Article 43
Tuesday, June 30, 2009
True or False: U.S. Economic Stats Lie
By Jack Hough
Smart Money
June 30, 2009
Hows the economy treating you?
Chances are, your answer is colored largely by three things: whether youre working (if you want to), how much you’re making and how quickly your expenses are rising. Economists rely heavily on the same factors to judge the nations health. At last count, 9.4% of the workforce is jobless. Compared with a year ago, the goods and services we produce are worth 5.7% less while the ones we buy are 0.7% cheaper.
Two bright people might see sharply different things in those numbers. To one, the shrinking economy is a healthy unwinding of past excess, for example, while to another it’s a dangerous downturn that calls for bold government action. But what if the numbers themselves are something we should be debating? In the alarming view of a vocal few, Americas economic measures are misstated—rigged, really.
The accusation goes like this: Surveyors collect the nation’s data and statisticians compile and report it. Politicians naturally want the numbers to show improvement. Not being able to change the facts, they focus on the handling of facts, pressuring statisticians to change their measurements. Its not quite one grand conspiracy but decades of minor ones compiled. Today’s reports are so perverted, the theory holds, that the numbers have detached from common experience.
Pollyanna Creep
If the theory has a chief architect, it is John Williams, a semi-retired grandfather of five living in Oakland, Calif. The son of a chainsaw importer, Williams sold the family business in the 1970s and began consulting for corporations, recalculating government economic data to arrive at what he says were more reliable measures, and with them, truer forecasts. Today Williams runs SHADOW GOVERNMENT STATISTICS from his home. For $175 a year subscribers get economic data and analysis adjusted to back out the accumulated effects of what Williams has dubbed the Pollyanna Creep—Pollyanna being the orphan protagonist of the 1913 childrens book who learns to play the glad game to find cheery perspectives on life’s sorrows. In other words, he provides figures he feels are properly miserable, to offset government ones he says are too prettied-up.
If Williams is right, unemployment is over 20%, gross domestic product is shrinking by 8% and consumer prices are jumping by nearly 7%. His forecasts border on apocalyptic. The government is creating so much new money, he says, that the all but inevitable result is hyperinflation, where your highest denomination, the $100 bill, becomes worth more as toilet paper than money. Buy physical gold, he advises.
Whether we believe the forecasts or not, the possibility of a Pollyanna Creep has serious implications. Social Security payments are just one benefit adjusted each year for increases in the cost of living. If the figures hadnt been corrupted, says Williams, checks might be close to double what they are.
Williams has managed to attract plenty of press. A year ago, HarperҒs magazine featured a cover drawing of a grinning Uncle Sam fondling numeral-shaped party balloons, with the headline, “Numbers Racket: Why the Economy is Worse Than We Know.” The story centered on Williams data. The San Francisco Chronicle followed with Government Economic Data Misleading,” He Says. Last fall in the London Times: “Forget Short-Sellers and Manipulators, Pollyanna Creep Could Be the Culprit.”
Government statisticians are frustrated. “Economic Data Seems Accurate” doesn’t make for a catchy headline, so the press, they say, are too quick to give credence to conspiracy theories. “We go out of our way to be transparent,” says Thomas Nardone, who during 32 years at the Bureau of Labor Statistics helped implement many of the changes in calculating the unemployment rate. “We’d be remiss if we didnt make changes,” he says. “I’ve never seen measurement changes that were politically motivated.”
Katherine Abraham served as commissioner of BLS during the Clinton administration. Commissioners, unlike the statisticians who work for them, are political appointees. Now a professor at University of Maryland, Abraham says she did see political pressure, but rarely, and never with results. Once, she says, a prominent lawmaker told her the BLS might get more funding if it would agree to propose changes that reduce the appearance of inflation. Abraham says she rebuffed the offer.
Decide for yourself. Here’s a roundup of measurement changes at the heart of Williams claims, along with responses from people who work closely with the measurements. I’ll focus on unemployment and inflation, but not GDP, since the chief flaw with it, according to Williams, is how problems with the inflation measure overstate real, or after-inflation, growth. (Theres a different case to be made—that GDP measures some fairly undesirable things, like the cost of war and divorce lawyers, and so isn’t a great proxy for economic well-being—but Ill save that subject for another day.)
Disappearing Jobless?
About 13 million people were unemployed during the Great Depression, or around 25% of the work force, but those are fairly recent estimates. At the time, the government simply didn’t track data like it does today, which made it difficult to judge whether things were getting better or worse. Two main developments in the 1930s made tracking unemployment feasible. The first was an improvement in the way statistics are used to turn a relatively small sample into a faithful representation of the larger population. That allowed for the use of surveys. The second was the notion of basing ones status as part of the unemployed work force on actions. Whether someone wants to work, after all, is a subjective thing. Whether they’re looking for work is not.
Today the BLS reports six measures of unemployment, called U-1 through U-6, for which the definition of unemployment gradually broadens. For example, 4.5% of the work force has been unemployed for 15 weeks or longer and is actively looking for work (U-1), while 15.8% is unemployed if we count those who say they want work but arent looking, and those who work part-time for lack of full-time options (U-6).
Williams takes issue with a 1994 change that coincided with a shift to computerized data collection from pencil and paper. Until then, a discouraged worker was someone who wanted to work but had given up looking because there were no jobs. The BLS tightened the restrictions with additional questions, which reduced the ranks of discouraged workers by half. As Williams puts it, ӒThe Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers. Add those in, he says, and unemployment approaches Great Depression levels.
Nardone, the longtime BLS economist who today serves as assistant commissioner for current employment analysis, says the 25% unemployment rate often cited for the Great Depression is based on research that corresponds with todayӔs U-3, the unemployment rate most commonly reported by the media. It stands at 9.4%, recall—not close to Depression-era levels. The 1994 changes did reduce the ranks of discouraged workers, but also introduced a new category: the marginally attached, who want jobs but arent looking for reasons like transportation problems and child-care requirements. The most commonly watched measure (now U-3, before the change U-5) is mostly unaffected, since it doesn’t include discouraged workers. The benefit of the changes, explains Steven Haugen, a BLS economist, is a less subjective measure of discouragement, and some additional ways to judge whether the nation is not only working, but working up to its ability. Williams says the change reduced the broadest measure of unemployment in a way that doesnғt match with public perception, and for good reason.
For a BLS paper describing changes to its unemployment measure, see HERE.
Rent, Geometry and Hedonism
The same agency that reports unemployment, the BLS, also reports the consumer price index. It tracks changes in the prices of more than 8,000 goods and services, from apples in New York to gasoline in San Francisco. There are several variants of the CPI index. For example, CPI-W weights things like fuel more heavily to better reflect the commutes of workers, and is the basis for Social Security adjustments. CPI-U, the measure most often reported in the media, includes items a typical urban consumer might buy, and determines adjustments to inflation-indexed Treasury bonds. Note that “core inflation,” which excludes food and fuel, isn’t used as the basis for any federal spending program (and isnt called core by the BLS, which reports but doesn’t seem to especially prize the measure).
Most CPI criticism is based on three changes that affect all indexes. In 1983 the BLS replaced house prices with something called owners equivalent rent to measure the cost of shelter. Williams and other critics say it understates the cost, since house prices, until recently, had outpaced rents. John Greenlees, a BLS economist, says the new method is the most widely used among developed nations and is meant to fix a flaw in the old one. The CPI is supposed to measure things people buy to use, not things they invest in. For many people, houses are a little of both. The new measure attempts to isolate the portion of housing expenditures that best reflects the cost of living. Williams says the purchase price of housing is an important factor in determining a constant standard of living, and he doubts the ability of Ғthe government to accurately calculate how much a person would pay to rent his own house.
Another change: In 1999 the BLS adopted a geometric mean formula to replace its arithmetic mean one. The new method weights goods less as their prices rise, and is supposed to reflect patterns of consumer substitution. Critics say that treats consumers as if they’re no worse off when they switch to hamburger from steak. Greenlees says the analogy is flawed; the methodology allows substitution only between similar goods in the same region—from steak in Chicago to a different type of steak in Chicago, and not to hamburger. The old measure was really an overstatement of price increases, one that assumed consumers don’t react at all to higher prices, he says. Also, the impact is relatively small. The BLS has continued to calculate prices under both methodologies and says over five years ended 2004 the new measure reduced CPI growth by 0.28 percentage points a year. Williams says geometric weighting has moved the CPI away from measuring a constant standard of living. He says that when the effects are combined with those of other changes, like increased price surveying among discount stores (which he contends offer poorer service and thus a lower standard of living than the shops they replaced) the overall impact is larger than the BLS states.
Finally, in 1999 the BLS began using what it calls hedonic adjustments. Williams explains the approach with a dash of sarcasm:ӓThat new washing machine you bought did not cost you 20% more than it would have cost you last year, because you got an offsetting 20% increase in the pleasure you derive from pushing its new electronic control buttons instead of turning that old noisy dial. He calls the impact on CPI substantial. Greenlees says the name hedonic was an unfortunate choice, since the technique has little to do with making judgments about pleasure. It’s designed to measure the quality difference between goods when one is discontinued and must be replaced in the index with another thats not quite the same. Adjustments can push the index in either direction, but Greenlees says the overall impact since the change has been a tiny increase in the CPI—about 0.005% a year. Williams says some hedonic adjustments are indeed necessary, like when the size of a box of crackers changes from 12 ounces to 10 ounces. But more theoretical adjustments, he says, ғoverstate the quality of what the public is buying.”
The BLS has published a 17-page paper countering what it calls misconceptions about the CPI. Find it HERE.
Williams suspects his charges motivated the paper, and has issued a response a rebuttal to the rebuttal, if you like ח HERE.
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Sunday, June 28, 2009
Earthlink’s Datamining Trick
You don’t use those worthess CDs ISPs send their new customers, do you?
EARTHLINK’S CRAP ADDS A UNIQUE TAG to your browser’s USER-AGENT string, making it a cinch to TRACK YOUR COMINGS AND GOINGS over the internet.
Here’s an example from this morning’s weblog:
“Mozilla/4.0 (compatible; MSIE 6.0; Windows NT) ::ELNSB50::000061100320025802a00111000000000507000900000000” “- -”
My favorites from those CDs are the diagnostic programs that run in your tray so in case you have internet trouble, a helpful support rep can easily zip into your computer and take a peek.
Just dandy.
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Thursday, June 25, 2009
The Uncommon Carrier
Opinion: The ISP - The Uncommon Carrier
By Geoff Huston, Telstra
The Internet Protocol Journal - Volume 5, Number 3
There is a long-standing role in the communications industry where a provider of public carriage services undertakes the role of a common carrier. What’s so special about the role of a common carrier, and why is this role one that is quite uncommon in the Internet Service Provider (ISP) world?
Side comment: There once was a time when you could not trust the messenger. There once was a time when not only did you pay to have your message sent, but you paid to receive messages. And there was no guarantee that the message would not be read by the messenger. The contents of your note could have been used to determine how much the receiver should pay for the message. Your message could have been copied and sold to other parties. If you can’t trust the messenger, then communications becomes a risky business.
The Messenger
Throughout history the position of a messenger has been a mixed blessing. To be the bearer of bad news was not an enviable role, and rather than being rewarded for the effort of delivering the message, the messenger might have been in dire straits, given the level of wrath of the recipient. The option of reading the message before delivering it could be seen as a personal survival strategy, as well as being a prudent business move. Bad news could be discarded immediately, whereas good news could have the potential of extracting a higher delivery fee from the recipient. Although this scenario would have been good for the messenger, such a mode of operation was not beneficial to all. For the parties attempting to use the messenger service, message delivery could be a very haphazard affair. The message might or might not get delivered, the delivery time was variable, as was the cost of delivery, and if the message itself was intended to be a secret, then one could confidently anticipate that the messenger would compromise this secrecy.
The Common Carrier
For a communications network to be truly useful, numerous basic attributes must be maintained. These include predictability, so that a message passed to a communications carrier is delivered reliably to the intended recipient. Integrity is also necessary, because a message must not be altered by the carrier in any way. Privacy is also an essential attribute, because the message must not be divulged to any party other than the intended recipient, nor should even the existence of the message be made known to any other party. And above all there must be a solid foundation for trust between the carrier and the clients of the service. So in this form of social contract, what does the carrier get in return?
Apart from payment for the service, the carrier is absolved from liability regarding the content of the messages, and from the actions of the customers of the service. This form of social contract is the basis for the status of a common carrier.
It may have taken some time, but this role is well understood by the public postal network. And as many national postal operators encompassed the role of national telephone carrier, the common carrier role has been an integral part of the public telephone network.
The ISP’s Role
But in the world of the ISP the position of common carrier is very uncommon indeed.
There once was a time when folk did not need to encrypt their letters nor speak in scrambled code to undertake a private conversation. The assumption, made law in many countries, was that the entity entrusted with public communications, the common carrier, was barred from deliberately inspecting the contents of the plain transmission, and various dire penalties were in place if a public carrier’s employees or agents divulged anything they may have learned by virtue of being public carriers. Various measures were put in place to execute interception and monitoring, but these measures required due process and reference to some law enforcement agency and also the judiciary to ensure that the rights of the public user were adequately safeguarded.
The issues of the role of a common carrier and the current role of an ISP are clearly seen when looking at the reactions to unsolicited commercial e-mail, or spam. Every day ISPs receive strident demands of the form: “One of your users is sending unsolicited messages - disconnect him now!” Internet users are, in effect, holding the ISP responsible for the actions of its customers. A similar expectation of the ISP’s responsibility for the actions of its customers is seen in response to various forms of hacking, such as port scanning. Similar messages are sent to ISPs, demanding the immediate disconnection of those customers who are believed to be originating such malicious attacks. From a small set of complaining messages some years back, the volume of such demands for ISP action is now a clamor that is impossible for any ISP to ignore.
What should the ISP do? Many responsible ISPs see it as appropriate to conduct an investigation in response to such complaints. ISPs often include provisions in their service contracts with their customers to allow them to terminate the service if they believe that their investigation substantiates the complaints on the basis of a breach of contract. When disconnected, such customers are often blacklisted by the ISP to ensure that they cannot return later and continue with their actions. Surely this is an appropriate response to such antisocial actions?
This may be the case, but it is not necessarily consistent with the role of the ISP as a common carrier. A common carrier is not a law enforcement agency, nor is it an agent of the judiciary. It may be entirely appropriate for a common carrier to investigate, under terms of strict privacy, a customer’s activities and inspect the contents of traffic passed across the network if it has reasonable grounds to suspect that the integrity of the network itself is under threat. Equally, it is probably inappropriate for a common carrier to extend the scope of such investigations on the basis of external allegations of activities that are not related to the integrity of the service itself.
The assumption that an ISP is, in some way, responsible for the actions of its customers has been extended further in some countries, such that the ISP is, in part, responsible for the content carried over its network, including content that originates with a customer of its service. This expectation that ISPs should actively control and censor content passed across their network is not just an expectation of some Internet users. This expectation appears in numerous legislative measures enacted in many countries. The COMMUNICATIONS DECENCY ACT in the United States legislature is an example of such an expectation of the active role of the ISP in controlling content passed across its network.
Who Will You Call?
Perhaps the issue here is one of expediency. Where can a user direct a complaint after receiving yet another piece of unsolicited, and possibly highly offensive, e-mail, apart from the ISP of the sender of the message? Where else can users direct a complaint after being the subject of yet another port scan of their system, but to the ISP? And what else can an ISP do in response? The ISP often has little choice but to investigate such complaints in good faith, and take corrective action if the complaint is substantiated. In the absence of any effective regulatory framework that would allow such investigations to be undertaken by an appropriate external agency, the ISP is in a difficult position.
Whereas it may be the correct common carrier position to disclaim all responsibility for the actions of its customers together with the content passed across its network, to ignore such complaints marks the ISP as a haven for such antisocial activities. Adopting such a position often has a negative impact on the ISP’s ability to interconnect with other ISPs, because ISPs also tend to hold each other responsible for the actions of their customers and the content passed across their network. ISPs tend to avoid extending interconnection services to those ISPs that disclaim any such responsibility. So the expedient response is for the ISP to assume some level of responsibility for its customers and the content of its network and act accordingly.
But short-term expedient measures should not be confused with long-term effective solutions. The problem with these short-term responses lies in the uniquely privileged POSITION OF THE CARRIER. Even rudimentary forms of DATA MINING of each customer’s communications patterns and the content of their communications can yield vast quantities of valuable information. Such information can allow a carrier to discriminate between customers, compromise the integrity of the customer’s use of the network, and actively censor the content passed across the network. POSITIONS OF PRIVILEGE without accompanying checks and balances are readily abused. There is already the widespread expectation and acceptance that an ISP has the ability and duty to inspect network content and monitor customers’ activities with respect to various forms of antisocial and often malicious activities. But how can checks and controls be enforced such that the information gained through such monitoring activities is not used for other purposes? Such monitoring is not without cost, and the option of recouping some revenue to balance this expenditure by regarding this information as a business asset is always present. The regulatory impost of a common carrier role is intended to be an economically efficient response to this issue. The common carrier role is intended to reduce the social power of public carriers and protect the public’s open, uncensored, and equal access to the carrier’s services.
It is often said that the road to hell is paved with the best of intentions that the ultimate outcome of the solution is potentially far worse than the immediate problem being addressed. The ultimate outcome of erosion of the common carrier role is that public users of a public communications service can confidently expect their communications to be monitored, potentially stored and cross referenced, and possibly later acted on.
Public Policy
Today the short-term expedient measures abound. There is enormous pressure on ISPs from both the Internet’s user base and numerous legislatures to take an active position of being responsibleחand liable, for the content on the networks and the actions of their clients. If left unchecked, this will have severe longer-term consequences for free speech, basic personal privacy, and uncensored, nondiscriminatory, universal access to the Internet. And when the user base comes to recognize the debased value of such a compromised communications system, they will inevitably look to other means of communication that have retained their essential integrity as a common carriage service.
Perhaps it is time for the debate regarding the role and responsibilities of an ISP to be placed on the agenda of public policy makers. Perhaps it is time to recognize that ISPs are indeed common carriers, and that they have a clearly bounded set of responsibilities with respect to both content and the actions of clients of the service.
Perhaps it is time to consider how best to enforce social norms on the Internet without compromising the basic integrity of the carrier as a neutral party to the content being carried across the network. Perhaps it is time to recognize that in this domain the Internet is not entirely novel, and what we have learned from a rich history of carriage provision in society has direct relevance to the Internet today.
The Internet is simply too valuable a communications service to have its long-term potential as a universal communications service mindlessly destroyed on the altar of short-term expediency.
Disclaimer: I am by profession neither a lawyer nor a public policy maker. However, by virtue of working in the ISP industry, I have an increasing level of interest in the activities of these folk, for the reasons outlined above. I should also note that personal opinion comes in many forms. The above is one such form.
GEOFF HUSTON holds a B.Sc. and a M.Sc. from the Australian National University. He has been closely involved with the development of the Internet for the past decade, particularly within Australia, where he was responsible for the initial build of the Internet within the Australian academic and research sector. Huston is currently the Chief Scientist in the Internet area for Telstra. He is also a member of the Internet Architecture Board, and is the Secretary of the APNIC Executive Committee. He is author of The ISP Survival Guide , ISBN 0-471-31499-4, Internet Performance Survival Guide: QoS Strategies for Multiservice Networks, ISBN 0471-378089, and coauthor of Quality of Service: Delivering QoS on the Internet and in Corporate Networks, ISBN 0-471-24358-2, a collaboration with Paul Ferguson. All three books are published by John Wiley & Sons. E-mail: gih at telstra.net
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Jobless In June
U.S. Economy: Jobless Claims Rise in Sign Labor Market Stagnant
By Courtney Schlisserman and Shobhana Chandra
Bloomberg
June 25, 2009
The number of Americans filing claims for unemployment benefits unexpectedly rose last week, a reminder that companies will keep cutting staff even as the economy stabilizes.
Initial jobless claims rose by 15,000 to 627,000 in the week ended June 20, from a revised 612,000 the week before, the Labor Department said today in Washington. A report from the Commerce Department showed gross domestic product shrank at a 5.5 percent annual pace in the first three months of the year.
Recent data show some areas of the economy, such as housing and manufacturing, are seeing a smaller pace of decline, consistent with the Federal Reserves projection that the slump is ғslowing. Even so, companies are unlikely to hire until there are sustained gains in demand, meaning a recovery remains dependent on the effectiveness of government stimulus efforts.
ԓWere in the prelude to the end of the recession,Ҕ said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who accurately forecast the drop in GDP. The stimulus will build steam, but itӒll be a pretty tepid recovery. The loss of jobs ԓis one factor holding back consumer spending, he said.
Stocks gained as higher oil prices triggered a rally in energy shares. The Standard & PoorԒs 500 index was up 0.8 percent to 908.31 at 10:33 a.m. in New York. Treasury securities were little changed.
Unexpected Jump
Economists forecast claims would fall to 600,000, according to the median of 41 estimates in a Bloomberg News survey, from a previously reported 608,000 a week earlier.
The number of people collecting unemployment insurance increased by 29,000 in the prior week, to 6.74 million.
The four-week moving average of initial claims, a less volatile measure, rose to 617,250 from 616,750.
The jobless rate among people eligible for benefits held at 5 percent in the week ended June 13. The June 13 data coincides with the week Labor conducts its monthly payrolls survey, which the department is due to report on July 2.
Thirty-six states and territories reported a decrease in new claims for the week ended June 13, while 17 had an increase. Some states that dont ordinarily report layoffs related to the end of the school year saw larger than expected job losses in education services, Labor said, declining to be specific.
Economy Shrinks
The contraction in first-quarter GDP, which was less than the 5.7 percent drop estimated last month, capped the worst six- month performance in half a century, the revised figures from Commerce showed. The worldҒs largest economy shrank at a 6.3 percent annual rate from October to December.
The biggest slump in business investment and inventories since records began in 1947 and the worst contraction in homebuilding since 1980 paced the decline last quarter.
The housing recession, now in its fourth year, is showing signs of abating. Builders broke ground on more homes than forecast in May, with single-family starts posting a third straight gain, Commerce figures showed earlier this month.
Business investment may also be on the mend. Orders for non-defense capital goods excluding aircraft, a proxy for future spending on new equipment, jumped in May by the most since 2005, Commerce reported yesterday.
Some companies are seeing signs of stabilization. Nucor Corp., the second-largest U.S. steelmaker, may boost plant operating rates to as much as 60 percent of capacity in the third quarter as customers use up inventories, Chief Executive Officer Dan DiMicco said.
Orders Improving
We have seen distributors begin to order at a level consistent with real demand,Ӕ DiMicco said in a Bloomberg television interview yesterday in New York. Still, we will not be happy, and our competitors will not be happy, until we are north of the 80 percent levels again,Ӕ he said.
Fed officials said in a statement at the end of their two- day meeting yesterday said he pace of economic contraction is slowing.Ӕ Consumer spending remains constrained by ongoing job losses, lower housing wealth and tight credit.Ӕ
At the same time, the slack in the economy means inflation will remain subdued for some time,Ӕ they said.
Part of that slack is being created by the bankruptcies of General Motors Corp. and Chrysler LLC. Earl Hesterberg, chief executive officer of Group 1 Automotive Inc., the owner of 99 U.S. and U.K. dealerships, this month said car sales remain weak.
Auto Slump
We now have eight or nine months of bouncing along the bottom,Ӕ Hesterberg said in an interview, referring to the industry. Really we donӒt see much difference from month to month.
Still, other areas show signs of improvement this quarter. Retail sales rose in May for the first time in three months, government figures showed.
The economy may not yet need a second stimulus after the administrationԒs $787 billion initiative, which includes tax cuts and spending on infrastructure, President Barack Obama said at a White House news conference this week.
I think itӒs important to see how the economy evolves and how effective the first stimulus is, the president said.
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Wednesday, June 24, 2009
The Next Depression Part 35 - Welfare
Continuing Claims “Exhaustion Rate”
By Barry Ritholtz
The Big Picture
June 22, 2009
Last week, we saw Continuing Claims decrease proof, said the green shooters, of the imminent economic recovery.
Only, not so much:
Those of you (who can still afford the luxury of) a trusty Bloomberg will note the “exhaustion rate” for jobless benefits - EXHTRATE reveals that people are not leaving the pool of continuing unemployment claims because they are getting new jobs; Rather, they are leaving because they have exhausted their benefits.
They are now unemployed AND broke. That is hardly a green shoot . . .
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Numbers On Welfare See Sharp Increase
By Sara Murray
Wall Street Journal
June 22, 2009
Welfare rolls, which were slow to rise and actually fell in many states early in the recession, now are climbing across the country for the first time since President Bill Clinton signed legislation pledging “to end welfare as we know it” more than a decade ago.
Twenty-three of the 30 largest states, which account for more than 88% of the nation’s total population, see welfare caseloads above year-ago levels, according to a survey conducted by The Wall Street Journal and the National Conference of State Legislatures. As more people run out of unemployment compensation, many are turning to welfare as a stopgap.
The biggest increases are in states with some of the worst jobless rates. Oregon’s count was up 27% in May from a year earlier; South Carolina’s climbed 23% and California’s 10% between March 2009 and March 2008. A few big states that had seen declining welfare caseloads just a few months ago now are seeing increases: New York is up 1.2%, Illinois 3% and Wisconsin 3.9%. Welfare rolls in a few big states, Michigan and New Jersey among them, still are declining.
The recent rise in welfare families across the country is a sign that the welfare system is expanding at a time of added need, assuaging fears of some critics of Mr. Clinton’s welfare overhaul who said the truly needy would be turned away.
“To me it’s good news,” says Ron Haskins of the Brookings Institution, who helped draft the 1996 welfare-overhaul law as a Republican congressional staff member. “This is exactly what should happen.”
Welfare cases peaked at above five million in 1995 and declined sharply after the 1996 law put time limits on benefits and emphasized moving recipients from welfare to work. The time limits vary by state, but the federally mandated maximum is five years with some exceptions; after that, benefits end.
The cash-assistance program, called Temporary Assistance for Needy Families (TANF), was created by the 1996 law and replaced previous welfare and jobs-training programs. Funded partly by the federal government and partly by the states, it primarily assists women who have children and no job, or a very low-paying one. The number of families on welfare had been falling steadily and, nine months into the recession, stood at 1.6 million in September 2008, the most recent date for which national tallies are available.
First Real Test
“This is the first real test,” said Liz Schott, a welfare analyst at the Center on Budget and Policy Priorities, a liberal Washington think tank. “We always said, how is it going to perform? How is TANF going to perform in an economic downturn?”
One clue, she says, can be found in a different measure. Although the TANF program seems to be accommodating increased need, it is doing so at a slower rate than another government initiative: the food-stamp program. The number of food-stamp recipients has risen in every state and was 19% higher in March than a year ago, a much bigger increase than the number of welfare cases.
Food-stamp eligibility is significantly easier than the criteria for receiving welfare, so food-stamp assistance tends to rise first. The food-stamp program covers a much larger pool of people who have trouble making ends meet but make more money than the allowable limits under TANF.
In general, a family of four must have a monthly income of less than $2,297 to qualify for food stamps. Welfare, on the other hand, is designed as a last resort.
The average monthly welfare benefit in 2006, which reflects the most current data collected by the government, was $372.
Antoinette Tatum has been receiving food stamps since September when she and her 4-year-old daughter moved to Kensington, Md. When her car transmission failed, Ms. Tatum couldn’t commute to her job in Baltimore, about 45 minutes away by car, so she quit. Unable to find a full-time job, Ms. Tatum did temporary work but found that the more she earned, the fewer government benefits she received; ultimately she couldn’t make ends meet.
“The government, they help the extremes. But people in between have the hardest time,” said Ms. Tatum, 28. “You don’t make enough money to get by but you make too much to get help.” She turned to welfare, and expects to begin getting checks at the end of this month. She is considering staying on welfare and going to college instead of seeking another low-wage job.
The recession is straining many state welfare programs. State budget woes often mean more cases without more employees. And the demand for cash assistance is squeezing funds for job-training programs targeted both at the unemployed with little work experience and unemployed professionals with extensive work experience.
In South Carolina, for example, the vast majority of welfare funding is being directed to the cash-assistance program, leaving little to actually help people find jobs and get off welfare. “When we really are talking about how to put people back to work or get them retrained, with the budget problems our state is having, I really worry,” says Sue Berkowitz, the director of the South Carolina Appleseed Legal Justice Center, which advocates for low-income people.
Stimulus Grants
The federal government’s fiscal stimulus includes $5 billion for states where more families receive welfare or spending increases on employment subsidies or short-term emergency assistance. That provision sparked concerns from the Heritage Foundation and other conservative groups that President Barack Obama was undoing the provisions of the 1996 law intended to encourage states to get people off welfare and onto payrolls.
So far, only California and Ohio have received stimulus grants, but 38 other states and territories said they plan to apply, said Jeffrey Kelley, spokesman for the Department of Health and Human Services’ Administration for Children and Families.
The lag in the increase in welfare cases during the worst recession in a generation is curious to some some scholars. “In many respects, the mystery that had been operating until now had been how can there be such a rapid increase in unemployment and long-term unemployment and not show up in the welfare [system]?” says Mark H. Greenberg, director of Georgetown University’s Center on Poverty, Inequality and Public Policy.
The extension of unemployment benefits by Congress—for as long as 59 weeks in some states—may be one reason.
“To some extent unemployment [compensation] is doing what we hoped it would do, which is being the first safety net for unemployed workers,” says Don Winstead, the deputy secretary of Florida’s Department of Children and Families. Without those extensions, he added, the number of families on welfare in Florida would have risen even more than it has: up 14% in June versus a year ago.
Another cause of the delay may be that welfare is targeted at women and children, and this recession has been hardest on men. The lag in the increase in welfare cases may simply show that it took longer for the recession to hurt women than men, says Mr. Haskins of the Brookings Institution.
Despite the deep recession, a few big states still have declining welfare rolls.
In Michigan, for example, welfare caseloads were down 4.8% in April from a year ago even though the number of residents receiving food stamps was up 13% in March to more than 1.4 million people. Some advocacy groups for the poor complain that strict front-end requirements—which force welfare recipients to look for work in a state with a 14% unemployment rate before even meeting with a caseworker—deter many from seeking help.
A further explanation is that income limits for welfare eligibility are set so low, and haven’t been adjusted for so long, that having a low-wage part-time job can disqualify an applicant. In New Jersey, a family of three earning more than $636 a month is ineligible. “These are the people who really will fall through the cracks because they’re not eligible for any help,” says Donna Gapas, who oversees the welfare program in Hunterdon County, N.J.
Kelly Evans contributed to this article.
Section Dying America • Section Next Recession, Next Depression •
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