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Welfare Reform Was, and Still Is, a Good Idea

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Was welfare reform a good idea?

In the past few years, I've started to hear a common complaint from leftish policy wonks about the welfare reforms of 1996. Maybe it was a good idea in the booming labor market of the 1990s, they say. But after the dot-com bubble burst in the early 2000s, things went south, and what looked like a good idea at the time has turned out to be a recipe for misery. Max Sawicky referenced that argument Friday at Mother Jones in a post on labor force participation.

Yet if you look at the poverty figures, I don't think they tell that story. Here's the chart the U.S. Census Bureau publishes each year, showing the historical path of the poverty rate:

It's true that poverty has been unacceptably high for the past few years. What's surprising is that it hasn't been higher. We just went through the worst financial crisis since the Great Depression. Unemployment shot into the double digits, yet the poverty rate was no higher than it was after the relatively mild recession of the early 1990s.

That suggests to me that welfare reform has been a success: It lowered what you might call the "baseline" level of poverty -- the hard-core population of people almost completely unmoored from the labor market, who did not manage to support themselves in work even when the economy was doing well and made up the majority of welfare caseloads at any given time prior to reform. That's surely a good thing.

Of course, when the labor market gets worse, more people will be temporarily pushed into indigency, and you can argue that Temporary Assistance for Needy Families rolls did not expand by as much as they should have during the Great Recession. Nonetheless, the statistics do not show a significant increase in the rate of people being plunged into poverty when the boom ended -- and, if you assume that poverty really should have gone higher than it had been in previous recessions, show that the rate held relatively steady in the midst of a terrible economic crisis.  

Now, there are still arguments you can make against welfare reform. The first is that welfare reform had different effects on different sections of the caseload: People who were simply unemployable -- because of cognitive disabilities, addiction, mental illness or personality problems -- ended up much worse off, because when their benefits ended, they had no visible means of support. Yet even there, the data are a little more complicated than that simple story:

There is some evidence that the Great Recession was harder on the most vulnerable than previous recessions, and the rates of extreme poverty may represent people who had hit their lifetime TANF limits prior to the recession and were unable to access aid during our economic emergency. That may argue for some relaxation of lifetime limits during very bad downturns such as the one we just experienced, similar to what we did for unemployment benefits.

However, prior to that time -- which again was a fairly extreme anomaly -- there doesn't seem to have been a significant number of people pushed into extreme poverty; the level is not much higher than where it was in the late 1980s and early 1990s. During the 2001 recession, extreme poverty looked considerably better than it did during prior downturns. There's a good argument to be made that welfare reform didn't help the least employable in the way it helped the higher-functioning poor. But the data do not make a strong case that they have been made permanently worse off, and certainly not in a way that demands we roll back the 1996 reforms rather than temporarily adjust them during emergencies.

You could also argue that the Great Recession was the doorway to a "new normal," one in which the labor market will continue to be so weak that we will have a permanently elevated poverty rate and a higher rate of dire poverty befalling the unemployable. If so, future data will show that. But the data we have now don't seem to.

  1. Things such as extended unemployment benefits probably helped, too, at least in the initial period when the labor market had almost stopped functioning. But that's not really an argument against welfare reform; it's an argument that welfare reform needs to be coupled with extensions to other kinds of support during recessions. I would argue that is better policy than a program that encourages long-term dependency even during good times.

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Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net