March 28, 2024

Economix Blog: Casey B. Mulligan: Testing for Need

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Casey B. Mulligan is an economics professor at the University of Chicago.

One myth about the surge in federal government spending over the last four years is that it was an automatic response to the recession. But the “tests” that beneficiaries of various government safety-net programs are required to pass before they can participate have gotten easier since 2007.

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The government safety net is intended to help people in need. Because a lot of people don’t need the government’s help, a variety of tests have been designed to distinguish the needy from everybody else. These include employment tests, asset tests, income tests, earnings tests, retirement tests and age tests.

Two of the largest government programs are Social Security and Medicare. They administer essentially one test, for age. Once a person reaches age 65 (sometimes earlier), he or she can receive benefits from these programs regardless of income, assets or employment status.

In the past, and still today in most of Europe, Social Security required beneficiaries not only to be elderly but to be retired – the retirement test.

These days unemployment insurance is another major government expenditure, and its beneficiaries have to pass an employment test. That is, they have to be without a job and actively looking for one in order to receive benefits (a few states have small programs for employed but underemployed workers). Once a person passes the employment test, his or her assets or financial income are irrelevant for determining eligibility or benefits.

Beginning in the 1990s, cash family assistance or “welfare” programs began to have their own employment tests, but with the opposite determination: employment was required for participation. The 2009 American Reinvestment and Recovery Act permitted states to relax some of these requirements.

Family assistance programs traditionally had asset and income tests: a family could qualify only if both its income and assets were low enough. Medicaid – a government-financed health-insurance program for the poor – also has asset and income tests. The Patient Protection and Affordable Care Act of 2010 relaxed some income tests effective 2014, although even then a family with too much income will not qualify for Medicaid.

Traditionally the food stamp program (now called the Supplemental Nutrition Assistance Program, or SNAP, and participants now receive debit cards from the Department of Agriculture, rather than “stamps”) overlapped closely with family assistance programs, with some of the same asset and income tests. The 2002 farm bill provided an opportunity to avoid some of the SNAP tests, and states have recently taken that opportunity.

The bill allowed states to confer automatic SNAP eligibility on all households receiving a specified social service informational brochure, hard as that may be to believe. Households that participate in SNAP under this “broad-based categorical eligibility” rule still have benefits determined by the same formula (of household size and net income) as the other SNAP beneficiaries.

A practical result of broad-based categorical eligibility is that households can receive benefits based solely on their net income – it typically must be less than 130 percent of federal poverty guidelines (about $20,000 a year for a family of four) – and not based on the value of their assets or their employment status.

Even SNAP households not taking part through broad-based categorical eligibility saw the asset test relaxed by the 2008 farm bill, as the values of vehicles, retirement accounts and education savings accounts began to be excluded from the test.

So, simply put, in most states having assets is no longer a barrier to receiving food stamps. That’s the main reason that participation in the program increased 37 percent more than the number of families with income near or below the poverty line.

I agree that safety net programs would have grown from the recession alone, but, for better or for worse, they have grown many times beyond that thanks to numerous changes in program rules.

Article source: http://feeds.nytimes.com/click.phdo?i=7f3ce117238b311f73050cd25d0c3769

Economix Blog: Laura D’Andrea Tyson: Some Good Economic News, but Will It Last?

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Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and served as chairwoman of the Council of Economic Advisers under President Clinton.

In recent weeks, a series of encouraging reports on the United States economy, culminating in the December employment report, has provided tantalizing evidence that the recovery is strengthening. But it’s too early to celebrate.

Today’s Economist

Perspectives from expert contributors.

Both 2010 and 2011 started with good economic news and forecasts of a strong growth rebound but proved to be disappointing. Despite recent signs of strength, most forecasts for 2012 predict that growth will fall short of 2.5 percent, the rate required to absorb anticipated increments to the labor force, and that’s assuming Congress extends the payroll tax cut and unemployment benefits through the year.

Right now, it looks as though the United States economy will continue to recover at a moderate pace in 2012. But there are considerable downside risks that could cause growth to falter.

The central problem remains inadequate aggregate demand – both at home and around the world. The shortfall in demand is reflected in unutilized resources, notably unemployed and underemployed workers and idle plant and machinery.

The level of output in the United States is now higher than it was in the fourth quarter of 2007 but still far below the level that could be produced if existing resources were fully utilized. A recent Treasury estimate puts the gap between actual and potential output at more than 7 percent – or more than $1 trillion of goods and services.

The output gaps are even larger in many European economies, some of which never regained their 2007 output levels and have fallen into another recession that is now spreading throughout Europe.

In the United States, high levels of unemployment, weak wage gains and a steep decline in home values continue to constrain consumption, which accounts for about 70 percent of aggregate demand. Real disposable personal income actually decreased in the second and third quarters of 2011 and was essentially unchanged for the year.

The uptick in consumer spending in the last months of 2011 was offset by a worrying drop in the household saving rate, which fell to 3.5 percent, down from an average of 5.3 percent in 2010 and less than half its long-term historical average of 8 percent.

A sustained increase in household saving is necessary to make a significant and permanent dent in household debt, which still hovers at near-record levels relative to household incomes.

But instead of saving more, households borrowed more at the end of 2011, and consumer debt registered its largest increase in percentage terms since October 2001. This trend is neither healthy nor sustainable.

The December employment report showed promising signs of growth in labor incomes fueled by an increase in hours worked and an increase in hourly wages. With hours and wages both up, average weekly earnings rose at an annual rate of 3.1 percent in the last three months of 2011.

But with an unemployment rate of 8.5 percent, a labor-force participation rate of only 64 percent and 6.6 million fewer jobs than in December 2007, aggregate labor income has fallen to a historic low of 44 percent of national income. And labor income is the most important component of household income, which, in turn, is the major driver of consumer spending.

Labor’s share of national income tends to rise in recessions as companies hold on to workers, but the 2008 recession was different; companies shed workers at a terrifying pace and labor income plummeted. At the current pace of job creation, the labor share of income is not likely to recover its pre-recession level for a long time.

According to the Hamilton Project, the United States still has a “jobs gap” of 12.1 million jobs, and even with monthly job growth at the December 2011 rate of 200,000 jobs a month, the gap will not close until 2024.

Corporate profits are at an historic high as a share of national income, and business investment in plants and equipment has been strong, fueled in large measure by robust demand in emerging economies. But growth in these economies is also poised to slow in 2012 as recession in Europe and lower commodity prices eat into their exports.

In addition, emerging economies face tighter credit conditions, as European banks scale back their cross-border loans and build their capital, and as global investors reduce their risk exposure in response to the sovereign debt crisis gripping the euro zone.

With weaker consumption growth at home, the United States must rebalance future growth toward more exports. President Obama has set an achievable goal of doubling American exports over five years.

But recession in Europe and a slowdown in emerging economies will dampen American export markets in 2012. If concerns over the European debt crisis lead to a stronger dollar, as seems likely, that too will make the rebalancing and export goals more elusive.

And with a worldwide shortage of aggregate demand, there will be a strong temptation for countries to adopt zero-sum protectionist policies in 2012 to keep demand at home and to block access to their markets.

Barriers to market access are already a source of trade friction between the United States and China, which is the second-largest American export market. President Obama just announced an interagency task force to monitor “unfair” trading and business practices by China, and the United States is already investigating or pursuing market-access complaints against China on a variety of products in the World Trade Organization.

Given the large and persistent jobs deficit and the considerable risks to a sustained recovery in 2012, additional fiscal measures to increase aggregate demand are warranted – but Tea-Party obstructionism and election-year politics make them highly unlikely.

President Obama proposed a $450 billion package of such measures in October, but the package died in Congress despite compelling evidence that it would have supported about two million jobs over two years.

At this point, it is not even certain that the payroll tax cut and unemployment benefits will be extended through the rest of this year. What is certain is that we will hear a lot about job creation from Republican Congressional and presidential candidates but will see little action by a Congress mired in gridlock.

The danger in 2012 is not too much fiscal stimulus, but too much fiscal austerity. The same danger is stalking Europe and could lead to a sovereign default by a euro-zone country and the breakup of the euro.

Such an event, considered unthinkable just a few months ago but viewed as a real risk now, would plunge Europe and the United States into recession, with negative reverberations throughout the global economy.

For all of these reasons, 2012 is likely to be another difficult and disappointing year for the United States economy. The recent news has been promising but it’s too early to bring out the Champagne.

Article source: http://feeds.nytimes.com/click.phdo?i=b753b45421a4969c17e9df810c381f53

Fed Chairman Sticks With His View of a Slowly Mending Economy

Mr. Bernanke also said that he continued to see no evidence of broad and enduring inflation despite recent increases in the prices of oil and other commodities.

“Over all, the economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers,” Mr. Bernanke said in remarks that he planned to deliver Tuesday afternoon to a gathering of bankers in Atlanta.

His speech followed related remarks by President Obama, who told reporters that he was worried about the pace of growth, but saw no possibility of another recession.

“I am concerned about the fact that the recovery that we’re on is not producing jobs as fast as I want it to happen,” Mr. Obama said.

Mr. Bernanke’s speech, which came just before the financial markets closed for the day, was awaited by investors looking for any indication that the Fed might consider additional steps to enhance growth. The Fed chairman alluded to that possibility only once, noting that “monetary policy cannot be a panacea.”

Stocks quickly headed lower after he spoke, after spending most of the day in positive territory. The Dow Jones industrial average, which had been up more than 70 points, closed the day down 19.15 points at 12,070.81.

Mr. Bernanke spent more time explaining why the central bank planned to continue its existing programs despite concerns about inflation.

The economy has expanded much more slowly this year than the Fed predicted. Last month, private employers added only 83,000 jobs, reducing the average so far this year to about 180,000 jobs a month — barely enough to maintain the current rate of unemployment.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” Mr. Bernanke said.

Article source: http://www.nytimes.com/2011/06/08/business/economy/08fed.html?partner=rss&emc=rss