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The Avenue

Gouging the safety net is especially untimely now

Mark Muro and Clara Hendrickson

Having now secured passage in the Senate and House, the Republican tax plan will soon become the law of the land. But, as numerous Republican lawmakers have made clear, tax reform is only the first part of a broader effort to begin dismantling key components of the social safety net.

After the New Year, the party plans to turn to slashing entitlement spending, a move that the deficit-financed tax reform will make politically necessary. The blueprint for doing so is particularly punitive.

And yet, a recent confluence of increasing economic anxiety and new thinking (including on the right) bears attention. For all of the GOP’s continuing hostility towards the welfare state, a new view of the relationship between the economy and social programs has been gaining strength, not just on the left but also in smart precincts of center-right and libertarian thought.

In these quarters, the old doctrine that the safety net is always and everywhere antithetical to growth is beginning to be reassessed. Dawning instead, as we have observed elsewhere, is a recognition that a high-tech economy fueled by disruptive innovation actually requires a stronger safety net, if only to maintain the public’s tolerance for its inherent dislocations.

Prompting the new thinking is a litany of findings about how the “disruptive innovation” that drives a dynamic market system tends also to destabilize industries and displace workers. From the replacement of coal with natural gas in the power industry (with stark ramifications for coal miners) to all-encompassing megatrends such as digitalization, globalization, automation, and the spread of “contingent” work, today’s economic dislocations have brought both growth and dislocation.

Dislocation, in this regard, is no longer an incidental “bug” of the system but a “feature”—one that is generating widespread flux in the labor market. Last month, new Brookings research showed that the share of the nation’s employment that requires substantial digital skills has doubled to about 70 percent since 2002. And just before that McKinsey & Co. concluded that thanks to automation, up to one-third of American workers would need to move out of their current occupational categories to find work.

Tied to these disconcerting forecasts, moreover, is the fact that among major developed countries, only Mexico spends less as a share of GDP than the U.S. on labor market “adjustment” policy—programs aimed at smoothing out some of the dislocations visited on workers by economic shocks.

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All of which suggests why an improved safety net is beginning to look more, not less, important for saving the best of the disruptive economy from its worst side effects.

And here it’s interesting to see that thoughtful voices on the right are tendering some of the best arguments to that effect.

Amidst the summer’s Affordable Care Act fight, conservative New York Times columnist Ross Douthat argued that any repeal needed to be offset by implementing a working class insurance which could include an expanded earned income tax credit or refundable child tax credits. Meanwhile, the American Enterprise Institute released an entire policy brief dedicated to bolstering antipoverty programs. “Society must maintain a safety net that reduces material hardship,” the report began.

And for that matter, Will Wilkinson, vice president for policy at the libertarian Niskanen Center, has lucidly articulated why a reinvigorated system of social insurance programs is going to be crucial to support growth and offset the kind of frustration and answer that is driving the current “techlash” against the big tech platforms. Writes Wilkinson: “A sound and generous system of social insurance offers a certain peace of mind that makes the very real risks of increased economic dynamism seem tolerable to the democratic public, opening up the political possibility of stabilizing a big-government welfare state with growth-promoting economic liberalization.”

Authors

These insights are not just ideological flirtations. There is now an entire body of evidence that shows why a robust welfare state works in concert with the forces driving economic growth.

In his research on the effects of food stamps and Children’s Health Insurance Program enrollment, for example, Harvard Business School economist Gareth Olds found that the programs encouraged greater entrepreneurial activity among recipients.

Similarly, the Kauffman Foundation, an organization focused on promoting entrepreneurship, has released a set of policy recommendations supporting the safety net as a key to spurring growth-spurring economic risk-taking.

And for that matter, writers as diverse as Wilkinson and The Atlantic’s Alana Samuels have been focusing how a number of big-government welfare states (notably in Scandinavia) have been at least as economically dynamic in recent years as the U.S., and maybe more so. Wilkinson especially has dwelt on the pro-growth effects of health care benefits that promote entrepreneurship and worker training benefits that help displaced workers reskill themselves and find jobs that suit them in a productive way.

So while the GOP leadership seems intent on further weakening the nation’s frayed safety net, economic realities as well as a growing chorus of both center-right and progressive voices is arguing for a new social contract better adapted to an era of high-tech change. What will it take for that chorus and those realities to break through?

Portions of this post appeared in Boston Review.

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