The New Welfare State: Faster, Cheaper ... and Out of Control?

Clinton-era reforms are widely celebrated, but the recession has raised questions about whether they solved problems or just hid them from view.

It's still soon to make a definitive judgment on how President Clinton's welfare reforms affected the U.S. (Reuters)

In 1996, President Bill Clinton ignored the protests of his liberal base and signed a reform bill written by congressional Republicans that abolished the existing welfare entitlement and replaced it with a new program, Temporary Assistance for Needy Families. In doing so, he fulfilled a 1992 campaign promise to "end welfare as we know it," by instituting strict time limits and work requirements for recipients and block-granting funds to the states.

Within a few years, the number of families on welfare had shrunk by more than 50 percent. When caseloads remained low and single mothers' employment numbers and wages rose throughout the 2000-01 recession, even the law's critics began to take notice. Rebecca Blank, a member of Clinton's Council of Economic Advisers and a skeptic of the reform, acknowledged in 2006 that "[e]ven the strongest supporters of welfare reform in 1996 would not have dared forecast the steep declines and continued low levels of welfare caseloads a decade later."

Despite being mostly won over by the law's robust performance, Blank issued a warning: "in the face of a major economic shock ... the current system of public assistance may not provide adequate support for many of our poorest families."

The shock Blank worried about came in late 2007. Four years later, her fears seem to have been realized. Because of the 1996 law, welfare grants can't increase to accommodate surges in needy families during a downturn. The government simply block-grants about $17 billion to the states each year, regardless of the circumstances.

In fact, many states have looked to TANF for funds to plug other gaps in strained budgets, leading them to push welfare recipients off the rolls.

The result can be seen in stories of states like Florida and Georgia adding drug tests to already-stringent welfare requirements. In April, New York Times poverty reporter Jason DeParle caused a stir by reporting that welfare restrictions in states like Arizona had caused single moms to move back in with abusive boyfriends, commit petty theft, and sell blood to provide for their families.

Bob Greenstein, one of the 1996 law's critics and president of the left-of-center Center on Budget and Policy Priorities (CBPP), has noted that the number of families making less than the federal poverty level, or $23,050 per year for a family of four, that receive cash assistance has dropped steeply since the 1990s, from 68 per 100 to 27. It seems that the new welfare system is failing the most vulnerable families.

Of course, some perspective is needed to interpret this development. Even now, in the aftermath of the worst recession since the Great Depression, a higher percentage of single mothers are working and a lower percentage of children in families led by women are poor than before TANF was enacted.

In fact, the past few years have marked an evolution in the safety net, which as a whole has exploded in growth.

And while the people that the welfare reform was intended to benefit -- single mothers and their children -- may not receive cash assistance in the numbers they would have in the old system, other parts of the safety net have responded to their struggles in the current downturn.

In fact, the past few years have marked an evolution in the safety net, which as a whole has exploded in growth. It is not as oriented toward funneling resources toward welfare's traditional beneficiaries as it once was, but it's doing far more to act as an "automatic stabilizer," ramping up welfare spending to counteract the economy's contraction.

Many of the programs doing the spending are not as well known as TANF. Of 79 federal means-tested welfare programs, food stamps and the Earned Income Tax Credit (EITC) both help folks who would have been on welfare in a different era.

In fact, many analysts believe that the EITC, which boosts low-income citizens' wages, has been as important as the time-limit and work-requirement provisions of welfare reform in encouraging single mothers to find work. Together, food stamps and the EITC have nearly doubled in size since the start of the recession. Each of the two programs, along with Supplemental Security Income and housing assistance, plays a more important role than TANF in keeping families out of poverty, according to the CBPP.

The biggest growth in the safety net, however, has come in the form of two "shadow welfare state" programs: Social Security Disability (SSDI) and unemployment insurance. Independently of any grand design, both have become massive anti-recession programs.

At about $140 billion last year, disability spending is twice that of all spending by the Department of Education. The system wasn't intended to be so overwhelming. It was designed for the workforce of the 1950s, when physically demanding labor meant there was a clear-cut difference between ability and disability.

In today's economy, that distinction isn't as meaningful, and SSDI's broad definition of "disability" has lead to steadily growing rolls over the past 20 years. Many of the new enrollees claim disabilities that are hard to verify, such as mental-health problems or soft-tissue pain, leading experts to believe the system is being used as unemployment compensation. Such suspicions are bolstered by a 2002 study that found that disability claims in Appalachian coal mining country spiked when energy prices fell.

Unemployment benefits are also a significant chunk of the budget: They were expanded (along with Medicaid) in the stimulus bill, and will run up $105 billion on the federal tab this year. Unemployment was available, until just a few weeks ago, for up to 99 weeks after job loss in many states (now the maximum is 73 weeks). Unemployment benefits serve, in some cases, as a substitute for traditional welfare. Family heads who work instead of receiving welfare would be eligible for unemployment benefits in the case of job loss -- without the stigma associated with welfare.

Although disability and unemployment benefits are playing a huge role, at least in purely dollar terms, in limiting the ravages of the recession, it's important to note that these shadow welfare programs lack some of the key features of the normal, post-TANF "workfare" system. They both provide disincentives to work: disability because recipients lose benefits if they pick up work and thereby demonstrate they're not disabled, and unemployment because it simply pays people not to work. Estimates of these disincentives vary, but the Harvard economist Robert Barro estimated that unemployment insurance added as much as 2 percentage points to the unemployment rate during the recession.

Sixteen years after welfare reform, the safety net has evolved, over the course of innumerable changes large and small, to something new. Although a host of different programs have outstripped traditional welfare as anti-poverty measures, the new system has flaws that have yet to be fully acknowledged. In particular, the plight of the very poorest should cause concern. So should the giant bills incurred by the new shadow welfare programs, especially in light of the nation's mounting debt. The system is changing faster than we can figure out its weaknesses.