KY, not too terribly far from where Mrs. M grew up. The opening is pertinent, I think, to our discussion:

THIS is what poverty sometimes looks like in America: parents here in Appalachian hill country pulling their children out of literacy classes. Moms and dads fear that if kids learn to read, they are less likely to qualify for a monthly check for having an intellectual disability.

Many people in hillside mobile homes here are poor and desperate, and a $698 monthly check per child from the Supplemental Security Income program goes a long way — and those checks continue until the child turns 18.

“The kids get taken out of the program because the parents are going to lose the check,” said Billie Oaks, who runs a literacy program here in Breathitt County, a poor part of Kentucky. “It’s heartbreaking.”

This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire.

and a bit later (link in original):

Antipoverty programs also discourage marriage: In a means-tested program like S.S.I., a woman raising a child may receive a bigger check if she refrains from marrying that hard-working guy she likes. Yet marriage is one of the best forces to blunt poverty. In married couple households only one child in 10 grows up in poverty, while almost half do in single-mother households.

and shortly thereafter (again, Kristof’s links):

About four decades ago, most of the children S.S.I. covered had severe physical handicaps or mental retardation that made it difficult for parents to hold jobs — about 1 percent of all poor children. But now 55 percent of the disabilities it covers are fuzzier intellectual disabilities short of mental retardation, where the diagnosis is less clear-cut. More than 1.2 million children across America — a full 8 percent of all low-income children — are now enrolled in S.S.I. as disabled, at an annual cost of more than $9 billion.

That is a burden on taxpayers, of course, but it can be even worse for children whose families have a huge stake in their failing in school. Those kids may never recover: a 2009 study found that nearly two-thirds of these children make the transition at age 18 into S.S.I. for the adult disabled. They may never hold a job in their entire lives and are condemned to a life of poverty on the dole — and that’s the outcome of a program intended to fight poverty.

This last bit strikes me as particularly interesting. We have heard the phrase “defining deviancy down” with some frequency since Daniel Patrick Moynihan coined the phrase in a paper about twenty years back. I would suggest that what Kristof is describing is a sort of mirror version of that: defining dependency upward.

And for one last comment on the aspect of moral hazard to the enterprise, I’ll return to Kristof:

A local school district official, Melanie Stevens, puts it this way: “The greatest challenge we face as educators is how to break that dependency on government. In second grade, they have a dream. In seventh grade, they have a plan.”

Now maybe Huck is right — perhaps these scenes that Kristof reports are the exceptions, and perhaps his own case is more typical. It would be nice to think so. But how many Breathitt County kids do we lose for every person we save, and how many are too many?

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About profmondo

Dad, husband, mostly free individual, medievalist, writer, and drummer. "Gladly wolde he lerne and gladly teche."
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3 Responses to QotD: Moral Hazard and Safety Nets Redux

  1. Huck says:

    Very thoughtful posting, ProfMondo. I don’t dispute that there can be abuse to the system and that there are some, perhaps even too many, who “game” the system. I, personally, think the numbers of those folks are relatively small as a percentage of the total who receive some kind of welfare benefits. I think your final question is perhaps the key question, though I think you state the question incorrectly. I would would frame it a bit differently: “How many kids do we save for every Breathitt County kid we lose.” Although I haven’t done the research on the ratio of kids saved by welfare who go on to lead productive lives independent of such welfare, I would bet that there are more instances of cases like my own family than not.

    I basically have three problems with the narrative about welfare that the right tends to promote: (1) it tends to be absolutist in the sense that if you can find one person out of ten who abuses the system, then the answer is to terminate the system altogether. It’s the “throw the baby out with the bathwater” response.
    (2) it really demeans and stigmatizes a lot of poor people who don’t deserve such a lack of compassion and empathy — and this very mean-spiritied and oftentimes nasty class-warfare approach to those on welfare can only serve to further alienate the poor and encourage them to suck the life out of welfare not as a matter of dependency, but as an expression of perhaps the only feeling of symbolic power they have over others who resent them simply for their poverty. I’ll tell you, every time I hear many on the right speak of welfare (and those on welfare) with such spiteful contempt and derision, and in ways that are deeply dehumanizing, I can’t help but take it personally and feel great resentment towards them because of the attitude it conveys about my own family’s history with welfare. (And it especially galls me when I see these very people clamor for and benefit from other forms of state welfare to which they feel entitled.)
    (3) Finally, it obscures any discussion about structural factors that lead to poverty and implies that the only barrier to a better life for the poor is the character of the poor themselves. The desperation about their economic prospects that many have which may propel them to stay on welfare benefits is, I believe, not so much due to laziness, but more due to structural poverty. And I would argue that the ever-growing levels of inequality in our society, even during periods of relative general prosperity and economic growth, is evidence of the existence of structural poverty. Take away the welfare state, and you’ll still have the desperation of poverty. And I’m not so sure private charity has neither the capacity nor the willingness to fill in that void. And desperate people do desperate things. What makes anyone think that, absent a welfare check, parents are more likely to keep their kids in a literacy program instead of forcing them to panhandle, or to do worse, to make up that welfare benefit loss?

    • Huck says:

      Please ignore that embarrassing double negative in the third-to-last sentence in my posting above. It should read: “And I’m not so sure private charity has either the capacity or the willingness to fill in that void.” You know how it is: sometimes a way to express a thought morphs in mid-composition, and the haste to post it means sometimes it evades the instant editorial process that blog-commenting requires! Apologies for subjecting your finely-tuned grammatical ears/minds to that cringe-worthy, embarrassing mistake.

  2. dave.s. says:

    You want kids to grow up as well as they can. If the incentives on their parents go against the parents acting in their best interests, you are in trouble, and in particular if the incentives are large, and the parents don’t have other good options. We get Times and WaPo, this morning I had the Kristof opinion and an article about a girl growing up near Pittsburgh who is trying hard to triumph over a rotten local economy and bad maternal decisions – worth taking a look at, this is a kid with a dream. http://www.washingtonpost.com/national/in-new-castle-pa-trying-to-break-free-of-poverty/2012/12/08/f41f20ec-3985-11e2-8a97-363b0f9a0ab3_story.html?tid=pm_pop I’ve got a fair number of anecdotes from my time as an ambulance driver in Oakland Ca which point to unintended bad incentives in government help programs.

    Kristof quotes the local “..how to break that dependency on government. In second grade, they have a dream. In seventh grade, they have a plan…”

    I’m thrilled to see in the Gray Lady an emerging awareness that bad incentives can have perverse results. For years, there’s been a reflex reaction to any discussion like this of incentives — YOU ARE BLAMING THE VICTIM YOU RACIST SWINE. Kristof has carefully chosen his examples and looked at white people, which gives him some cover there. I kind of think people of all colors can respond to incentives, and the important thing is to get them right.

    Best example I know of on this front is food stamps: you don’t give the families money, for fear that they would spend it on drugs and booze, you give only a form of support which is most likely to go through to the kids. WIC is even tighter: go through stores which serve welfare families in my town and some things are tagged as WIC-eligible on the shelves, some are not. The specific example of pulling kids out of literacy programs if they show signs of learning to read (!!) and losing their disability checks might be addressed by doing a one-time assessment, disabled at seven and they keep the check til 18, which would enable parents to keep them in the reading program without losing money, but would have the rest of us paying plenty. I don’t know, but I am very happy to see people thinking about incentives and moving the topic out of the ‘decent people don’t think like this’ area.

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