A very brief history of welfare in the US

Some concepts, topics covered:

A brief history of welfare programs (from DiNitto, Seccombe)

Here’s a quote from Karl Polanyi (1957:45), from his book The Great Transformation, that is telling:

‘man’s economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end . . . These interests will be very different in a small hunting or fishing community from those in a vast despotic society, but in either case the economic system will be run on non-economic motives . . .

The explanation, in terms of survival, is simple. Take the case of a tribal society. The individual’s economic interest is rarely paramount, for the community keeps all its members from starving unless it is itself borne down by catastrophe, in which case interests are again threatened collectively, not individually. The maintenance of social ties, on the other hand, is crucial. First, because by disregarding the accepted code of honor, or generosity, the individual cuts himself off from the community and becomes an outcast; second, because, in the long run, all social obligations are reciprocal, and their fulfillment serves also the individual’s give-and-take interests best. Such a situation must exert a continuous pressure on the individual to eliminate economic self-interest from his consciousness to the point of making him unable, in many cases (but by no means in all), even to comprehend the implications of his own actions in terms of such an interest . . . the premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay. Personal character has little to do with the matter. Man can be as good or evil, as social or asocial, jealous or generous, in respect to one set of values as in respect to another.

Who needed taking care of? There have always been those unable to take care of themselves, but mortality rates were much higher in archaic societies (life expectancy lower); infant mortality, especially; ‘welfare’ was often triggered by calamity (drought, famine, fire, etc.). The ability of one group to help another hinged on the variable fortunes of the social groups (e.g., one’s crop doing better than another’s). If everyone was equally hard hit . . . Which households would have been best off? (those with lots of children, labor, good land, capital (animals), so older, established households-even in archaic societies, poverty was a process

Churches and major religions have been in the charity business for centuries. One of the five pillars of the Islamic faith is to give alms to the poor (and thus begging is generally a socially acceptable behavior in many countries with large Muslim populations). Catholic and Protestant churches have engaged in charitable activities over the centuries.

Elizabethan England

The first so-called ‘poor law’ of note was passed in 1601. There were distinctions important to who received what kind of aid. There were ‘deserving’ and ‘undeserving’ poor. Generally anyone who could work and didn’t was looked down upon. Idleness had both economic and biblical implications at the time. Children whose parents couldn’t support them were subject to being apprenticed in some sort of trade. There were what were known as ‘almshouses,’ where people unable to care for themselves resided. Those who could take care of themselves but were among the ‘deserving’ poor received assistance in their homes. The ‘undeserving’ were relegated to ‘workhouses,’ where they performed menial labor in return for meager food, shelter and clothing. The poor laws were supported by taxes levied.

Speenhamland law (mid 19th century England) expanded the poor law

The ‘enclosure movement’ began in the Middle Ages, and was concluded in the 19th century. As England industrialized, there was demand for factory labor in the cities. Most people were peasants, working the land, but owning little of their own production. Enclosure involved basically privatizing parts of the countryside that had been farmed by communities. People could apply for title to land, survey it, fence it, and produce whatever the market demanded (wool was a hot commodity as British were pirating textile technology from their colony, India, and learning how to automate the process of producing fabrics). Many peasants who couldn’t afford enclosure–it was quite expensive, and probably required some political connections, too–were either hired back as laborers on someone else’s land, or losing their livelihoods, sought employment in cities. Land was becoming a market good to be bought and sold, to produce the ‘highest economic goods.’ So cities were growing, probably faster than they could absorb the growth and hire workers coming from the countryside.

Enter the Poor laws, which were designed to force people to work at whatever wages they could get–only those with no work were granted relief (e.g., public assistance). The Speenhamland Law said a man could get assistance only where his wages were less than the income he would get from a sliding scale of relief. If employers kept wages low, in other words, there was little incentive for workers to produce. They could gain the difference between their low wage and the going relief rate, no matter how hard they worked. Sociologist Karl Polanyi says in fact that productivity declined during this era. Employers had no incentive to increase wages, either, because Speenhamland would take care of people who were underpaid (it became burdensome to finance, though). This was the age of the pauper.

As we go through class, you might remember this, and ask if there are any parallels with contemporary efforts to reduce welfare case loads and get more people working.

Colonial America

Life in the colonies was difficult, and there was little perceived room for those who couldn’t support themselves. People who came into communities were often escorted back out, either to the town they came from, or at least to create problems for some other town somewhere else. There were organizations, COS or Charity Organization Societies, much later in the 19th century, that performed charity work and took more of a case management approach that today characterizes the social work profession.

Political patronage also played an important role in the late 1800s – early 1900s. Political machines, such as Tammany Hall, set up systems up patronage, basically exchanging votes from the poor for services. This wasn’t usually taxpayer-funded support; the machines would essentially charge local businesses, offer ‘protection’ (we talked about protection rackets and racketeering), and in exchange would see that contracts to do work for the city, certain privileges, etc., went to their preferred clients. The money was used to buy votes in the city in the form of welfare/relief programs-a very paternalistic sort of welfare system (that had its own problems, especially with respect to democracy, people’s ability to participate in public debate and have a voice in government, etc.).

The 1930s and The New Deal

The Great Depression was precipitated by the stock market crash of 1929. Herbert Hoover did not manage the initial years very well, but in all fairness no president had ever been faced with such a dire economic crisis. In 1932 Hoover was voted out of office in favor of the former Governor of New York, Franklin D. Roosevelt (FDR). FDR and the New Deal, which was a set of policies, agencies and programs designed to combat economic depression and unemployment, was heavily influenced by the economic theories of John Maynard Keynes (pronounced ‘canes’), a British economist who among other things was an advocate for full employment (a radical notion then and now, that didn’t mesh with the ‘laissez-faire’ philosophy of the time. Keynes believed that governments could spend their way out of unemployment problems, essentially spend money they didn’t have. Through fiscal policies and control over money supplies, the government could smooth some of the unpleasant economic cycles associated with unemployment. FDR put people to work through the WPR (works progress administration) and the CCC (Civilian Conservation Corps), doing large public works projects (dams, reservoirs, swamp reclamation, work on National Parks facilities, etc.) all over the country. Malaria was actually endemic to many parts of the Southeastern U.S. before swamp reclamation destroyed much of the mosquitoes’ habitat. Today, when we hear the latest headlines about the US Federal Reserve Chair, currently Ben Bernanke (many in other parts of the world consider this office as powerful as the president’s), and his tweaking of interest rates and money supplies, Keynes is really one of the intellectual antecedents who paved the way. Keynes, who believed in full employment, also argued that exploitative capitalism that offered less than living wages to workers would eventually and essentially harm the labor force over time. His views likely influenced some of the worker protections that came out of the New Deal (unemployment insurance, workers’ compensation). His approach was called a ‘demand-side’ approach–full employment would put money in the hands of workers, who would spend it in their communities to keep the economy active and dynamic. Conversely, Hoover took a ‘supply-side’ approach–using large employers and banks as the ‘engines’ of the economy. What kind of approach has characterized the bailout of banks that began in September 2008?

FDR was influenced by Keynes’ philosophy, and believed that putting people to work (remember, unemployment rates were upwards of 25%) was the best way to climb out of the depression. At the same time he committed these workers to huge public works projects. While current supply-side economics puts money in the hands of the capitalists, or large corporations, who are then supposed to re-invest in production and create jobs, Keynes believed that what was important was to increase demand for goods by putting money in the hands of workers, consumers. In essence, many of these programs amounted to ‘workfare’, or welfare through work. The most important social welfare legislation to emerge was the Social Security Act of 1935. This was a mainly a social insurance program, rather than a relief program, and included old-age pension (that workers pay into), unemployment insurance (employers paid taxes), and relief for the aged, blind and dependent children (but minority children were often restricted from receiving aid). Other programs included housing aid and vocational education (retraining workers). The Aid to Dependent Children (ADC) was designed to keep single mothers from having to depend on their children for income, and generally to keep both groups out of the workforce (perhaps as well to reduce competition for jobs with men).

This was an entirely new approach to social welfare, and set the tone for other welfare programs developed in the latter half of the century. Historians and economists argue about how much the end of the Depression was due to New Deal policies, the US’ imminent entry into WWII (which stimulated the manufacturing industry), or just broader global economic conditions, however unemployment had fallen to 17% by the late 1930s.

The 1960s and The Great Society

Civil rights issues were at the forefront of the political agenda in the early 1960s. The Civil Rights Act of 1964 was a critical piece of legislation toward reducing the social inequalities and discrimination that minorities, particularly African Americans, had lived with since their arrival on the North American shores in the 1600s. Economist John Kenneth Galbraith influenced the thinking of President John Kennedy and Vice President Lyndon Baines Johnson (LBJ), pointing out that, while much of society was experiencing unprecedented affluence, there were major pockets of persistent poverty. AFDC (Aid to Families with Dependent Children) received greater funding support under an amendment to social security in 1962 (from Seccombe). After Kennedy’s assassination in 1963, LBJ carried the mantle of social welfare advocacy and declared a ‘war on poverty.’ While those counted among the poor (and remember the inadequacies of quantifying poverty) had been reduced from 40 million to 25 million by 1970, and there was a dramatic shift between social welfare and military spending from 1965 to 1975 (partly because the Vietnam War had ended, though), with military shifting from 40+ percent to 26%, and welfare from 24% to 42%. As DeNitto notes, in 2000, welfare expenditures accounted for some 60% of the budget, versus 15% for defense (there was some shifting after the end of the Cold War in the late 1980s, the so-called ‘peace dividend’).

Important programs to come out of the Great Society included Food Stamps, Medicaid (state-administered health insurance), and Medicare (old-age health insurance). There were a great many community organizing and development projects that emerged during this time as well, which helped inner city residents, a largely non-white population, gain access to welfare assistance programs that had been denied them in previous decades.

After the 1970s-major impacts

Do you know what a COLA is? A cost-of-living adjustment (and you thought it was a sickly-sweet soft drink!). The idea is to ensure that social security and Food Stamp programs keep up with inflation rates, and the COLA has been one of the reasons that welfare budgets have greatly increased as a proportion of the overall budget. As several social scientists have observed, the reasons probably had as much to do with making sure consumers had some purchasing power, than with ensuring that no one fell deeper into poverty.

Because of the post WWII baby boomers, the age composition of the U.S. is changing, and the burden is increasing on today’s workers to finance the retirements of the post-war generation. In addition, as medical technologies have improved, people have lived longer, and health care costs have greatly increased. By some estimates, 30% of health care expenditures are for people in the last six months of their lives. Many of the issues today dealing with welfare are about where the money will come from, as much as who is deserving of social welfare. Here is a breakdown of some of the welfare expenditures (as a percent of the total U.S. budget-this is from DiNitto for Fiscal Year 2000):

  • Social security: 22%
  • Medicare: 11%
  • Means-tested entitlements (e.g., TANF, Food stamps): 6%
  • Medicaid: 6%
  • For a look at total government spending, FY 2014 (proposed)

Income taxes make up almost 50% of budget revenue. Second is the social security or ‘payroll’ tax (workers are supposed to pay into this, as well as employers, and the current rate is 7.65% for each, but only on the first $100,000 of income), about 35%, then corporate income tax, about 10%. States (well, most, but not Oregon) use sales taxes to fund social welfare programs. Most states also levy an income tax. Property taxes are generally the main source of funding for public schools (Oregon has limited this, also, through referenda). Other tax revenue comes from ‘vice taxes’ on cigarettes, alcohol, and gambling (revenue from state lotteries, for instance).

In the post 1960s climate, there was a concerted effort to scale back welfare expenditures, attack and scale back the increasing political clout of labor unions, and make welfare as unattractive as possible while at the same time lowering wages. There was more going on in the world–it was during the 1970s that the globalization of the economy really began to take off. So . . . what does this mean? What kinds of jobs were heading out of the country, to where, and what kinds of jobs were replacing those lost? What was likely happening to wages, in other words, is there a connection between lost union and factory jobs and stagnating wages?

The 1980s and Reaganomics

Ronald Reagan was president from 1981-88. He was fond of using an anecdote about a ‘ Welfare Queen‘ in Chicago to criticize welfare spending. This welfare queen, African American, supposedly had ripped off the government for hundreds of thousands of dollars, used different aliases and addresses, and would drive up in her Cadillac to pick up here welfare checks. The story had elements of truth, but its use by a president to represent welfare programs was irresponsible. Yet as White House spokesperson Larry Speakes said, ‘well, it made a point, didn’t it??’ And it reflected the welfare philosophy of Ronald Reagan and his advisors, which bordered on contempt for social spending. The idea that welfare creates dependency received support from the highest levels in the 1980s. Big Government was wasteful, public assistance should be pared back, only the most needy deserve help, and then only temporarily.

‘Reaganomics’ used a ‘supply-side’ approach–the answer to Keynesian policies that focused on the demand side of the economy (expanding money supply to boost employment). Reaganomics included the following supply-side policies:

  • Cut federal spending
  • Reduce personal income tax rates (which disproportionately benefit wealthier individuals)
  • Deregulation of industry (airline deregulation may be the most famous)
  • Slower growth of money supply (too much money was theorized to cause the high inflation rates of the 1970s)

The idea behind supply-side economics is that keeping money in the hands of productive members of society is the best way to encourage economic growth (thus, reduce taxes). Taxes tend to discourage work and innovation, they act as disincentives. Critics called it ‘trickle-down’ economics, and the 1980s was a period marked by increasing inequality rates. It was the decade of Wall Street mergers, leveraged buyouts, Michael Milkin and Ivan Boesky, the federal bailout of the Savings and Loan industry, and a devolution of social welfare funding from the federal to the state level (often in the form of ‘block grants’ that states had some discretion over how they used). Milken, by the way, was granted a pardon from Pres. Trump (meaning he admitted guilt, but received whatever exoneration a presidential pardon provides).

Some of the legacies of the Reagan Era (which includes George Bush Sr’s term from 1988 – 92) include:

  • increased privatization (effects can be seen in deregulation of the nursing home industry, child care, the quality of which we know less about because the government collects less data on these). In other words, private companies controlling more resources and assets relative to the public sector.
  • Greater income inequality (tax breaks went to the wealthy; middle-class did not benefit from income tax reform);
  • Dramatic growth in homeless population (the cabinet-level Housing and Urban Development Agency was seriously downgraded during this time, which coincided with a boom in high-end real estate and housing construction);
  • ‘Devolution’ of programs, funding from federal to state level (block grants), and from ‘entitlement’ programs (where if you qualify, you get it) to lump sum funds that could run out.

See some NY Times statistics for a look at some measures of inequality comparing the US with other societies. This graph shows the income share of the top 1%, .1% and .01% (the 400 wealthiest Americans’ total income equals the bottom 150 million Americans’).  and an eye-popping glimpse of some of the more glaring inequalities from the late 1990s. Here’s the basic trend, which can only be understood by thinking about the history of the last century:

  • Diana DiNitto. 2003. Social Welfare: Politics and public policy (5th edition). Boston: Allyn and Bacon.
  • Bradley Schiller. 2001. The economics of poverty and discrimination. Upper Saddle River, NJ: Prentice-Hall.
  • Karen Seccombe. 1999. So you think I drive a Cadillac? Boston: Allyn-Bacon.