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Tuesday, October 27, 2020 Leer en Español

Why Responding to the COVID Poverty Spike With More Welfare is Cruel, Not Generous

Progressive politicians are falsely blaming insufficient welfare for the 8 million people who have fallen into poverty since May.

Image Credit: Flickr-Franco Folini-CC BY SA 2.0 (https://creativecommons.org/licenses/by-sa/2.0/)

The story of the coronavirus pandemic goes beyond the hundreds of thousands of Americans who have lost their lives to the virus. Indeed, the chilling effect the virus has had on commercial activity and the sweeping government restrictions passed in response have wrought economic and emotional destruction. So, it’s sad but hardly surprising that a new Columbia University study reports that 8 million Americans have fallen below the poverty line since May.

“Although the federal Cares Act, which gave Americans a one-time stimulus check of $1,200 and unemployed workers an extra $600 each week, was successful at offsetting growing poverty rates in the spring, the effects were short-lived, researchers found,” NBC News reports. “After aid diminished toward the end of summer, poverty rates, especially those among minorities and children, rebounded.”

Any way you slice it, this is disheartening news. However, many elected officials and political commentators are getting things completely backwards in their reaction.

“8 million people were forced into poverty due to the GOP’s inaction and refusal to pass critical relief for American families,” Rep. Barbara Lee tweeted.

“No, 8 million Americans did not slip into poverty,” Sen. Ed Markey concurred.

“They were forced into poverty by Senate Republicans who refuse to call a vote on urgently needed relief. We need to expand unemployment insurance and get everyone recurring $2000/month cash payments now.”

The broad takeaway here seems to be that the increase in poverty was caused by insufficient levels of government support, and that the solution is to put more people on more extensive government welfare programs for even longer periods of time.

This is wrong on every count.

It is true, at least according to the Columbia study, that the expiration of ultra-generous unemployment benefits caused some additional Americans to dip below the poverty line, even though levels were increasing before benefits expired.

But we must ask: Why were they unemployed to begin with? And what really caused this general decline?

It wasn’t the lack of a welfare state—it was the unprecedented government lockdowns and pandemic restrictions that strangled a booming economy. All this for a virus management tool, government-mandated lockdowns, that has since been denounced as harmful by the World Health Organization that originally recommended it. (And, given the fact that we’re experiencing another wave of COVID-19 infections, obviously did not contain the virus).

“Lockdowns just have one consequence that you must never ever belittle, and that is making poor people an awful lot poorer,” the WHO’s Dr. David Nabarro said.

So, critics who blame a lack of sufficient government welfare programs for the increase in poverty levels are overlooking the reality that heavy-handed government overreach is what put so many people out of work in the first place. But are they right that continuing to increase government welfare spending is the right way to address the increases in poverty?

This approach is like treating your toothache by ripping the tooth out with a claw hammer.

Our goal should be to return as many members of society to productive life as possible and get back to the pre-pandemic economy that saw strong growth, very low unemployment rates, and huge increases in median household net worth. Instead, what progressive politicians and many commentators are suggesting is to transition as many people onto generous government benefits that pay so much as to “lift” them out of poverty but doom them to dependency.

For example, these advocates are calling for the reinstatement of ultra-generous federal unemployment benefits—originally billed as “temporary”—that added $600 a week on top of existing state-level unemployment payouts. This resulted in a dysfunctional system that paid more than 80% of workers more on benefits than their usual income.

As just a short-term measure this wasn’t disastrous, but over the long run, leaving in place welfare programs that pay individuals more than their jobs is a nightmare sure to prolong unemployment and discourage people from returning to work. This is simple economics.

“Unemployment doles can have no other effect than the perpetuation of unemployment,” Austrian economist Ludwig Von Mises once wrote. “Assistance granted to the unemployed does not dispose of unemployment. It makes it easier for the unemployed to remain idle.”

Government unemployment benefits prolong unemployment the same way that subsidizing a product encourages its purchase. They disincentivize work the same way a government tax making cigarettes more expensive reduces the purchase of cigarettes.

Indeed, the nonpartisan Congressional Budget Office has projected that expanding these ultra-generous benefits would mean lower employment and a smaller economy in 2021.

“[It] would weaken incentives to work as people compared the benefits available during unemployment to their potential earnings, and those weakened incentives would in turn tend to decrease output and employment,” the CBO surmised.

Of course, advocates say that ultra-expanded benefits are morally necessary because without them, people’s incomes will drop in the short-term, potentially putting them below the poverty line. By this perverse logic, the more people you have unemployed and on benefits, the better your economy!

So yes, we should all be alarmed by increasing poverty rates. But we mustn’t hastily rush into a backwards policy response. Only by reopening the economy and allowing Americans to go back to work can we truly lift anyone out of poverty.

“I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it,” Ben Franklin once observed.

Trapping more people in a state of government dependency isn’t generous—and it isn’t sustainable. It’s cruel.