By min | February 11, 2015, 1:09 PM | Liberal Outrage & Science | Link

My argument for the welfare state

Matthew Yglesisas reminds us that the unemployment numbers that we look at are seasonally adjusted, meaning, for example, in the run up to the holiday season the unemployment number doesn't suddenly shrink as people are hired for temp retail jobs, and vice versa in January. It's definitely the correct number to use for quarter by quarter comparisons. But, as Yglesias says, it obscures the fact that over 2 million people lose their jobs every January.

This brings me to an old point of mine, so old that it hasn't been relevant for as long as i've been writing on this blog. For the past decade or so, we went from recession to jobless recovery to the Great Recession or Little Depression or whatever they will call it. But even when the economy is doing well, the Fed likes to keep the unemployment rate around 4 or 5%. When the unemployment rate gets too low, the Fed raises interest rates which makes it more expensive for companies to invest, so they hire less. The fear is that if the unemployment rate gets too low, workers will be too in demand and wages will rise, causing inflation. Right now as we approach 5% unemployment, the Fed is getting pressure from conservatives to raise the interest rates. Liberal economists are arguing that the risk of inflation is so low (the Fed can't even hits its target of 2% inflation, and we actually risk going into deflation), and that the Little Depression was so hard on workers that we can afford to keep interest rates low and get the employment rate down even further. Workers need to see their incomes rise to make up for what was lost during the downturn, and there are a lot of discouraged workers sitting on the sideline not reflected in the official unemployment numbers. So i agree that it is too soon to raise interest rates.

But even liberal economists generally agree that in normal times the Fed needs to manage the unemployment rate and not let it get too low. The unemployment rate only reflects people that are looking for work. So that that means (as Michael says in the comments) with a workforce of of about 160,000 people, we make it impossible for some 6 to 8 million people to ever get work.

It sounds like a paranoid conspiracy: the Federal government deliberately keeps 6 million + people unemployed so that wages don't get too high. But it's true (although it's never said quite that way), and considering the consensus among economists, i guess it might really be necessary. You can definitely find less mainstream voices that reject the policy. But accepting that it's true, it's worth considering the scope. By way of comparison, there are a little over 8 million people in the most populous city in the country, New York City (all five boroughs), and almost 9 million people in my entire state of New Jersey (we're small, but we're the densest state in the nation. In more ways than one, ha ha). So 6-8 million people is A LOT of people. That is a lot of hardship for a lot of individuals and families.

And by standard Fed policy, we're stuck with that number. If those 8 million people work really hard and pull themselves up by their bootstraps, it just means that a different 8 million people will be unemployed. And that actually is what happens; there is a lot of churn with people drifting in and out of employment.

So that's always been my argument for a strong welfare state. If we're saying that some 8 million people need to be unemployed so that the rest of us don't suffer from inflation, we at least ought to take care of the people that are taking the hit. Talking about replacing welfare with job training or education credits or whatever misses the point; some 8 million people are going to be unemployed no matter what. So we need a permanent and generous program that helps those that are unemployed.

We did have something permanent (not necessarily generous) at one time, but it was replaced during the Bill Clinton administration with TANF, the Temporary Assistance for Needy Families program (also called the Welfare to Work program). It lasts 60 months within a lifetime (and states can and do shorten that further) and has work requirements that are practically a Catch-22. It was a major change to the way welfare works in this country. Clinton signed it with the hope of "taking welfare off the table", i.e., trying to stop Republicans from demagoguing about welfare queens during elections. Obviously that hasn't worked at all. And while the program may have seemed to make sense during the boom times of the late 90s (when unemployment really did approach 4%), it was shown to be inefficient during our past decade; it was certainly successful in pushing people off of welfare, by definition, but it did nothing to reduce the poverty rate or actually help people. So (stop me if this sounds familiar) Democrats compromised their principles for political gain and have nothing to show for it. So we need to reverse direction and do what's right, not because of some bleeding heart desire to help the least fortunate (although there's nothing wrong with that) but because we are deliberately doing this to a segment of the population.

Anyway, that's my argument for the welfare state. I highly doubt we'll be hearing it from the wife of the guy that dismantled it.