Shawn Fremstad's blog

Social insurance “consists in protecting wage-earning families which have developed standards of living from losing them, and in helping wage-earning families without standards to gain them.”

--Social Insurance: A Program of Social Reform (1910), Henry Roger Seager

I've been digging Matt's series of posts on the safety net and John's last one on whether a frame like "expand the middle class" is really all that different from one along the lines of "reduce poverty." I'm hoping to do some longer posts over the next few weeks on these matters. As a starting point, I think it's important for us to put to rest the distinction between welfare and social insurance. Conventional wisdom has it that programs like Social Security, Medicare and Unemployment Insurance are categorically different than programs like TANF, food stamps, and Medicaid. A common way of expressing this difference is that the first set of programs are “social insurance” and the second set are “means-tested public assistance” or, more pejoratively, “welfare.”

This distinction is both artificial and ill-conceived. Means-tested programs like TANF and food stamps should be thought of as a necessary part of America’s system of social insurance rather than as “welfare” programs that exist outside of, and have little in common with, that system. Like Social Security and other social insurance programs, means-tested public assistance programs protect Americans against various risks that can reduce their economic security. This essential similarity of purpose is more important that some of the design differences that exist among programs serving an income-security purpose.

In True Security: Rethinking American Social Insurance, Michael Graetz and Jerry Mashaw define social insurance as a set of programs and institutions that “cover common risks to income security across the life cycle of individuals” (45). In this conception, social insurance is defined by its core purpose—moderating the risks of income loss or inadequacy—and not by its funding mechanism or other design features. The Graetz/Mashaw project is best understood, not as a sweeping reconceptualization of social insurance, but as an attempt to develop a conception of social insurance that is more conceptually coherent and useful, and perhaps even more historically grounded, than the current conventional conception of social insurance in the United States.

In their view, the argument that social insurance programs cannot be means-tested is an “ahistorical” one that reflects a political strategy to distinguish Social Security and other programs from unpopular “welfare” programs like AFDC.

As a matter of history, protection against current low income because of defined personal or family circumstances, irrespective of past contributions or earnings, has long been a cornerstone of American social insurance arrangements. The original Social Security Act was a compromise between those who thought social insurance should be structured primarily as a protection against low income and those who saw it primarily as a protection against loss of prior economic status and wanted social insurance closely tied to workforce attachment. (62)

While the strategy of distinguishing social insurance from “welfare” may have been politically beneficial at times, Graetz and Mashaw view it as a “serious mistake.”

This artificial and ahistorical division of the social welfare world between contributory and non-contributory schemes strands crucial poverty reduction programs in political backwaters. It creates confusion in both public discourse and public perception whenever progressive benefit and contribution formulas for social insurance are proposed and discussed. This political separation poses political dangers for ‘contributory’ schemes as well. It highlights ‘individual equity’ or bank-account considerations in social insurance arrangements—represented recently by the ubiquitous calculations of each individual’s ‘money’s worth’ from Social Security—while submerging the social adequacy commitment that should be the fundamental norm in the design and defense of social insurance.

This doesn’t mean that public assistance programs are solely social insurance, or even that all public assistance programs are social insurance. While Graetz and Mashaw believe social insurance is not limited to Social Security and Medicare, their conception of social insurance as a protection against income insecurity is “considerably narrower than all the public activities that might be said to support American family income.” As an example, they note that education programs are not social insurance, since they don’t provide insurance against “a current loss of economic well-being.” Instead, such programs are more appropriately viewed as an investment in future economic opportunity. (58)

This distinction isn’t completely clear-cut. Education obtained in one’s youth, after all, does enhance income security over the life cycle. But Graetz and Mashaw argue that such a narrowing of the definition is necessary for pragmatic reasons.

If the definition is too broad, ‘insurance’ becomes a useless metaphor.... Important ideas about good program design—identifiable risks, moral hazard, adverse selection, and so forth—lose their salience. If the criminal justice system qualifies as “social insurance” (protection against loss of income or assets through theft, embezzlement, and the like), the concept fails to define a distinctive area of public policy. (57)

Social insurance also is distinct from other types of insurance, including insurance provided in markets where there is considerable government involvement or regulation. The adjective “social” is important in making this distinction. Social insurance is different from other forms of insurance because it is a “social rather than an individual (or group) contract” and is made for “the purpose of collective provision, subsidy, or regulation.”

In part II, I'll discuss a specific case—why that quintessential "welfare" program, TANF, is best thought of in social-insurance terms.

Pinka Chatterji and Sara Markowitz find that longer maternity leaves—and fathers who take leave—has positive effects on mothers' health:

.... Using data from the Early Childhood Longitudinal Study Birth Cohort, we examine measures of depression, overall health status, and substance use. We use a standard OLS as well as an instrumental variables approach with county-level employment conditions and state-level maternity leave policies as identifying instruments. The results suggest that longer maternity leave from work, both paid and un-paid, is associated with declines in depressive symptoms, a reduction in the likelihood of severe depression, and an improvement in overall maternal health. We also find that having a spouse that did not take any paternal leave after childbirth is associated with higher levels of maternal depressive symptoms. We do not find, however, that length of paternal leave is associated with overall maternal health, and we find only mixed evidence that leave length after childbirth affects maternal alcohol use and smoking.

A few years back in the American Prospect, Linda Hirshman argued that the leveling off and decline of women's employment wasn't due to a bad economy, but rather the fault of what she labeled "choice feminism" which encouraged mothers to "opt out" of the workforce and care for children. She later wrote the charmingly titled book "Get to Work!"

Since then economist Heather Boushey has throughly debunked the opt out myth. In yesterday's NYT she pounded another nail in its coffin:

“When we saw women starting to drop out in the early part of this decade, we thought it was the motherhood movement, women staying home to raise their kids,” Heather Boushey, a senior economist at the Joint Economic Committee of Congress, which did the Congressional study, said in an interview. “We did not think it was the economy, but when we looked into it, we realized that it was.”

The full report is available on the JEC's website. Among the findings:

• Over the past three decades, only those families who have a working wife have seen real increases in family income.

• The 2001 recession hit the jobs that women held especially hard. Unlike in the recessions of the early 1980s and 1990s, during the 2001 recession, the percent of jobs lost by women often exceeded that of men in the industries hardest hit by the downturn.

• The lackluster recovery of the 2000s made it difficult for women to regain their jobs –women’s employment rates never returned to their pre-recession peak.

• If the prior recession’s trend holds, women will suffer equally to men in the 2008 recession. Because women are disproportionately represented in state and local government services, their job losses are likely to grow in the latter part of the recession as state and local governments are forced to implement cut-backs in spending in areas that women are disproportionately employed, such as education and health care.

This is great news:

Democrats and Republicans queasy about a federal rescue of mortgage giants Fannie Mae and Freddie Mac are coalescing around the idea of letting the government slap limits on the multimillion-dollar pay packages of their executives.

Key lawmakers - puzzling over how to explain to constituents why they voted to bail out the troubled government-sponsored firms - see new curbs on compensation for the top officers as a crucial measure to cut down on the cringe factor.

At a time when Fannie Mae's and Freddie Mac's troubles have investors worried and the government ready to jump in with untold sums of cash, the lavish pay of the two companies' executives is increasingly difficult to defend, they say.

For more on the case for imposing salary caps as bailout condition, see Dean Baker:

Economists have long debated the cause of growing wage inequality in the United States. While some have argued that inequality has been driven by institutions and policy, others have maintained that it was driven by the natural development of the market.

If the bailout proceeds [without conditions], the answer to this question will be as clear as day. The government is explicitly subsidising the pay of incompetent bank managers. It is the effective use of lobbyists that ensures the pay of the executives of Fannie and Freddie, not their skill and hard work. Of course, if anyone in Washington cared about inequality and fairness, or even believed in the market, the executives at Fannie and Freddie would not get away with it.

This month's Harvard Magazine has an excellent cover story on inequality. In this excerpt, Nancy Krieger asks the right question:

.... Research indicates that high inequality reverberates through societies on multiple levels, correlating with, if not causing, more crime, less happiness, poorer mental and physical health, less racial harmony, and less civic and political participation. Tax policy and social-welfare programs, then, take on importance far beyond determining how much income people hold onto. The level of inequality we allow represents our answer to “a very important question,” says Nancy Krieger, professor of society, human development, and health at HSPH: “What kind of society do we want to live in?”

The story also includes two evocative metaphors to describe inequality:

To describe the distribution of income inequality in the United States, Allison professor of economics Lawrence F. Katz likes to use the analogy of an apartment building. “Over the last 25 years,” he says, “the penthouse has gotten really, really nice. All sorts of new gadgets have been put in. The units just below the penthouse have also improved a lot. The units in the middle have stayed about the same. The basement apartment used to be OK, but now it’s gotten infested with cockroaches and it’s been flooding.”

The argument that none of this matters as long as the overall economy is growing—that a rising tide lifts all boats, as President John F. Kennedy famously said—is the subject of vigorous academic review, with mixed results, but it may not be the most important question. Picture a buoyant luxury cruise ship surrounded by dilapidated dinghies, full of holes and on the verge of sinking. The fact that the tide has lifted them does not mean they are doing well.

Both of these metaphors arguably need some more tweaking to accurately get at the nature of current-day inequality. With the apartment building, the problem isn't so much that the basement apartment has become less habitable in an absolute sense, it's that the tenant in that apartment has to work a lot harder to maintain it in the same condition. And she or he still doesn't have a parking spot in back, even though they've been on the waiting list forever, and the penthouse owners now have 3 Hummer-size spots in an underground garage with a valet.

Some conservatives argue that America's extreme income inequality is a praiseworthy thing because it goes hand in hand with greater economic mobility. In a new working paper, Lane Kenworthy and Co. find no such relationship:

Markus Gangl (University of Wisconsin), Joakim Palme (Institute for Futures Studies in Stockholm), and I have a paper that averages income over 18 years in Germany, Sweden, and the United States. Eighteen years isn’t a full work life, but it’s the best we can do with existing panel data sets. .... As the number of years over which income is averaged increases, the amount of measured inequality decreases. But it decreases at the same rate in each of the three countries. America’s position does not improve.

According to CQ:

.... Barack Obama .... has endorsed the idea of updating the federal measure of poverty, a proposal that is slowly gaining some traction after years of being confined to quiet talk among poverty experts.

New York mayor Michael Bloomberg called for a new poverty measure this week, and Democratic Rep. Jim McDermott of Washington held a hearing on his own proposal yesterday in the House Ways and Means Subcommittee on Income Security and Family Support, which he chairs.

But Obama’s support for the idea has the potential to advance the idea significantly, if he wins the election and pushes for it aggressively.

“Senator Obama knows that the federal poverty guidelines, which were developed decades ago, simply do not take into account the rising costs of child care, health care, transportation, and housing that make it difficult for many families to make ends meet in our globalizing economy,” campaign spokesman Nick Shapiro told me yesterday.

“Senator Obama believes that we should modernize the federal poverty guidelines to more accurately reflect the costs of living and the economic pressures on American families. Without an accurate measure of poverty and economic insecurity in America, we will not be able to fully tackle the effects of these problems on our children and families.”

Via Arloc Sherman, in a new paper in the Journal of Public Economics, University of Chicago's Susan Mayer and Leonard Loopoo find a strong relationship between state-level investments in children and economic mobility:

....

.... a 10% increase in government spending raises low-income adolescents’ future earnings by 4%—reducing the influence of low parental income. However, for higher-income families an increase in government spending hardly raises adolescents’ future earnings.

Additionally, the authors examined what kinds of spending are most effective at increasing children’s future income and for whom it is most helpful. Funding for elementary and secondary schooling has the largest impact on children’s future income, but other kinds of spending matter as well. Government spending also had a much greater impact on the future income of children raised in low-income compared to high-income families. For example, among low-income children spending on public welfare, hospitals, Medicaid, health, higher education, and housing and community development all increased the future income of children raised in low-income families. No form of government spending, however, benefited children from the highest earning families. Because government spending increased the income of adults from low-income—but not high-income—families, it reduced the influence of family origin on adult economic success and effectively increased equality of opportunity. The results remain when the authors hold constant both family and state characteristics.

A new publication on poverty from the Century Foundation includes this statement:

Poverty levels have proved to be so difficult to reduce largely because poor people tend to be isolated in neighborhoods that predominantly consist of other poor people.

Economic isolation and segregation is certainly a problem, but it isn't actually the case that most people living below the official poverty line live in neighborhoods that predominately consist of people living below the poverty line. In fact, as this Urban Institute report shows, a majority of people with below-poverty incomes live in neighborhoods in which fewer than 20 percent of the residents have below-poverty incomes.

The National Federal of Independent Business, the leading lobby group for small businesses, has reflexively opposed a range of progressive policies that would strengthen communities and the economy. Makes sense right? After all, progressives all know that most small businesspeople, the petit bourgeoisie of Marxist theory, are reactionary, Rush-Limbaugh loving conservatives. A fantastic article by three political scientists in the current Boston Review shows how wrong that assumption is, and how the NFIB fails to accurately represent the views of real small businesspeople:

....

A variety of sources suggest that the small business community has much more diverse political preferences [than those the NFIB prioritizes]. In a 2000 American Express poll, 82 percent of small-business owners cited “improving schools/training young people for work” as a very important issue to them, more than the number choosing tax cuts (74 percent) and reducing government regulations (72 percent). Another 77 percent cited health care for employees. Although small-business owners are generally thought to oppose the minimum wage, a 2007 survey indicated that 70 percent supported an increase in the federal minimum. Perhaps most surprising, in the 2004 presidential election only 3 percent of small-business owners identified taxes as the crucial issue informing their voting choices—a percentage that mirrored the population as a whole.

....

Small business owners occupy a Norman Rockwell-space in the American imagination. But as our analysis suggests and experiences in Washington and the nation’s state capitals repeatedly reveal, the appeal of small business has been appropriated by a powerful interest group that does not fully represent the views of small-business owners. Small business is not the only arena of American politics in which the dominant interest groups do not align well with the spectrum of preferences held by the people they represent. But because of NFIB’s power, it may be the most politically consequential, and also the most ripe for encouraging alternative groups that can speak for those who currently have little political voice.

I think I've blogged before about my preference for a term like "economic recovery" rather than the more technocratic-sounding "economic stimulus." A new message memo from pollsters Hart and Associations suggests recovery is also more resonant with the public than stimulus:

The survey results indicate that voters do not respond well to “stimulus” as an economic priority, while “economic recovery” does resonate.

I knew Barack Obama had never committed to the kind of specific UK-style poverty-reduction goal that Edwards and Clinton had endorsed, but I also wasn't sure if he had ruled one out. In his answers to this questionnaire, from the Spotlight on Poverty and Opportunity, it seems that he is saying no to a specific target:

Would your Administration set a specific numerical target and timeline for reducing poverty and if so, what would it be? With or without a target, what would be your top policy priorities for reducing poverty?

Rising poverty is one of the most serious issues facing America today, and I believe that inserting simplistic tag lines or one-dimensional goals are unlikely to be helpful in meeting this challenge. As president, I will build off of my life experiences of fighting poverty and hopelessness as a community organizer, civil rights lawyer and elected official to make poverty eradication a top goal of my administration.

Also in his answers, some specifics on how many workers would be helped by his EITC proposal: "my plan will expand the EITC, which is considered one of the most effective pro-work anti-poverty programs to date, to 5.8 million more Americans. Additionally, my EITC plan will increase EITC benefits for another 6.2 million Americans." (To give you a sense of the size of these expansions, around 23 million Americans currently receive the EITC).

It still doesn't work—the latest evidence, in the current issue of the Journal of Policy Analysis and Management:

This paper examines the impacts of four abstinence-only education programs on adolescent sexual activity and risks of pregnancy and sexually transmitted diseases (STDs). Based on an experimental design, the impact analysis uses survey data col- lected in 2005 and early 2006 from more than 2,000 teens who had been randomly assigned to either a program group that was eligible to participate in one of the four programs or a control group that was not. The findings show no significant impact on teen sexual activity, no differences in rates of unprotected sex, and some impacts on knowledge of STDs and perceived effectiveness of condoms and birth control pills.

I want to second John's concern that the new measure proposed by Mayor Bloomberg, while a "useful step forward" from the current poverty measure, is also likely "to narrow and technocratic to have much resonance outside of policy circles."

My own personal favorite is a measure that sets poverty based on a percentage of median income, say 50 or 60 percent, the lineage of which goes straight back to Adam Smith. The basic idea is that poverty can only be defined in connection to the economic mainstream. Notably, this type of measure produces poverty thresholds that are much more consistent with where the public believes income poverty starts, according to public opinion surveys.

The median income approach to defining poverty is commonly called a relative poverty measure, but it's actually more objective in social terms than either the current US poverty measure or measures like that proposed by Mayor Bloomberg. As social scientists Lee Rainwater and Tim Smeeding note in their book, Poor Kids in a Rich Country, "Anchoring the poverty line in terms of the median is a way of focusing on mainstream incomes and talking them as a point of departure in measuring poverty."

John Harwood has a fluff piece in today's NYT on Pete Peterson's campaign to cut Social Security. According to the story:

Mr. Peterson, 82, says he yearns for the can-do spirit that helped politicians forged by the Depression finance the G.I. Bill of Rights, the Interstate highway system and the Marshall Plan from the ashes of World War II.

While this may be what Mr. Peterson says is the nature of his yearnings, it would seem to have little to do with his actual campaign to cut Social Security, which relies primary on fear and generational division.

If the can-do politicians who passed the programs mentioned by Peterson had been as deficit and debt obsessed as he is today, it's safe to say that none of those programs would have happened. After all, in 1946, right after the passage of the GI Bill (1944) and just before the Marshall Plan (1947), the ratio of public debt to GDP was a staggering 108.6 percent, and in 1955, just before the establishment of the Interstate highway system (1956), it was 57.4 percent. Today, by comparison, it's about 37 percent.

I'm not saying that we don't face real long-term budget challenges. But a flat and uninspiring politics like Peterson's, one that is build entirely around painting those challenges in the direst terms, and misleading the public about their true nature (health care inflation, health inflation, health care inflation), isn't the way to address them.