Civitas Review

If I Wanted to Keep Poor People Poor

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Jan
02

Advocates for free markets often get smeared with comments like "you just want to keep poor people poor and see the rich get richer!" Such accusations are utter nonsense, of course.

But a firm grasp of economics and how individuals respond to incentives, however, can tell us what policies a person who is interested in condemning poor people to a life of poverty would support. That's what I address in this article, which was originally published in the Charlotte Observer yesterday.  Here's a sample:

If I wanted to keep poor people poor, there are several government policies I would favor.

For starters, I would advocate for a robust and ever-expanding welfare state. Programs like Medicaid, food stamps, unemployment insurance, etc.? Perfect poverty traps.

I would recognize that a perfect recipe for keeping poor people poor is to create incentives that push them into decisions that prevent them from climbing out of poverty.

Case in point: This year the Fiscal Research Division of the General Assembly analyzed the decisions confronting individuals and families enrolled in various government welfare programs. A single mother with two children ages 1 and 4 earning $15,000 a year through work would be eligible for government benefits (such as Medicaid, housing vouchers and subsidized day care) equivalent to roughly an additional $35,000.

Such a scenario puts this woman in a bind. If she finds a better job paying more, she risks losing substantial amounts of benefits. She would make her family worse off even though her paycheck would be bigger. Just to come out even, once taxes are factored in, she would need to find work paying about $55,000 a year. Not many low-skilled workers can make such a leap.

This scenario is commonly referred to as the welfare cliff. Fear of falling off that cliff is perfectly rational, but it also serves as a highly effective tool to trap people in a life of poverty.

Benefits Cut … People Go Get Jobs

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Jan
02

worker forkliftNorth Carolina has just run an experiment about what happens when unemployment benefits run out: Many jobless people go get jobs.

The state's unemployment rate has fallen markedly, and this may be linked to the end of extended unemployment benefits, the Charlotte Observer has reported.

Wells Fargo Securities economist Mark Vitner examined the plunge in the state's unemployment rate. North Carolina's unemployment rate has been among the highest in the nation since the Great Recession began. But, the paper reported,

"The state’s unemployment rate started the year as one of the highest in the country but has fallen two percentage points from a year ago to 7.4 percent in November, according to state commerce department data. The state’s unemployment rate is now .4 percentage points higher than the U.S. average, compared with 1.6 percentage points higher in November 2012."

The Washington Post also reported the sharp decline in the jobless rate, from 9.4 in November 2012 to 7.4 in November, adding, "That two-point drop was the steepest decline of any state year over year."

Gee, what could have caused that? I went to some of those Monday protests this summer, and heard speakers bewail the terrible fate of those whose extended unemployment benefits were being cut off. The General Assembly had petitioned the federal government to allow the state to pay lower unemployment benefits for the extended period, only to be rebuffed by the Washington bureaucrats. Facing a budget crunch, lawmakers decided to let the extended benefits expire in July. Left-wingers predicted doom.

Instead, miraculously, the state's unemployment rate has sunk. According to the article, one inference is that unemployment "benefits have two impacts on the labor force: They raise the required wage for someone to take a job, and they keep people seeking jobs because it’s a requirement of receiving benefits." In other words, if you pay people not to work, many will not work — until they can find a great job.

Vitner's study backed up that possibility because the civilian employment in the state climbed by 39,400 over the most recent three months, the newspaper said. In contrast, in the first eight months of the year, employment dropped by 45,100.In other words, give people incentives to stay home, many will stay home. Give them incentives to work, and many more will work. This isn't a knock on people out of work. It is simply to note that people will respond rationally to incentives.

Moreover, our experience could have lessons for the nation as a whole, Vitner wrote, with Congress debating ending extended unemployment benefits: “If Congress does not extend them, the same results seen in North Carolina may begin to show up in the national unemployment figures."

On a side note, Vitner did suggest that data may show that some people stopped looking for work, so aren't counted in unemployment figures. Times are tough, but that's another reason for government to support pro-growth policies.
In 2013, a conservative-leading General Assembly, with a governor of the same party supplanted a century of rule by another party, and passed a number of reforms that aimed to revive the state's stagnant economy. The unemployment rate nose-dived. Coincidence? The next few years will likely bring more evidence to show that boosting the economy will do the most to help the most people.

Obamacare: The Grinch That Stole Healthcare

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Dec
20

You know Obamacare has become a nightmare when even the President's hometown paper is slamming the law as a disaster. Some excerpts from the Chicago Tribune's stinging article: (click the link to read the whole article, its well worth it)

For weeks, the government's HealthCare.gov website repelled customers with the brutal efficiency of a nightclub bouncer. Even if you thought you completed the process, chances were good that your application information wasn't accurately sent to insurers.

Last week, federal officials piled on more confusion when they urged insurers to relax coverage rules. The feds asked companies to cover people even if they miss the Jan. 1 deadline to pay their premium. On Wednesday, most insurers agreed to grant customers a grace period until Jan. 10 to pay premiums. The feds also pushed insurers to refill prescriptions in January, even if those pills aren't covered under the new plan. And they prodded insurers to treat out-of-network doctors as in-network under some emergency circumstances. Our analysis: Huh?

You think the Obamacare run-up to Jan. 1 has been a train wreck? Now it gets worse.

You'll soon be hearing more stories of people who thought they'd signed up for coverage, only to find that their paperwork was gobbled by computer gremlins …. One thing is certain: Most states lag behind in their Obamacare sign-up goals. The National Review Online reported this week that 45 states haven't yet hit 10 percent — 10! — of their enrollment goals. In Illinois, a paltry 7,043 people have signed up, hardly a dent in the state's goal of 300,000 by the end of March.

New Gallup Poll: 72% Say Big Government Biggest Threat

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Dec
19

Politico reports on news from a recent Gallup poll showing that an overwhelming majority of Americans agree with the Civitas Institute that the biggest threat to the country's future is big government.

Nearly three-quarters of Americans identify big government as the greatest threat to the country’s future, according to a new poll.

The 72 percent that named big government over big business and big labor in the survey released Wednesday by Gallup is a record high in Gallup’s polling. The previous high was 65 percent in 1999 and 2000.