Remove disincentives to help poor advance

January 3, 2015

Over the past 30 years, Charles Murray has been one of the most influential thinkers on domestic policy matters. Murray was trained as a sociologist but has a terrific understanding of economics and political economy. His work is multidisciplinary, readable, relevant and often provocative. This year marks a key anniversary for two of Murray’s books. “Losing Ground” is 30 years old now and was the book on welfare programs in the 1980s. Quite controversial when published, the book’s logic became the conventional wisdom on welfare policy within a decade. “In Pursuit of Happiness and Good Government” is 25 years old now — far less famous but arguably a more powerful and potentially important book. “Losing Ground” came on the scene in 1984, at a time when conservatives were already bothered by various aspects of redistribution to the poor — in particular, the inherent disincentives for those receiving assistance. Murray’s book bolstered those arguments and laid the groundwork for growing concerns about welfare over the next decade. Most liberals were still largely enamored with the federal War on Poverty and downplayed or dismissed Murray’s arguments. Their concerns about welfare would emerge over the next decade as they increasingly recognized that all was not well with the War. They were never as concerned about disincentives. Instead, they focused on other metrics, such as the impersonal, “dehumanizing” bureaucracy used to implement welfare. The thesis of “Losing Ground” is that welfare changed “the rules of the game” for those in the lower-income classes. The “rules” had been changed by well-intentioned elites, and the response to those incentives and the outcomes of the War were not what had been hoped or expected. Four decades and more than a trillion dollars later, the poverty rate is similar, and the problems of poverty are arguably worse. An easy way to see this: $20,000 per year in government benefits will be interpreted quite differently by those who can earn $30,000 or $80,000. The resulting disincentives for those with fewer means — to work, to get married, to save, etc. — discouraged many people from engaging in productive, long-term behaviors. This encouraged a cycle of poverty, undermining work ethic and family structure/stability. (Murray develops this theme more fully in his recent book, “Coming Apart.”) Of course, there’s more to life than incentives and narrow understanding of economics. Other social changes also undermined family structure and stability, making things still worse. The results have not been pretty: lower labor-force participation for able-bodied males, dramatic increases in children in single-parent households, etc. In 1996, federal welfare reform stifled some of the worst aspects of the original War on Poverty. States gained more control and were encouraged to experiment with policy design. This new freedom was attractive to states and almost certainly a better way to implement policy. On something as complex as welfare policy, trying 50 different things is almost certainly better than insisting on a single federal approach. In particular, states were told to implement “time limits” — to lessen the damage to long-term incentives. And they were encouraged to use “categorization and discernment” in doling out benefits — distinguishing between the particular needs of those in poverty (e.g., job skills, transportation, child care). Although welfare policy continues to be problematic, The work of “Losing Ground” on welfare’s inherent disincentives still echoes over time. It can be hoped that in the years to come we will gain more ground than we’ve been losing.

Over the past 30 years, Charles Murray has been one of the most influential thinkers on domestic policy matters.

Murray was trained as a sociologist but has a terrific understanding of economics and political economy. His work is multidisciplinary, readable, relevant and often provocative.

This year marks a key anniversary for two of Murray’s books. “Losing Ground” is 30 years old now and was the book on welfare programs in the 1980s.

Quite controversial when published, the book’s logic became the conventional wisdom on welfare policy within a decade. “In Pursuit of Happiness and Good Government” is 25 years old now — far less famous but arguably a more powerful and potentially important book.

“Losing Ground” came on the scene in 1984, at a time when conservatives were already bothered by various aspects of redistribution to the poor — in particular, the inherent disincentives for those receiving assistance. Murray’s book bolstered those arguments and laid the groundwork for growing concerns about welfare over the next decade.

Most liberals were still largely enamored with the federal War on Poverty and downplayed or dismissed Murray’s arguments. Their concerns about welfare would emerge over the next decade as they increasingly recognized that all was not well with the War. They were never as concerned about disincentives. Instead, they focused on other metrics, such as the impersonal, “dehumanizing” bureaucracy used to implement welfare.

The thesis of “Losing Ground” is that welfare changed “the rules of the game” for those in the lower-income classes. The “rules” had been changed by well-intentioned elites, and the response to those incentives and the outcomes of the War were not what had been hoped or expected. Four decades and more than a trillion dollars later, the poverty rate is similar, and the problems of poverty are arguably worse.

An easy way to see this: $20,000 per year in government benefits will be interpreted quite differently by those who can earn $30,000 or $80,000. The resulting disincentives for those with fewer means — to work, to get married, to save, etc. — discouraged many people from engaging in productive, long-term behaviors.

This encouraged a cycle of poverty, undermining work ethic and family structure/stability. (Murray develops this theme more fully in his recent book, “Coming Apart.”)

Of course, there’s more to life than incentives and narrow understanding of economics. Other social changes also undermined family structure and stability, making things still worse. The results have not been pretty: lower labor-force participation for able-bodied males, dramatic increases in children in single-parent households, etc.

In 1996, federal welfare reform stifled some of the worst aspects of the original War on Poverty. States gained more control and were encouraged to experiment with policy design. This new freedom was attractive to states and almost certainly a better way to implement policy. On something as complex as welfare policy, trying 50 different things is almost certainly better than insisting on a single federal approach.

In particular, states were told to implement “time limits” — to lessen the damage to long-term incentives. And they were encouraged to use “categorization and discernment” in doling out benefits — distinguishing between the particular needs of those in poverty (e.g., job skills, transportation, child care).

Although welfare policy continues to be problematic, The work of “Losing Ground” on welfare’s inherent disincentives still echoes over time. It can be hoped that in the years to come we will gain more ground than we’ve been losing.

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics at Indiana University Southeast. Send comments to [email protected].

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