Welfare Reform Was Quite Bad

Last month, Kevin Drum questioned the old mantra that progams for the poor are poor progams. According to Drum, the rise in per-capita means-tested spending shows that this mantra isn't true. At the time, I argued that Drum was wrong, both in the way that he interpreted the spending data and the way that he interpreted the mantra. Now Drum is out with yet another post making the same data interpretation mistake, this time as evidence that welfare reform wasn't all that bad.

But there's another possible reason: maybe welfare reform has turned out not to be an especially big deal. After all, by 1996 the old AFDC program accounted for only about $20 billion in spending, a tiny fraction of the total welfare budget—and the difference in spending between AFDC and the TANF program that took its place is even more minuscule. The truth is that it's barely noticeable compared to increases in social welfare spending during the 90s from changes to CHIP, EITC, the minimum wage, and so forth.



There are two obvious takeaways from this. First, overall spending on social welfare programs has increased by 3x since 1980. That's pretty substantial. Second, if the 1996 welfare reform act had any effect on this steady rise in spending, you'd need a chart the size of my house to make it out. 

I cannot stress enough how mistaken this interpretation is. It is true that as Aid to Families with Dependent Children (AFDC) was cut, other cash assistance programs, such as the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) were increased. This chart tells the tale pretty succintly:

In 1991, AFDC, EITC, and CTC paid out benefits equal to 0.3% of GDP. In 2011, after Welfare Reform, they paid out benefits equal to 0.7% of GDP. In Drum's take, the fact that the total benefit amount is up is proof positive that the change was not a big deal. But the problem is that the CTC and EITC reach different populations than AFDC used to. The CTC and EITC are targeted towards the "deserving poor," which is to say those right around the poverty line. They neglect the "undeserving poor," which is to say those way below the poverty line, families AFDC used to reach.

This shift in the composition of the cash benefits (away from AFDC and towards CTC and EITC) had a predictable result. Very poor families saw their cash benefits fall while merely poor and near poor families saw their cash benefits rise.

Welfare Reform brutalized families in deep poverty. This doesn't show up in the data Drum uses because that data is for families below 150% of the poverty line. But it happened and it's a problem.

In the aftermath of Welfare Reform, the rate of Extreme Poverty (those living on less than $2-a-day) for households with children increased 150%. The rate of Deep Poverty (those below 50% of the poverty line) increased from 4.5% to 6.6%.

The negative effects of Welfare Reform are very present. Drum is just not looking in the right places. Contrary to Drum's criticisms of them, Clio Chang and Samuel Adler-Bell are correct to say that something, e.g. a universal child allowance, needs to be done to fix the deprivation Welfare Reform has unleashed.