100 Million now on Welfare

Recently, the number of Americans receiving welfare benefits exceeded 100 million.  Now most, I'm sure, are not surprised by this fact given the state of the economy.  With the unemployment rate steadily above 8% over the past 4 years it is easy to see why the number of welfare recipients has increased.  However, this is a staggering 1/3 of the U.S. population.  I'm sure after the 1996 welfare reform bill was signed into law in order to create work incentives for those on welfare would have never expected such a sharp increase only 16 years after the law was passed.  Perhaps, there is more to the story.  

One of the things the passage of the 1996 welfare reform act did was introduce the benefit-reduction rate.  This rate worked by creating an optimal amount of hours per week the beneficiary should work in order to make the most money possible through welfare benefits and earned income.  For example, someone on welfare has a benefit reduction rate of 50% then for every dollar earned there is a 50 cent reduction in welfare benefits.  This creates an incentive to work because one could earn more through working and receiving welfare benefits at the same time.  Now, each state can set the BR rate however they like.  Something to note is the lower the BR rate, the higher the incentive to work because one could simply earn more by working more.  It works the other way as well.  If the BR rate is 100%, as it was before the 1996 bill, then the incentive is to not work at all and simply receive benefits because each dollar earned is a dollar lost in welfare benefits.  

Texas has done well in this economy and perhaps the BR rate has something to do with it.  
Take a look at the map below.



 This map shows which states increased and which states decreased the BR rate from 2007 to 2009.  As the map shows, most states increased their rate (incentivizing more leisure and less work) but Texas and a few others actually reduced their rate.  This is not surprising because in Texas the policies and regulations are very business-friendly and this map may be just one of the many contributing factors for Texas' success during this "great recession". 
 

Social Insurance Continued

In a previous post where I talked about social insurance I contended that there should be an opt-out age at 25 and because of this there would likely be an increase in federal funding for welfare programs.  I say this because if most opt-out of social security payments, it might lead to an increase in taxes else-where since the government is no longer receiving the funds to support welfare programs.  Yes, through social security taxes, government supports other programs.  Now, the reason for this is because the social security trust fund isn't actually there.  It is an IOU from the government to the government through bonds.  This IOU is expected to be depleted in the next twenty years.  And after the IOU is depleted then social security goes back to a pay as you go system.  Did I just call a trust fund an IOU?  I can't be making any sense.  Well, nothing is really new here, as the government seems to mostly function on IOUs social security is no different.  Except that instead of issuing an IOU to another country like China, it's actually an IOU to itself.  We have truly come a long way. 

The way I see it, government has crowded out the market for retirement insurance from those who could afford a small premium for retirement.  Now I would assume, again, that those who go off of their social security plan will probably take that extra money and use it for themselves in day-to-day expenses as opposed to instantly investing in a retirement account.  OR, they might now have an incentive to open a brand new retirement account since they will no longer have social security.  I don't know for sure but my belief is the latter.  If one opts our for social security they may be doing so in order to open their own retirement account because social security is so marginal in almost every way.  7.5% of your paycheck goes into the social security fund.  If you make $50000 a year that is $3250.  Now here's the catch; social security is not means-tested which means even if you have a 401k with your employer or you make over a million dollars a year, or both, you will still qualify for social security benefits, this is also what puts it in a separate category from welfare.  Just think.  If you were able to take that extra $3250 what would you do with it?  If you only made $15000 a year that's $1125!  I point this out because there is a market for these accounts!  Why not allow the private sector to provide retirement insurance?  If this were to happen, there would be an influx of jobs.  Social security crowds out this market for low premium retirement insurance companies.  This amount of money going towards social security could easily be transferred to low premium, private sector, retirement insurance for individuals.  Now I'm well aware of the transition problem that always exists which is why I mentioned an opt-out age of 25 to help alleviate this issue.  Those still relying on social security will still receive their benefits.  And I'm aware that many individuals would likely keep the extra money for day-to-day expenses, but I also believe the extra jobs created by this seemingly massive market may help to alleviate the poverty as well.  Retirement insurance is a large market, and in today's economy, we would do well by saving. 

Gun Control

Recently, I read an article from The Economist on the subject of gun control.  If you're interested in reading the article, here is the link http://www.economist.com/blogs/democracyinamerica/2012/07/gun-rights?spc=scode&spv=xm&ah=9d7f7ab945510a56fa6d37c30b6f1709

In this article the author refers to Justice Scalia's comments on the second amendment.  As a Justice, Scalia interprets the amendment in a very literal sense calling "bear" the idea of being able to wield a gun with your "bear" hands, so to speak.  This idea rules out the possession of say a tank or a fighter jet.  The original intent of the second amendment is to allow the citizens to prevent a tyrannical governmental takeover.  In today's world, the government military has possession of much better artillery than a handgun or even an AK-47.  Scalia suggests that if the second amendment is to live up to its' original intent, citizens should be aloud to own a tank or a rocket launcher.  I completely agree.  Of course, the way to go about doing this would be to amend the second amendment (which of course is very unlikely to happen).  Or, simply legalize the purchase of these military weapons!  Yeah, I'm sure this will go over well in the media...the simple fact of the matter is that the more of those who own guns, the less likely it is we will kill each other.  

The author goes on in this article and makes this point if we are to legalize all sorts of weaponry for purchase in the United States:  "And should those citizens decide to fully exercise such rights, then their second-amendment freedom will become the freedom to be attacked and crushed by the police and the US military, on behalf of those of us who support the integrity of the American government we have elected and the enforcement of its laws."  To which I say, very unlikely.  It is the citizenry which enacts such laws and protections.  It's an easy argument to make when you say everybody has a gun so we're all dead.  It's much tougher to make the argument that if we all have guns then we're all protected.  However, it is much easier for someone to attack an unarmed enemy than it is an armed one.  This notion has been proven on numerous occasions.  Namely, the cold war.