The Safety Net Is Working

There was not much good news from the Census Bureau’s release of numbers for 2009 on household income, poverty, and health insurance coverage. Here’s a summary: income flat, poverty up, health insurance coverage falling. But there is at least one piece of good news: the nation’s safety net is working.

Nearly all experts agree that the story would have been much worse if not for government programs that paid cash and other benefits to struggling individuals and families who were unemployed or destitute. In fact, the consensus among economists, based largely on the still very high unemployment rate, was that poverty would rise much higher than it did.

The Obama administration is spinning this good news as due in large part to spending from the 2009 stimulus legislation, the American Recovery and Reinvestment Act. But I find it difficult to believe that most of the positive effect on poverty was the result of program expansions in the stimulus package. The most important programs that corralled the potentially wild increases in poverty were Social Security, Medicaid, unemployment insurance, and food stamps.

Social Security had a muffling effect on poverty primarily because the inflation adjustment that is built into the program was too generous and provided beneficiaries with a windfall. The other programs all have built-in features that allow eligibility to expand when the economy falls without requiring legislative changes. Even without the expansions from the stimulus legislation, these programs would still have had major anti-poverty effects.

Regardless of the source of the growth in safety net spending, there is a problem. Last year we spent $132 billion on unemployment insurance, almost $270 billion on Medicaid, and $50 billion on food stamps. Nearly everyone now agrees that the federal deficit is unsustainable, that the rapid rises in spending on Medicaid and Medicare programs are the most important cause of the rising federal deficit, and that ways must be found to control deficit growth.

Now that the recession is beginning to abate, spending controls must be imposed on the federal budget. The first step toward fiscal sanity should be letting the provisions of the stimulus legislation expire as scheduled on September 30. The anti-poverty effectiveness of Social Security, Medicaid, unemployment insurance, and food stamps is substantial without the expansions added by the American Recovery and Reinvestment Act. These programs will cost less once the act’s provisions have expired and the costs will continue to decline as unemployment recedes over the next several years.

The lesson here is that safety net programs get very expensive during a recession, even without A.R.R.A.-type expansions. Given the deficit, the money to increase benefits during a recession is borrowed. The day is rapidly approaching when lenders will be unwilling to give us the cash needed to help struggling Americans during a future recession or will only lend to us at very high interest rates. In other words, the unemployed, the poor, and the elderly have a direct interest in substantial reductions in the federal deficit – beginning with the end of nearly all A.R.R.A. expansion in safety net spending.