Should the Safety Net Fly on Autopilot?

Almost four years after the official end of the Great Recession, some key “safety net” programs that kicked into overdrive during the crisis are under the microscope in Washington, D.C. After a two-year battle in Congress, the food stamp program looks likely to be re-upped but with a compromise 1 percent funding haircut. Meanwhile, already extended long-term unemployment benefits expired with the new year; the prognosis for another extension is murky.

One recommendation that’s unlikely to get any traction on Capitol Hill–but which was much in vogue Thursday on Massachusetts Avenue–is to install an autopilot into these programs.

“We all take it as a given that we’ll extend the number of weeks of unemployment benefits when there’s an economic downturn,” Robert Greenstein, president of the progressive-oriented Center on Budget and Policy Priorities, said at a Brookings Institution event reviewing the performance of the safety net. In the next recession, Greenstein said, he’d like to see programs like food stamps and Medicaid expand automatically as certain indicators telegraphed a downturn. Looser purse strings in an emergency would be activated by data, not emotion.

But can’t humans do this when needed? Explained Robert Moffitt, a Johns Hopkins economist sharing the stage with Greenstein, policymakers usually don’t get their act together in a timely manner. Congress proceeds slowly, and they don’t act until things are really bad.  “They acted relatively quickly this time,” he noted—one year and two months into the recession.

The composition of safety net relief (Moffitt did not address bailout or business stimulus measures) was unusual, he said. The Recovery Act did the expected and extended the duration of unemployment, but it also increased payouts for food stamps and the earned-income tax credit and added additional support to the states for Medicaid. When these provisions kicked in, they made a difference. The poverty rate rose but didn’t spike, and the programs created real stimulus by putting money in the hands of people who had to spend it immediately.

Greenstein and Moffitt’s remarks were part of a discussion centered on a recent special issue of The ANNALS of the American Academy of Political and Social Science. The session was sponsored by AAPSS, Brookings, the Annie E. Casey Foundation and SAGE.

Members of the panel—joining Greenstein and Moffitt were the special edition’s editor, Sheldon Danziger, president of the Russell Sage Foundation; Betsey Stevenson, a member of the president’s Council of Economic Advisors; and Michael Tanner, a senior fellow at the Cato Institute—were in broad agreement that the safety net performed yeoman’s work in keeping the poverty rate down during the immediate crisis. They were also in broad agreement that for much of the nation, the economic picture clearly has worsened since the recession’s official end in June 2009.

The safety net refers to the suite of programs that are meant to prevent Americans from hitting the economic bottom during hard times. Some are means-tested like traditional welfare (Temporary Aid for Needy Families) and food stamps (Supplemental Nutrition Assistance Program, or SNAP), and some, like unemployment insurance, are not. Tanner said his libertarian-leaning organization counts 126 different anti-poverty programs at the federal level. (They don’t include unemployment in their calculations because it’s not explicitly designed to combat poverty).

Despite the likely benefits of expanding benefits automatically in future recessions, “I don’t think that will happen,” Greenstein admitted. A headwind pushing against some sort of autopilot is the widespread perception—a misperception, he argued—that safety net programs discourage recipients from trying to get off the dole and into a job.

Whatever disincentives to work the programs do create—Greenstein characterized the effect as genuine but small—could expected to be smaller during deep downturns. “I would say there is a similarly large gap between what policymakers believe in terms of massive work disincentive effects from the safety net, and what the literature actually shows.” He cited popular palliatives such as SNAP and the earned income tax credit for which studies show “very small” effects on work ethic.

In what he termed “the minority report,” Tanner argued that a problem with safety net programs is “the ratchet effect –once these programs increase, they never seem to decrease, they never go back down.” Looser rules and higher benefits remain in place even after employment picks up and the recession ends.

He compared the last year of the recession with last year to buttress his contention. In 2009, safety net spending totaled $570 billion, 39.3 million people were on food stamps, 47 million using Medicaid, and 4 million in public housing. In 2013 safety net spending came to $690 billion, more than 47 million people received food stamps, 55 million were on Medicaid and almost 4.3 million in public housing.

This permanent enlargement of the welfare state follows, he continued, because deliberate policy decisions are made instead of allowing “natural countercyclicals,” i.e. the marketplace and government programs at existing strength, to intervene.

Not everyone agreed that this ratcheting was as widespread as Tanner implied. Greenstein noted a series of rollbacks—welfare benefits tied to unemployment ended in 2010; extra Medicaid funding in 2011; additional food stamp sweeteners last November and the rules at present reflect what in place during the last Bush administration; unemployment benefits extensions are either dead now or at lost will expire after one more round. “This stuff isn’t becoming permanent by and large,” he insisted.

And as an additional failsafe and a way to avoid a “big political fight” should policymakers every consider putting the safety net on autopilot, Moffitt suggested including sunset provisions. That way, not only would expansions take off when conditions were right (or more to the point, wrong), but they would also land as improvements were measured.
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Watch the discussion below: