Discussion 6
Government and Economy
a. Ideological Differences between Social Work and Economics
There are three fundamental ideological differences between social work and
economics. The first is the emphasis placed on competition for resources. The
foundation of economics is the competitive marketplace, in which those who have the
most to offer can outbid all others. Social welfare services are designed to minimize
the extremes of competitive distribution. The second difference is the emphasis on
cost/ benefit analysis. Economics is concerned with finding the least expensive way to
produce the greatest results. Social welfare workers are concerned with the best ways
of helping people cope or adapt and with methods of producing environmental
change. The cost of these “products” is not the ultimate concern, and the most
effective policies are often not the least expensive alternatives. The third difference is
the use of mathematical calculations and concrete criteria to explain social and human
behaviors in economics as opposed to the use of case studies and practical experience
to guide analyses of behavior in social work. These differences can lead to conflict
between the ideologies of economics and social work.
Social workers tend to believe that economists are predominantly interested in
finding the most efficient system of transfer for the marketplace (Page, 1977).
Efficient transfer of resources minimizes social welfare outlays and stresses a
competitive economic model. Those who possess sufficient means are able to acquire
what they need and, conversely, those with minimal resources are left with very little.
The by-products of such competition are the economically deprived groups who lack
the means to actively participate in the marketplace.
An unrestricted competitive marketplace may function economically from a
theoretical standpoint, but in reality there are social repercussions. If all variables
related to employment were relatively equal, such as educational opportunity and
access to jobs, and if impediments such as racism, sexism, and other forms of
discrimination were eliminated, then open competition would create a stable
economy. Unfortunately, this is not the case.
An outgrowth of the competitive nature of the marketplace is the emphasis on
comparing the cost of a product with the benefits it generates. Marketplace success is
achieved when a product makes more money than the cost of the process required to
produce it. In social welfare services, the outcome is often intangible or
immeasurable. Although the dollars spent for a given program can be tallied, the
quantifiable dollar benefit of a nutrition program for infants, mental health services
for suicidal clients, or literacy tutoring for unemployed adults is impossible to
calculate. Furthermore, emphasizing costs versus benefits ignores social responsibility
and conscience. Social work ideology stresses empowerment, self-determination, and
advocacy regardless of the potential for profitable return. Cost/benefit concerns often
do not take human needs into account. Weighing costs against benefits is an aggregate
function that does not recognize the uniqueness of each person.
For example, Charles Murray (1984), in his book Losing Ground, an
indictment of government involvement in social welfare, used an analysis of cost
versus benefit to support his argument against social welfare spending. Murray’s point
was that if the amount spent on antipoverty measures over the previous 30 years had
been effective, poverty would no longer exist. Because poverty continues to exist, he
concluded that there is no reason to continue spending money on social welfare
services. Although there are numerous fallacies in Murray’s logic (as well as
erroneous calculations), the issue here is that Murray looked at poverty as simply a
matter of cost versus benefit. There is no acknowledgment of inequality of
opportunity, discrimination, or the human experience of poverty anywhere in
Murray’s book.
Murray's analysis also fails to consider a critical counterfactual scenario: the
potential exacerbation of poverty had antipoverty measures not been implemented in
the first place. This oversight is significant because it underestimates the positive
impacts that social welfare programs have had on mitigating poverty and improving
the quality of life for millions of Americans. By not acknowledging this possibility,
Murray's argument lacks a comprehensive understanding of the role that these
measures have played in shaping economic and social outcomes.
Antipoverty measures, such as Social Security, food assistance programs,
housing subsidies, Medicaid, and unemployment insurance, have provided essential
support to individuals and families facing financial hardship. These programs have
helped to stabilize incomes, improve access to healthcare, reduce hunger, and prevent
homelessness. By cushioning the impacts of economic downturns, job losses, health
crises, and other life events that can plunge individuals into poverty, these measures
have acted as a safety net, preventing many from falling into deeper destitution.
Consider the Social Security program, which has been instrumental in
reducing poverty among the elderly. Prior to its implementation, many older
Americans faced severe financial insecurity in retirement. Social Security has
provided a reliable source of income, significantly lowering the poverty rate among
seniors and contributing to their overall well-being. Without this program, it is likely
that a far greater number of elderly individuals would be living in poverty, facing
hardships that could have profound implications for their health and quality of life.
Similarly, food assistance programs such as the Supplemental Nutrition
Assistance Program (SNAP) have been vital in addressing food insecurity. SNAP
benefits help low-income families purchase nutritious food, which is crucial for
maintaining health and supporting children's development and academic performance.
Without SNAP, many more households would struggle to afford adequate food,
leading to higher rates of hunger and malnutrition.
Housing subsidies, including programs like Section 8 vouchers, help low-
income families afford safe and stable housing. These subsidies reduce the burden of
high housing costs, which can consume a disproportionate share of a family's income.
Stable housing is foundational for health, education, and economic stability. Without
these subsidies, homelessness and housing instability would likely be much more
widespread, with dire consequences for those affected.
Medicaid and other healthcare assistance programs have made healthcare
accessible to millions of low-income individuals and families. Access to healthcare is
a critical determinant of overall well-being, as it allows for the prevention and
treatment of illnesses, management of chronic conditions, and overall improvement in
health outcomes. In the absence of these programs, many individuals would be unable
to afford necessary medical care, leading to poorer health and increased financial
strain due to medical expenses.
Unemployment insurance provides temporary financial assistance to
individuals who have lost their jobs through no fault of their own. This support helps
to stabilize their income during periods of job search, preventing immediate financial
crises and allowing individuals time to find suitable employment. The absence of
unemployment insurance would leave many jobless individuals without a crucial
lifeline, exacerbating financial distress and potentially increasing poverty rates.
Furthermore, antipoverty measures also have broader economic benefits. By
providing financial support to those in need, these programs help to stimulate
consumer spending, which is a key driver of economic growth. This spending
supports businesses, helps to create jobs, and contributes to overall economic stability.
In times of economic downturns, such as during recessions, these programs play a
critical role in sustaining demand and mitigating the severity of economic
contractions.
In summary, Murray's failure to consider the potential worsening of poverty
without antipoverty measures overlooks the significant and multifaceted contributions
these programs have made to reducing poverty and improving the quality of life for
millions of Americans. Antipoverty measures have not only provided essential support
to those in need but have also contributed to broader economic stability and growth.
Recognizing the importance of these programs is crucial for informed policy
discussions and for continuing to build a society that ensures the well-being of all its
members.
Many aspects of economics are based on mathematical concepts and
computations. Mathematics is often an intimidating subject, alien to human service
providers. Furthermore, mathematical calculations cannot measure or quantify the
uniqueness of each individual. Human variability is a key element for social work
professionals and clients. In order to capture the uniqueness of individuals, social
workers examine clients on a case-by-case basis. Details of a person’s individual
history and current social and emotional conditions are used to choose appropriate
interventions.
This emphasis on the qualitative aspects of people’s lives seems to conflict
with the quantitative mathematical assessment techniques used by economists.
Regardless of the difficulties in quantifying social concerns, elected officials and
policy analysts tend to regard mathematical calculations as a stronger basis for
making policy decisions. Consequently, social workers often base their arguments on
first-hand, unquantifiable experience when they are dealing with policy makers who
base their arguments on broad-based statistical data. Success in policy advocacy
requires an understanding of this difference, and hence an understanding of the
economy.
b. Benefits from Understanding Economics
The health of the economy, and therefore economic policy, is vital to the
ability of the nation to undertake other policy goals. An economy that is growing at a
healthy, moderate rate with low inflation can develop new programs and help those
who need assistance. A stagnant economy does not allow for new programs or the
expansion of old ones.
Because social welfare policy is interwoven with the economic structure of
our society, social workers should have a working knowledge and understanding of
economic phenomena. “Unless the relationship between economics and social work is
strengthened, the ability of social work to influence social policy will tend to
decrease” (Page, 1977, p. 49). The course of social welfare policy during the 1980s,
1990s, and 2000s seems to confirm this view. Before we can influence social welfare
policy, we must understand economic policy.
A compelling example of the benefit of economic analysis as a tool for social
welfare advocacy can be seen from the work of French economist Thomas Piketty. In
2014, Piketty published an almost 700-page book analyzing the accumulation and
distribution of income and wealth across 20 different countries, with some of his
analysis dating back 300 years. What he found was that the foundation of our
economic system contributes to extreme inequality if left unchecked. While the work
is impressive, it is even more impressive that Piketty’s book sold millions of copies,
was cited in newspapers around the world, and he became a highly sought after
speaker. Policy makers, social welfare advocates, and average citizens all wanted to
understand more about the economic structure of inequality. This speaks to the power
of economic data analysis to inform public debate. Social workers would benefit from
developing a working knowledge of economics in relation to social welfare, and to
use that information to advocate for policy change.
The rest of this is devoted to an in-depth exploration of key economic
concepts that are foundational to understanding social welfare policy and its
implications for social well-being. By examining these economic principles, we can
gain a clearer perspective on how social welfare policies are designed, implemented,
and evaluated, and how they influence the broader economic and social landscape.
We will begin with an overview of fundamental economic concepts such as
supply and demand, market equilibrium, and the role of government intervention in
the economy. Understanding these basic principles is crucial for analyzing how social
welfare policies can affect the allocation of resources, the distribution of income, and
overall economic efficiency.
Next, we will delve into the concept of externalities and public goods.
Externalities refer to the unintended side effects of economic activities that affect
third parties, either positively or negatively. Public goods, on the other hand, are
goods that are non-excludable and non-rivalrous, meaning they are available to all
members of society and one person's use does not diminish their availability to others.
Social welfare policies often aim to address the market failures associated with
externalities and provide public goods that contribute to social well-being, such as
education, healthcare, and infrastructure.
We will also explore the concept of economic inequality and its measurement.
Income and wealth inequality have significant implications for social welfare and
policy-making. By examining different measures of inequality, such as the Gini
coefficient and the Lorenz curve, we can better understand the extent of economic
disparities and the impact of social welfare policies on reducing inequality and
promoting social justice.
The will further discuss the role of taxation and redistribution in social welfare
policy. Taxation is a key tool for governments to raise revenue and finance public
goods and services. Redistribution policies, including progressive taxation and social
transfers, aim to reduce income inequality and provide support to vulnerable
populations. We will analyze the trade-offs between efficiency and equity in taxation
and the potential effects of different tax policies on economic behavior and social
welfare.
Another important topic covered in this is the concept of labor markets and
employment. Employment is a critical determinant of individual and household well-
being, and social welfare policies often include measures to support job creation,
provide unemployment benefits, and enhance workforce development. We will
examine the dynamics of labor markets, the factors influencing employment and
wages, and the role of social welfare policies in promoting full employment and
decent work conditions.
The will also address the economics of healthcare and education, two essential
components of social welfare policy. Access to quality healthcare and education is
fundamental to individual well-being and economic productivity. We will explore the
challenges and opportunities in financing and delivering these services, the role of
public and private sectors, and the impact of social welfare policies on health and
educational outcomes.
Finally, we will consider the macroeconomic context of social welfare policy.
Macroeconomic stability, including low inflation, sustainable public debt, and steady
economic growth, is vital for the effectiveness of social welfare policies. We will
discuss how social welfare policies interact with macroeconomic variables, the
potential fiscal constraints on social spending, and the importance of economic
policies that promote inclusive and sustainable growth.
Throughout this, we will highlight real-world examples and case studies to
illustrate the application of economic concepts to social welfare policy. By integrating
theoretical insights with practical experiences, we aim to provide a comprehensive
understanding of the complex relationship between economics and social well-being.
In conclusion, this will equip readers with the economic knowledge necessary
to critically assess social welfare policies and their impact on society. By
understanding the economic foundations of social welfare, we can contribute to
informed policy discussions and advocate for measures that enhance the well-being of
all individuals and communities.
c. Key Economic Concepts and Factors
All social welfare policies and programs have aspects that involve economics.
Whether it is related to funding, access, or distribution of social welfare services,
economic factors play a part. The following factors are vital to understanding the
impact of economics on social welfare policies and programs.
One of the key concepts underlying economics is the role of the marketplace
in our social welfare system. The economic marketplace is the balance between
supply and demand. The products and services offered constitute the supply, and the
desire and ability to buy constitute the demand. When there is a high demand, the
price of goods goes up. If the price goes up too much, consumers cannot afford to buy
a product and demand for it decreases. The supply stacks up; prices are cut to
encourage buying; and demand increases again. The reality of supply and demand is
not as smooth as the theory. Interest in an item or service changes according to
people’s attitudes or because of unexpected negative publicity. Nonetheless, it is a fact
that the U.S. economy experiences periods of expansion and high demand alternating
with periods of contraction and low demand. For example, suppose automobile
manufacturers develop a new vehicle, such as an electric-powered car. People like the
vehicle and want to buy it, but few are available. Because the demand is greater than
the supply, there is a shortage of electricpowered cars. People are still interested in
buying them, so the price goes up, creating inflation.
Because at that point the price is driven up by demand, and not by an increase
in manufacturing expenses, profit increases. Other automobile companies see the
interest in electric-powered cars and the profits others are making, and decide to also
make electric-powered cars. Now the supply increases rapidly. And as more electric
cars are produced, manufacturers can find ways to improve the margin between what
it costs to make the car and the price for which what it can be sold. The market
expands as the supply grows. Eventually, however, the number of people interested in
buying electric-powered cars does not increase as fast as the supply increases. In order
to encourage customers to buy their electric-powered cars, manufacturers reduce
prices and offer special incentives. This causes deflation, or the lowering of prices.
The amount of profit falls. If manufacturers lose too much money because of
overproduction, some companies lay off workers or shut down production. This can
result in a recession. After a period of low production, the supply decreases. Some
people will still have the interest and means to buy, so the demand begins to grow
once more. With growth in demand, the cycle begins again.
This simplified example illustrates the cyclical nature of the marketplace.
However, the simple give and take between supply and demand may be impacted by
other variables. The example of the electric-powered car demonstrates further
complications with competing economic events. Consider the speedy rise in oil prices
that occurred during the summer of 2008. The increase in the cost of gasoline pushed
consumers to consider the purchase of low-mileage vehicles like the electric-powered
car. The sales of vehicles that used higher amounts of gasoline declined, and interest
in electric-powered cars grew in spite of the downturn in the economy. Thus, the
economics of gasoline has an impact on consumption of cars, and hence an impact on
supply and demand. Sometimes other economic events play a strong role in affecting
the balance between supply and demand. The existence of prolonged economic
downturns and unexpected events suggests that the cyclical, self-correcting nature of
the economy is not always adequate. The potential for negative outcomes was
addressed by economist John Maynard Keynes during the 1920s. Keynes advanced
the idea that lapses in the supply and demand cycle could be influenced by
government policies. “The crux of Keynes’s message was that government spending
might be an essential economic policy for a depressed capitalism trying to recover its
vitality” (Heilbroner & Thurow, 1982, p. 31). The acceptance of Keynes’s ideas
following the Great Depression led to the direct involvement of government in the
supply and demand economy.
An economic concept that is important to social well-being is assessing the
impact of economic efforts beyond the first level of the initial recipient. Money gets
used in many different ways while it travels through the economy, and the impact of
these travels is called the multiplier effect. The multiplier effect describes when
spending produces more income over time than what was spent initially (American
Heritage New Dictionary of Cultural Literacy, 2005). Suppose that the government
creates a program to build new bridges in five communities. The funding goes to
companies that bid for the work. The company that gets the contract has funding to
hire workers and to buy materials to build the bridges. When the workers and the
suppliers get paid, they use their income to purchase items for their daily living. The
chain of events continues when the stores in which the workers spend their money
have funds to pay their own workers, and the suppliers replenish their stock from
other companies. The original funds have passed through numerous hands and in that
way have multiplied in the effect they have on the economy.
A national example of the multiplier effect can be seen in the fiscal stimuli
used in response to the recession in 2008. Analysts found that extending
unemployment insurance benefits had a very high return, more than one and a half
times the original dollars spent: “Unemployment Insurance benefits are among the
most potent forms of economic stimulus available. Additional unemployment
insurance produces very high economic activity per federal dollar spent. Most
unemployed workers spend their benefits immediately” (Blinder & Zandi, 2010, p.
16). Another ongoing example of the multiplying impact of government spending can
be found in many government social welfare programs. From an economic viewpoint,
the Supplemental Nutrition Assistance Program (SNAP), which allows people in
poverty to purchase food at local grocery stores, is not just an antipoverty program but
a stimulus to production. In fact, some of the most vocal opponents of cutting the
funding for SNAP include farmers and agricultural businesspeople. The billions of
federal government dollars spent on food assistance programs not only helps
recipients, but creates a multiplier effect for the agriculture and food industry by
guaranteeing that people buy food, no matter how poor they are. In-depth research on
the impact of SNAP during the Great Recession found that in fact “the program is
operating as intended as an automatic fiscal stabilizer during this extended period of
economic distress facing households in the U.S.”
The principles of Keynes’s belief in the power of government spending and
the multiplier effect have been evident in a number of major public policies in recent
years. The economic stimulus checks of 2008 were an example of a Keynesian
approach to the economy. The Economic Stimulus Act of 2008 was an effort by the
federal government to address a slowdown in economic growth by putting money
back in the hands of workers and businesses. The program was designed to provide
rebates of up to $600 for individuals and $1,200 for couples. On a small-scale per
household, that may not seem like a significant infusion of cash. But the program was
designed to cover 128 million households and transfer $152 billion, about 1 percent of
the gross domestic product of the United States (White House, 2008). While the
program did contribute to Americans spending more through the summer, it was
short-lived and only marginally mitigated the economic downturn. But what was
especially unusual about this policy was that it was so strongly backed by the
Republican president George W. Bush, whose policies and party’s positions typically
oppose Keynesian economic interventions.
Some people argue that “desperate times call for desperate measures” and so
typically opposition to government intervention wanes with economic downturns. The
economic downturn that began in December of 2007 and continued into 2009,
referred to as the “Great Recession,” precipitated the largest government intervention
in the economy. Never in U.S. history had so many debt markets— mortgages, bonds,
securities, student loans, corporate lending, home equity loans, credit cards—been
disrupted. The response was Keynesian. The federal government took over or
guaranteed the economic standing of mortgage lenders, investment banks, and student
loans that had originated from private banks, and offered lowinterest loans backed by
the public treasury to keep financial institutions afloat. Government intervention in
the marketplace on the scale of involvement that occurred between 2008 and 2011 had
not been since the era of the New Deal. The efforts spanned two presidential terms,
one each from the Republican and Democratic parties. Major economic stimulus
programs were instituted by Congress and both presidents, and were matched with
efforts by federal agencies such as the Federal Reserve and the Federal Deposit
Insurance Corporation (FDIC) in hopes of stimulating the economy, or at least keep it
from getting worse.
In February of 2008, under the presidency of George W. Bush, Congress
enacted the previously discussed Economic Stimulus Act (P.L. 110-185), which was
designed to stimulate consumer spending through refunds to taxpayers and capital
investment breaks for companies. The economy worsened, and in September 2008
federal efforts included government intervention through conservatorship, or taking
financial and administrative control and responsibility for debt, of the government-
sponsored mortgage agencies of Fannie Mae and Freddie Mac. This unprecedented
move gave the federal government temporary authority to provide unlimited funds if
needed in order to keep the agencies solvent. This and other efforts were often
referred to as “government bailouts.”
The efforts at economic support continued, and in October 2008 Congress
passed the Emergency Economic Stabilization Act of 2008 (EESA), P.L. 110-343.
This legislation, signed into law by President George W. Bush, authorized the
Treasury Secretary to spend up to $700 billion to buy troubled Assets, thereby
creating the Troubled Assets Relief Program (TARP). This program authorized the
Treasury to purchase shares from banks, assist troubled companies such as insurer
AIG and several automakers, and provide additional assistance to financial
institutions. The Federal Reserve again offered support through very favorable loans
to banks. The FDIC also intervened to help banks and increase the federal guarantees
or insurance on bank deposits of individuals. These broad and ambitious efforts, while
likely stemming the economic downward spiral, were not able to bring the economy
back to positive growth.
The next major effort to spur economic growth came in the form of a second
stimulus package that was signed into law by President Obama in February of 2009.
This policy was the American Recovery and Reinvestment Act of 2009 (ARRA), P.L.
111-5. Originally the program included efforts to stimulate the economy that were
estimated to total $821 billion in increased discretionary and mandatory spending and
reduced tax revenue over the next 10 years (Webel, 2011). ARRA was designed to
support state and local governments by providing funds for transportation projects,
schools, Medicaid, health care information technology, extended unemployment
benefits, and tax cuts and rebates. The extent of these interventions had never before
been seen. The total costs of these efforts appeared to be in the hundreds of billions.
The Congressional Budget Office (2014a) estimates that between 2009 and 2019, the
impact of the intervention will have the effect of increasing the budget deficit by $830
billion, while also increasing the gross domestic product (GDP), lowering the
unemployment rate, increasing the number of people employed and increasing the
number of full-time equivalent jobs. It will take years to assess the true cost, as many
of the programs are designed to provide long-term economic growth, the impact of
which could mean that the overall costs could be lower or higher than anticipated.
There are several reasons why calculating the long-term impact of an
economic intervention such as the ARRA is so difficult. Analysts can never know
whether some jobs might have been created without the ARRA; it is difficult to trace
the effect of ARRA funding beyond the first level of recipient, yet that support may
have encouraged the creation of additional jobs later or subcontracted work that does
not get directly linked to the reinvestment act; and it cannot track the increased
purchase of products or services that resulted from recipients spending their
paychecks, that is, the multiplier effect. Attempts to assess the impact of the ARRA’s
multiplier effect through the purchase of goods and services by the federal
government place the possible economic gain of up to two and a half times what was
spent originally (Congressional Budget Office, 2014a), suggesting the intervention
will have a long-term positive effect.
As for TARP, the economic cost has been significantly lower than originally
anticipated. Although the legislation authorized the Treasury Secretary to spend up to
$700 billion to stabilize financially stressed companies, the actual spending was far
lower. The nonpartisan Congressional Budget Office, with legislative responsibility to
report ongoing assessment of the costs of TARP, had estimated that by 2014 the
Treasury had spent $423 billion, with an addition $15 billion in future commitments,
for a total of $438 billion. By 2014, most of that had been repaid, with a total final
cost of the program to be about $27 billion, far below the original authorized amount
of $700 billion (Congressional Budget Office, 2014b). The original intent of the
program was to be temporary and that those entities supported through the program
would be able to pay back the loans. Most borrowing entities were in fact able to pay
back the loans with interest because the financial status of many of the recipient
companies strengthened, and many of the Treasury’s investments increased in value.
Thus, TARP worked exactly as its advocates had hoped, it provided emergency
financial support to stabilize major companies until the economy and those companies
could rebound.
The programs developed to respond to the Great Recession spanned both a
Republican and a Democratic presidential term, demonstrating that the role of
government versus the role of the marketplace can become blurred in times of
economic stress, no matter what political party is in power. These programs
demonstrate that the debate over the optimal extent of government involvement in the
economy is central to much of today’s social welfare policy action. Those who
advocate federal involvement tend to reflect the value of social responsibility; they
believe the market system is not perfect and some people do not benefit from the
economic system, and, therefore, the government must intervene to alleviate the
harmful effects of economic policies. Those who feel the government should not
intervene in the economy typically reflect the belief that the market should be left
alone because government intervention can inhibit the incentive for individual work
and economic growth. Most political disagreements about the extent and form of
social welfare services reflect the struggle between these two positions.
One of the most strongly held economic beliefs, which is connected to our
social belief in individual responsibility, is that if a person works hard, she or he will
be rewarded. This ideology stems from the earliest history of this country, when
Americans embraced concepts such as “pull yourself up by your own bootstraps” and
eagerly read Horatio Alger stories about a young man who rose from rags to riches.
Implicit in this ideology is the belief that there are jobs available for everyone who
wants to work and that all a person needs to do is find a job and stay with it. Although
this belief permeates our social consciousness, it is not entirely realistic. The job
market frequently fluctuates. The existence of a job does not necessarily mean that it
is available to anyone who is looking. Obviously, education and ability play a part in
employability. Location and unwillingness of employers to consider a wide range of
applicants can block access to employment. Therefore, even when jobs are available,
they may not be available to all who are looking for work. The result is that there are
varying numbers of people who are unemployed and looking for work.
d. Major Economic Social Welfare Programs Tied to Economic Conditions
Economic policies are not always viewed as part of our social welfare system,
and some social welfare programs are regarded as outside the domain of economics.
Yet social welfare and economics are often linked in the provision of services. The
following programs, which are directly based on individual and social economic
conditions, are integral parts of our social welfare system.
The previous introduced the unemployment insurance (UI) program. Enacted
as part of the 1935 Social Security Act, unemployment insurance was created as a
joint program administered by both the federal and state governments. States decide
the duration of, amount of, and eligibility requirements for benefits and directly
administer the program. The federal government provides grants for administration of
the program and is responsible for maintaining the Unemployment Insurance Trust
Fund.
The Unemployment Insurance Trust Fund consists of state-collected payroll
tax dollars from employers. Employers pay unemployment insurance tax according to
the number of workers they employ. For each dollar paid, they receive up to a 90
percent credit against their federal tax (Social Security Administration, 2014).
Because of this tax inducement, all states willingly comply with the program.
Although every state participates in the unemployment insurance program, the
specifics of the program vary widely from state to state. Generally, eligibility is based
on the extent of recent employment, willingness and ability to accept new
employment, and involuntary termination from prior employment. Benefits are
provided as a right and do not require a means test. Unemployment coverage provides
a percentage of previous earnings for up to a maximum of 26 weeks in most states. In
2011, the average weekly benefit was $296 for an average of 17.5 weeks (Social
Security Administration, 2014).
The unemployment insurance program is one of the few social welfare
programs that tends to be universal in structure. As long as a person has not been
dismissed (fired) from a covered job, he or she is entitled to unemployment benefits,
regardless of personal wealth, income, or age. Unfortunately, however, many people
need to leave jobs for reasons that are not covered, such as caring for a family
member who is ill or caring for children if no other care is available. Also, many
people have parttime jobs and therefore do not qualify for unemployment benefits.
For many unemployed workers, benefits run out before they have found new
employment. This is particularly true during times of greatest need. For example, in
1991, during the peak of an economic recession, 3.5 million recipients of
unemployment insurance exhausted their benefits before finding new employment
(Shapiro & Nichols, 1992). Between 1975 and 1996, coverage from unemployment
insurance declined from 76 percent of the unemployed to 36 percent (Miringoff &
Miringoff, 1999). By 2003, almost two years after the previous recession had ended,
there were still 1 million workers who had exhausted all of their unemployment
benefits but had not found work (Center on Budget and Policy Priorities, 2003). With
the recession of 2007–2009, many workers faced the same shortfall in benefits. By the
end of 2008, more than one in five unemployed workers had been jobless for over half
a year (Economic Policy Institute, 2008). Thus, more than 2 million unemployed
workers had already reached or were near the end of their benefit coverage. States can
extend benefits through the Emergency Unemployment Compensation program,
which was created through the 2009 Recovery Act and is funded with federal support,
when the unemployment rate reaches critical levels. Consequently, in response to the
severity of the Great Recession, Congress used the provision in the 2009 Recovery
Act to extend the time allotted to receive benefits up to 99 weeks in high
unemployment states. The effect of this move was significant, benefiting those most
in need, workers at the lower end of wages (Moffitt, 2013). Although the
unemployment insurance program provides a necessary safety net for people who lose
jobs, it is not comprehensive, does not provide for all who are unemployed, and it
does not create employment opportunities. It is, for the most part, a temporary safety
net for workers, an important stop-gap measure.
Another public policy that is related to employment and provides wage
security for workers is the minimum wage. The concept of a minimum wage is that
the government intervenes to guarantee a base hourly wage. The instability of the
market and the imbalance in power between employers and employees serve as the
rationales for government intervention in wages. The minimum wage was discussed
in the previous because of its potential role in preventing poverty for low-income
workers. The aftermath of the Great Depression spurred lawmakers to investigate
labor practices. Industry support of strike breaking, labor spies, and violent attacks on
workers prompted the passage of the Fair Labor Standards Act of 1938 (Stern &
Axinn, 2012). In addition to standardizing work hours and controlling child labor, the
legislation set a minimum wage below which employers could not legally pay
workers.
The hourly rate in 1938 was set at 25 cents an hour; it had risen to $4.25 an
hour in 1991 (Social Security Administration, 2011). In 1996, President Clinton and
Congress agreed to new legislation, the Small Business Protection Act (P.L. 104-188),
which raised the minimum wage to $4.75 per hour as of October 1, 1996, and to $5.15
per hour as of September 1, 1997. In 2006, the minimum wage was once again raised
through legislative action amending the Fair Labor Standards Act. The rate was
scheduled to increase incrementally from 2007 to 2009, rising to $5.85 in 2007, $6.55
in 2008, and $7.25 in 2009. Today the minimum wage holds at $7.25 per hour.
Critics argue that the minimum wage is inadequate and has not kept pace with
the cost of living. With the increases in 2008 and 2009, the minimum wage provides a
higher wage level, but is still lower than the peak value during the 1970s. While the
debate about raising minimum wage has produced no new action at the federal level,
many states have made the decision to raise the minimum wage within their state. As
discussed in the previous, more than 20 states have raised the level for workers in
their states. The differences between working full-time at minimum wage and the
poverty. Even with the increases, the disparity between minimum wage income and
living in poverty in 2014 was almost $6,000 for a family of three and almost $10,000
for a family of four. Based on these calculations, the minimum wage would have to be
raised significantly to lift a family of three above the poverty line. Without public
assistance or benefits through the Earned Income Tax Credit, full-time work at
minimum wage still leaves a family below the poverty line. This difference highlights
one of the many policy contradictions in our social welfare system.
Although people are categorized as living in poverty with incomes below
officially recognized levels, legislation that sets a minimum accepted level for wages
does not set that level to pay wages that lift workers or their families out of poverty.
Opponents of the minimum wage argue that government interference in setting pay
levels destroys free enterprise and causes economic imbalances. They feel that if
employers are forced to pay higher wages, there will be fewer jobs available.
Research findings suggest this is not true. In a study done in New Jersey, labor
economists found that when the minimum wage was increased, even during a state
economic recession, the number of jobs actually increased (Epstein, 1995). The
researchers theorized that higher wages attract people to jobs and keep them working;
this results in more long-term employment, sparing employers the costs of frequent
turnover. In addition, with so many states now having minimum wage increases above
the federal level without economic fallout, the evidence of these statewide
“experiments” points to the weakness in the argument that government interference
through wage setting causes an economic imbalance.
Although the concept of a minimum wage is usually relegated to economic
discussions, it has important implications for social work. Most low-paid workers lack
economic security during recessions or changes in the employment market. Many are
not covered by unemployment insurance and are consequently the most likely
candidates for public assistance. If the minimum wage were adequate to support a
family, it is likely that fewer people would be dependent on public assistance. For
example, estimates based on lifting the minimum wage to $10.10 per hour suggest
that the number of people relying on public assistance would drop by 1.7 million,
saving the federal government almost $8 billion a year.
Enacted in 1975, the legislation allows for a decrease in taxes paid for low-
income workers. The program is administered through the filing of a tax return and
therefore does not involve additional federal agencies or administrators. The
provisions of the EITC are complicated and vary according to income level and size
of household. Generally, the lower the income, the higher the tax credit. In cases
where income is extremely low, families may qualify to receive a direct grant, the
program can have a positive impact on the economic situation for low-income
families who participate in the labor force and file an income tax return. The program
has received support from both political parties. It is supported because it rewards
people for working, and it is efficient because it is handled through the existing
Internal Revenue Service (Hutchinson, Lav, & Greenstein, 1992).
Critics charge, however, that although the EITC helps low-income individuals,
it also keeps wages low. Why should employers raise wages when the government
subsidizes poor workers to accept the low wages? In effect, the EITC uses tax dollars
to supplement poorly paid workers instead of placing the responsibility on the
employers themselves (McDermott, 1994). This brings us back to the question of who
should be responsible for determining wages: the government or the marketplace?
Should wage levels be left entirely to the ebb and flow of economic conditions, or
should the federal government intervene? If the government intervenes, what should
that action be? Should employers be regulated, or should workers be supplemented?
Those questions continually surface in the ongoing debates regarding economic policy
and social well-being.
e. Impact of the Federal Budget on Social Welfare Policy
How do the workings of the federal budget affect social workers and their
practice? The federal budget may seem far removed from the day-to-day activities of
social service providers. As demonstrated throughout this book, the impact of
government policies flows through all levels of our social welfare system and
ultimately affects our direct practice. The federal budget is the main source of revenue
for national social welfare programs and services. Federal money is used to fund
services for children, families, health care, unemployment, retirement, education,
national security, and other areas of social welfare. Budget cuts necessitate reductions
in social welfare programs and services.
Each year the federal government creates a plan for what and how much
should be spent on the business of government. The process begins on or before the
first Monday in February, when the president is required by law to submit to Congress
a budget proposal for the following fiscal year. Part of the plan includes estimates for
how much money will be taken in for taxes and how much the economy will grow.
Because the plan is developed almost a year before it is implemented, the president’s
budget is the starting place for discussions and negotiations with Congress and
government agencies. Congressional hearings precede voting on the appropriation
measures. By September 30, on the eve of the new fiscal year, Congress and the
president must enact the new budget.
When the government ends the year with more revenue than was spent, it has
a surplus. When the government overspends, it incurs a budget deficit. In order to
continue financing its operations, the government must borrow to make up for the
shortfall. The greatest amount of borrowed money is financed through the selling of
government treasuries to the public. This borrowed amount is referred to as the public
debt. The public debt is the cumulative total of all federal deficits minus any surplus.
By 2013, that amount had exceeded $11 trillion (Congressional Budget Office,
2014c). From 1962 through 1997, the federal government had a deficit in every year
except 1969. From 1998 through 2001, for the first time in decades, the federal
government realized a budget surplus in consecutive years. Since 2002, the federal
government has gone back to accruing a deficit annually.
The years of budget surplus were short-lived. The impact of the recession on
lowering wages resulted in lowered tax revenues. President Bush began his term in
2001 with tax cuts, further reducing incoming federal revenue, and increased defense
spending to pay for homeland security and the war in Iraq. The annual deficit grew
dramatically and pushed the public debt to more than $5 trillion by 2007. The costs
for the wars in Iraq and Afghanistan, along with other global war on terror operations,
as well as medical care and support for wounded soldiers, have totaled more than $4.4
trillion from 2002 to 2014 (Crawford, 2014) adding significantly to the public debt.
The federal government’s interventions to stabilize the financial markets also posed
significant future costs. By the close of 2009, the federal government had pledged
more than $1 trillion to aid the U.S. economy and financial system. These efforts
included $124 billion for an economic stimulus program; $300 billion in support of
mortgage insurance; $200 billion for the takeover of Fannie Mae and Freddie Mac
and $700 billion for a Wall Street bailout (Montgomery & Eggen, 2008). These
expenses, along with the costs of wars, contributed significantly to the public debt.
Perhaps more disturbing than the actual dollar amount, which can be
misleading due to changes in cost of living and inflation, is the consistent measure of
how much of our gross domestic product is represented by the public debt. By 2009,
the proportion of the GDP, or the total output of goods and services that are produced
in the United States, that was accounted for by public debt had ballooned to a level
not seen since the Great Depression and World War II, at almost 10 percent. That
proportion has come down to levels that are more consistent with history, dropping to
4.1 percent by 2013. What the long-term impact of this is will not be known for years
to come. The high proportion of 2009 might have only been a sign of a significant
recession, and as the economy recovers, this proportion will decrease without major
harm. The recent decline seen in 2013 might indicate a return to average levels.
Others argue that the amount of interest needed to cover the deficits and cumulative
debt each year will keep the nation in an economic slowdown for years to come. On
this debate, only time will tell. If historical precedence is any indicator, then just as
the nation overcame the Great Depression and absorbed the cost of World War II, so
too might our economy overcome the Great Recession and absorb the costs of the Iraq
and Afghanistan wars.
f. Corporate America
So far we have reviewed economic concerns in the public domain. No less
important are the economic conditions and circumstances of the private sector. The
largest piece of the private economy rests with the corporate sector. The connection
between governmental economic policies and the corporate sector is significant.
Numerous private businesses rely heavily on government subsidies and economic
support. What is this support? Examples include business tax breaks that lower
corporate tax bills. For example, in 2000, $22 billion was allowed for accelerated
depreciation (allowing companies to subtract the costs of their equipment faster than
the machinery wears out) and $14 billion was allowed for an Internal Revenue
Service (IRS) tax exclusion on certain profits earned in other countries (Abramovitz,
2001). In 2008, more than $5 billion was set aside for subsidies to farmers, with $178
billion already paid out from 1998 to 2006 (Environmental Working Group, 2008).
Other forms of government support to corporate America include emergency
loans at reduced interest rates, such as those given to the investment bank of Bear
Stearns in 2008. In this case, the Federal Reserve extended a loan at a reduced interest
rate. The central bank lent another bank, JP Morgan, $29 billion to buy the troubled
Bear Stearns and its liabilities. The entire premise behind TARP was for the federal
government to buy struggling banks and mortgage lenders or loan them significant
amounts of money with the intent, and hope, that they would right their course and be
able to pay the government back. The risk to the Federal Reserve and to taxpayers is
what might happen with weak investments in the future, because the federal
government is now the insurer of those investments. On the other hand, if the federal
government did not intervene, a very large and significant bank would go under, and
that would have a major negative impact on the economy. This involvement of the
federal government in the private market was one of several undertaken as part of the
billions authorized by Congress during the Great Recession to support financial
institutions with the goal of stabilizing the economy.
Although politically we often hear the desire for “laissez faire” economics—
that is, a lack of interference from government in the private business sector—the
federal government is often called upon to intervene to maintain equilibrium in the
marketplace, as described above. This is particularly true when major negative events
occur, such as the support given to airlines after 9/11 and to banks as a result of the
Great Recession. These government efforts, while directed toward private
corporations, have the effect of keeping the general economy stable, which in turn
helps the entire nation. From a social welfare policy perspective, this principle of
support is behind all government interventions, whether for corporate America or for
low-income individuals.
The federal government regularly subsidizes private agriculture and industry,
through tax breaks, direct grants, or loans with discounted interest rates. The rationale
for this support is that “What is good for business is good for the country,” that is, that
a strong private sector means jobs, which in turn means individual economic well-
being is enhanced. Although this is true, it also means that fewer resources are
available for those whose lives are not improved by employment in the private sector.
As discussed in the opening, the profit motive of corporations is not conducive to the
social welfare of people on the margins of the economic system: the unemployed;
underemployed; unemployed people who are disabled, elderly, or too young to work;
and people who are economically limited due to discrimination and oppression. The
challenge to policy makers is to find the balance between supporting the private sector
and still having the resources to provide for the social well-being of all members of
society, particularly for those who do not benefit from opportunities in the private
sector.
g. Changes in the Workforce
The concern for social welfare policy in relation to employment and
economics rests with current and future service needs of workers and people without
work. The shortcomings of the system and some of the major current policies
designed to address those social needs have been discussed here, but these policies
reflect the state of the workforce in the past. Examination of demographic shifts
suggests that new public policies will be needed in the future. Over the past 60 years,
the composition of the labor force has changed greatly. In 1950, 33 percent of women
and 86 percent of men were actively engaged in the labor force (General Accounting
Office, 1992). By 2013, 57 percent of women and 70 percent of men participated in
the labor force (U.S. Department of Labor, 2014).
With more women in the workforce, there are more two-parent families in
which both parents are employed and more single-parent families headed by working
mothers. In 1960, 32 percent of men who worked were married to women who were
also in the labor force. By 1990, the percentage had increased to almost 70 percent
(General Accounting Office, 1992). By 2013, 70 percent of women with children
under 18 years of age, and 64 percent of women with children under 6 years of age,
participated in the labor force, while 74 percent of single women with children were
in the labor force (U.S. Department of Labor, 2014).
Other changes have affected the workforce. Despite economic expansion
following the downturn of 2001, the real income (that is, accounting for inflation) of
the median family fell each year through 2004, leveled off some, and then dropped
further between 2007 and 2011. The median annual income for men working full-time
was $50,033 in 2013, but for women it was $39,157, both declines in real dollars from
2009. These changes reflect the recent decline in income as well as the earnings gap
between men and women. The result of an overall decrease in wages is that families
are struggling to maintain their standard of living. Demographic and income changes
will increase the need for social welfare policies that address the social and economic
needs of all people.
Further complicating the changes in the demographics of the workforce are
changes in the way industry creates jobs. Recent concern has risen over the tendency
for companies to export jobs. Although manufacturers have done so in great numbers
in the past two decades, even high-tech firms followed this practice. The financial
gain for companies is evident. Computer programming jobs in the United States can
be filled for far less in countries such as China and India. This form of employment
outsourcing has become possible with the technological advances in computers and
worldwide access to telephones and satellite communications. The impact on the U.S.
workforce is already being felt.
Another shift in the economy in recent years has been the growing distance
between top earners and those at the bottom and in the middle. Income is only the
immediate annual measure of a family’s economic well-being. The accumulation of
wealth through investments, savings, and home ownership provides long-term
financial security. The disparity in wealth is even greater than the disparity in income.
The top 10 percent of households control about three-fourths of the wealth in the
United States, with the rest shared by the other 90 percent of households; wealth at the
top is even more concentrated, with the top 1 percent households holding more than a
third of all wealth. The net worth of the top 1 percent was 225 times greater than the
typical household’s net worth in 2009, which was the highest difference on record
(Allegretto, 2011). Although there has always been disparity between the top earners
and the bottom earners, what is particularly worrisome is the growing gap between the
top and the bottom. The idea that increases in economic well-being trickle down and
that support of high earners helps the entire nation is questionable given the data.
h. The Economic Impact of Housing and Mortgages
Perhaps the economic story of recent years can be found in the housing
market. Although the full impact is still unfolding, the boom and bust in housing
prices has had a significant impact on the economy as a whole. The quest for home
ownership and economic gain found a lethal combination in the mortgage market
during the 2000s. Subprime loans are riskier loans because they are intended for
people who are unable to qualify for conventional loans at prevailing mortgage rates.
These loans, to cover the risk of lending to someone who is financially less secure,
charge higher interest rates. However, with minimal regulation and encouragement
from policy makers to open the housing market to more Americans, these loans
developed in more complicated ways, with introductory loan interest rates that
changed over time and minimal to no down payments. These practices were aided by,
and in turn encouraged, rising home values. In effect, there was a cycle of high
demand that pushed the value of the supply of housing up.
The exponential growth of subprime home purchase or refinance loans
between 1993 and 2006, as highlighted by the Center for Policy Alternatives in 2007,
underscores a significant transformation in the landscape of the housing market and
financial industry. This surge in subprime lending reflects a complex interplay of
economic, regulatory, and social factors that reshaped the housing finance system and
had far-reaching implications for borrowers, lenders, investors, and the broader
economy.
The period from 1993 to 2006 was characterized by a confluence of factors
that fueled the expansion of subprime lending. These included deregulation of the
financial sector, innovations in mortgage-backed securities, aggressive marketing by
lenders, and changing attitudes towards homeownership. As a result, subprime
lending became increasingly prevalent, with lenders extending credit to borrowers
with lower credit scores, higher debt-to-income ratios, and limited financial resources.
The rapid growth of subprime lending during this period was facilitated by the
proliferation of new lending products and underwriting practices. Lenders offered a
variety of mortgage products, including adjustable-rate mortgages (ARMs), interest-
only loans, and no-documentation loans, which allowed borrowers to purchase homes
with minimal upfront costs and flexible payment terms. These products were often
marketed to borrowers with poor credit histories or limited income, promising the
opportunity for homeownership despite financial constraints.
However, the expansion of subprime lending was not without risks. Many
subprime borrowers were unable to afford their mortgage payments or faced
significant payment increases when introductory rates expired or housing prices
declined. As a result, delinquencies, defaults, and foreclosures surged, leading to
widespread financial distress among homeowners, losses for lenders and investors,
and destabilization of the housing market.
The consequences of the subprime mortgage crisis were profound and far-
reaching, affecting millions of households and reverberating throughout the economy.
The wave of foreclosures led to a glut of distressed properties on the market, driving
down housing prices and eroding homeowners' equity. This, in turn, triggered a
downward spiral in the housing market, with declining home values exacerbating
financial losses and increasing mortgage defaults.
The subprime mortgage crisis also had systemic implications for the financial
sector, as losses on mortgage-backed securities and related derivatives cascaded
through the banking system. Several major financial institutions faced insolvency or
required government bailouts to survive, leading to a widespread loss of confidence in
the stability of the financial system and prompting regulatory reforms to prevent
future crises.
Furthermore, the subprime mortgage crisis had profound social and economic
consequences for affected communities, exacerbating inequalities, undermining
wealth accumulation, and contributing to broader economic downturns. Minority and
low-income communities were disproportionately impacted by the crisis, as they were
more likely to be targeted by predatory lending practices and less able to withstand
the financial shocks of foreclosure and eviction.
In response to the subprime mortgage crisis, policymakers implemented a
range of measures aimed at stabilizing the housing market, assisting struggling
homeowners, and reforming the financial system. These measures included
foreclosure prevention programs, mortgage modifications, regulatory reforms such as
the Dodd-Frank Act, and efforts to strengthen consumer protections and promote
responsible lending practices.
Overall, the rise and fall of subprime lending between 1993 and 2006
underscored the interconnectedness of housing, finance, and the broader economy. It
serves as a cautionary tale about the risks of unsustainable lending practices, lax
regulatory oversight, and speculative excesses in the pursuit of homeownership and
financial gain. By understanding the causes and consequences of the subprime
mortgage crisis, policymakers, regulators, and market participants can work towards
creating a more stable, equitable, and resilient housing finance system that serves the
needs of all stakeholders.
With oversupply, housing values began to drop, and homes that were barely
affordable to subprime borrowers became worthless, and even more difficult for
people to afford. When people cannot afford to make mortgage payments, they walk
away from the home and the loan, leaving the banks with a house worthless and no
payments coming in for the mortgage. The economic impact affected the entire
economy. The biggest social concern with subprime borrowing is that it
disproportionately involved people of color, elderly persons, and rural households.
For example, in 2006, 54 percent of all loans made to African American families were
subprime, compared to 18 percent for white families. And borrowers 65 years of age
or older were three times more likely than borrowers younger than 35 years to hold a
subprime mortgage (Center for Policy Alternatives, 2007).
Again the question of federal government intervention into the economy and
private sector arose. With the housing market declining, and the impact of subprime
mortgage lending practices gaining hold, the federal government decided to intervene.
Historically, the federal government has been involved in the housing market,
particularly through the creation of the Federal National Mortgage Association, now
known as Fannie Mae, in 1938. As a government agency, Fannie Mae was authorized
to purchase government-insured mortgages to replenish the available money for loans
to help people buy homes. This program was another piece of the New Deal effort to
revitalize the economy following the Great Depression. In 1968, the structure of
Fannie Mae changed, and it became a private company, but with a public mandate to
increase home ownership under federal guidelines. A detailed discussion of Fannie
Mae and the other government mortgage provider, Freddie Mac, is beyond the scope
of this book, but it is important to know that these agencies are private but with a
government charter.
Although it is a private corporation, Fannie Mae is a government-sponsored
enterprise and its impact on the U.S. economy is significant. Although Fannie Mae
was not involved in the subprime lending because its regulations did not allow such
risky loans, it was caught up in the decline of the housing market because the value of
the mortgages held by the corporation declined precipitously. Because of that impact,
the federal government chose to intervene in 2008 by standing behind the loans and
making sure that there would be financial support to keep the corporation solvent. At
the time, the Congressional Budget Office (2010), taking into account as many
variables as possible in terms of economic conditions and the future value of assets,
estimated that the cost of the program over 10 years would be about $163 billion, less
than originally estimated but still high in terms of government support. Again, this is
an example of Keynesian economic interventions, which also reflected a social
welfare issue by trying to keep people from losing their homes.
