Paul Ryan’s poverty plan attacks the wrong problem and comes up with the wrong solution

July 24, 2014
Jared Bernstein, a former chief economist to Vice President Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of the forthcoming book 'The Reconnection Agenda: Reuniting Growth and Prosperity.'

There’s a ceiling on how much good Rep. Paul Ryan’s new poverty plan can do. (Outcry in the Barrio)

The main problem faced by the American poor is not that there’s something fundamentally wrong with the safety net.  It’s that they lack the employment and earnings opportunities necessary to work their way out of poverty. Rep. Paul Ryan, in an interesting anti-poverty plan he outlines Thursday, one with a notable improvement over all his earlier work in this area, fails to understand this basic fact, and thus his plan widely misses the mark. In doing so, it creates deep and unnecessary risks, not to mention a huge new anti-poverty bureaucracy.

First, the notable change: For holding anti-poverty spending at current levels, I give Ryan (R-Wis.) credit for stepping back from his past proposals as chairman of the House Budget Committee to slash and burn low-income spending in ways that would have been sure to increase poverty. In fact, there are more spending cuts in this plan than meet the eye, but as he showed in his budget work with Sen. Patty Murray (D-Wash.), which replaced some of the damaging sequestration spending cuts, he’s got a practical side that’s a lot better than his visionary side.

Yet his new poverty plan, based on what he calls the Opportunity Grant, is misguided.

“It consolidates up to 11 federal programs into one stream of funding to participating states. The idea would be to let states try different ways of providing aid and then to test the results. … Each state that wanted to participate would submit a plan to the federal government. That plan would lay out in detail the state’s proposed alternative. If everything passed muster, the federal government would give the green light. And the state would get more flexibility to combine things such as food stamps, housing subsidies, child care assistance and cash welfare.”

As noted, the amount of federal resources set aside for the grant would be the same as under current law for all these programs, and while states could alter the composition of spending as they saw fit, they could not use the money for non-poverty programs.  He recommends trying this out with some scaled-down pilot program before going national (which is the right way to go about something like this).

Relative to his past budgets, I give him credit for holding spending where it is, but in actuality, it still represents a large, potential cut.  Under the current system, SNAP (food stamps) responds to increased need by automatically increasing. That would largely not be the case here, as spending would be held at some baseline level. Interestingly, in a plan where flexibility is a selling point, this critical aspect of the safety net would become less flexible.

Along the way, Ryan endorses “work requirements and time limits for every able-bodied recipient just as there are for cash welfare today.” This sounds to me much like what I worried about in yesterday’s post on this plan: doing to the rest of safety net what was done to TANF, the cash welfare program for poor families with kids that has been rendered largely ineffective in terms of poverty reduction, particularly when it’s needed most in recessions (a problem, to Ryan’s credit, that he recognizes, as I note below). I’m more sympathetic than some to the idea of work requirements for able-bodied people receiving safety net benefits.  History has shown that it’s hard to sustain and defend programs that provide benefits to one group of people who aren’t working and not to another group that are.

But where Ryan and others get it wrong is in their pervasive assumption that all you have to do to get a job is want a job. In this regard, here is what you need to know about work requirements: in the absence of strong labor demand, such requirements are a recipe for more, not less, poverty.  And even in strong labor markets, the low-wage labor market is often characterized by weak demand. So the only way I and other progressives should even begin to entertain the idea of requiring work is if there’s a guaranteed job.  And by the way, adding a work requirement without adding new money to administer it is a cut relative to current spending.

The broader reason his plan is misguided is because Ryan starts from the mistaken assumption that the current U.S. anti-poverty system is broken, when in fact it’s actually quite effective, and not just in lowering market-based poverty rates, which it does by almost half, but also by investing in the longer term well-being of its beneficiaries. (Bob Greenstein provides the details here.)  That’s not good enough by a long shot, but neither is it motivation to radically change the system in ways that introduce a dangerous set of new risks, as this new plan does, I fear.

On Wednesday, I stressed that consolidation and block granting to states risks losing the critical counter-cyclicality of our national anti-poverty system.  To his credit, Ryan acknowledges that problem and includes a useful discussion of it in his longer piece explaining his proposal (see Page 18, though he oddly remarks that a pilot project could not include this function; why not?!).  One solution he offers — that the block grants expand with state unemployment rates — could be effective, although as I stress below, we already have a counter-cyclical system, so why reinvent the wheel (it’s also administratively hard to adjust preset block grants in a timely manner)?  Today, I’d note that it’s not at all clear why multiplying the benefit delivery system by 50 is an advantage.

The implication here is that while a faceless bureaucrat in D.C. can’t possibly evaluate your nutritional needs, for example, a bureaucrat in Albany or Sacramento can easily and efficiently do so. And while the plan requires state officials to use the resources for poverty reduction, and not, say, tax reduction, consolidation also raises serious risks of diverting funds to areas of anti-poverty interventions that state officials favor vs. areas of need.

Ryan correctly recognizes the need for oversight and accountability, but that too creates a potentially large, new federal government function. All this for what?  Remember, under the current system, you lose your job, your income falls, and if you meet the eligibility standards for SNAP, for example, you get food stamps.  When your situation improves and your income recovers, you’re no longer eligible.

And this isn’t theory: SNAP responded precisely as expected in the downturn, and now, as the recovery is finally taking hold, the caseload is slowly reversing. As I stressed Wednesday, this pattern of responsiveness stands in stark contrast to the performance of TANF in the recession.  Guess which one of those two programs is block-granted?

I don’t mean to go all the way to “it-ain’t-broke-so-don’t-fix-it” regarding our anti-poverty system.  More granular input on the ground could surely be helpful, although not in the way Ryan argues here.  Remember, the problem faced by the poor is not that anti-poverty programs are ineffective or that they’re administered at the federal vs. the state level.  It’s that the poor don’t have the job and earnings opportunities they need.

In this regard, localized employment and training programs could help in identifying pockets of unmet local demand and in training low-income workers to meet those demands.  Better macro and fiscal policy are essential to create the necessary labor demand, though even then, direct job creation complemented by earnings subsidies and an adequate minimum wage are necessary to provide gainful employment to the working poor (another point to Ryan’s credit: He proposes an EITC expansion for childless adults, though we can argue about his “payfors”).

Those are the policy changes needed to go the rest of the way in poverty reduction.  While Ryan has made some advances here, most importantly in his bottom line on spending, what’s being served up is the wrong answer to the wrong question.

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Daniel W. Drezner · July 24, 2014