Can N.C. help the poor without making them dependent?

Supporters  of poverty fighter John Edwards are still coping with his exit from the presidential race. We can speculate endlessly about his loss – about Obama’s star quality, or Clinton’s experience-by-proxy. But one fact stands out: voters were not swayed by Edwards’ anti-poverty populism. Why? Maybe people know intuitively that there is only so much government can do about the poor.

In other words:  Is there a sweet spot between compassion and dependency? We know there is a North Carolina in which – absent any charity or social safety net – people could be lost to poverty, ill health, or both. But we’ve also learned since the Welfare Reform Act of 1996 that what is originally intended as a safety net can grow into a sticky web from which people find it hard to escape. Partisans on the left and the right have not found the proper balance, if there is one. And yet arguments generally turn on increasing or cutting welfare, rather than striking any balance, or re-conceiving the system.

Last month, we learned that North Carolina poverty numbers were up statewide, to 14.9 percent, up from 13.8 percent in the year-prior period. Now, let me qualify that by pointing out three things most people don’t know:  first, poverty stats basically only measure monetary income, like from a job or welfare check; second, poverty stats don’t measure non-monetary entitlements like food stamps, HUD-housing, Medicaid, More at Four, free school lunch, etc. ; and three, poverty is measured in part by the number of people in a family household. In other words, while there may be more people with lower incomes around the state, they may be getting more in overall benefits. They most assuredly are.

Between 2000 and 2007 state spending on Medicaid went up from $1.54 billion to $2.92 billion. Currently 20 percent of North Carolinians are on some form of Medicaid. Since North Carolina has raised the eligibility requirements under Kids’ Care to 300 percent of poverty for a family of four, that percentage is likely to shoot up even more. While welfare advocates think this is somehow a good thing, they should consider a perverse effect called a wage trap:

“For instance,” writes Cato Institute’s Michael Cannon, “suppose a single mother of two small children in New Mexico has an opportunity to increase her annual earnings from $25,000 to $29,000. According to the federal government, the additional taxes and the gradual loss of government aid would cause her income to go up by only $200. If she increased her earnings to $31,000, her income would actually go down by $2,700.” Wage traps keep people dependent – or at what we might call subsistence poverty, discouraging upward mobility.

Indeed, after the Welfare Reform Act of 1996, the poverty rate went down (again, measured mostly by income) – because more people had incentives to work rather than stay on government benefits, which were drastically reduced. According to the Manhattan Institute:

“Child poverty showed a rapid decline in the late 1990s. The decline was especially dramatic for black and Hispanic children, among whom the poverty rate dropped by close to one-third between 1993 and 2002, and did not increase significantly during the recession years of 2001-2002.”

Some have tried to argue this improvement was a result of the economic growth of the 1990s, not welfare reform. But, says the Manhattan Institute, “this criticism does not explain why child poverty declined in such a sustained and dramatic fashion, since it had been impervious to improvements in the economy for more than the two decades prior to the mid-1990s.”

Why anyone would deny the incentive effects of wage traps – much less of getting something for nothing – is beyond this columnist. But the phenomenon of dependency is very real. Just ask someone with a 20-year-old living at home.

More to the point: we must address the grave possibility that those up-creeping government entitlements that Edwards and the North Carolina General Assembly favor could be the very perverse incentives pushing up the poverty numbers.  That may figure well into their agendas, but not into the ultimate goal of getting people out of poverty. (Then again, people who depend on you will often vote for you.)

Things get worse. Remember how we said that poverty was calculated by the number of family-members living in a home? North Carolina is also a magnet for immigrants – mostly illegals. When we consider these immigrants are inclined, culturally perhaps, to live many to a home (and that they tend to be poor) we know our poverty numbers are going to shoot up faster.  Of course, politicians will then use those numbers to explain how people need more government benefits, even though poverty stats don’t measure those benefits. So the process is self-reinforcing: numbers go up, politicians want more programs, more people become dependent, and the numbers go up.

If a recession is upon us, it’s time we started thinking about how to help people without making them addicted to government.

Max Borders is a policy analyst at the Civitas Institute in Raleigh (nccivitas.org).

This article was posted in Economy by Max Borders on February 5, 2008 at 2:03 PM.

© 2011 The Civitas Institute. Visit us on the web at www.nccivitas.org.
This article can be found at http://www.nccivitas.org/2008/can-n-c-help-poor-without-making-them-dependent/

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