Stimulate the Economy by Mending Our Safety Nets

Lots of talk this week about the proposed stimulus. One high priority ought to be the most vulnerable members of our society. The safety net created in the 1930s to protect Americans from extreme poverty is in tatters. Now that we’re in the worst downturn since the Depression, that safety net needs mending. This should be a key part of any stimulus plan.

Unemployment insurance, for example, was created in 1935, when most people who lost jobs had held those full time positions for some years. But most people who are losing jobs now have not been in them all that long. Typically, the last ones hired are the first fired. And many job losers have only worked part time.

Either way, they don’t qualify for unemployment benefits. In fact, fewer than 40 percent of people now losing their jobs qualify. So a necessary step toward mending our safety net is to get unemployment benefits to everyone who loses a job. And if it’s a part-time job, partial benefits.

Or take welfare. Remember it? It was also started in the depths of the Depression. We officially abolished it in 1996, during the strongest job-creating recovery in memory. We substituted a new law that gives people a maximum of 60 months in their lifetimes to get aid for themsleves and their kids. Over the last dozen years, as more and more people hit that 60 month limit, the nation’s welfare rolls naturally declined — even though the percent of families in poverty stayed roughly the same, just under 10 percent.

But now that we’re in a Mini-Depression, many more families are moving toward poverty. So that 60 month limit should be lifted, at least until the economy turns up again.

Food stamps are another strand of the safety net. As of September, 2008, a record 31.5 million Americans were receiving them. That’s roughly 10.3 percent of the population, each receiving $100 per month per family member. These numbers can be expected to rise considerably in 2009 and 2010. The current economic emergency is putting many more Americans at risk. Food stamp allocations should be increased.

Finally, let’s make the Child Tax Credit fully refundable. Right now, it’s not fully refundable to low-income families who don’t pay enough income taxes to qualify. As a result, an estimated 10.6 million children were ineligible for it in 2007, and an additional 11 million received less than the full amount.

Giving American families more economic security during this meltdown isn’t just fair. It’s also good policy, because the money they get to buy goods and services keeps other people in jobs. In fact, strengthening our national safety net is one of the fastest and most direct ways to stimulate the economy.

And, after all, if executives and directors on Wall Street and in Detroit deserve a safety net, why should American families be left out in the cold?

Originally published at Robert Reich’s Blog and reproduced here with the author’s permission.

3 Responses to "Stimulate the Economy by Mending Our Safety Nets"

  1. Demand Side   January 8, 2009 at 12:06 am

    This repair of the safety net has a technical foundation, in increasing the consumption function. Why is the Japanese consumption function so low? Perhaps because they too lack an adequate basis of security and their members have chosen to hoard against old age and want.The consumption function is the part of income saved. A higher consumption function multiplies stimulus with a larger coefficient. People will tend to spend if they are not exposed to personal risk. And the largest hole in the safety net is health care. Mend that with strong cord and you will have a real stimulus.

  2. Guest   January 11, 2009 at 10:21 pm

    “Money for nothing and the chicks are free!”–Mr. R you can’t be serious, ” directors on wall street and detroit deserve a safety net.” They don’t deserve it, never did. There is no safety net, only the tolerance of the people to indenture their children to servitude “for the public good.” Your whole premise is wrong. The federal “intervention” in the housing markets was part of the genisis of the whole problem and now you want to subsidize unproductive masses further by taking from the working population?

  3. Guest   January 11, 2009 at 10:24 pm

    PS. the Japanese aren’t hording. They are being responsible savers. If we are lucky we will only loose one decade like they did.