SPECIAL ANALYSIS

SHOULD THE FEDERAL GOVERNMENT GUARANTEE A MINIMUM CASH INCOME TO ALL CITIZENS?

1967-68 COLLEGE DEBATE TOPIC

AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POL!C Y RESEARCH 1200-17THSTREET, N.W.-WASHINGTON, D. C. 20036 THE AMERICAN ENTERPRISE INSTITUTE FOR PUBLIC POLICY RESEARCH, established in 1943, is a nonpartisan research and educational orgoni zotion which studies notional policy pro bl ems. Institute publications toke two major forms:

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ADVISORY BOARD Poul W. McCracken, Chairman Edmund Ezra Day University Professor of Business Administration University of Michigan

Karl Brandt Loy W. Henderson Professor of Economic Policy (Emeritus) Director, Center for Diplomocy Stanford University end Foreign Policy Milton Friedman American University Paul S. Russell Distinguished Felix Morley Service Professor of Economics Editor and Author University of Chicago Gottfried Haberler Stanley Parry Galen L. Stone Professor Professor of Political of International Trade Science Harvard University Trinity College, D. C. C. Lowell Harriss E. Blythe Stoson Professor of Economics Deon Emeritus, Low School Columbia University University of Michigan

George E. Taylor Director, Far Eastern & Russian Institute University of Washington

OFFICERS

Chairman Carl N. Jacobs Vice Chairmen Henry T. Bodman Clyde T. Foster H. C. Lumb President Treasurer William J. Baroody Henry T. Bodman

Thomas F. Johnson Joseph G. Butts Director of Research Director of Legislative Analysis Howard Friend Earl H. Voss Director of Public Finonce Analysis Director of International Studies October 20, 1967 SHOULD THE FEDERAL GOVERNMENT GUARANTEE A MINIMUM CASH INCOME TO ALL CITIZENS? 1967-68 College Debate Topic

TABLE OF CONTENTS

PREFACE------v CHAPTER I. INTRODUCTION--DEFINITIONS AND INTERPRETATIONS------1 I. The Proposition------1 II. Why the Federal Government?------1 III. What Do We Mean By ''Guarantee''?------9 IV. What Do We Mean By A Minimum Annual Cash Income?--- 12 V.All Citizens----�------16 VI. Conclusion------17 . . . D1scuss1on Quest1 ons------18 Bibliography------20 II. THE EXTENT AND NATURE OF POVERTY IN THE UNITED STATES--- 23 I. Defining Poverty------23 A. The Council of Economic Adviser's Data------24 II. Concentration of Poor Among Particular Regions and Groups------28 A. Regional Poverty------28 B. Concentrations of Poverty Within Particular Groups------30 III. Causes of Poverty------31 A. Low Educational Achievement------32 B. Unemployable------�------32 C. Unemployment------33 D. Poverty and Race------33

- i - CHAPTER

IV. Some Costs and Effects of Poverty------34 A. Direct Economic Costs of Poverty------34 B. Indirect Cost to the Economy------34

V. Conclusion------35 . . . D1scuss1on Qu est1ons------36 Bibliography------37

III. THE RANGE OF CURRENT FEDERAL PROGRAMS TO ALLEVIATE POVERTY------' 44

I. Introduction------44 II. Income Maintenance Programs for the Poor Outside the Labor Force------45 A. The Old-Age, Survivors, and Disability Insur- ance System------45 B. Public Assistance------47 C. Veterans Pensions------51 III. Programs for the Poor in the Work Force------53 A. Job Creation and Work Relief------53 B. Depressed Area Programs------56 C. Unemployment Insurance------57 D. Minimum Wages------58 IV. Provision of Services and Goods------60 A. Services for Children------60 B. Food Distribution Programs------61 C. Housing------62 D. Medical Services------64 V. Conclusion------64

Discussion Questions------66 Bibliography------67

IV. PROBLEMS INVOLVED IN PRESENT PROGRAMS------69

I. Introduction------69 II. Creating Jobs for the Poor------70

III. Are Present Income Maintenance Programs Adequate?-- 83 A. Payments in Cash------84 B. Help in Kind------93

- ii - CHAPTER Page IV. A Final Note------97 . . D•iscuss ion Questio ns------98 Bibliog!aphy------100 V. GUARANTEED INCOME PLANS--MECHANICS AND PROBLEMS------104

I. Introduction------104 II. The Possible Approaches------104

III. Mechanical Problems------106

IV. The Question of Cost------110 V. The Financial Adequacy of Various Guaranteed Income Proposals--.------115 VI. The Disincentive Problem Revisited------116

VII. The Responsible Use of Unrestricted Grants------120 VIII. The Problem of Birth Control------121

IX. The Possibilies of Public Work------122

X. A Final Note------125 . . . Discussion Questio ns------126 Bibliography------128

VI. SELECTED FOREIGN EXPERIENCES IN INCOME MAINTENANCE------139

INTRODUCTION------139 I. CANADA------139

A. Characteristics of the Canadian Labor Force--- 139

B. Employment and Manpower Policies------140 1. Counteracting Seasonal Unemployment------141 2. Promoting Regional and Area Expansion---- 142 3. Vocational Education------143

C. Welfare Programs------144 1. Federal Programs------145 2. Federal-Provincial Programs------147 3. Provincial Programs------149

- iii - CHAPTER I I. FRANCE------·------·----- 150 A. Employment and Manpower Policies------150 1. The Employment Exchange------151 2. Vocational Guidance and Training------151 3. Geographical Mobility------152 B. Welfare and Social Security Programs------153 1. Unemployment Insurance------153 2. Provision for the Disabled------154 3. Social Insurance--Old-Age Pensions------155 4. Family Allowances------156

C. Summary------157 III. SWEDEN------157

A. Characteristics of the Swedish Labor Force---- 157 B. Employment and Manpower Programs------158 1. Operations of the National Labor Market Board------158 2. Programs to Combat Regional Unemployment- 159 3. Programs to Combat Technological Unemployment------161 4. Pr.Jgrams to Combat Cyclical Unemployment- 162 C. Welfare Programs------164 1. Unemployment Insurance------164 2. Old-Age Pensions------164 3. Family Allowances------165 A FINAL NOTE------166

Discussion Questions------�------167 Bibliography------169

- iv - PREFACE

This Special Analysis is concerned exclusively with the issues presented by the 1967-68 intercollegiate debate proposition: "Resolved: THAT THE FEDERAL GOVERNMENT SHOULD GUARANTEE A MINIMUM ANNUAL CASH INCOME TO ALL CITIZENS." It is being published by the American Enterprise Insti­ tute in response to the many requests from college debaters and coaches for background materials and references on the subject of the debate prop­ osition. It was prepared by Professor John A. Lynch, director of debate at St. Anselm's College, Manchester, New Hampshire, and Mr. Robert M. Shrum, director of debate at Boston College, Boston, Massachusetts. Both authors come to the project with extensive backgrounds as intercollegiate debaters and debate coaches. The analysis should not be construed as reflecting any policy position on the part of the American Enterprise Institute. The authors wish to stress at the outset that they are not ex­ perts in the subject matter of the resolution. They have, however, tried to assemble, organize, and present authoritative material in such a way as to assist debaters seeking to delineate and explore the central issues raised by the national debate proposition. This analysis is not intended to provide a complete manual, nor an end to the debater's research but is designed rather to serve as a guide to the start of research and a stimulus to its continuation. To this end, a bibliography has been included at the close of each chapter, listing many more references than those which have been directly quoted or cited in the footnotes which accompany the chap­ ter's text.

Each chapter considers a distinct aspect of the resolution. The first chapter analyzes the proposition and discusses the various problems in planning an affirmative approach--proceeding through the many questions which the affirmative must consider in drafting an affirmative plan, and the negative must consider in challenging the affirmative proposal. Chap­ ter II deals with the nature and extent of poverty in the United States. Chapter III surveys the range of current programs to alleviate poverty. Chapter IV considers problems involved in the present programs. Chapter V deals with the problems and mechanics of guaranteed income plans. Finally, Chapter VI examines selected foreign experiences with income maintenance. The American Enterprise Institute and the authors wish to express their deep aapreciation to Mr. Richard Rinaldo of the University of Maryland who assisted in the preparation of the manuscript and to the following per­ sons who have read the analysis and offered valuable suggestions during its final preparation: Mr. Paul Dowd, Director of Public Relations, St. Anselm's College; Professor George F. Henigan, Director of Debate, George Washington University; Professor Robert M. O'Neil, Assistant to the President, State University of New York at Buffalo; Dr. William M. Reynolds, Department of Speech, West Virginia University; and Professor James J. Unger, Director of Debate, Georgetown University. The authors also wish to thank the Legisla­ tive Reference Service of the Library of Congress for assistance in prepar­ ing the bibliography.

- v - CHAPTER I

INTRODUCTION

DEFINITIONS AND INTERPRETATIONS

I. The Proposition

The national intercollegiate debate proposition for the 1967-68 academic year is, "Resolved: That the Federal Government should guarantee a minimum annual cash income to al 1 citizens." This first chapter provides a general int roduction to the proposition, with a focus on the meaning and implications of its terms. Many of the questions raised here will be dis­ cussed at greater length in later chap ters.

·This chapter discusses the four principal terms in the resolu­ tion: "federal government ," "guarantee," "minimum annual cash income," and "all citizens."

II. Why the Federal Government ?

A number of debate topics in the past have raised the issue of whether. the states or localities rather than the federal government should undertake a given type of program. The current proposition presents the question directly. Thus, the affirmative team must be prepared to explain why federal action is preferable to state or local solutions. If the state and local government s are primarily responsible, then the affirmative should be prepared to demonst rate that state and local efforts are inher.­ ently inadequate. Of course, the debate will involve many areas like re­ training, or the "War on Poverty," in which the federal government has al­ ready assumed responsibility. Therefore, the negative is faced with a presumption that the federal government has a responsibility in this gen­ eral area. Nonetheless, at the plan level, when the affirmative advocates a guaranteed annual cash income, it must take into account the argument that the· provision of a cash income to all citizens solely bec,ause of their poverty is not a federal function.

Until the New Deal, the whole area of social welfare was thought to be exclusively a state and local responsibility. Local and state relief agencies in the United States were apparent ly unable to cope with the prob­ lems created by the depression in the 1930s. During Franklin Roosevelt 's presidency, the nation witnessed a massive and unparalled effort by the federal government in the area of welfare--an area previously reserved to the states. Federal aid for public assistance originated in 1935 in the form of federal grants-in-aid based on state and local government expendi­ tures for such assistance.I/ Federal action in this area did not eliminate lJ Authority for public assistance grants was included in the Social Security Act of 1935.

- 1 - the responsibility of lesser governmental units. The program was keyed to state and local cooperation and participation. Nonetheless, since the 1930s the federal government has tended more and more toward assumption of responsibility for welfare programs. In 1946, for example, the Con­ gress declared that it would be the continuing policy and responsibility of the federal government to "promote maximum employment."!/

A guarantee that a job will be available does not mean that all citizens will have a minimum income. For example, there are an indeter­ minate number of people who lack the skills to obtain steady employment; others are disabled, etc. To deal with this situation governmental agen­ cies have established a large number of various income maintenance devices. It is often maintained that these devices ensure that any person without any other way to meet basic needs can obtain some form of public assistance.;,' University of Chicago economist Milton Friedman argues: "The elementary and basic fact is that we now have in this country a guaranteed minimum income. There can be no two minds about that. The fact is that we now have a collection of governmental programs that guarantee individuals in this· country a level of consumption below which they will not be permitted to fall. "3/ Typical programs of this kind are financed by both federal and state-governments. These joint federal and state programs are char­ acterized by their attempt to aid categories of the poor which may--or may not--help those whose circumstances or health permit them to obtain gain­ ful employment. 4/ It may be argued that what Friedman calls "this collec­ tion of grab bag programs"5/ does not provide a guaranteed income for all citizens. Indeed the National Commission on Technology, Automation, and Economic Progress tells us that only one quarter of the 35 million citizens who live in poverty receive public assistance.6/ The federal government, then, seems not to have assumed a general and undivided responsibility for providing a minimal standard of living for the poor. Present programs most y U.S. Congress, Senate, Subcommittee on Employment and Manpower, Labor and Public Welfare Committee, Toward Full Employment: Proposals for a Comprehensive Employment and Manpower Policy in the United States, 88th Cong., 2d Sess., 1964, p. 29.

;,' Christopher Green, Negative Taxes and the Poverty Problem (Washington: Brookings Institution, 1967) p. 38. Hereafter cited as Green.

� Milton Friedman, Proceedings of the National Symposium on Guaranteed Income (Washington: Chamber of Commerce of the United States, Dec­ ember 9, 1966) p. 10. Hereafter cited as Proceedings with participant's name.

4/ Green, op. cit., p. 35. 5/ Friedman, Proceedings, op. cit., p. 10.

6/ National Commission on Technology, Automation, and Economic Progress, Technology and the American Economy, Vol. I (Washington, February, 1966) p. 40. Hereafter cited as Commission on Technology.

- 2 - of which are conducted with the states are directed toward specific groups and needs; consequently, it may be argued that they do not encompass the whole poverty problem.

The only general assistance programs are state programs. These programs do not exist in all states. Where they do exist, they are often quite vague in definition and scope. Friedman points to the example of Illinois. There, he tells us, the law provides that any citizen is enti­ tled to apply to his local relief office for the amount of aid necessary to supply him with "an adequate" living.1/ The only programs which are general in nature are financed and controlled entirely by the states, or their subdivisions, and so in the area of general public assistance the responsibility still lies with the states. The scope of the state respon­ sibility is indicated by an,'examination of the joint federal-state programs dealing with directed assistance. The Council of Economic Advisers in its 1967 annual report states that the states finance 41 percent of the joint public assistance programs and establish standards of eligibility for al­ most all of them.2/ The essentially localized nature of federally­ financed public assistance is typified by Miss Ida Merriam's complaint about the difficulties of raising standards for public assistance. She differentiates public assistance from a national insurance program and then writes: "It must be noted that federal financial aid is available only for selected categories; general assistance is financed entirely by state and local funds and in many places entirely by local funds. It is important to keep in mind these structural barriers .... "3/ Thus, there are, in effect, structural barriers under the present system to any nationwide public assistance policy. State and local governments continue to direct and in many instances to finance public welfare.

Federal programs in this area are primarily grants in aid to help the states which administer the disbursement of benefits. These programs recognize--implicitly, at least--that general relief for indi­ viduals is essentially a local problem. The unemployment insurance pro­ gram is financed in part by federal funds. However, Walter Reuther pointed out in 1965 that state restrictions on unemployment compensation benefits have raised the number of disqualified persons to a figure that is perhaps as high as one million.if States exercise a large degree y Friedman, Proceedings, op. cit., p. 10. y Council of Economic Advisers, Annual Report of the Council of Economic Advisers (Washington, D. C., 1967). Hereafter all CEA Annual Reports cited as CEA with the year.

3/ Ida C. Merri�, "Social Welfare Opportunities and Necessities Attendant on Disarmament," Social Security Bulletin, October, 1963, pp. 13-14.

4/ Walter Reuther, testimony, House Committee on Ways and Means, Hear­ ings, Employment Security Amendments, 1965, and other pending p"ro-=­ posals on the subject of unemployment compensation statutes, 89th Cong., 1st Sess., 1965. Hereafter cited as Employment Security Amendments, 1965 with witness' name.

- 3 - of independence in financing unemployment insurance. Most of the oper­ ating details of the program are left as their responsibility. Conse­ quently, the role of the states has been to establish their own programs within the framework of the federal requirements. The states fix the amounts of and conditions of eligibility for unemployment benefits and levy the necessary payroll taxes to finance most of the program. Most federal welfare programs transfer money to the states, where, within federal guidelines, the states set up programs to dispose of it.

Thus, it can be argued that a federally guaranteed income would involve a shift in the responsibility now located in the states and local­ ities. Does it follow, therefore, that even if a guarantee is justified, it should be provided by the states?

The wisdom of state and local control of general income mainte­ nance does not go unchallenged. The President's Council of Economic Advisers estimates that in 1966 only 22 percent of the poor received any help and that this was due to state eligibility requirements.!/ Thus, it is said that one of the reasons why public assistance under federal pro­ grams fails to reach many in need is strict interpretation of eligibility on the state level. In discussing unemployment compensation, AFL-CIO President George Meany told the House Conunittee on Ways and Means that there are three basic reasons why the states cannot do the job:

First, most state benefit provisions are geared to insufficient financing arrangements. Benefit lev­ els are adjusted to the fund reserve level instead of the financing being tailored to provide adequate bene­ fits ... so long as legislative policy is controlled by those whose first concern is the tax rate rather than the needs of the unemployed, the benefit structure is going to suffer.

Second, separate state programs financed entirely apart from one another leave the whole system vulnerable to the unequal incidence of unemployment. The specter of insolvency is called forth to discourage each state from liberalizing its benefits.

... Many states consciously pursue a policy of under­ financing as part of an industrial development program to attract new industry through low payroll taxes. I doubt whether the small variation in rates between states actually has any significant influence on plant movement but the lower rates effective in some states are frequently among the sales arguments of those states.2/

'};/ CEA, 1967, op. cit., p. 141.

'!J George Meany, Employment Security Amendments, 1965, op. cit., p. 832.

- 4 - The heart of Mr. Meany's argument is that all federal-state cooperative programs are adversely influenced by a number of inherent economic con­ siderations--considerations that often take priority in state fiscal planning. Clearly these considerations are stronger in some areas than in others. It is argued that unemployment compensation, which is partially financed by a payroll tax on employers, is more likely to be inadequate than those programs that receive state support from general revenues. Also, it is argued that state inability or unwillingness is evident in almost every area. To a greater orlesser extent, the critics argue, problems on the state level have eroded the viability of cooperative federal-state programs in aid of the poor. They point to a wide diver­ sity in the amount of and eligibility for public assistance benefits.

Critics of present income maintenance programs have directed even stronger attacks against the general assistance programs adminis- tered wholly by the states. As we have noted before, unlike federal pro­ grams, these programs are not directed at any special group of the needy but are designed to deal with all of those who are poor and cannot receive enough of other types of assistance to meet their needs. The statistics on general assistance programs reveal that in December, 1965, 310,000 families or individuals--total of 677,000 people--received an annual total of $260 million in general assistance.!/ These figures seem to indicate that the need for general assistance has been exaggerated. However, the critics contend the reason for this is not a lack of need, but the strin­ gency of state standards. Lora Collins complains that the state general assistance programs have very limited assistance standards, low maximum payments, low percentages of evaluated needs met, and limited periods for which assistance may be received.2/ Precisely how much these standards have affected state general assistance benefits cannot be statistically measured. It is difficult to analyze the adequacy of general assistance because it is often administered on the county rather than the state level-­ and county figures are generally unavailable.lf

It may not be enough for the affirmative to show that the states in the past have spent an inadequate amount. What is adequate? The affir­ mative should be prepared to argue that the states cannot or should not finance and direct future programs of income maintenance for a variety of reasons. There are a number of ways in which the affirmative can approach that job.

1/ Green, op. cit., p. 37. y Lora Collins, "Public Assistance Expenditures in the United States," as quoted in Otto Eckstein, ed., Studies in Income Maintenance (Washington: Brookings Institution, 1967) p. 165. Hereafter cited as Eckstein. lf C.T. Brehm and T.R. Saving, "The Demand for General Assistance Pay­ ment�' in American Economic Review, December, 1964, p. 1007. Here­ after cited as AER.

- 5 - The first resort of any affirmative team can be the traditional argument that the states are simply incapable of financing the affirmative proposal. It has been said that in the recent past several states experi­ enced real financial crises and appeared to have only narrowly escaped what in business or industry would have to be called "insolvency."1/ More recently it has been observed that the states have had "the most trying experience in finding tax revenues."2/ Even if the states do obtain ade­ quate revenues, there are many other-projects clamoring for tax revenues which are often more attractive to state legislators than the kind of pub­ lic welfare involved in a guaranteed annual income. Many states argue that their tax rates are at the highest bearable levels. On the other hand, there are untapped tax revenues and no affirmative team could argue that the states cannot do the job without taking this into account. A number of states have untapped resources: ten states have no general sales tax, though all have selective sales taxes, including collection of taxes on motor fuels, alcoholic beverages, tobacco products, insurance, public utilities, parimutuels, amusements, and other selective sales taxes; 14 states have no individual income tax; 12 states have no corporate income tax; 6 states have no state property tax; and 29 states have no severance tax.3/ Whether any of these untapped resources should be used is a ques­ tion-that demands further examination by debaters of this year's topic. In some states, use of some of them might not make good economic sense. The severance tax, for example, is a tax imposed on removal _from land or water of natural products, such as oil, gas, other minerals, timber, and fish.4/ It might not be wise to use the severance tax, because such usage might-undermine incentives for mineral exploration.

The arguments about state financial ability are as old as the first attempts to involve the federal government in aiding social welfare. In terms of this year's particular topic, the affirmative position may be reinforced by the already-cited fact that the federal government pays 59 percent of all financing for federal public assistance programs. There has been a constant growth through the 1948-67 budget period in the totals of federal public assistance grants, from $732 million in 1948 to an esti­ mated $3.9 billion for 1967.� Such statistics must be approached with y New York Times, November 25, 1962, p. 52; May 26, 1963, p. 53; and June 23, 1963, p. 49. y Frederick C. Mosher and Orville F. Poland, The Cost of American Govern­ ment (New York: Dodd Mead & Co., 1964), p. 69. Tax Foundation, Inc., Facts and Figures on Government Finance (New York: Tax Foundation, Inc., 1967) pp. 176-177. Hereafter cited as Tax Foundation.

Ibid., p. 255. ;

� CEA, 1967, op. cit., p. 141.

- 6 - care, however. Even where there is federal financing, the states gen­ erally remain in substantial control of most of the programs. Further­ more, the 59 percent figure is confined to the federal public assistance program which is only one of the income maintenance programs aimed dir­ ectly at the poor. In terms of all public welfare, in 1965 the federal government contributed $3.2 billion, while the states and localities con­ tributed $8.8 billion (states $5. 4 billion; local $3. 4 billion) .1/ Thus, the 59 percent figure is a statistic to be used for argument in-the de­ bate; it does not decide the issue one way or the other. Indeed, state ability is an issue that has no definitive resolution. Both affirmative and negative teams should prepare for it; it will be resolved in many intercollegiate debates this year.

It may be possible, of course, for the affirmative to avoid the issue of state financial ability. The affirmative can argue instead that the states and their subsidiary localities are disabled by some other fac­ tor. It has already been noted that many states fear that increased taxes will hamper their efforts to attract new industry and revitalize their economies. This problem should be considered in light of the disparity between the various parts of the country and the relative abilities of different regions to foot a large bill in financing a guaranteed annual income. Per capita income is much lower in some parts of the country than others--and the disparity in the relative total tax bases may be even greater, because taxable industry, commerce, and finance are not likely to be located where the per capita income is low. If the poorer states are forced to increase their taxes in substantial amounts, the net result may even be to discourage badly needed new industry from entering those states. Thus the long-run effect of forced tax races in the poorer states could be a net decrease in total revenues, rather than the hoped-for in­ crease. Yet it is said that what these states need more than anything else is a fresh infusion of capital to improve economic conditions and widen the tax base. On the other hand, the analysis has already cited the views of George Meany and others, who contend that the relatively small difference between tax rates in the various states have no signif­ icant impact on where industry locates.� The affirmative might also argue that the demands of efficient administration require a federal guarantee of a minimum annual income rather than state or local action in this area. It is estimated that one out of two Americans no longer live where they did in 1960.3/ With the mobility of the American population from state to state, it-might be

]) Statistical Abstract of the United States (Washington, D. C., 1966) p. 421. Hereafter cited as Statistical Abstract. 2/ George Meany, Employment Security Amendments, 1965, op. cit., p. 832.

'!!J New York Times, August 20, 1967, p. 12E.

- 7 - difficult to achieve a workable income maintenance system that is not national in scope. It is conceivable that the administrative burden would become almost unbearable if agencies had to constantly register and then strike recipients from their benefit rolls. On the other hand, perhaps that is the way many welfare programs operate today. In this context, the states' major concern has been to prevent an influx of potential recipients from less generous states. Many of them crowd into the cities. Should they be encouraged to do so? This would not seem to be a considerable problem if the states used their financial resources to assure a relatively equal minimum annual income. More­ over, even the federal government might encounter serious problems of administration due to the mobility of certain segments of the population. The Joint Harvard-MIT Center for Urban Studies has stated that as much as 10 percent of the real population of Negro, Puerto Rican, and Mexi­ can origin is not counted in the census.1/ The government does not know that these people exist; it certainly does not know where they live. So it seems that both federal and state governments would face real problems in efficiently handling any income maintenance guarantee that is general in nature. Whether these problems would be more acute for states and localities than for the federal government is an issue that cannot be resolved here.

There are other administrative considerations that might argue for a federal guarantee. The affirmative on this year's topic might tie its income maintenance plan in with the income tax system. James Tobin, former member of the Council of Economic Advisers, points out that an approach to income maintenance which is connected with the federal tax system could and should involve the Internal Revenue Service in the nec­ essary financial surveillance.2/ Christopher Green writes: " ... If admin­ istering a transfer by taxation plan were limited to determining whether a unit was eligible... it would be clear that the Internal Revenue Service would be the most appropriate administering agency.11 3/ He also points out, however, that if negative income tax payments were distributed on a regular month to month or week to week basis, the IRS might be forced to take on a burdensome new function. He suggests the establishment of an independent agency to handle the responsibility for payments.4/ So, if the income tax system is used as a base, the most appropriate-agency for assessing eligibility, the IRS, might be a wholly inappropriate agency for handling the program in its other aspects. Moreover, many of the y Ibid. 2/ James Tobin, Proceedings, op. cit., p. 8.

� Green, op. cit., p. 111. 4/ Ibid. , p. 112.

- 8 - states have their own income tax systems.1/ There appears to be no rea­ son why a desirable income tax-oriented approach could not be handled through these state systems. In asking the question, "Why the Federal Government?" this section has attempted to outline the nature of the present income main­ tenance and to discover where the primary responsibility for it rests. If the primary responsibility now rests with the states, the affinnative team, in debating this year's proposition, has the burden of demonstrat­ ing why they advocate substituting federal for state action.

III. What Do We Mean By "Guarantee"?

The presence of the word "guarantee" in the resolution affects the affinnative's burden of proof. It is not enough for the affinnative to prove that the federal government should assist the states in maintain­ ing or setting up income maintenance programs--as it does today. What must be proved in order for the affirmative to meet its burden is that the federal government should "guarantee" or insure that some minimum income will be available to all citizens. The substantive implications of the federal guarantee are not always easy to define. Professor Christopher Green of North Carolina State University isolates what he considers the fundamental differentiation between a guaranteed income proposal and present income maintenance plans. He writes that under a guaranteed in­ come, or negative income tax, "as a matter of right, everyone has access to the benefits, which are conditioned only upon the level of the per­ son's or family's income. "2/ If Green's view of what constitutes a guar­ antee is accepted, it might seem that the affirmative could not tie its proposal in with conditions such as compulsory retraining. Instead, a guaranteed income promises every citizen that, no matter what the reason for his unhappy circumstances, he will receive from the government pay­ ments keyed to a predetennined schedule. There are a number of reasons why the proponents of the annual income insist that it be guaranteed, in the sense that Green intends when he speaks of grants conditioned only upon family income. One of these-­ the supposedly noxious investigations associated with the present welfare system--is discussed at some length in the chapter on current programs. Another is presented by economist Robert Theobald. Theobald is concerned with the potentially incredible misuse of power if the government is sub­ sidizing a large number of citizens. He fears that a guaranteed annual income might provide an opportunity for the illegitimate use of political

1/ Tax Foundation, op. cit., p. 176. '!:..! Green, op. cit., p. 7.

- 9 - power to undennine fundamental institutions. His solution is to adopt the guaranteed annual income as an absolute constitutional right. His specific proposal is:

We will need to adopt the concept of an absolute constitutional right to an income. This would guar­ antee to every citizen of the United States, and to every person who has resided within the United States for a period of five consecutive years, the right to an income from the federal government sufficient to enable him to live with dignity. No government agency, judicial body, or other organization whatsoever should have the power to suspend or limit any payments assured by these guarantees. .!/

There appear to be two very real difficulties with this constitutional approach. The first relates to the size of the payments. If the con­ stitution set up a payments schedule (which would be unusual indeed) and did not allow for a change in such payments, then the guaranteed income proposal could not respond to changes in economic conditions such as the onset of inflation. If, on the other hand, the constitqtion simply guar­ antees a sufficient income in principle but allows for a change in the level of that income, it is arguable that the serious danger of political abuse would still remain. The second problem with a constitutional guarantee relates to the nature of the democratic process in the United States. Social welfare proposals are inherently unpredictable in their effects. Social scientists discuss them prospectively but only experience can demonstrate their worth. Consequently, such proposals have almost invariably been adopted through legislative enactment. If they fail to meet their claimed potential, they can be repealed. To freeze such proposals into the constitution might re­ sult in a situation where an unwise policy could take years to abandon. It might also result in increasing inflexibility in the federal budget. With a substantial proportion of revenues committed by the constitution to be spent on the guaranteed annual income, the federal government might not be able, in times of need, to shift priorities in the federal budget in a way that would best serve the economic interests of the nation. Finally, one might question whether Theobald's fears about government manipulation are justified.

The thrust of Theobald's advocacy of an absolute constitutional guarantee of a minimum annual income is that a desirable income maintenance system should be conditioned only upon the level of income. This raises an interesting question: Does his interpretation--which he shares with Green--mean that an affirmative team may not attach other conditions to its proposals? William Vogt, secretary of the Conservation Foundation, suggests y Robert Theobald, "Appendix" in The Guaranteed Income, (Garden City, New York: Anchor Books, 1967) p. 233. Hereafter cited as The Guar­ anteed Income.

- 10 - that recipients of the guaranteed income be required to do work such as garbage collection, sewer maintenance, ward nursing, home care for the sick and elderly, and conservation.!/ It seems questionable whether the imposition of requirements like those advocated by Vogt is consistent with the concept of guarantee in the proposition. Conditioning the in­ come upon the level of family resources in any given year seems to be justified by the use of the word "minimum." The affirmative is asking for the federal government to guarantee a minimum and in order to deter­ mine the size of the payment necessary to obtain the minimum for any given family, it is necessary to take that family's other income into account. Thus, the condition called for by Green and Theobald seems also to be called for by the wording of the resolution. Other conditions may be inconsistent with the concept of an absolute financial floor below which no citizen will be permitted to fall, no matter what the reason for his lack of personal income or resources. If this reasoning is accepted, the affirmative has the burden of establishing the need for or the advan­ tages to a plan that incorporates financial need as the only criterion for assistance.

However, there does seem to be a way in which the affirmative might justify the inclusion of employment--or willingness to work--as a requirement for the receipt of benefits. This all hinges on the defini­ tion of the term "income." On the one hand, we might define personal in­ come or. disposable personal income as what people have left to spend or save after they have paid their·taxes.2/ If this definition is accepted, then the previous discussion of the meaning of guaranteeing an income re­ mains valid; that is, an income guarantee precludes the idea of condition­ ing the benefits upon the rendering of services by the recipient. On the other hand, income can also be looked upon as the product of effort--the result of labor or capital input.3/ Given this definition of income, the proposition seems to require that-the federal government do nothing more than provide to all citizens a meaningful opportunity to earn wages. This could be done in one of two ways: the federal government could condition the receipt of benefits on the applicant's willingness to seek work or the government could require that all recipients make themselves available for appropriate public service employment, perhaps in the areas suggested above by William Vogt. Of course, it must be noted that such a work-centered program would have to take into account the widespread belief that there are many who simply cannot work. Provision would have to be made for them. Thus, the affirmative's ability to require work as part of its program de­ pends upon its definition of income; there may be a legitimate way to do so.±.f

Y William Vogt, "Conservation and the Guaranteed Income)' in The Guar­ anteed Income, op. cit., p. 166. � George Leland Bach, Economics (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1963), p. 62. � Ibid., p. 483. if Support for the "work" definition of "income" is provided by Helen 0. Nicol, Division of Research, Welfare Administration, in her article, "Guaranteed Income Maintenance: Another Look at the Debate," Welfare in Review, June-July, 1967, pp. 1-13. Cf. particularly p. 2 and the listing of possible guaranteed income proposals, which includes residual public work.

- 11 - IV. What Do We Mean By A Minimum Annual Cash Income?

The word "minimum" evokes the image of the welfare recipient freed from financial worries by the receipt, according to a regular schedule, of a subsidy from the federal government. Like the farm pro­ gram, the recipient would be paid in cash; unlike the farm program, he is paid not for his ability to overproduce, but for his failure to earn sufficient resources. Despite the apparent simplicity of this image, the idea of a minimum annual cash income raises many problems, both theo­ retical and practical. For example, does the presence of the word "annual" require that payments be keyed to the current year's income, or does it permit a schedule based on the beneficiary's income record in the preced­ ing year? This section attempts to deal with such problems one by one and to arrive at some tentative conclusions about them. It should be noted here that the discussion following will involve references to cer­ tain distinguishing features of various guaranteed income proposals. These proposals are discussed at greater length in Chapter V, "Guaranteed Income Plans: Mechanics and Problems."

A guaranteed income proposal may establish its minimums in any of a number of ways. It might insure that every individual economic unit will receive enough of a subsidy to bring its income up to $1,500 a year, and that every family will receive sufficient funds to raise its income to $1,500 for the head of the family and $500 for each dependent. There are also more sophisticated approaches. When the income tax system is used as a basis, the family of four with exemptions plus standard deduc­ tions equal to $3,000 might be designated to receive up to $1,500 a year from the government, if a negative tax rate of 50 percent is used. Pro­ fessor Milton Friedman of the University of Chicago exemplifies the prin­ ciple involved: If ... a family (of four) had a total pre-tax income of $2,000, it would have a negative taxable income of $1,000. Under a negative income tax, it would be entitled to receive a payment, the amount depending upon the tax rate. If the tax rate... were ...14%, it would be entitled to receive $140, leav­ ing it with a post-tax income of $2,140. If the tax rate were 50%, the highest rate that seems to me at all feasible... , it would be entitled to re­ ceive $500, leaving it with a post-tax income of $2,500,.!/

So, in Friedman's model--with a 50 percent tax rate--there exists what is in effect a 50 percent tax on all earned income. That is, the indi­ vidual or family loses a portion of its subsidy equal to only one-half of the money it receives from gainful employment. Thus, for a family of four, Friedman's proposal guarantees an absolute minimum of $1,500, though self

.!/ Friedman, Proceedings, op. cit., p. 49.

- 12 - help can raise the income level without sacrificing all of the subsidy; under the "filling the gap" approach the same family of four is assured of $3,000, though its income cannot exceed that figure as long as it con­ tinues to receive governmental aid. There is yet a third approach to the establishment of the guaranteed annual income. This approach generally involves the provision of a certain stipulated sum for each individual or family in any given year regardless of income. Because the guarantee here is given to all families, not just poor ones, the cost of such a proposal is very large. In any case, this scheme, which is often refer­ red to as social dividend taxation, meets the requirements of the resolu­ tion as clearly as "filling the gap" and plans such as Friedman's. All three set a firm minimum--a definite income level.

There is nothing sacred about the figures employed for illustra­ tive purposes in the preceding analysis. One could "fill the gap" between actual income and any desired figure, no matter how high. Friedman's ap­ proach could be based on a figure four times as large as the sum of deduc­ tions in standard and personal exemptions. The specific figures, then, are not important at this stage; what is important is to understand the prin­ ciples that underlie the various schemes. As we have seen, all of them in one way or another provide a minimum. The important difference among the schemes is the relation of the minimum to a maximum level. "Filling the gap" establishes a minimum that is, in effect, also a maximum. Fried­ man's plan has both a minimum and a maximum, with a sliding scale of bene­ fits. The social dividend approach simply does not care about any maximum; if Andrew Carnegie were still alive, social dividend taxation would pay him a yearly subsidy. Though all of these plans meet the proposition's require­ ment that a minimum be set up, they do so in very different ways.

On its face, the word "annual" appears to be included in the re­ solution for the sake of convenience. It suggests that the affirmative plan should set up its system of guaranteed income so that the minimum is expressed in terms of an amount per year. If this is the correct interpretation, then the affirmative need not worry about the problems associated with a single lump-sum payment once each year. Such a single payment would not meet what most experts consider a desirable goal for all public welfare--the provision of a set income at regular intervals.1/ The virtue of regular intervals is that it supposedly protects the poor from their own excesses; if an indigent family received its entire subsidy at one time, it is argued, the family might spend it neither wisely nor well. Then society would once again be confronted with the problem of what to do with an individual or family that lacks any re­ sources to support itself. Some have suggested that a yearly payment should be employed and that present public welfare should be maintained to care for those who dispose of their money quickly and/or foolishly. The weight of authority is opposed to such a proposition; and it is difficult to imagine the type of affirmative need that would justify it. Though the use of regu­ lar intervals for payment would not provide an absolute assurance that the

"}} Green, op. cit., p. 109.

- 13 - money would be expended intelligently, (cf. Chapter V) it would avoid the difficulties of a guaranteed income situation in which recipients lack resources for a considerable period despite the governmental subsidy. There are a number of difficulties associated with the period­ icity of the annual income. They will be discussed at greater length later on in the analysis. However, it seems advisable to mention at least one of them at this point, since it directly involves the nature of an an­ nual guarantee. The difficulty involves the following question: how ca� annual need be measured? This question is made particularly difficult by the uncertainties of predicting the financial state of any individual or family in the corning year. One solution is to lag the allowance payments, so that the subsidy a family received in 1969 would be based on its income record in 1968. This solution has been criticized on a number of different grounds. First of all, it fails to take into account the fluidity of the poverty situation. One estimate indicates that approximately 30 percent of those with incomes below $3,000 in one year do not have similarly low in­ comes in the following year.1/ Consequently, a "lagging" approach would aid a substantial number of people at a time when they are no longer in need. There is an equal1y serious problem in dealing with those who remain at or near the poverty line year in and year out. Christopher Green de­ scribes the problem in this way: It can be argued justifiably that many of the poor are poor year in and year out so that they would receive substantial allowances each year. But if there is a year's lag in paying allowances, fluctuating incomes would tend to raise allowances when a family's income rose and to lower allowances when the family's income fell and the family was in greater need._y

Green's analysis can be understood better by the use of an example. Assume a "filling the gap" approach which assures an income of $3,000 a year to the family in question. If the family had an income of $1,000 in the first year of the program's operation, it would receive a subsidy of $2,000 in the sec­ ond year. However, in the second year, the family might have a self-help income of $2,000; as a result its overall receipts in year two would be $4,000. Then, in year three it would receive government aid of $1,000 (the $3,000 guar­ antee minus the $2,000 of earned income in year two). If its earned income in year three was only $1,000, then its total receipts in that year would be $2,000. Thus, under an approach that lags payments, a typical family would have incomes of $1,000, $4,000, and $2,000 in each of three years. It appears questionable whether a proposal that resulted in such wide fluctuations and lJ CEA, 1965, op. cit., p. 163. y Green, op. cit., p. 109.

- 14 - patent inequities would in reality meet the resolution's call for a guar­ anteed annual minimum. In any case, such fluctuations do not seem con­ ducive to helping those who are in poverty or to stimulating a faltering economy--aims that will generally constitute the heart of affirmative dis­ cussion. A dismissal of the "lagging" approach either for its lack of topicality or for its lack of utility creates the necessity for the affir­ mative to establish an alternative mechanism for disbursing funds •..Most advocates of the guaranteed income have urged the adoption of a system keyed to predicting needs in the current year. The specifics of such a system will be examined at length in Chapter V. Many of today's current welfare programs provide aid to the poor not in "cash," but "in kind." For instance, the Manpower Development and Training Act attempts to educate the unskilled; medical care for the aged seeks to help those over 65 obtain facilities and personnel to serve their health needs; the food stamp program hopes to supply basic nutritional necessities. This year's debate proposition precludes any such orientation toward the giving of services and materials; the presence of the word "cash" is responsible for that.

Economists who have spoken of the guaranteed cash income have used the word "cash" in the sense just described. For example, James Tobin writes:

... One of the features of the plan would be to pay these income supplements in cash, with freedom to dispose of the funds on the part of the recipients-­ rather than control, surveillance, detective work by the government over the recipients' disposal of funds, as is done now ..!_I

Thus, the aim of the program is to allow the poor to do what they will with the benefits they receive; the benefits are in cash rather than in kind so that the government cannot supervise how the money is spent. (Presumably, the word "cash"--as with "cash" basis taxpayers--need not be taken literally. Does the resolution mean that social workers under the affirmative plan will hand out wads of five, ten, and twenty-dollar bills? Does "cash" include payment by check?)

It has been argued that any effective guaranteed income proposal must be accompanied by a structure of essential services. Green, for example, has suggested the necessity for some program to subsidize heavy medical ex­ penses.'};/ Theobald has gone even further, calling for: ...a full-scale medical care bill... to insure that nobody's savings are wiped out because of an unavoidable illness for which they are not respon­ sible and which they cannot avoid.� .!/ James Tobin, Proceedings, op. cit., p. 8. '};/ Green, op. cit., p. 83. � Theobald, The Guaranteed Income, op. cit., p. 236.

- 15 - Such suggestions are obviously concerned with the establishment of sup­ plementary programs dealing with services in kind rather than with the cash income called for in the resolution. If the increased provision of such services is necessary to an effective affirmative plan, the af­ firmative team may be able to include it. However, a note of caution is necessary. The affirmative may not derive advantages from these ad­ ditional provisions of the plan. After all, any benefits derived from universal medical care could be obtained without accepting a guaranteed annual income, even if provisions for medical care are part of the affir­ mative' s proposal. .!J

V. All Citizens When the proposition speaks of a guarantee to "all citizens," it employs a term that can create a multitude of problems. Children are citizens; does this mean that the guarantee must apply to them specifical­ ly? The usual response is that the guarantee forthose who are not of age can be accomplished through the provision of assistance on a family basis. Either the parent or the guardian is legally responsible for the child. As in the case of income from a trust, the parents or guardians under a guaranteed income proposal would supervise the disposition of funds ear­ marked for the child's benefit. If this interpretation is not accepted, there is nothing to prevent a relatively well-to-do family from deriving benefits by dropping children without income as dependents·and letting them file an application for assistance.2/ However, even the use of the family unit does not solve all_ problems.- What should be done about a .!./ This situation is similar to the one that arose with wiretapping cases on the 1965-66 intercollegiate debate topic. Many affirma­ tive teams outlawed scramblers in order to assure the effective­ ness of the wiretapping system presented in the plan. It would, have been unacceptable for the affirmative to call for the adoption of the resolution on the basis of advantages accrued by outlawing scramblers. It should also be noted that the medical care-guaranteed income situation is different from the scramblers-wiretapping situation. In the latter case, the problem with scramblers is created by the authorization for government agents to wiretap; with that authori­ zation, there is an incentive for organized crime to employ such devices. In the former case, the medical indigency problem pre­ dates the affirmative plan; all the affirmative really argues is that its plan cannot be effective without such a provision. It seems that there should be more question about the legitimacy of a plan provision to deal with this situation. For a discussion of this area--and an example of its operation in a debate--see: William M. Reynolds and James J. Unger, Second Thoughts (Washington: Educational Research Associates, Inc., 1967). y Thomas K. Hitch, "Why a Negative Income Tax Won't Work," Challenge, July-August, 1966, p. 15. Hereafter cited as Hitch.

- 16 - family member who obtains more than half of his support from outside the family? There are a number of suggested solutions in this and similar situations. They are reviewed in the chapter on " Guaranteed Income Plans: Mechanics and Problems." The use of the words "all citizens" means that only those who are natural-born or naturalized citizens of the United States will be entitled to receive benefits under the guaranteed income proposal. As already noted, many income maintenance proposals would also extend bene­ fits to aliens under certain circumstances.1/ The reason for the resolu­ tion's apparent exclusion of aliens is not clear. Present immigration laws contain provisions which seem to insure that there will not be a flood of aliens likely to become public charges. Furthermore, many pres­ ent welfare programs include thousands who are not citizens of the United States. Nonetheless, the resolution clearly excludes these people from the coverage of the guaranteed income proposal. If an affirmative team is concerned with the possible inequities of such a situation, it might include aliens in its plan, with the understanding that none of the need and none of the advantages may be traced to that inclusion. Even without an affirmative inclusion of immigrants, it does not seem likely that the negative will be able to make an effective argument on this point. The fact that a proposal is not quite extensive enough in its coverage is not a reason to reject it. After all, the affirmative is not obliged to solve every problem in the status quo that is related to the problem it has chosen to discuss.

VI. Conclusion

It now seems clear that the affirmative's obligation on this year's topic is threefold. First, the affirmative must justify the adop­ tion of a guaranteed income proposal. Second, it must justify a federal rather than a state guarantee. Finally, it must construct a plan that takes into account the many technical difficulties involved in any gen­ eral income maintenance proposal.

This chapter has been an attempt to point out some of the impli­ cations of the terms of the proposition, to discuss some related issues, and to preview many of the concepts examined throughout the special analysis. Obviously, there are no easy answers to many of these problems, and the material assembled in this analysis should not be construed as reflecting any policy position on the part of the American Enterprise Institute.

It should be remembered that we are concerned initially not with a determination of which level of government is responsible for programs like retraining the poor or a social insurance system for the aged, but with a determination of which level has the primary responsibility for r,and control of general income maintenance programs.

1/ Theobald, The Guaranteed Income, op. cit., p. 233.

- 17 - DISCUSSION QUESTIONS 1. Why is the affirmative obliged to discuss state ability or willingness to finance income maintenance?

2. Is there already� presumption for federal action in some areas of the unemployment and poverty problems? Which ones? Does fed­ eral action in one area related to poverty establish a presumption for federal action in all other areas related to poverty?

3. What is the extent of federal support for public assistance? State support? Who exercises normal administrative control over the dis­ tribution of benefits? 4. What is general assistance? How does it differ from other public assistance programs? 5. Are there untapped revenue sources available to the states? What are the limits of state taxing abilities? Does the existence of an untapped revenue source by itself indicate further potential for raising funds?

6. Why might some states fear to raise taxes, even if they could? Explain the rationale for the view that higher taxes might dis­ courage industrial expansion in the poorer states?

7 .. How does population mobility affect the administration of welfare programs? Is this a problem on the federal as well as the state level? Why?

8. Would the use of an income tax mechanism for a guaranteed income require that the federal government sponsor the guarantee? Can the Internal Revenue Service--as the supposedly appropriate federal agency-­ ·efficiently handle all the problems connected with the administration of a negative income tax?

9. Should a guaranteed income be constitutionally assured? What are the arguments against such a procedure?

10. Can "public work" be included as part of a guaranteed in­ come plan? Why or why not? What is the nature of a guarantee? Can conditions be attached to it?

11. How do the various mechanisms for guaranteeing an income meet the resolution's requirement that a "minimum" be established? 12. What does the presence of the word "annual" mean for the affirmative? Must the affirmative plan establish once yearly payments or may it utilize monthly or other periodic payments? What is the major problem with a single lump sum payment?

- 18 - 13. What is the meaning of the tenn "cash" in the resolution? Can certain guarantee of "services" be included in the plan? What is the relation between the inclusion of such extra provisions and the affirmative need or advantages?

14. Should the affinnative worry seriously about the dangers involved in excluding aliens from the benefits of the plan? Why or why not?

- 19 - BIBLIOGRAPHY The literature specifically related to various guaranteed income plans is included in the bibliography to Chapter V. This bibliography catalogues publications on state financial ability.

Advisory Commission on Intergovernmental Relations. Federal-State Coordination of Personal Income Taxes. Washington: U.S. Govern­ ment Printing Office, 1965.

Brazer, Harvey E. "Our Hard-Pressed State and Local Governments," Challenge (January-February, 1966). Reproduced in the Congres­ sional Record (April 26, 1966) pp. A2253-55 (daily ed.).

Break, George F. Intergovernmental Fiscal Relations in the United States. Washington: The Brookings Institution, in process.

Bureau of the Budget, "Federal Aid to State and Local Government," Special Analyses of the Budget of the United States: Fiscal Year 1967. Washington: U.S. Government Printing Office (1966). Dale,Edwin L., Jr. "Subsidizing the States," The New Republic (November 28, 1964) pp. 11-12.

"Dollars From D. C.," Federal Reserve Bank of San Francisco. Monthly Review (February, 1965) pp. 26-29.

"The Financial Dilemma of American Federalism," The Morgan Guaranty Survey (September, 1966). Freeman, Roger A. "Grants Without Strings,"--An article reproduced in the Congressional Record (June 25, 1959) pp. A5506-07. "Federal Grants and the Decline of the Federal System," A paper delivered to the 58th Annual Conference on Taxation, New Orleans, Louisiana: National Tax Association (November 9, 1965). Reproduced in the Congressional Record (July 12, 1966) pp. 14672-76 (daily ed.). Harriss, C. Lowell. "Sharing Federal Revenues With the States," Congressional Record (April 19, 1966) pp. A2109-ll (daily ed.).

Federal Revenue Sharing With the States. New York: The Tax Foundation, Inc., 1967.

Handbook of State and Local Government Finance. New York: The Tax Foundation, Inc., 1966. Heilbroner, Robert L. "The Share-the-Tax-Revenue Plan," New York Times Magazine (December 27, 1964) pp. 8, 30, 31, and 33.

- 20 - Heller, Walter W. New Dimensions of Political Economy. Cambridge, Massachusetts: Harvard University Press, 1966, p. 203. Maxwell, James A. Financing State and Local Governments. Washington: The Brookings Institution, 1965, p. 276.

"Report of Commission on Intergovernmental Relations," National Tax Journal (March, 1956). Tax Credits and Intergovernmental Fiscal Relations. Washington: The Brookings Institution, 1962, p. 202. Mushkin, Selma J. and Adams, Robert F. "Emerging Patterns of Fed­ eralism," National Tax Journal (September, 1966).

Mushkin, Selma J. "Federal Grants and Federal Expenditures," National Tax Journal (September, 1957). Office of Economic Opportunity. Catalog of Federal Programs for Individual and Community Improvements. Washington: Office of Economic Opportunity, 1965.

Otten, Alan L. and Seib, Charles B. "No-Strings Aid for the States?" The Reporter (January 28, 1965) pp. 33-35.

Pechman, Joseph A. Federal Tax Policy. Washington: The Brookings Institution, 1966.

"Financing State and Local Government," Proceedings of a Symposium on Federal Taxation. New York, N.Y.: The American Bankers Association (1965).

Republican Coordinating Committee. Financing the Future of Federalism: The Case for Revenue Sharing. Task Force on The Functions of Fed­ eral, State and Local Governments. Prepared under the direction of the Republican National Committee, Washington, March, 1966.

Schaller, Howard S. "Federal Grants-in-aid and Differences in State Per Capita Income," National Tax Journal (September, 1955).

Tax Foundation, Inc. Allocating Tax Burdens and Government Benefits By Income Classes (Government Brief No. 8), 1967.

Facts and Figures on Government Finance, 14th Biennial Edition, 1967.

Fiscal Outlook for State and Local Governments to 1975, 1966.

"Highlights of State Fiscal Actions--1966," (A Tax Founda­ tion Staff Report) Tax Review, Vol. XXVII, No. 9 (September, 1966).

- 21 - U.S. Bureau of the Census. Governmental Finance in 1964-65 (GF No. 6), June, 1966. Statistical Abstract of the United States, 1961, 1966. Wall Street Journal Staff Reporters, "Improved State, Local Finance Forecast for 10 Years to Fiscal 1975 by a Tax Group," Wall Street Journal (November 28� 1966). Watters, Elsie M. "Financing State and Local Governments--A Look Ahead," Tax Review, Vol. XXVI, No. 10 (October, 1965). Weidertbaum, Murray L. "Prospects for Reallocating Public Resources in the United States," (Unpublished paper, Washington University). Wiseman, J. "The Future of Local Government Finance," Lloyd's Bank Review (July, 1957).

- 22 - CHAPTER II

THE EXTENT AND NATURE OF POVERTY IN THE UNITED STATES The reason most often advanced for the institution of a guar­ anteed income is the problem of poverty in America. This chapter--and the next one--are surveys of the poverty situation and of some of the ways this country aids the poor under existing programs. Chapter IV will analyze the strengths and weaknesses of present programs for the poor and will also examine the broad range of possible need areas.

This chapter will be divided into four parts: First, we will explore the criteria used to define poverty. Second, we will attempt to identify the poor by groups. Third, we will examine the causes of poverty. Finally, we will try to assess some of its costs and effects.

I. Defining Poverty President Johnson's declaration of war on poverty in his 1964 State of the Union Message has made the elimination of poverty a national goal. Yet, in some respects, the issue poses a paradox. Poverty was easier to understand in the 1930s than it is today. At that time, des­ titution was widespread and the economy of the entire country was deeply affected. Now, a generation later, we have developed social welfare pro­ grams and the nation's economy has been thriving during the 1960s. Given the differing conditions between the 1930s and the 1960s, it has been said that it is ironic that there now should be millions of poor in America. How many poor are there?

It is not difficult to demonstrate, with fairly convincing statistics, that today millions of people in America live in economic hardship, according to prevailing standards of living. Some analysts refer to 40 to 50 million poor--"a fourth of the population."!/ In de­ claring an "all out war" on poverty, President Johnson speaks-of the "forgotten fifth" of the population comprising over 30 million people. Rose Friedman estimates that roughly 10 percent of all families are poor--or about half of the President's total.2/ A recent article in U.S. News and World Report maintains that only 5 percent of Americans live in poverty.y These different estimates require some further ex­ ploration. Why are there different estimates on the size of the pov­ erty problem?

}) For example, see Michael Harrington, The Other America (New York: The Macmillan Co. 1963) p. 1. Hereafter cited as Harrington. '!:./ Rose S. Friedman,Poverty--Definition and Perspective (Washington: American Enterprise Institute, 1965) p.46. Y John B. Parrish, "ls the U.S. Really Filled With Poverty," U.S. News and World Report. September 4, 1967, pp. 50-53.

- 23 - A. The Council of Economic Adviser's Data

The Johnson Administration has relied upon data which was initially used by the President's Council of Economic Advisers in its 1964 report. .!_I The Council states that "measurement of poverty is not simple, either conceptually or in practice. By the poor we mean those who are not now maintaining a decent standard of living--those whose basic needs exceed their means of satisfying them."2/ What is a "decent" standard of living? Of the 47 million families in 1962, the Council of Economic Advisers estimates, fully 9.3 million, or a fifth of the total families--comprising more than 30 million persons--had total money in­ comes below $3,000 and an additional 5 million "non-family" persons were living on less than $1,500. How did the C.E.A. arrive at these figures?

The data came from two other federal agencies. The figures on family or individual annual incomes were supplied by the Bureau of the Census population survey for 1962. These produced the estimates for fam­ ily incomes below $3,000, or for individuals living alone, below $1,500. The $3,000 and $1,500 poverty cutoff figures were suggested in a publica­ tion of the Social Security Administration which defined the cost of an "economy-plan" budget for a nonfarm family of four as $3,165 a year.� This budget contemplates expenditures of a third of the total on food, i.e.,for a $3,000 annual budget for a 4-person family at about $5 per person per week. Of the remaining amount, the Council estimated that housing would cost another $800. This would leave another $1,200-­ less than $25 a week--for clothing, transportation, school supplies and books, home furnishings and supplies, medical care, personal care, re­ creation, insurance, and everything else. On this basis the Council took the $3,000 figure as its poverty boundary.±!

1. Criticism of the Council's Data. The data which the Council of Economic Advisers employed has been subject to attack for several rea­ sons. First, it failed either to allow for the size of a family or to allow for living standards which vary from place to place. For instance, an elderly couple, living alone in a small town in Ohio in a mortgage-free house, might manage tolerably well on $3,000 a year.Sf But a New York City

Economic Report of the President (Washington: U.S. Government Print­ ing Office, 1964) pp. 55-84. Hereafter cited as President's Economic Report with year. 2/ 1964 President's Economic Report, op. cit., p. 57.

� Mollie Orshansky, "Children of the Poor," Social Security Bulletin, July, 1963. 1964 President's Economic Report, op. cit., p. 58. Edmund K. Faltermayer, "Who Are the American Poor," Fortune, March, 1964, p. 119.

- 24 - family of eight, living in rented quarters, would be in severe straits even at $4,000 a year. Thus, it is argued that such average figures may not give an accurate inventory of the nation's poor.

There is another difficulty. It is argued that the Census Bureau's annual population surveys understate family income and thus, in effect, overstate poverty,.!/ Money income in these interim surveys may be under-reported by as much as 15 percent; for example, many of those interviewed overlook such things as part-time earnings, accord­ ing to studies of such surveys. Furthennore, the Census Bureau does not include non-money income, such as the "imputed rent" homeowners do not pay or the food that fann families can grow themselves. Such in­ come may be only about 3 percent of the gross national product, but the "imputed rent" and food would be a much larger percentage of the income in rural areas and on small fanns. Thus, it is argued that the Council's roster of the poor contains not only too many old people who own homes, but also too many fanners.

In another area, Rose Friedman contends that the Council has derived its figures incorrectly. She argues that the correct applica­ tion of the criteria using precisely the same data and the same concept of nutritive adequacy, yields a figure around $2,200 as the poverty-line income for a nonfann family of four, and poverty-line incomes ranging from $1,295 for a 2-person household to $3,155 for a household of seven or more persons.

In Mrs. Friedman's view, the Council's analysis exaggerates the extent of poverty and gives a misleading description of who the poor are. Use of the correct figure, she argues, would lead to the conclusion that 10 percent and not 20 percent of all families are poor. She also contends that the Council overstates the fraction of the poor who are young, old, on fanns, and in the South, and understates the fraction who are in large families, in the cities, and in the North.2/

Later, in the 1965 Economic Report, the Council adopted a variable poverty index which was developed by the Social Security Ad­ ministration.� Under it, the poverty threshold for 1964 ranged from $1,025 for a single female over 65 in a fann area to $5,100 for a male­ headed family of seven or more in an urban area. Mollie Orshansky's "Recounting the Poor--A Five Year Review," describes the revised poverty index as follows:

.!/ Faltermayer, op. cit., p. 119. 2/ Rose Friedman, op. cit., p. 41.

3/ See Mollie Orshansky, "Recounting the Poor," Social Security Bulletin, April, 1966, pp. 20-37.

- 25 - The measure of poverty used is defined by the SSA variable income criterion, taking into account family size, composition, and farm-non­ farm residence, and the proportions of income required to purchase a minimum adequate diet .•.. The poverty level index has been adopted by the Council of Economic Advisers and the Office of Economic Opportunity as a rough guide pending further research. Under this scale, four-person non-farm families in 1964 as a group are defined as poor if their money income for the year is less than $3,130.... For farm families the poverty line is 30 percent lower. The poverty index priced at the level for 1964 implied an average expenditure for food of 70 cents a day per person ... ,!/ Even using the newer poverty index developed by the Social Security Administration, the data do not seem to portray the total poverty pattern as essentially different from that in the 1964 Economic Report of the President which employed the $3,000 figure for· all fami­ lies. The new figures show that: (1) There were 11.9 million households in the United States, consisting of 34.1 million per­ sons, whose money income in 1964 was below lev­ els of the SSA variable poverty index. These represented 19.8 percent of the households and 18 percent of the population. (2) The poverty gap for these persons classed as poor--that is, the estimated difference be­ tween actual income and income required to lift them out of the poverty classification--was $11.7 billion in 1964.� Perhaps the various poverty estimates conflict because they are based upon different definitions and assumptions. Several years ·ago Professor Robert J. Lampman of the University of Wisconsin, in a study for the Joint Economic Committee of the United States Congress, showed that the number of poor might range between 9 and 36 percent of the population depending upon which assumptions and definitions were used.3/ Lampman settled for 19 percent, and most of the current esti­ mates-are somewhere near this figure.

!/ Ibid., p. 22. 2/ Orshansky, op. cit., pp. 20-21.

� Faltermayer, op. cit., p. 218.

- 26 - The poverty figures employed thus far utilize annual family or individual incomes. When the poor are measured by their possession of consumer goods and services, one might draw a different picture of pov­ erty. One national survey shows that the following facilities or goods were owned or available to families with annual incomes under $3,000:

79% own a television set 51% own both a television set and a telephone 73% own a washing machine 19% own a home freezer 65% have a dwelling unit that is not dilapidated and has hot running water and a toilet and a bath for their exclusive use 14% bought a car last year 1/

The 5 percent estimate of poverty cited earlier in this chapter was based upon a survey of this type. None of the figures given thus far reveals how many of the poor were only temporarily poor at the time the count was made. Some family incomes, because of a family breadwinner's illness, may dip for a year be­ low the poverty level and then return to the previous figure. A 1959 study by the University of Michigan's Institute for Social Research, however, sug­ gests that most--but not all--of the poor have always been poor. Some 60 percent of the poor families who responded to the question said that their income had never exceeded $3,000.2/ The 1965 Economic Report of the Presi­ dent tells us that approximately 30 percent of those with incomes below $3,000 in one year do not have similarly low incomes the following year.3/ Mollie Orshansky's five-year study (1959-64) shows an improvement from 22 to 18 percent or five million less poor ..!f

These figures raise an important question: will the numbers of the poor continue to decline or have we now reached the level of the ir­ reducible hard-core?

It is also important to determine whether the poor cannot work and participate in the productive life of the nation or whether they are poor despite their ability to do so. First, such a determination separates the totally dependent from the potentially self-sufficient. Second, it l/ Task Force Report, The Concept of Poverty (Washington: Chamber of Commerce of the United States, 1965) p. 122. Hereafter cited as The Concept of Poverty.

Jj 1964 President's Economic Report, op. cit., pp. 67-68.

� 1965 President's Economic Report, op. cit., p. 163. ±f Orshansky, op. cit., p. 21.

- 27 - forces attention to different solutions. If the poor are primarily the very aged, the very sick, the very disabled or others totally dependent, then the solution may rest with relief programs which guarantee such groups certain incomes. To the extent that the poor are primarily those who have difficulty fitting themselves into the economy due to remedial disadvantages, then _the solution may rest with programs to develop human and nonhuman resources and with changes in certain social institutions. Perhaps such people can be helped out of poverty by training, rehabilita­ tion, education, motivation, relocation, and the economic growth that creates job opportunities.

II. Concentration of Poor Among Particular Regions and Groups A. Regional Poverty 1. Rural Poverty. Even allowing for varying interpretations of the figures, most observers agree that poverty is found in all areas of the country and in fam.ilies of all sizes. Much of the current inter­ est centers on urban poverty, but rural poverty has been described as "the poorest, lowest, and meanest in the nation."'}} Rural poverty is found primarily in the Appalachian region (the band of states stretching from Georgia and South Carolina to Texas and Oklahoma), in the southern parts of Illinois, Indiana and Ohio, in the depleted timber and iron ore ranges of the northern lake states, in the Spanish-American areas of the Southwest, and in scattered parts of the Northwest. The rural poor include farm laborers (fixed and migrant), ex­ farmers, ex-coal miners, unemployed timber workers, part-time highway workers, odd-job workers, and reservation Indians.y The 1967 Manpower Report of the President states that poverty is relatively more prevalant on our farms and in rural nonfarm areas than in urban areas.3/ In 1965, over 55 million people were living in rural areas, slightly-more than 13 million on farms. Of these, 27 percent in rural areas and 33 percent on farms were said to be poor.!/ Both on the farm and off, poverty has shown some decline for both whites and non­ whites, but has fallen less rapidly among nonwhites. y Harrington, op. cit., p. 47. y Helen Shaffer, "Persistence of Poverty," Editorial Research Reports, February 5, 1964, p. 92. �M�a�n�p_o_w_e_r�R_e�p_o_r_t�o_f�t_h_e�P_r_e_s_i_d_en_t_. Transmitted to Congress, April, 1967. (Washington: U.S. Government Printing Office, 1967) p. 106. Hereafter cited as the 1967 President's Report on Manpower. In gen­ eral the Bureau of Census defines rural nonfarm residents as persons living in the open country or in communities of less than 2,500 people.

!/ Ibid.

- 28 - By virtually any measure used--income, employment, housing, schooling--residents of rural areas lag behind people in the urban areas. In 1964, for example, farm families had a median income of $3,414, while nonfarm families outside the metropolitan areas received $5,542. Fami­ lies in the cities reported an average income of $6,697 ...!/ 2. Urban Poverty. Most of the urban poverty problems are located in slum areas. Joblessness and irregular or part-time work are several times as frequent among slum residents as in the country generally. Even some of those employed full time have incomes below the poverty level. Others have joined the ranks of the hidden unemployed by not even looking for jobs. Illness and disability, low levels of education, and frequent dependence upon welfare and relief are pervasive problems.

A special survey �onducted by the Department of Labor in the slum areas of eight cities across the nation in November, 1966, revealed:

1. Close to 7 percent of the slum residents with jobs were employed only part time, although they would have preferred full-time work. (The comparable figure for the Nation as a whole was then 2.3 percent.) 2. One out of every 5 of those working full time earned less than $60 a week, the equivalent on an annual basis of the poverty-line income fig­ ure of approximately $3,000 for a family of four. And nearly two-fifths of the slum area families (and unrelated individuals) reported annual incomes under $3,000 compared with one-fourth in the United States as a whole.

3. A disproportionately large number of slum residents of working age were neither working nor looking for work, and so were not counted in the labor force (even though some were not looking be­ cause of their conviction, right or wrong, that they could not find a job) . This labor force "non­ participation rate" was 11 percent among men 20 to 64, compared with only 7 percent in the country generally.

4. Finally, a fifth or more of the adult men expected to be part of the population of these slum areas were not located by the November surveys. This finding parallels the Census "undercount" ex­ perience for nonwhite men. The exact circumstances and facts regarding this situation are not yet fully explored or identified.])

..!/ Ibid. ]) Ibid., pp. 73-74.

- 29 - B. Concentrations of Poverty Within Particular Groups

As indicated earlier, poverty is found in all sections of the country and among all groups of people. At the same time recent studies show that �ert�in groups are more poverty-prone than others using the poverty criteria developed by the Social Security Administration, the following, whether urban or rural, groups have relatively high concentra­ tions of poverty.

1. The Aged or Families Headed by the Aged. This group in­ cludes the growing number of retired workers and widows of retired workers. As an age group, persons 65 and older have the highest incidence of poverty in the population.I/ Those aged who live alone (or with nonrelatives) rank among the poorest of the poor. In 1964, one out of four households judged poor was that of an aged person--usually a woman--living alone.2/ Based upon the revised Social Security Administration's poverty index-described earlier, approximately a fifth of the families judged poor are headed by aged persons.3/

As a group, persons 65 or older derive a sizable share of their income from public programs rather than earnings. The expanding program of social security with higher benefits has helped some of the aged move out of poverty and has alleviated a continuing poverty problem for others.

2. Families Headed by Women. Among all households headed by a woman, 44 percent (containing 1..8 million people) were judged poor in 1964. In 1964, such a family was more than three times as likely to be poor as a family headed by a man.if

3. Family Size. A child growing up in a family with several brothers and sisters runs a heavy risk of poverty, particularly if he or she is in afamily already highly vulnerable on other counts--such as· a farm family, one headed by a woman, or a nonwhite family.5/ Two factors are involved: First, persons at the lower end of the economic spectrum tend to have more children; and second, the increase in the number of children in a family tends to boost family needs without commensurate increases in income, thus throwing many families into the poverty cate­ gory. According to Social Security Administration criteria, of families with one child only one of eight was in the poverty group, compared to one-half of families with six children. Nearly half of the 15 million poor children were being raised in families of five or more children. y Orshansky, op. cit., P· 28. y Ibid., p. 21. � Ibid. , P· 27. ii Ibid. , p. 28. y Ibid., p. 27.

- 30 - 4. Non-White. According to the Social Security Administration poverty index, 23 percent of the families who are poor are nonwhite de­ spite the fact that they make up only 10 percent of the total population ..!_/ Most of these people are Negroes, but the figures also include the majority of the country's 552,000 Indians, particularly the two-fifths who live on reservations. Generally, the nonwhites experience poverty at a rate more than three times that of their fellow Americans.2/

These figures, alone, do not measure the influence of racial factors on poverty; they merely provide an indicator of the existence of a major cluster of poverty problems. The relative low-income position of nonwhites may not be due to any one factor but from the cumulation of a number of factors--the concentration of nonwhites in agriculture, their concentration in the low-income region of the South, their employment in relatively lower paid jobs within urban areas, their lower educational attainment, and the substantially greater proportion of nonwhite families headed by women rather than men.

III. Causes of Poverty

In the past poverty was usually considered to have resulted from a general insufficiency of goods and from an economic system that channeled the lion's share of the wealth to a few. Poverty today appears to result from a combination of low-earning potential among many citizens and various other factors tending to block off the poor from opportunities to better their positions.

John Kenneth Galbraith's The Affluent Society expressed the view that poverty was no longer general in the United States but is limited to "insular" and "case" poverty--i.e., depressed areas and handicapped persons. However, Galbraith used an annual income cutoff figure of $1,000 which other observers have contended is too low. When a higher poverty line is used, poverty, while still not general in the United States, occurs in most every area of the country. A few years later, Michael Harrington expressed a broader view than Galbraith. Harrington's position is that poverty breeds poverty. The poo� are caught in a vicious cycle.3/ The poor are not only unable to take advantage of the affluent society, but many of them are beyond the welfare state; they are omitted from the coverage of social security and other wel­ fare legislation. Even when some programs are designed to help them, the poor are held back by their own pessimism .

.!_/ Ibid.

2/ Ibid., p. 21.

� Harrington, op. cit., pp. 160-61.

- 31 - Our previous section described the groups who are most likely to be poor. However, the mere fact that a person is aged, a member of a large family or one headed by a woman, or a Negro, does not necessarily mean that he is poor. Most people are probably poor because they have more than one handicapping characteristic, perhaps a combination of sev­ eral. For instance, southern, nonwhite farm workers have poverty-linked characteristics often found together. Sixty-five percent of the aged poor have some other poverty linked characteristic.I/ More than 40 percent of the families in which only one parent was present were also nonwhite and many of them were in poverty.

There are some people who are too young, too old, too sick, or otherwise too dependent to provide for themselves. However, a task force report on poverty sponsored by the United States Chamber of Commerce sug­ gests that much poverty today is remedial.2/ Poverty, in this study's view, is largely a product of ignorance, changing industrial technology, worn out farms and depressed communities, prejudices that limit opportu­ nity, inability or unwillingness to move to areas where jobs are, lack of motivation, and curable physical or mental disabilities.

A. Low Educational Achievement

One factor often cited as a cause of poverty is low educational achievement. The 1964 Economic Report of the President states that the heads of over 60 percent of all poor families, with about 21 million peo­ ple, have only a grade school education.3/ Other data also indicate that the rate of school dropouts is far higher in poor families than for non­ poor.4/ Those who lack sufficient education must compete for a dwindling portion of unskilled, low-paying jobs.

B. Unemployable Some poverty undoubtedly exists among people who are outside the labor force. Some poor are either mentally defective or chronically dis­ abled physically. Beyond these two groups, the aged and families headed by women may be cited as two other examples of groups who are to a large extent outside the labor force. These two groups comprise approximately half the families who are said to be poor. Employment policy for the aged often forces their retirement even when they are able to work. The issue of whether female heads of families should be encouraged to enter the labor force is, as we shall point out in the next chapter, a debatable one.

]J The Concept of Poverty, op. cit., p. 51. '!:.f Ibid., pp. 11-12. 3/ 1964 President's Economic Report, op. cit., p. 56. 4/ Orshansky, op. cit., p. 34.

- 32 - C. Unemployment The recent riots in some of our cities had led some observers to single out nationwide unemployment as the major cause of both unrest and poverty. What is needed--according to these observers--is a major public program to provide millions of jobs that ·will assist the unemployed in the slum areas. One such effort is the amendment to the 1967 Economic Opportunity Act introduced by Senator Joseph Clark (D., Pa.) which would provide federal support for 3 million jobs. Other bills designed to pro­ vide jobs for the poor include one by Senator Robert Kennedy (D., N.Y.) to provide special tax incentives to encourage private enterprise to locate facilities in poverty areas.

On the other hand, it is also argued that while unemployment is a major cause of poverty, it is by no means the most important cause • .!_I A large proportion of the unemployed are teenagers and housewives who are members of families with incomes well above the poverty line. Perhaps more important among the causes of poverty is the inability to work rather than the failure to find work.

Perhaps a more serious cause of poverty is underemployment or low­ paying jobs rather than unemployment. As measured by Social Security Admin­ istration standards, 2-1/2 million households, including 6 million children were on the poverty roll even though the family head worked steadily at a full-time job in 1964.�

D. Poverty and Race Finally, some argue that any serious attempt to deal with poverty's causes must come to grips with the problem of race prejudice.3/ Not all the poor are Negroes and not all Negroes are poor, but the predominance of Negroes at the lower end of income distribution has raised a variety of questions. Even when Negroes are employed, it is argued, they do not always receive the same wages as whites employed in the same jobs or they are the last to be hired and the first to be fired.

On the other hand, much legislation and effort have been directed toward removing the barriers of discrimination. Yet, removing discrimina­ tion now probably would not eliminate poverty among Negroes. The other causes of poverty (low educational achievement, physical and mental handi­ caps, etc.) must be overcome if many more Negroes are to enter the ranks of prosperous America.

.!/ The Concept of Poverty, op. cit., p. 126. 'l:.f Orshansky, op. cit., p. 21.

� The Concept of Poverty, op. cit., p. 84.

- 33 - IV. Some Costs and Effects of Poverty How much does poverty cost the American people? What are the effects of poverty upon the poor themselves? Of all the questions posed so far, these are perhaps the hardest ones. Satisfactory answers are be­ yond the scope of this analysis, but it is suggested that a more thorough analysis might proceed along the following lines: A. Direct Economic Costs of Poverty In its 1964 report, the Council of Economic Advisers stated: Our nation's most precious resource is its people. We pay twice for poverty: Once for pro­ duction lost in wasted htunan potential, again in diverting resources.to cope with poverty's social by-products. It may be· asstuned, for practical purposes, that most public assistance in the United States granted on a need basis--out ·of federal, state and local funds--goes to households in the poverty class. For the 1966 fiscal year, the total cost of public assistance payments was $5.7 billion,!/ This figure does not include such items as unemployment com­ pensation, veterans administration payments, donations of surplus foods, payments for many health, education, and housing benefits, and so on. In fact, economist Milton Friedman estimated 1961 government payments (at all levels) on direct welfare and programs of all kinds at $31 bil­ lion.2/ It would be inaccurate to consider these amounts "lost" to the economy simply because they are transferred for the relief of poverty. In fact, the very occasion for which they are transferred assures that they will go almost completely for immediate consumption expenditures. The main significance to the transfer, then, may be the extent to which these amounts will be spent for the necessities of food, clothing and rent, rather than for automobiles, new housing and other such purposes that tend more effectively to spur long-range economic growth and the creation of jobs. B. Indirect Cost to the Economy The indirect costs of poverty to society and to the economy are difficult to measure. The Council of Economic Advisers has stated that the by-products of poverty include "ignorance, disease, delinquency, crime irresponsibility, immorality, and indifference." How much unemployment is

!/ Source of data: Social Security Bulletin, October, 1966.

2/ Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962) p. 193.

- 34 - due to dropouts which in turn may result from poverty? What is the loss in terms of potential output of useful goods and services which results from unemployment among members of poverty families? The Council of Eco­ nomic Advisers points out that "the poverty of the fathers is visited up­ on the children." It has been said, also, that since poverty breeds crime and disease, the cost of public services (law enforcement, etc.) is higher in poverty areas. A study of an almost entirely white poor neighborhood, was done in Manchester, New Hampshire.!/ The 20,000 people in this neighborhood, who comprise 21 percent of the city's total population, resemble the en- tire community from the standpoint of ethnic and religious background. How­ ever, beyond this point there is little resemblance to the general community in income, education, or housing conditions. Within this neighborhood the survey found: 28 percent of the city total of 16 and 17-year-old school dropouts; 27 percent of the persons 25 and over with less than 8 years of education; 25 percent of the unemployed; 37 percent of the persons receiving Aid for Dependent Children; 28 percent of the juvenile arrests; 41 percent of the adult arrests; 57 percent of the reported cases of gonorrhea; 32 per­ cent of tuberculosis; and 45 percent of the children under protective custody of the State of New Hampshire.y Of course, the higher incidence of social, physical and other prob­ lems among the poor is probably more complex than may appear at first glance. Do these problems occur because the poor are simply not receiving a certain income, or is that just one factor involved? Can we assume that solving the income problem would lead to a solution of the more fundamental difficulties.

V. Conclusion One conclusion which should emerge from this discussion is that poverty is a complex problem with multiple causes. Even the task of de­ fining just how widespread poverty is at present is a difficult one. De­ spite the disagreement which exists over how we should count the poor, it seems generally agreed that poverty touches people in many groups and in all areas throughout the United States. �ere is also general agreement that the direct and indirect costs of poverty are substantial. Federal, state and local governments have developed a multi­ faceted attack which deals with many of the causes and effects of poverty. These programs are explored in the next chapter. lf Manchester, New Hampshire Model Cities Program Planning Grant Applica­ tion, Part I. y Ibid., p. B-4.

- 35 - DISCUSSION QUESTIONS 1. What is the incidence of poverty in the United States? Why are there different estimates? How are these different estimates derived?

2. Why is counting the poor a difficult exercise?

3. What is meant by regional poverty? What are the character­ istics of rural and urban poverty?

4. Which groups are said to be most poverty-prone? 5. What factors are the principle causes of poverty?

6. To what extent are the causes of poverty remedial?

7. Why is it difficult to estimate the national costs of pov- erty?

8. Why is it claimed that the poor are subject to a higher in­ cidence of social and physical problems than other groups in the popula­ tion?

9. What are some of the conditions widely regarded as by­ products of poverty? To what extent would a guaranteed income improve these conditions?

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Silbennan, Charles E. Crisis in Black and White. New York: Random House, 1964.

Stewart, Maxwell S. The Poor Among Us--Challenge add Opporttmity. New York: Public Affairs Pamphlets, 1964. (Pamphlet No. 362).

Theobald, Robert. "Poverty in the Affluent Society," Challenge, v. 11 (January, 1963), pp. 22-24.

Titmuss, Richard T. Essays on the Welfare State. New Haven: Yale University Press, 1958. U.S. President's Task Force on Manpower Conservation. One-third of A Nation. Washington: U.S. Government Printing Office, 1964.

"The Vicious Circle of Poverty," Business Week, No. 1796 (February 1, 1964), pp. 38-43.

Warrior, Clyde. "Poverty, Community, and Power," New University Thought, v. 4, (Summer, 1965), pp. 5-10. Washington Center for Metropolitan Studies. A Selective Bibliography of Writings on Poverty in the United States, Washington (1964). Wiel, Robert H., and Vatter, Harold G. (eds.) Poverty in Affluence: The Social, Political, and Economic Dimensions of Poverty in the United States. New York: Harcourt, Brace and World, 1965.

- 40 - Wisenstein, Fannie P. "Poverty and Poetry--The Revolution of Abundance," Public Welfare, v. 22 (October, 1964), pp. 235-41, 275.

"World Poverty and the Christian," Commonweal, v, 81 (November 13, 1964), pp. 215-37.

Zimbalist, Sidney, E. "Drawing the Poverty Line," Social Work, v. 9 (July, 1964), pp. 19-26.

Economic Opportunity Act: Government Publications

Economic Opportunity Act of 1964. Debate in House. Congressional Record (daily ed.), v. 110, August 5, 1964, pp. 17617-652; August 6, 1964, pp, 17672-739; August 7, 1964, pp. 17972-18025.

Economic Opportunity Act of 1964. Debate in Senate. Congressional Record (daily ed.), v. 110, July 22, 1964, pp. 16055-69; 16072-091; 16101-110; July 23, 1964, pp. 16142-170; 16178-197; 16199-244.

Economic Opportunity Amendments of 1965. Debate in House. Congressional Record (daily ed.), v. 111, July 20, 1965, pp. 16851-912; July 21, 1965, pp. 16916-947; July 22, 1965, pp. 17270-321.

Economic Opportunity Amendments of 1965. Debate in Senate. Congressional Record (daily ed.), v. 111, August 16, 1965, pp, 19791-825; August 17, 1965, pp. 19880-909; August 18, 1965, pp. 20071-108; August 19, 1965, pp. 20326-378. U.S. Congress. House. Committee on Education and Labor. Subcommittee on the War on Poverty. Economic Opportunity Act of 1964. Hearings ... 88th Cong., 2d sess., on H.R. 10440, a bill to mobilize the human and financial resources of the nation to combat poverty in the United States. 3 parts. Washington: U.S. Government Printing Office, 1964. 1741 pages.

U.S. Congress. House. Committee on Education and Labor. Economic Oppor­ tunity Act of 1964; Report to accompany H.R. 11377. 88th Cong., 2d sess., H.R. 1458. Washington: U.S. Government Printing Office, 1964. 96 pages.

U.S. Congress. House. Poverty in the United States. 88th Cong., 2d sess. Washington: U.S. Government Printing Office, 1964. 304 pages. Com­ mittee Print.

U.S. Congress. Senate. Committee on Labor and Public Welfare. Select Sub­ committee on Poverty. Economic Opportunity Act of 1964. Hearings... 88th Cong., 2d sess., on S. 2642, a bill to mobilize the human and financial resources of the nation to combat poverty in the United States. Washington: U.S. Government Printing Office, 1964. 357 pages.

- 41 - U.S. Congress. Senate. Committee on Labor and Public Welfare. Economic Opportunity Act of 1964. Report ...to accompany S. 2642. 88th Cong., 2d sess. Washington: U.S. Government Printing Office, 1964. 133 pages. Committee Print, S. 1218. U.S. Congress. House. Committee on Education and Labor. Subcommittee on the War on Poverty.· Examination of the war'on poverty program. Hear­ ings... 89th Cong., 1st sess., on examination of the facts which have developed under the administration of the act. Washington: U.S. Gov­ ernment Printing Office, 1965. 854 pages.

U.S. Congress. House. Committee on Education and Labor. Economic Oppor­ tunity Amendments of 1965. Report to accompany H.R. 8283. 89th Cong., 1st sess., H.R. 428. Washington: U.S. Government Printing Office, 1965. 67 pages.

U.S. Congress. Senate. Committee on Labor and Public Welfare. Select Sub­ committee on Poverty. Expand the war on poverty. Hearings ... 89th Cong., 1st sess., on S. 1759, a bill to expand the war on poverty and enhance the effectiveness of programs under the Economic Opportunity Act of 1964. Washington: U.S. Government Printing Office, 1965. 292 pages. U.S. Congress. Senate. Committee on Labor and Public Welfare. Economic Opportunity Amendments of 1965; report.•. to accompany H.R. 8283. 89th Cong., 1st sess., S. 599. Washington: U.S. Government Print- ing Office, 1965. 93 pages.

U.S. Congress. House. Committee on Education and Labor. Economic Oppor­ Amendments of 1965; conference report to accompany H.R. 8283. 89th Cong., 1st sess., H.R. 1001. Washington: U.S. Government Printing Office, 1965. 13 pages.

U.S. Congress. House. Economic Opportunity Amendments of 1965; conference report to accompany H.R. 8283. 89th Cong., 1st sess. H.R. 1061. Washington: U.S. Government Printing Office, 1965. 14 pages.

U.S. Congress. House. Committee on Education and Labor. Subcommittee on the War on Poverty. Antipoverty program in New York City and Los Angeles. Hearings... 89th Cong., 1st sess., on investigation of condi­ tions under the Economic Opportunity Act. Washington: U.S. Government Printing Office, 1965. 209 pages.

U.S. Congress. House. Committee on Post Office and Civil Service. Sub­ committee on Manpower. Manpower management in the Office of Economic Opportunity. Hearings... 89th Cong., 1st sess. Washington: U.S. Gov­ ernment Printing Office, 1965. 64 pages. U.S. Congress. Senate. Special Committee on Aging. The war on poverty as it affects older Americans. Hearings... 89th Cong., 1st sess. 2 parts. Washington: U.S. Government Printing Office, 1965. 522 pages.

- 42 - U.S. Congress. Senate. Committee on Labor and Public Welfare. Nomina­ tion. Hearing.. • 88th Cong., 2d sess., on Robert Sargent Shriver, to becl'irector of Office of Economic Opportunity. Washington: U.S. Government Printing Office, 1964. 12 pages.

U.S. Congress. House. Committee on Education and Labor. Task Force on Antipoverty in the District of Columbia. Investigation of the schools and poverty in the District of Columbia. Hearings... 89th Cong., 1st and 2d sessions, on investigation of the public school system in the District of Columbia.and its relation to poverty. Washington: U.S. Government Printing Office, 1966. 868 pages.

U.S. Laws, statutes, etc. Public Law 88-452 (Economic Opportunity Act of 1964), 88th Cong., S. 2642, August 20, 1964. Washington: U.S. Gov­ ernment Printing Office, 1964. U.S. Public Law 89-253 (Economic Opportunity Amendments of 1965), 89th Cong., H.R. 8283, October 9, 1965. Washington: U.S. Government Printing Office, 1965.

U.S. President. (Johnson). Poverty, message from the President of the United States relative to poverty, and a draft of a bill to mobilize the human and financial resources of the nation to combat poverty in the United States. 88th Cong., 2d sess. House Document No. 243. Washington: U.S. Government Printing Office, 1964.

U.S. President. (Johnson). War against poverty, communication of the President of the United States, transmitting certain. recommendations regarding the war against poverty. 89th Cong., 1st sess. House Document No. 90. Washington: U.S. Government Printing Office, 1965.

- 43 - CHAPTER III THE RANGE OF CURRENT FEDERAL PROGRAMS TO ALLEVIATE POVERTY

I. Introduction Since the debate proposition calls upon the federal government to take action to provide all citizens with a guaranteed minimum annual cash income, this chapter will focus on the current federal programs which provide assistance to the poor. This chapter will not attempt to describe at any length the exclusively nonfederal efforts on both state and private levels to assist the poor and needy. The task of surveying federal pro­ grams is a formidable one.

Over the past 30 years, the United States has developed an intri­ cate and extensive welfare system. The underlying assumption of this sys­ tem is that special programs .are needed to take care of the diverse needs of the poor. This welfare system consists of three types of programs in terms of the employment status of the recipients:

1. Programs which offer cash assistance mainly to those outside the labor force. These include old age, survivors, and disability insurance; grants-in-aid to state public assistance programs under the Social Security Act; pensions for needy veterans; and general assistance for needy persons not covered by the Social Security Act and financed exclusively by states and localities.

2. Programs to aid those in the work force. These include train­ ing to equip the poor with skills that are salable in the labor market, aid to depressed areas, unemployment insurance, minimum wage protection, job creation, and work relief.

3. Programs that provide goods and services to certain groups among the poor on the basis of need regardless of labor force status. In­ cluded in this group are child care, subsidized housing, medical services, and several forms of food distribution.

The distinction between programs aimed at the working poor and at those outside the work force is useful for this analysis. At the same time, it should be noted that one cannot always identify the poor this way because many of them tend to move in and out of the labor force, depending upon over­ all economic conditions and their personal circumstances. Finally, the in­ clusion of certain specific programs within one category or another is diffi­ cult to classify precisely. For example, the inclusion of Old-Age, Survivors, and Disability Insurance (OASDI) as part of the welfare system may be ques­ tioned since the eligibility requirement for OASDI has nothing to do with financial need. OASDI is paid to the rich and the poor alike, and about half of the funds distributed under this program go to those who are above the poverty threshold.

- 44 - II. Income Maintenance Programs for the Poor Outside the Labor Force The Social Security Act, now the product of three decades of evolution, is the basic instrument for providing income maintenance to persons outside the labor force. This act has created two distinct groups of beneficiaries: Some receive payments regardless of their individual economic resources (such as OASDI), while others qualify for benefits based upon need (such as the public assistance programs which we shall describe later in this section). The OASDI is financed by earmarked payroll taxes with benefits fixed by formula and without any suggestion of "charity." The other approach is public assistance, which is based wholly on need and financed out of local, state, and federal general revenues; and is administered by the states and localities. Public assistance is given on a "case" basis, with each recipient's "need" determined by studies of living costs and in analysis of his resources. Usually, social workers are assigned to each case to determine the "need" and to try to help the recipient improve his situation.

A. The Old-Age, Survivors, and Disability Insurance System

The largest of all our social insurance systems--the Old-Age, Survivors, and Disability Insurance program is national in scope, and the rules governing benefits are established by federal statutes and administrative decisions.1/ Those who make payroll contributions and qualify to receive benefits for themselves, their dependents, and their survivors are not required to establish need.

It has been said that in many respects OASDI is not "insurance" in a commercial sense.2/ Benefits under OASDI are heavily weighted in favor of low-wage earners, and only minimum qualifications are needed to entitle a person to receive benefits.3/

Since 1965, this program is often referred to as Old-Age, Survivors, Disability, and Health Insurance (OASDHI) to account for Medicare which became part of this program. Since Medicare provides payments for health services, we shall consider this program when health ser­ vices are discussed in the final section. y Sar A. Levitan, "Programs in Aid of the Poor." Adjusting to Change, Appendix Volume III, Studies Prepared for the National Commission on Technology, Automation and Economic Progress. (Washington: Govern­ ment Printing Office, 1966) pp. 6-7. Hereafter cited as Levitan. For instance, as the law now stands, the lowest wage which is taxable is $67 a month which would produce a combined employee-employer tax of $5.32 monthly. The combined tax on the maximum wage of $550 would produce $42.90. The monthly minimum benefit is now $44 and the maximum 1967 monthly benefit is $136. Thus, for maximum level worker: the tax payable is 8.2 times the tax for the minimum level worker, but the bene­ fit obtainable at the time of retirement is only 3.1 times larger. For this and other related conclusions about contributions see Eckstein, p. 7.

- 45 - The OASDI system had its origin in the 1935 Social Security Act as an old-age benefit program, financed by payroll taxes, exclusively for wage and salary earners. Since then, it has grown into a "social insurance" system that has nearly-universal coverage of both employed and self-employed persons and that provides retirement, disability, and survivorship benefits for dependents and survivors as well as for the workers themselves. Through the period, the system has undergone basic changes with respect to coverage, types and amounts of benefits available, conditions, of eligibility for benefits, and methods of financing. Currently, the pro­ gram makes available to more than 22 million people cash benefits in excess of $20 billion annually and is responsible for the collection of approximately an equal amount of taxes from employers, employees, and the self-employed. (These figures exclude hospital insurance which became fully operative only in July, 1966.)..!/ The President's Council of Economic Advisers reports that roughly one-third of OASDI benefits, which totaled $18 billion in 1965, went to the poor and another two-fifths went to households which otherwise would have been poor.2/ The Council of Economic Advisers further contends that 30 per­ cent of the aged would be in poverty but for OASDI payments.3/ Nevertheless, nearly two-fifths of all aged remain poor. Currently, the Johnson Administra­ tion has proposed that Congress amend the law governing OASDI benefits. The administration suggests that the minimum monthly benefit be increased from $44 to $70 and that other benefits be raised 15 percent. The proposed in­ creases are described by administration spokesmen as necessary primarily to improve the economic status of five million aged beneficiaries who are said to be living in poverty.4/ It is argued that the proposed increase would remove 1.4 million aged from poverty. The administration's program also would provide substantial increases for all other beneficiaries, the majority of whom, according to the Secretary of Health, Education, and Welfare, rely on OASDI payments as their major sources of income. The Council of Economic Advisers contends that the proportion of the aged living in poverty (two-fifths) will decline under existing law, since new retirees will have longer and higher wage histories which will entitle them to greater benefits.5/ At the same time, Sar A. Levitan, eco­ nomic specialist for the W.E. Upjohn Institute for Employment Research, argues that present contributions to OASDI are inadequate to permit the

..!/ Legislative Analysis, "Proposed Social Security Amendments of 1967." (Washington: American Enterprise Institute, 1967) p. 5. Hereafter cited as "Proposed Social Security Amendments, 1967." y 1967 President's Economic Report, op. cit., pp. 139-40.

3/ Ibid., p. 143. y "Proposed Social Security Amendments, 1967," op. cit., p. 5. 5/ 1967 President's Economic Report, op. cit., p. 143.

- 46 - correct level of payments to millions of beneficiaries, if the system is to be kept on an actuarially sound basis.I/ He suggests that one obvious solution would be to raise the contributions made by low earners so they could be paid higher benefits upon retirement. But this would decrease their take-home pay, further reducing resources for the long years during their work lives. In summary, the OASDI system, the largest program within our welfare system, does make substantial benefits available both to those above and below what are said to be poverty income levels. At the same time, administration spokesmen contend that five million aged people re­ main in poverty. These same spokesmen also admit that the proposed in­ creases in OASDI will still leave approximately four million aged below poverty levels. B. Public Assistance In addition to supplying payments to beneficiaries under OASDI, the Social Security Act provides monetary support for state and local pro­ grams aiding four impoverished groups: old persons, the blind, the perma­ nently and totally disabled, and families with dependent children. As of November, 1966, approximately 7.3 million persons received cash aid under the public assistance programs participated in by the federal government.2/ Federal expenditures on grants to the states for public assistance totaled $2.8 billion in the 1966 fiscal year and are estimated at $2.9 billion in each of the 1967 and 1968 fiscal years.3/ The above four public assistance programs are cooperative efforts of the federal, state, and local governments, with the federal government contributing nearly0 60 percent of the total costs. Both the percentage shares of assistance payments financed with federal grants and the reimbursable limits on assistance payments made by the states have been raised from time to time through successive amendments enacted by the Congress. Also, the federal assistance grants have been placed on a variable basis, under which the larger percentage amounts of grants go to states in the lower per capita income levels. Under existing provisions of the Social Security Act, federal grants for cash assistance for the aged, blind, and disabled persons are distributed under complex formulas providing a federal share equivalent to $31 of the first $37 of monthly payments per recipient--plus a graduated

'J:.I Levitan, op. cit., p. 9. y "Proposed Social Security Amendments of 1967," op. cit., p. 59. The monthly average runs between 7-8 million persons during the last few years. Ibid., p. 60. These figures do not include grants for maternal and child welfare and child health.

- 47 - scale of percentages, varying among states from 50 to 65 percent in accor­ dance with variances in per capita incomes, of the remaining amounts of monthly payments up to a $75 state-wide average per-recipient monthly pay­ ment. These basic federal shares of cash assistance may be supplemented by payments for medical assistance extended under state programs and for state administrative expenses.

Comparably, the basic matching formula for cash aid to needy families with children provides for federal shares amounting to $15 of the first $18 of monthly payments per recipient, plus the variable fed­ eral percentage share of remaining amounts of monthly expenditures up to a limit of $32 multiplied by the number of recipients.

The public assistance programs are administered within states under authority of state laws. For the states to be eligible for federal assistance grants, the state laws and their administration must conform to federal standards contained in federal statutes and rules and regula­ tions. However, determinations of standards of need and of amounts of assistance payments are left, subject to certain limitations, as a respon­ sibility of the states. The individual states determine the level of benefits on a basis of minimum "needs." The actual cash amount which an individual recipient receives varies considerably from state to state. For instance, in June, 1966, a recipient under Old-Age Assistance in Wisconsin received an average monthly payment of $111.52 while a recipient in Mississippi received $41.17 under the same program.!/ These two examples represent extremes against a national monthly average of $80.36.

Public assistance for the destitute who fail to qualify under any of the above four categories is paid by some states and localities without federal participation. In December, 1965, there were 310,000 general assis­ tance cases receiving an annual total of $260 million.2/ General assistance is now a smaller program than in the past in both money spent and the number of people covered. This may result from several factors: (1) Many prospec­ tive general assistance recipients have moved out of poverty as employ- ment opportunities and prosperity increased; (2) some general assistance recipients may now be classified in one of the federally assisted cate­ gories; and (3) the states may be putting less specific emphasis on their own general assistance and more reliance on those public assistance pro­ grams that are partially supported by the federal government.3/

!/ Public Assistance Under the Social Security Act--Serving People in Need. u:s. Department of Health, Education, and Welfare (Washington: U.S. Government Printing Office,1966) p. 26.

'l:.j Green, op. cit., p. 37. 3/ Ibid.

- 48 - Proposed Changes Now Pending in Congress. The Johnson Adminis­ tration has recommended three significant changes in the income maintenanc� sections of the public assistance provisions of the Social Security Act. These proposed amendments are now pending in Congress. The first change would require, for all categories of cash assis­ tance (not including medical assistance), that the assistance granted by each state shall be sufficient to meet in full the standard of need adopted by the state. This section is a response to the charge that, in two out of every three states, actual benefits were below the predetermined minimum needs. .!J The requirement would become effective July 1, 1969. Under the proposed amendment, such standards of need in any state could not be lowered below those that were in effect on January 1, 1967. It would be provided further that, beginning in mid-1968, the states would be required to review their standards of need annually and, to the extent required by the Secretary of Health, Education, and Welfare, update them to take into account changes in living costs.

States are now required, as a condition of qualification for fed­ eral public assistance grants, to set assistance standards for needy persons which they use to determine the eligibility of such persons for aid. However, the states are not now required to meet these needs in full with their assis­ tance grants. The stated purpose of the proposal is the elimination of maxi­ mum limits on monthly assistance payments and other devices in state laws, regulations, or administrative practices which prevent the payments, in some states, from satisfying the state-promulgated standards of need. It also would require periodic escalation of the state standards of need, subject to discretionary authority of the Secretary of Health, Education, and Welfare, to compensate for cost-of-living increases.

The updating of public assistance standards of states in terms of 1967 prices and the requirement that the needs standards be fully met would entail an additional annual federal cost of approximately $250 million, ac­ cording to estimates submitted by administration officials.

A second proposed amendment would liberalize the existing earning exemptions of welfare recipients in all four categories. As matters stand, federal standards allow, according to established scales in each category, prescribed amounts of money which can be earned in any given month without corresponding reductions in welfare benefits. This requirement is not man­ datory upon the states and several states subtract each dollar earned from the welfare recipient's aid. The proposed earned exemptions would become mandatory upon all states.

Finally, the administration proposes to make work training programs for adults and minors over age 16 who are in need of assistance a permanent part of the program and to expand this concept to all states. The program was

"J:..! Levitan, op. cit., p. 9.

- 49 - instituted in two steps on a temporary basis in 1961 and 1962. The first step was the broadening of assistance to needy children, optional with states, to include aid for children deprived of support by reason of the unemployment of a parent. (Otherwise, a "dependent child" is one deprived of support by the death, continued absence from home, or physical or mental incapacity of a parent.) Then, in 1962, this unemployed-parent provision was extended for five years and broadened to authorize states to set up programs of vocational training and work experience for unemployed parents. Also, federal financial participation is provided in the form of payments made for employment of parents (and other custodial relatives of dependent children) in approved community work and training programs. According to data supplied by the Department of HEW, 22 states have elected under the temporary program to extend assistance to children with an unemployed breadwinner parent present in the home, although only 12 have instituted the work-training programs.

Under the proposed legislation, the option of extension of aid to children of unemployed parents would be made mandatory and all states would be required to include in their state plans for aid to families with dependent children--as a condition of eligibility for federal grants for the program--plans for participation in community work and training pro­ grams for persons over the age of 16 who are receiving the Title IV public assistance. This participation would be through either: (1) entering into agreements with the Secretary of Labor for referral of Title IV aid recip­ ients to work and training programs which the Secretary would be authorized to establish, or (2) establishment by the state of such a work and training program if the Secretary of Labor does not operate one within the state.

Currently, for work-training programs operated by states, there is no federal sharing of costs of project supervision, materials, or train­ ing. Under the proposed legislation, the federal government would pay up to 90 percent of these costs (except that the Secretary could pay a higher percentage if he determined it necessary). A training incentive payment of not more than $20 weekly, paid by the Secretary of Labor, would be disre­ garded in determining the amount of assistance payable to a family. Costs incurred by the Department of Labor in the operation of work-training pro­ grams would be financed through transfers of funds from public assistance appropriations of the Department of Health, Education, and Welfare.

House Action on the Proposed Changes. The House of Representa­ tives, in passing its version of the proposed amendments to the Social Security Act, on August 17, 1967, approved provisions to further tighten the work-training provisions of the public assistance program. The House would require that both fathers and mothers enroll in work or training programs in order to receive aid under the Aid for Dependent Children Pro­ gram. .!J In response to this action, Secretary of Health, Education, and

!.I Washington Post, August 18, 1967.

- so - Welfare John Gardner has questioned whether society would gain if a mother with four children left them to take part in a training or work program • .!J

The House bill also added a prov1s1on apparently aimed at illegitimate children within the Aid for Dependent Children program. In federally aided state programs for children based on the absence of a parent, the proportion of children helped with federal partici­ pation would be frozen as of January, 1967; for example, if a state had 3 percent of its minor children in such programs in January, fed­ eral aid would be limited to 3 percent of the child population in 1968 and subsequent years. The states also would be required to of­ fer family planning services in appropriate cases.

Under the public assistance sections of the Social Security Act some eight million citizens receive assistance financed jointly by the federal and state governments. Approximately 800,000 more re­ ceive aid under general assistance programs financed by the states. In 1965, the total costs of benefits, administration, services, and training by federal and state governments was over $6 billion.2/ C. Veterans Pensions

One large group of our population is singled out by exist­ ing legislation for special income support in case of want. This group is the 22 million veterans and their families .. While the pres­ ent programs may not be adequate to permit all veterans to escape pov­ erty, major steps have already been taken to provide for basic needs, particularly for older veterans and dependent survivors of deceased veterans.3/

The present law provides two types of cash benefits, compen­ sation and pensions. Compensation is paid to veterans who incurred an 1nJury or disability while serving in the armed forces. Pensions also are paid to veterans who served in the armed services during wartime, whose annual incomes are below a specific level, and who are permanent­ ly and totally disabled.

One out of every 10 war veterans in 1964 received some compen­ sation for service-connected disabilities, at a total cost of $1.7 bil­ lion.4/ Annual compensation for veterans averaged $841, and ranged from $240 for a minimum disability to $3,000 for total disability. Data are

.!/ Ibid.

� Statistical Abstract of the United States--1966 (Washington: U.S. Government Printing Office, 1966) p. 304. 3/ Levitan, op. cit., p. 13.

4/ Ibid.

- 51 - not available on the income level of veterans qualified to receive ser­ vice-connected compensation because the disability rather than the vet­ eran's annual income is the determining factor. But many would probably have been counted among the poor had they not received compensation. This is particularly true of the nearly 400,000 (out of a total of 2 million) whose degree of disability was judged to be 50 percent or higher.1/ It is likely that many of these disabled veterans are not able to hold full­ time jobs. A total of 1.2 million war veterans received $1.1 billion in pensions in 1964, at an average of $945 for the year. These pensions were paid under two separate systems. Prior to July 1, 1960, veterans who were married or who had minor dependents qualified for pensions if their total annual income was less than $2,700.2/ The income limitation for unmarried veterans was $1,400. The annual pension for a veteran under age 65 was $794. This amount was increased in 1960 to $946 after 10 years of entitlement or at age 65.

In 1960, Congress added a sliding scale of benefits. The slid­ ing scale of benefits is for newly qualified veterans. This reduces the amounts paid to relatively more efficient veterans. Veterans, or their survivors, who qualified for pensions prior to the 1960 law could retain the old level of benefits.

A 1964 study by the Veterans Administration has indicated that three out of every 10 veterans with dependents had an annual income of less ·than $1,000, which entitled these veterans to draw at least an addi­ tional $1,260 in pensions. Less than four of every 10 veterans without dependents had an annual income of less than $600 and were entitled to draw an additional $1,200 in benefits.3/ Actually most veterans receiving pensions are age 65 or over, and also are eligible to receive OASDI bene­ fits. For the most part, it can be assumed that poverty has been elimi­ nated among aged veterans.

Widows and dependent children of veterans also qualify for pen­ sions. Although the same income limitations apply to widows as to veterans in qualifying for pensions, benefits are reduced for widows. Children of deceased veterans also qualify to receive pensions, even when their mother's income is too high to qualify her for a pension, or when she is deceased. However, a veteran's child is ineligible to receive benefits if the child's annual unearned income, excluding wages, exceeds $1,800, or if the estate is large enough to support the child. In 1964, 1.3 million widows or chil­ dren of nearly 900,000 deceased veterans qualified for such pensions. Since

'};.! Ibid.

'lJ Ibid.

� U.S. Congress, House, Committee on Veterans Affairs, Hearings, 88th Congress, 2nd Session, Pension Bills Providing Non-Service Connected Pensions (Washington: U.S. Government Printing Office, 1964), pp.3872-81.

- 52 - most veteran's widows with children also now qualify to receive OASDI benefits, the combined potential income for veterans survivors has in most cases eliminated poverty for these families.

In summary, the federal government provides income mainte­ nance support through three programs: old-age survivors and disability, public assistance programs within the Social Security Act, and the vet­ erans pension program. The OASDI and veterans program are federally­ administered. The public assistance programs, though supported by fed­ eral grants-in-aid to the states, are, for the most part, administered by state and local governments. To a large extent, these programs as­ sist people outside the labor force. We shall now turn to a second category of programs--those designed to aid the poor within the labor force.

III. Programs for the Poor in the Work Force

Much of the current emphasis for the Johnson Administration's war on poverty is to provide opportunity rather than mere subsistence to the poor. The underlying assumption is that in our highly productive economy there are adequate jobs for all who are properly motivated and well equipped to participate in the economy. The problem of the poor, according to this reasoning, is that they are isolated from the mainstream of American life and thus are unable to enjoy its full benefits.

To assist the poor within the work force or to enable other poor to join the work force, the federal government has created a number of pro­ grams to assist the poor. Some programs such as unemployment compensation and minimum wage legislation are almost 30 years old. Most of the other programs have been created since 1960. We shall now examine these programs.

A. Job Creation and Work Relief

During the depression of the 1930s, the New Deal placed major re­ liance on two programs--public works and work relief--to assist the unemployed and the impoverished. The former program, designed to meet the need for pub­ lic facilities, largely relied upon private enterprise to construct the faci­ lities. On the other hand, work relief emphasized job creation; considerations of job efficiency or project need were secondary. In either case, workers were paid those wages which prevailed in the local labor markets. These programs, whose total cost was approximately $17 billion, remained in effect as long as mass unemployment remained, but tapered off after Pearl Harbor when full em­ ployment was achieved in a wartime economy. The current war on poverty does not place as much emphasis on this type of massive job creation or work relief. Current job creation and work relief programs are more selective.

- 53 - One program is the work-training program within the Social Security Act which we discussed earlier. Another provision that pro­ vides authority for the same type program is Title V of the Economic Opportunity Act.1/ In 1964, it was estimated that 134,000 unemployed parents who received Aid for Dependent Children assistance were avail­ able for work. During 1965, some 89,000 of these welfare recipients found some work experience.;;

. Initially, the Economic Opportunity program offered no mone­ tary inducements to those who did work--and limited what they earned so that the total was no greater than the relief benefits to which they were entitled. In July, 1965, however, persons selected for work expe­ rience were entitled to receive 100 percent of their needs either in wages or benefits. Because the majority of states pay welfare recipi­ ents less than 100 percent of the established need, it was hoped that this would provide some incentive for these people to work. The Office of Economic Opportunity estimated that approximately 128,000 would re­ ceive employment or training in 1967 at a cost of $160 million.3/

The Economic Opportunity Act also provides for training pro­ grams for youth. In fiscal 1967 the administration planned to spend $275 million for the Neighborhood Youth Corps and $355 million for the Job Corps.4/

The Neighborhood Youth Corps is designed to assist impoverished youth by providing training or job experience. In some cases, jobs up to 15 hours a week are provided to encourage youths to continue school. Out­ of-school youths also receive employment, combined where needed with lit­ eracy and other education and training. When it can be arranged, the work experience is acquired through private industry. In those cases, the pri­ vate employer pays the wages ($1.40 per hour), and the Neighborhood Youth Corps the training costs. During 1965-66, more than four-fifths of a mil­ lion youths in all 50 states participated in this program.5/ y Special Analysis, "Problems of Federal Assistance to the Unemployed." (Washington: American Enterprise Institute, 1964) p. 109. 'fl Levitan, op. cit., p. 18.

� U.S. Congress, House, Hearings Before Subcommittee of the Committee on Appropriat�ons, 89th Congress, 2nd Session, Supplemental Appropria­ tion Bill, 1967. Part I (Washington: U.S. Government Printing·Office, 1966) p. 315. Hereafter cited as Supplemental Appropriation Bill, 1967. 4/ Ibid., p. 4.

§.! 1967 President's Report on Manpower, op. cit., p. 52.

- 54 - The Job Corps has been described as a program of basic education, skill training, and work experience for young men and women who are most likely to continue living in poverty if they continue to live in their present environment. Enrollees reside at three types of Job Corps centers: (1) conservation centers for men, located in national parks and forests; (2) training centers for men, located on unused federal military installa­ tions in or near urban centers; (3) training centers for women which are located on leased facilities. The average cost per individual enrolled has been estimated at about $4,700 per year in this program.I/ Approxi­ mately 45,000 enrollees were expected to participate in this-program during fiscal 1967 .y

In addition to the OEO programs, it is also possible for impov­ erished youths to receive training and work experience under two other fed­ eral programs: the Manpower Development and Training Act and the Vocational Education Act--although older people may also participate in the MOTA pro­ gram. The Manpower Development and Training Act provides occupational training for unemployed and under employed persons who cannot reasonably obtain appropriate full-time employment without training. Training pro­ grams under MOTA are conducted either in vocational schools, or on the job, or a combination of both. Wherever applicabl� on-the-job trainees are paid by private employers. Training, subsistence, and other expenses are paid by the federal government.· Since 1962, about 600,000 people have received training or work under this program.

The Vocational Education program, besides providing matching grants to schools, agencies, and institutions for construction, equip­ ment, and operation of residential vocational education schools, also provides grants for work-study programs for youths who are between the ages of 15 and 21 at the time of enrollment. This work-study program is designed to assist low-income students with part-time jobs so they may continue their education.

As has been indicated, these anti-poverty youth programs pro­ vide both training and employment. -The actual number of jobs the Neighbor­ hood Youth Corps created in 1965 was approximately 150,000.3/ The Job Corps, MOTA, and vocational education programs provided employment for about another 75,000 youths.

In this chapter, we do not attempt any comprehensive assess­ ment of these programs or the policy issues that they raise. In fact, the experience under these programs may be too limited to arrive at any meaningful assessment. Some observers have opposed the large role which

lJ Supplemental Appropriation Bill, 1967, op. cit., p. 9. 2/ Ibid., p. 315.

3/ Levitan, op. cit., p. 18.

- SS - the federal government plays in these programs. They would prefer that private industry play a much larger role at all levels. Even those who support many of the concepts are unhappy about their operation. There are at least two basic issues which have arisen recently. The first is­ sue concerns the variety of work-training programs to aid the poor. Sen­ ator Abraham Ribicoff (Conn.) has criticized the growing number of work­ training programs and the fact that there has been no constructive plan for centralizing the control of these programs.1/ A related issue is that some of these programs may actually work against each other. For instance, during 1965, a youth attending school and selected for 15 hours of employ­ ment per week with the Neighborhood Youth Corps received $1.25 per hour. This youth received almost as much compensation for 15 hours as an MOTA youth trainee for 40 hours of training, since the maximum allowance for this trainee was $20 per week. On the other hand, it was argued that the more li�eral allowance under the NYC encouraged the young to remain in school. Yet such pay scales may have persuaded some youths to forgo the more promising MOTA training in order to compete for Neighborhood Youth Corps jobs, which normally will not lead to the acquisition of any partic­ ular skills.

Second, these work-training programs are criticized in terms of job availability. If no jobs are waiting at the end of the road, it is argued that elaborate training programs could amount to nothing more than a frustrating spinning of the .wheels.2/ On the other hand, it may be argued that there is no real shortage of jobs in the economy--that the real shortage exists in finding people with the training and skills to fill these jobs. Training programs are intended to prepare people for those jobs.

B. Depressed Area Programs

In some areas, unemployment is more widespread and of longer dura­ tion than in others. Because of these factors, the Kennedy and Johnson Ad­ ministrations have employed distressed area programs. Perhaps the best known of these programs is the Appalachian Regional Development program. This pro­ gram covers an area which embraces 368 counties in 12 states stretching from New York to Alabama and includes more than 17 million people. Although part of the war on poverty, it differs from the Economic Opportunity Act in two ways. Appalachia emphasizes infrastructure: Construction of roads, dams, sewerage systems, recreational development, and conservation. The assumption underlying the program is that the economic distress of the region is due mainly to its relative isolation. The Economic Opportunity Act, on the other hand, stresses human development rather than area development. Appalachia is a regional program whereas the Economic Opportunity Act is a national program. At the same time, the Appalachia region will also receive whatever benefits that the Economic Opportunity Act can provide. ii Washington Post, August 23, 1967.

'!} Washington Evening Star, August 23, 1967.

- 56 - As an aid to the poor, however, there are few short-run benefits in the Appalachia program. It is estimated that unskilled workers might qualify for no more than a fifth of the total man-hours of employment gen­ erated directly by the construction projects.I/ It has been said that in view of union control over labor markets in public works and their efforts to help their regular members, it is probable that only a small portion of the jobs will go to impove.rished unemployed workers. The Appalachia pro­ grams are not large enough to create widespread shortages of workers, particularly since this construction work is taking place in areas of high unemployment.

In the long run, assuming the hopes of the program sponsors are correct, the Appalachia programs may benefit the poor. It is hoped that they will attract tourists and bring other forms of economic activity that will generate large numbers of jobs.

A second approach to the distressed area problem is the Public Works and Economic Development Act of 1965. This Act replaces two previous federal distressed area programs: the Area Redevelopment Act and the Public Works Acceleration Act. This program offers a comprehensive set of grants and loans for public works, loans and other assistance for commercial and other industrial facilities, technical assistance, and planning assistance for appropriate economic and geographic areas of all sizes. This program to a certain extent is based upon the Public Works Acceleration Act (which provided matching funds for public works construction in distressed areas), Area Redevelopment (which provided loans and other assistance to encourage business and industry to locate in distressed areas), and Appalachia (which aims to encourage the development of regional programs). The Public Works and Economic Development Act authorizes annual expenditures up to $760 mil­ lion over a four year period.2/ The actual annual amounts requested by the administration or appropriated by Congress, however, have been about half of the initial authorization. As for its effectiveness in assisting unemployed workers, this program faces many of the same problems as the Appalachia pro­ gram we described above.

C. Unemployment Insurance The object of the unemployment insurance program is to provide es­ sential aid, during periods of forced idleness, to unemployed workers who have substantial recent attachment to the work force. It is designed to limit the income loss of the eligible unemployed.

The program, established under the Social Security Act of 1935, works through federal and state cooperation by means of payroll taxes paid by the employer. The states establish conditions of eligibility, the amount

1/ Levitan, op. cit., p. 19.

2/ U.S. Congress, Senate, Committee on Public Works, 89th Congress, 2nd Session. Summary of Legislative Activities and Accomplishments (Wash­ ington: U.S. Government Printing Office, 1966) pp. 144-148.

- 57 - and duration of benefits, and the truces to be imposed. They generally seek to provide a weekly benefit of from one-half to one-third of the unemployed worker's regular weekly wages. The average maximum duration during which an unemployed worker can receive aid is 26 weeks. All workers whose employers contribute to state unemployment systems, as well as federal civilian and military employees (ex-service­ men) are eligible if they are unemployed through no fault of their own, registered for work, and ready for work. Employees of very small firms, nonprofit organizations, agriculture and domestic service are generally not covered by this program. Available evidence seems to suggest that unemployment insurance is less beneficial for those who are classified as poor than for other unemployed.1/ In 1965, about 15 million workers, including about 6 mil­ lion employed in those areas where the working poor tend to concentrate (agriculture, domestic service, and small firms) were not covered by un­ employment insurance. In addition, many of the idle poor with no recent work histories are not covered. Yet, for large numbers of unemployed workers in jobs covered by unemployment insurance, the benefits do mini­ mize the economic shock while they seek new jobs. D. Minimum Wages One of the basic goals of minimum wage legislation is to elimi­ nate "substandard" wages. Minimum wage and overtime legislation was first established in the Fair Labor Standards Act of 1938. Since World War II, Congress has raised the statutory federal minimum wage rate four times. The most recent amendment (1966) raised the rate from $1.25 per hour to $1.40 on February 1, 1967 and then to $1.60 in February, 1968. The 1966 amendments also extended the minimum wage to about 8 million additional types of employment. For these newly covered workers the minimum will be $1.15 beginning February 1, 1968, and will increase in annual steps un­ til it reaches $1.60 an hour on February 1, 1971. Federal standards apply generally to employees engaged in interstate or foreign commerce or in the production of goods for such commerce. In addition, a number of states have enacted minimum wage laws for employees not covered by federal legis­ lation. State minimum wage rates are both higher and lower than federal rates. In 1965, 12 states actually had higher minimum wage rates than that established by the federal government.� At present, there are more than 10 million jobs in the United States which pay less than $1.50 an hour. The majority of the low paying jobs are held by youths who have just entered the labor force or by women who are supplementing family incomes. But for about two million family

1/ Levitan, op. cit., p. 21. 2/ Ibid., p. 22.

- 58 - heads (90 percent males), low paying jobs represent full-time jobs .1/ Some 5.7 million children were being raised by these same family heads who were fully employed in 1963. Thus, despite the fact that the elim­ ination of substandard wages was one of the major goals of the Fair Labor Standards Act of 1938, there are still millions of jobs which pay less than $3,000 per year even on a full-time basis. For the two million family heads with children mentioned above, low wages appear to be a factor in accounting for poverty. Yet, the role of minimum wages in the war against poverty has been a matter of debate. Would it be feasible to increase minimum wage rates and expand coverage? Obviously some workers benefit when minimum wage rates are increased or expanded. There is, however, widespread disagreement over how statutory minimum wage rates affect the poor. For instance, Yale Brazen, Professor of Economics at the University of Chicago, has argued that the statutory minimum wage serves to increase, not decrease, the amount of poverty in America.2/ He points out that when the minimum wage was increased in 1956 unemployment among teenagers and women over age 45 rose despite the fact that total unemployment was falling. Usually, when total unemployment falls, unemployment in these groups falls twice as rapidly. However, this usual relationship was reversed by the rise in the minimum wage from 75 cents to $1.00 an hour in 1956.

Professor Brazen concludes that this incidence of unemployment was caused by the increase in the statutory minimum wage. This unemploy­ ment most heavily affects the group upon which much governmental effort is being directed for the purpose of improving their lot--the Negro teen­ ager. Before the minimum wage was raised in 1956, nonwhite and white teenage unemployment both were approximately the same, oscillating between 6 and 12 percent of those seeking jobs. In 1956, and since, nonwhite teenage unemployment has been almost double white teenage unemployment. Professor Brazen concludes that statutory minimum wages are more apt to harm the very people that they are designed to help. It is argued that some employers are willing to create extra jobs for teenagers and others at $1.25 an hour, but cannot afford to do so at $1.60 per hour.

In summary, the federal government uses several approaches to assist the poor within the work force. Despite the fact that some job creation programs exist, there is more emphasis on training and retrain­ ing in the belief that normal private and public sectors of the economy can can absorb a properly trained worker. Unemployment compensation does not assist the poor to any great extent because they are usually not found in industries covered by unemployment compensation or they lack the work histories to qualify for benefits. Finally, while minimum wages probably do help some workers climb from poverty, its total impact upon the problem is much in dispute. y Ibid. y Yale Brazen, "The Untruth of the Obvious." A speech delivered before the Midland Economic Research Group at Northwood, Michigan, April 20, 1967. (Mimeographed).

- 59 - IV. Provision of Services and Goods In our society, the government has assumed the responsibility of providing many social services to its citizens. Many of these bene­ fits are made available regardless of the recipient's level of income. We are concerned here with services and goods which are made available to the poor on a basis of need, though these are not always separable from the overall governmental benefits provided by such programs. For instance, child services are combined for both poor and affluent, while separate housing programs are provided on a basis of need. Two other programs, food distribution and medical assistance, are also made avail­ able to the poor.

A. Services for Children

The Social Security Act provides grants to the states on a matching basis for four types of programs to aid children:

1. Services to children in difficulty, which generally include social service to children in their own homes, protective services to neg­ lected or abused children, foster care, day care, and related services;

2. Maternal and child health services which include maternity clinics and clinics for mentally retarded children; 3. Services for crippled children;

4. Health care for needy children.

The total cost of these programs is approximately $600 million, with the federal government contributing about one-fifth of this amount. However, federal contributions to these programs have been rising in re­ cent years._!/

Except for health care for needy children, these programs are not aimed exclusively at children of the poor, though most beneficiaries of maternal and child health services come from poor families.2/ A 1963 study found that while recipients of Aid for Dependent Children constitute less than a twentieth of thechild population, they accounted for about a fifth of children receiving child welfare services.3/ In addition, there are probably many other poor children receiving these services whose fami­ lies do not necessarily receive public welfare benefits.

..!! Levitan, op. cit., p. 26. 2/ Ibid.

� U.S. Department of Health, Education, and Welfare, Children Problems and Services. (Washington: U.S. Government Printing Office, 1963) p. 140.

- 60 - The Community Action Program under the Economic Opportunity Act of 1964 has further expanded services to children in poor families. Some projects funded under this program have augmented the resources of the regular local agencies which minister to the needs of poor children. Also the Community Action Program has initiated new programs such as Head Start. Based upon the idea that children from poor families are often inadequately prepared to begin school, Head Start exposes the preschool child from poor homes to the world of learning, and also furnishes one nourishing meal a day.lJ

There is also a wide variety of local Community Action Programs devised to meet local needs. These are far too numerous to even mention here. The Johnson Administration requested $735 million to operate the Community Action Program in fiscal 1967.� B. Food Distribution Programs

Some estimates indicate that millions of persons do not have the means to purchase food for a well-balanced and adequate diet. To help im­ prove the diet of needy persons and to help dispose of surplus agricultural goods, the federal government has subsidized the food stamp program and operates a direct food distribution program.

In addition, the national school lunch program and the milk pro­ gram are designed to improve the nutritional health of all children. In the 1964-65 school year, approximately 17 million elementary and secondary school children (about 35 percent of the total) benefited from this program regardless of family income.3/ The $1.6 billion cost of the school lunch and milk programs was about evenly divided by federal, state and local gov­ ernments on one hand and the students themselves. The National School Lunch Act of 1946 helps provide free or re­ duced cost lunches for needy children. However, a 1962 Department of Agri­ culture study found that 1.2 million needy children, or children on the borderline of need, were not receiving these lunches.4/ In mast of these cases, there were either inadequate facilities or no facilities at all at school sites to provide these services� Perhaps the irony of the school lunch program is that the schools where the poor tend to concentrate often lack the facilities to take full advantage of the program.

1/ Supplemental Appropriation Bill, 1967, op. cit., p. 315. About 573,000 children were expected to take part in Head Start this summer. 2/ Supplemental Appropriation Bill, 1967, op. cit., p. 4. 3/ Levitan, op. cit., p. 27. � Ibid.

- 61 - The federal government also makes food available to needy per­ sons. The Department of Agriculture distributes processed and packaged foods through designated state agencies. In 1965, 48 states, including more than half of the counties in the nation, participated in the pro­ grams. About 5.3 million people, evenly divided between public welfare recipients and other needy persons, received food under this program.!/ The total cost to the federal government to acquire, process, and ship these commodities amounted to $225 million, or $42 per recipient.

While direct food distribution provides an outlet for surplus food, the program has been criticized on several grounds. It is argued that the available surplus commodities not only fail to supply adequate food for a balanced diet, but that the procedures involved in distribu­ tion show little concern for the self-respect of the recipients, who fre­ quently have to line up at government warehouses or relief agencies to receive the food. Also direct food distribution fails to utilize exist­ ing retail outlets. Finally, many communities do not participate in the program, so it is not available to all the poor. A more recent plan is the food stamp program. Initiated in 1961 on a pilot basis, the food stamp program became permanent in 1964. Under the food stamp plan, public relief recipients and other needy persons may exchange money which they would nornally spend on food for stamp coupons whose value is greater than the amount paid. The coupons may be exchanged in retail stores for domestically produced food. The amount that a person or family pays for a certain amount of stamps is based upon individual or family income.

The major purposes of the food stamp plan are to upgrade the quality of diet, increase food consumption, and allow the poor free selec­ tion of food purchases. At present 29 states participate in this program, and more than 630,000 people benefit from it.2/ In fiscal 1967, Congress authorized $200 million for this program, but-only $120 million was spent. Thousands of needy families do not, or cannot, use this program. Even among those who do use it, there are complaints that the allotted amount of stamps per month meet family food needs for a little more than two weeks of each month.3/

C. Housing

The federal government is heavily involved in housing programs. Several programs are designed to provide housing for the poor. These in­ clude public housing, rent subsidies, grants to help rehabilitate homes for the poor families displaced by urban renewal, and special housing pro­ grams for older persons and farm laborers.

1/ Ibid. 2/ Washington Sunday Star, August 13, 1967. 3/ Washington Post, August 23, 1967.

- 62 - The rationale for providing government assistance to shelter the poor is that unsubsidized private enterprise cannot do this profitably. It is argued that, in the absence of such programs, the poor are confined to slums and substandard shelter. According to the 1960 census, 5.3 million families with an annual income of less than $3,000 lived in substandard or over-crowded housing. Thus far, government housing programs have filled only a small portion of the house needs of the poor ..!J

The oldest government measure to provide housing for the poor is the public housing program which was established in 1937. During the past three decades, the federal government has provided some 641,000 housing units for poor families.� At present, nearly 2.4 million persons are being housed under the program, of which 1.4 million are children.3/ Public housing is subsidized by the federal government. The initial planning and development are financed through loans from the Federal Housing Administration. When the project is sufficiently advanced, the community floats federal guaranteed bonds in the open market to cover the cost of the project and to repay the initial federal loan. The federal government pays an annual contribution to make up the difference between rentals and operating costs. Payments to the community in lieu of taxes amount to about 10 percent of the rents collected on the project. Residents are charged rents amounting to 20 percent of their income. At present, the average monthly rent paid is about $40 regardless of the true cost of the space occupied by the family.

In 1965, the federal government also undertook to pay part of the rent for poor families living in substandard housing, for those displaced by government action, such as urban renewal, and for impoverished families with aged or handicapped persons. Under this program, private nonprofit organiza­ tions, limited dividend corporations, or cooperatives would be authorized to borrow funds, guaranteed by the federal government in the open market, to build or acquire homes. The monthly rent paid by the occupants would be no more than 25 percent of their monthly income. A family with a monthly income of $200 would be required to pay $50 per month. Assuming that the fair eco­ nomic price is $80 per month, the occupant would pay $50 and the federal gov­ ernment the remaining $30.

1/ Levitan, op. cit., p. 28. 2/ U.S. Congress, House, Hearings Before a Subcommittee on the Committee for Appropriations, 90th Congress, 1st Session, Independent Offices and the Department of Housing and Urban Development. (Washington: U.S. Gov­ ernment Printing Office, 1967) Part III, p. 256.

3/ U.S. Congress, Senate, Hearings, Committee on Banking and Currency, 90th Congress, 1st Session, Housing Legislation of 1967 (Washington: U.S. Government Printing Office, 1967) Part I, p. 115.

- 63 - A major innovation of the new program is its attempt to enable poor families to live side by side with their more affluent neighbors. In the event that the family's income increases, the rent subsidy will decline. Under this program a family will not be displaced if their in­ come rises above the subsidy level as is now the practice in public hous­ ing.

D. Medical Services

In addition to food and shelter, certain medical expenses are now considered by our society as essential for a minimum standard of living. Public assistance programs include medical services as part of the basic-needs budget. In fiscal 1968, it is estimated that the federal government will spend about $1.2 billion in federal grantsfor medical assis­ tance to the poor.1/ Among medical services provided are hospitalization, nursing-home care ,-physicians.' services and prescribed drugs.

The federal government has, since 1960, contributed directly to medical care for indigent aged persons (Kerr-Mills Program). States par­ ticipating in this program are required to provide qualified beneficiaries with institutional and noninstitutional medical care. Thirty-seven states participate and federal contributions range from SS percent to 83 percent of total cost, depending upon the state's per capita income, the lower the state's per capita income, the higher the federal contribution.

The 1965 enactment of the Medicare program will have a profound effect upon medical services offered to the poor. It is intended that Medicare will not only provide needed medical service to the aged, but will also release most of the former Kerr-Mill funds to provide medical assis­ tance to other groups receiving public assistance.

The planned expansion of medical assistance to the poor does not guarantee any improvement in the quality of these services. The 1965 Medi­ care and the old Kerr-Mills programs do provide additional funds for medical care to the poor and the rich (since aged persons qualify under Medicare re­ gardless of annual income). At the same time, these programs will no doubt enlarge the demand for medical facilities and associated professional ser­ vices. But related legislation providing for expansion of supply may not be commensurate with the additional resources likely to raise demand. Suppliers of medical services will probably be hard-pressed to meet the expected expan­ sion in demand created by Medicare and the shift in emphasis in the Kerr-Mills program.

V. Conclusion Despite the wide-range of federal "welfare and insurance" programs, we can conclude from our analysis in this chapter that each program must be

Legislative Analysis, "The Federal Budget for the 1968 Fiscal Year." (Washington: American Enterprise Institute, 1967) p. 39 (Table 8).

- 64 - examined to detennine its relationship to the poor. The unemployment com­ pensation program probably bypasses most of the poor. The total effect of minimum wages upon the working poor is still a subject of debate among econo­ mists. Perhaps the newer work-training programs lack sufficient experience to adequately assess their total value. Federal public assistance grants are limited to specified groups such as the blind, disabled, etc., and are administered by the states

Federal expenditures on programs classified as "social insurance and welfare" have grown from $2.7 billion in 1948 to $36.8 billion as bud­ geted for 1967.1/ Yet we still have the poverty problem. Can the existing mechanisms be expanded or made more flexible or do we need a whole new ap­ proach to the war on poverty? The chapters which follow are intended to explore these issues.

1/ Special Analysis, "The Price of the United States Government 1948- 1967." (Washington: American Enterprise Institute, 1967) p. 64.

- 65 - DISCUSSION QUESTIONS

1. What different types of welfare programs does the United States have?

2. How are the poor assisted by the Old-Age, Survivors, and Disability Insurance system? Could this system be expanded to solve the entire problem of the aged poor? 3. What are the four principle social security public assis­ tance programs? How are these programs financed and administered? What role does general assistance play? What changes are proposed in the pub­ lic assistance programs?

4. How do veterans' pensions and compensation programs assist needy veterans or their dependents?

5. To what extent does the current "war on poverty" rely on job creation and work relief? What is the purpose of job training pro­ grams?

6. What is the basic difference between the Neighborhood Youth Corps and the Manpower Development and Training Act? Why do some argue that these programs work against each other? 7. What are the basic differences between the Economic Opportu­ nity Act and such programs as Appalachia and the Public Works and Economic Development Act?

8. What is the purpose of the unemployment compensation and minimum wage laws? What limits their role in assisting the poor?

9. What federal programs provide services and goods to the poor? What are the advantages and disadvantages of these programs?

- 66 - BIBLIOGRAPHY

Abbott, Grace. From Relief to Social Security: The Development of the New Public Welfare Services and Their Administration. Chicago: University of Chicago Press, 1941. 38 pages.

Burlage, Robb. "The 'War on Poverty': This is War?" New University Thought, v. 4 (Sununer, 1964), pp. 49-72. Cahn, Edgar and Cahn, Jean. "The War on Poverty: A Civilian Perspective," Yale Law Journal, v. 73 (July, 1964), pp. 1317-52. Carlson, Valdemar. Economic Security in the United States. New York: McGraw-Hill, 1962. 225 pages. "The Controversy Over the Federal Anti-poverty Program: Pro and Con," Congressional Digest, v. 45 (March, 1966), Whole issue.

"Do We Need an OEO?" New Generation, v. 49 (Summer, 1967), Whole issue. Contents: "A Look Into the Future of the Office of Economic Opportunity," views by: Richard W. Boone, Congressman Charles E. Goodell, Hyman Bookbinder, Kenneth E. Marshall, S. M. Miller.

Eckstein, Otto. Studies in the Economics of Income Maintenance. Washington: Brookings Institution, 1967. 254 pages.

Elman, Richard M. The Poorhouse State: The American Way of Life On Public Assistance. New York: Pantheon Books, 1966. 305.pages.

Merriam, Ida C. "Social Welfare Expenditures, 1965-66. Social Security Bulletin, v. 29 (December, 1966), pp. 9-21.

Mitchell, William. Social Security in America. Washington: Robert B. Luce, Inc., 1964. (America Today Series, No. 2). 79 pages.

Myers, Robert J. Social Insurance and Allied Government Programs. Homewood, Illinois: Richard D. Irwin, Inc., 1965. (The Irwin Series in Risk and Insurance). 258 pages.

Schottland, Charles I. The Social Security Program in the United States. New York: Appleton-Century-Crofts, 1963. 209 pages.

Shriver, Sargent. "New Weapons in Fighting Poverty," Public Welfare, v. 24 (January, 1966), pp. 9-14. U.S. Advisory Council on Social Security. The Status of the Social Security Program and Recommendations for its Improvements. Washington: U.S. Government Printing Office, 1965. 115 pages.

- 67 - U.S. Department of Health, Education, and Welfare. weifare Administration. A Constructive Public Welfare Program; A Report .•• on Recent Federal Legislation to Aid States and Communities in Dealing With Poverty and Other Social Problems. Washington: 1965.

U.S. Department of Health, Education, and Welfare. Welfare Administration. Public Assistance Under the Social Security Act--Serving People in Need. Bureau of Family Services, 1966. Washington: U.S. Government Printing Office, 1966. 28 pages.

U.S. Department of Health, Education, and Welfare. Social Security Admin­ istration. Social Security Programs in the United States, January, 1966. Washington: U.S. Government Printing Office, 1966. 120 pages.

U.S. Office of Economic Opportunity. The Quiet Revolution. Second Annual Report, House Document No. 136, 90th Cong., 1st sess.

- 68 - CHAPTER IV

PROBLEMS INVOLVED IN PRESENT PROGRAMS

I. Introduction

In speaking of the need for or the advantages of a guaranteed income proposal, it is important to realize that we are dealing with two apparently distinct groups: those who are employable in some sense--wheth- er presently employed or not; and those who are unemployable. The poor in both groups would receive aid under any guaranteed income proposal. For example, with respect to those who are employable, the National Com­ mission on Technology, Automation, and Economic Progress reports that by 1975 there may be fewer opportunities for younger workers than there are today.1/ If this prediction is transformed into reality, the nation will face an even more serious problem of chronic unemployment among employable younger workers. Of course, it is not simply the young who suffer from unemployment. Unemployment--and the underemployment described in Chapter !!--affect all segments of the work force. Moreover, the poor consist of more than those who could, in some sense, take a job if one were available. In the words of the Commission on Technology: "The War on Poverty has made it abundantly clear that the road to a satisfying life through work is not open to everyone: not to families without breadwinners, not to those whose productivity is reduced by physical or mental incapacity, not to people too old to work."2/ An example is furnished by mothers who receive funds under the aid for dependent children program. Two-thirds of these mothers have children under six; the average number of children in the family is three. Most of the mothers did not finish high school and a large number suffer from physical disability. As indicated in "Growing Up Poor," there ar� per-. suasive arguments against the idea that these mothers should leave their fami­ lies and seek employment.3/ The differentiation between the unemployed and the unemployable is not always clear; it does serve a useful purpose in this analysis. In light of the distinction between the two groups, this chapter will seek to answer two questions: first, under the present system, can or should enough jobs be created for those who are employable but unemployed; second, assuming a sufficient number of jobs cannot be created to provide self-help opportunities for all of the poor, can present assistance mecha­ nisms deal adequately with the problem?

l.J Commission on Technology, op. cit., p. 31. '}) Ibid., p. 38.

� Catherine S. Chilman, "Growing Up Poor," U.S. Department of Health, Education, and Welfare, May, 1966, pp. 20-21.

- 69 - II. Creating Jobs for the Poor The major thrust of the present system is its attempt to create a wide range of opportunities for self-help. This attempt seems to be rooted in the belief that: "social and economic insecurity in the United States have many facets and many causes, and their eradication from our society can be achieved only by a convergence of policy and of action on many different fronts. "1/ As has already been pointed out, the present system is cause-oriented; it seeks to eradicate the reasons for poverty and to constrict the necessity for income maintenance. It does so through economic manipulation, efforts to bring the unemployed and available jobs together, and attempts to counter and exploit the effects of automation. This section will consider each of them in turn. Economic Stimulation: Can it do the Job? The fundamental assump­ tion of those who advocate the use of economic stimulation is that reduc­ tions in unemployment will lead automatically to reductions in the number of those who are in poverty. It was estimated in 1965, for example, that a return to the 4 percent rate of unemployment would reduce instantaneously the poverty rate by 1 percentage point.2/ This view is tempered somewhat by the qualification that much of our remaining poverty may be hard core in nature, not susceptible to continual reduction through economic growth.3/ Nonetheless, it is widely argued that "... the growth of demand must ...pro­ vide the answer to unemployment."4/

One approach to alleviating unemployment through economic growth relies on the expansion of demand through measures such as tax cuts and in­ creased government spending. Proponents of this approach argue that the high unemployment of the 1950s was caused by a decline in aggregate demand and that the present improvement in the unemployment picture is due to the demand stimulation created by the 1964 tax cut.5/ It is important to realize that the mechanisms for accomplishing such stimulation are many and varied. If additional stimulation were desirable today, the government would have a number of options, only one of which would involve increased private spending through the mechanism of a tax cut. Alvin Hansen, Littauer Professor of Political Economy, Emeritus, at Harvard University, has proposed that demand y Alvin L. Schorr, Slums and Social Insecurity, U.S. Department of Health, Education, and Welfare, Research Report No. 1, p. iii. Hereafter cited as Slums and Social Insecurity. y Robert J. Lampman, "Approaches to the Reduction of Poverty" in A.E.R. May, 1965, p. 529.

Ibid., p. 523. Commission on Technology, op. cit., p. 109.

Ibid., p. 15.

- 70 - stimulation center on the need to rebuild American cities.1/ No matter where future measures to "prime the pump" are centered, all of them work according to the same basic principles. In simplified form, the opera­ tional process of these principles might be described as follows: addi­ tional money is spent in the national economy creating additional demand for goods and services, which creates increased jobs filled by workers who spend most if not all of the money they earn. The result is that, through a multiplier effect, the economy generates increased employment opportunities and rising growth.

This theory of job creation is attacked on a number of counts. Some economists have argued that the creation of sufficient demand to em­ ploy all of the unemployed would result in a serious and unacceptable prob­ lem of inflation. They contend that the national experience since the tax cut has demonstrated the validity of their thesis. Faced with the threat of a wage and price spiral, the Johnson Administration has been forced to stop short of achieving the full employment goal through fiscal policy, leaving substantial unemployment among the unskilled and the underprivi­ leged.2/ It has also been argued that the increased growth that leads to expanded employment opportunities does little to help those most in need. For example, between 1950 and 1960, the number of jobs in southern manu­ facturing rose by 944,000. Of this increase, 12,000 jobs went to Negro women and none to Negro men.3/ Thus, there may be practical social barriers to the effectiveness of what-has been described as the "new economics."

Chicago economist Milton Friedman and other economists contend that the administration's whole theory of fiscal stimulation is incorrect. They argue that the increased prosperity since 1964 has been due, not to the tax cut,'but to the increasing growth in the money supply created by the easy credit policies of the Federal Reserve Board. They find support for their view in the early 1967 economic slow-down that supposedly resulted from the new stringency of the Reserve Board's policies.4/ Note that Friedman and his group do not hold out hope that continued tinkering with the money supply can.be the key to economic growth and jop creation; it is their posi­ tion that economists do not know enough about the time lags involved to make such a policy prudent or fruitful.� The sponsors of the "new economics"

!/ Alvin Hansen, Economic Issues of the 1960s (New York: McGraw Hill Book Company, Inc., 1960) pp. 80-81. Hereafter cited as Hansen. '!:./ Theobald, Proceedings, op. cit., p. 3. 3/ Alan Batchelder, "Poverty: The Special Case of the Negro" in A.E.R., May, 1965, p. 535.

4/ Business Week, May 13, 1967, p. 98.

5/ Ibid.

- 71 - have attacked Friedman's position. James Tobin, a former member of the Council of Economic Advisers under President Kennedy, has drawn up a chart comparing changes in the money supply with changes in the national income. The chart is designed to demonstrate that there is no discernible relationship between the two. Tobin indicates his disagreement with Fried­ man on another point. He contends that if regulation of the money supply is the key to economic growth, then it should be employed, even if its op­ eration is not always absolutely predictable . .!_/

It appears, at this point, that if the affirmative can sustain any of the possible indictments indicated above--if it can prove that the job creation approach will not solve the problem--it might have a reason to turn to a guaranteed income approach. If self-help opportunities simply are not available, it might be argued, then society will have to find a way to support its unemployed citizens. (This, of course, also involves a con­ sideration of present public assistance mechanisms; a discussion of these will be found later in this chapter.) The use of a guaranteed annual income could also be desirable in times of recession, if the affirmative can estab­ lish that the ways we now use to prevent and cure such economic slow-downs are ineffectual.

President Johnson wrote in his 1965 Economic Report: "I do not be­ lieve recessions are inevitable. Up to now every past expansion has ended in recession or depression--usually within three years £rom its start. But the vulnerability of an expansion cannot be determined by the calendar. Im­ balance--not old age--is the threat to sustained advance.... We can head reces­ sions off, or greatly moderate their length and force--if we are able to act promptly."2/ The administration thus seems to be arguing that the use of fis­ cal policy-can end any serious threat of recession. Critics argue that one difficulty with this view is that fiscal policy actions require political de­ cisions, which take time. In the present state of economic forecasting, these critics contend, it is not possible to predict the onset of a recession in sufficient time to take action to head it off. Norman B. True, director of Tax Studies for the National Bureau of Economic Research and once a staff mem­ ber of the Joint Economic Committee of the Congress, writes: "On each of the occasions since the end of the war when the economy recessed or boomed, offi­ cial recognition of economic disturbance came not only too late to prevent it from materializing, but indeed considerably after it was under way."3/ Even President Johnson appears to recognize this problem. In the same Economic Re­ port cited above, he admitted: "In principle, public measures can head off recessions before they start. Unforeseen events and mistakes of public or private policy will nonetheless occur. Recessions may be upon us before we

lf Ibid. '!:f 1965 President's Economic Report, op. cit., p. 10.

� Business Week, op. cit., p. 98.

- 72 - recognize their warning signs."1/ Thus, the principal argument levied against fiscal stimulation as a-way of preventing the undesirable ex- cesses of the business cycle is that its discretionary nature disables it from effective action. In this situation, it can be argued that the use of a guaranteed annual income might well provide the kind of stabi­ lizer that would have significant counter-cyclical impact. It could be expected that the size and number of guaranteed income payments would rise as the economy started to slow down; and such a rise--unlike a tax cut of increased government spending on public works--would be automatic rather than discretionary.2/ Its operation would be similar in nature to the operation of the other automatic stabilizers. It might have an even greater impact, an impact sufficient to blunt almost completely the effects of the oncoming recession. The use of a guaranteed annual income might also alleviate the individual harms of a recession, if a downturn did occur. After the 1958 recession, the unemployment rate was still 6.4 percent three-quarters after the trough, and 5.4 percent a year later. The experience was similar after the 1960-61 recession.3/ Thus, many workers are still suffering from the effects of the recession after the economy is well on the way to recovery. Many of them, because of the 26 week limit on unemployment insurance benefits,4/ have no source of income. The guaranteed annual income could operate to provide them with at least a minimum standard of income until they could again obtain work. Nor is the proposal that the guaranteed income be given on an annual basis a sig­ nificant barrier. James Tobin writes: "... by a simple declaration to the Internal Revenue Service a family could begin to receive payments monthly, or twice monthly, at the rate to which it expects to be entitled. Later in the year, the family's circumstances might change; for example, a man might obtain a job and begin paying withholding tax. The next April 15th would be a day of general reckoning. The off-shoot might be that the gov­ ernmentowes the taxpayer money, or the other way around."5/ It is possible, then, to argue for the adoption of the guaranteed annual"""Tncome by maintain­ ing that it will prevent the onset of recessions, blunt their impact, or alleviate their effects.

A final consideration in terms of monetary and fiscal policy to stimulate the economy is its effect on the unskilled worker. At a high rate of economic growth, there are more jobs for all types of workers and

1/ 1965 President's Economic Report, op. cit., p. 10.

2/ Green, op. cit., p. 149.

� CEA, 1965, op. cit., p. 103. 4/ Levitan, op. cit., p. 21.

� Tobin, Proceedings, op. cit., p. 46.

- 73 - in a tight labor market the employer does not enjoy the wide range of choice among job applicants that he does when the economy is lagging; in many cases, he has no choice but to accept an unskilled applicant for a job.1/ On the other hand, Professor Charles Killingsworth of Michigan State University and others believe that providing jobs for the unskilled in this way will lead to serious inflationary problems.2/ The critics argue that reliance on unskilled labor raises the costs of production and the sale price of goods. As the President has indicated, inflation can injure those with fixed incomes, could undermine prosperity, might weaken our competitive position in world trade, and--as time goes on--become harder to stop without creating an economic downturn.3/ It seems, therefore, that fiscal stimulation is not the whole· answer to the problem of finding jobs for the unskilled.

Efforts to Bring the Unemployed and Available Jobs Together. The President, his advisers, and the other supporters of the "new eco­ nomics" are aware of the need to find special solutions for the prob­ lems of the unskilled; or, as it is often put, they know they have to deal with what has been called "structural unemployment." Present ef­ forts aim to supplement creation of jobs by fiscal stimulations with an effort to make the unemployed able to take those jobs. This policy is supported by historical evidence of the decline in p�verty over the last several generations contemporaneous with an increase in the skills of the labor force.4/ Moreover, the incidence of poverty at the present time seems to coincide with lack of skills. Poverty on America's farms and among migrants to the cities has often been ascribed to this cause and the interrelation between destitution and inadequate education seems likely to continue in the next generation.SI- The Negroes are in a simi- lar situation.

One way of meeting the problem of skills is on-the-job training by the employer. The National Commission on Technology, Automation, and Economic Progress concludes that "the training for many--perhaps most-­ specific jobs can and must be done on the job as a responsibility of the employer."6/ The Commission reports that it was impressed in its study

Commission on Technology, op. cit., p. 23.

Theobald, Proceedings, op. cit., p. 38.

1967 President's Economic Report, op. cit., p. 11.

T. w. s·chultz, "Investing in Poor People; An Economist's View" in A.E.R., May, 1965, pp. 518-19.

Ibid., p. 519. CoilDilission on Technology, op. cit., p. 46.

- 74 - with the amount of such on-the-job training that occurs today. It does warn that this alone is not sufficient; that the employer cannot be ex­ pected to remedy certain basic deficiencies in elementary education . .!f

The unskilled worker can take advantage of several federally financed and administered retraining programs, which are described in Chapter III. There are .a number of problems with these programs. Sev­ eral states forbid workers receiving unemployment compensation to under­ take a retraining program.2/ Those who begin training often fail to com­ plete it. The amount of the training allowance and the length of the training often seem to discourage individuals from continuing. It has been suggested that these problems can be met by coupling a public ser­ vice employment program with basic education and training.3/ This might be an area for the affirmative to emphasize in constructing its plan; the affirmative could guarantee an income by guaranteeing the availability of work--and it could use that guarantee of work to rehabilitate the poor who lack skills. However, there are two more problems with manpower re­ training which do not seem susceptible of so easy a solution. The first is that the availability in the future of job opportunities is often al­ lusive and difficult to predict; as a result, many who undergo retraining programs cannot find a job afterwards. Perhaps the training and avail­ ability of jobs are not coordinated. For example, a project to train diesel mechanics in Pimlico County, North Carolina, succeeded in finding jobs for only one of its 15 graduates ..±f

The second problem is that many unemployed workers are simply not retrainable. Ralph McGill writes: "There will be a residue of a few million who are not trainable, who are sick, handicapped, too old, or too illiterate to teach or train. There are in all races some persons who, for various reasons, mostly mental, are not interested in working."5/ Some of the problems McGill talks about can of course be taken care of. Basic adult education might be used to counter illiteracy. But, if McGill is right, the nation faces a situation in whjch a substantial number of its citizens will never earn a living from gainful employment. Would a guar­ anteed annual income be a better approach then present income maintenance devices? y Ibid., p. 48. y Ibid. y Ibid., p. 37. 4/ Alfonso Morris, testimony in Examination of the War on Poverty; Hear­ ings Before the Subcommittee on Employment, Manpower, and Poverty, Committee on Labor and Public Welfare, United States Senate, Part I, (Washington: U.S. Government Printing Office, March 13, 1967) pp. 20-22. Hereafter cited as Examination of the War on Poverty. � Ralph McGill, "A Man's Due: Opportunity to Earn a Living," The Washing­ ton Star, August 15, 1967, p. A-7.

I ... ,

- 75 - It has been suggested that there are enough jobs available for all of the unemployed, even at their present skill levels. The question then arises: Why haven't the unemployed taken these jobs? Perhaps infor­ mation on available job openings is not gathered together in a comprehen­ sive and comprehensible way. The public employment service frequently does not know of available employment opportunities. Thus, the big prob­ lem may be one of giving job seekers and employers access to specific job openings and potential employees. Along these lines, observers have urged: "... that a computerized nationwide service for matching men to jobs be established. The technical feasibility of such a system has been estab­ lished in studies... with local centers feeding into regional centers in­ formation relevant at that level, and these in turn feeding into a nation­ wide job and manpower bank, the service could provide detailed information on the manpower requirements of job vacancies and the personal characteris­ tics of job seekers."1/ It may be that this system is "feasible" only in theory. A given job for a specific worker may be open in an area of the country entirely different from the one in which he resides. The proponents of the nationwide plan to match men with jobs concede that many simply will not move. "... relocation," they write, "will make a marginal, though worth­ while, contribution to adjustment."2/ Moreover, some low-income people, it is said, are simply "allergic to steady work."

In the long run, the most obvious need is to educate the younger generation of the poor to assure that they will not face the same structural barriers to earning a decent living faced by their parents. To do an adequate job in this area would be expensive. Professor Robert Lampman writes: "To raise the level of educational expenditure for poor children--who are one­ fifth of the nation's children but who consume about a tenth of educational outlay--to equal that of the average would cost in the neighborhood of $3 billion. Such an emphasis upon education... is justified by the fact that families headed by young adults will tend, in a few years, to be the most rapidly increasing group of poor families."Y Some argue that this is the ideal situation in which to employ a guaranteed income plan. They suggest writing off the older generation of the poor, providing them with a decent level of existence without attempting to retrain· or rehabilitate them, and preparing their children to make their own way in the world. This approach would not solve the problem of poverty now; but perhaps, at some point in the future, it would substantially reduce one of the major causes of poverty. The objections to such an approach are obvious. American society is not used to "writing off''a substantial segment of its population. Many of the poor do have talents; and, if those talents could be developed, they and the so­ ciety they live in would both benefit. Finally, one wonders whether children

lf Commission on Technology, op. cit., p. 50. '!:J Ibid., p. 52. y Lampman, in A.E.R. May,1965, pp. 528-29.

- 76 - raised by parents whose attitudes are conditioned by the fact that they have been labeled useless would live in an environment conducive to edu­ cational success now and occupational success in the future.

Automation: The Insurmountable Problem? The fundamental assump­ tion of the present system is that jobs can be created by some sort of eco­ nomic stimulation and that workers can be prepared to fill those jobs by educational and training programs. That assumption has been challenged by a number of leading economists, including Leon Keyserling and Robert Theobald. Theobald argues that the Keynesian theories that support current policy are no longer valid because they did not take into account the effects of techno­ logical change. Indeed, Lord Keynes specifically excluded such effects. He wrote: "We take as given the existing skill and quantity of available labor, the existing quality and quantity of available equipment, the existing tech­ nique. This does not mean that we assume these facts to be constant, but merely that in this place and context, we are not considering or taking into account the effects and consequences of changE;is in them."1/ Critics of the Keynesian approach contend that the rapid cybernation in our society has re­ sulted or will result in widespread unemployment; they also argue that stimu­ lating demand will result in increased automation, not increased employment. This discussion will focus on the arguments for and against such a position. It will not attempt a definitive evaluation.� The first and most basic dispute among economists concerning auto­ mation deals with its extent. Ben B. Seligman, Professor of Economics and Director of the Labor Relations and Research Center of the University of Massachusetts, supports the view that automation has spread rapidly through industry since the early 1950s. He provides an example: "The meat-packing industry, where the automatic assembly line was invented, is continually closing older plants and replacing them with more up to date abattoirs. Since 1955, Swift, Cudahy, and Armour have shifted their operations to small towns ...leaving most of their workers behind to fend for themselves. Packing­ house jobs dropped from 200,000 in 1955 to less than 160,000 in 1962."3/ Seligman, Theobald, and other economists of the same persuasion regard-the automation that has affected the nation in recent times as a profoundly different change than the one the American economy experienced during the

1/ John Maynard Keynes, The General Theo.ry of Employment, Interest, and Money (New York: Harcourt, Brace and Company, 1936) p. 243.

2/ It should be noted that the participants in the debate over automation all appear to assume that a job is an eight-hour-a-day, five-day-a-week proposition. Of course, as productivity rises, the nation and industry may consider a shorter work week, as Walter Reuther has suggested. 3./ Ben B. Seligman "Automation and the Work-Force," in The Guaranteed Income, op. cit., p. 74.

- 77 - industrial revolution. In their view, automation is advancing at an in­ creasingly rapid rate--a rate far in excess of any previous technological change. Many economists reject this assessment of the situation. Yale Brozen, Professor of Economics at the University of Chicago, concludes: "This new ... technology is spreading very slowly and the present slow pace is not likely to accelerate."1/ Scholars like Brozen regard automation as nothing more than part of the continuing process of industrialization that has benefited the western world for generations and centuries. Auto­ mation will continue, they admit, but at a pace and in a fashion that presents no serious problems. Brozen's colleague, Milton Friedman, sums up this position: "The fundamental argument... is that there is going to be tremendous unemployment, that automation and cybernation are going to remove jobs. I do not believe that this doctrine is any better now than it was a hundreµ years ago, when it was being widely spread throughout the western world that we were on the verge of mass unemployment, because ma­ chines were going to replace men."Y Arguments about the extent and speed of automation are difficult to assess. After all, how fast is fast? Thus, it is said that the real argument is whether or not automation will result in a net decline in jobs.

A number of economists contend flatly that automation destroys jobs on balance. They cite the following facts: between 1953 and 1963, auto production increased by one million, while the number of employed auto workers declined by 20 percent; the number of clerical workers dis­ placed by automation has grown from virtually zero to 100,000 per year since 1956; the rate of growth in technical and professional occupations has slowed down.3/ Robert H. Davis predicts that these trends will make it more and more-difficult for new workers entering th� job market to ob­ tain employment.4/ This may already have been the experience of one group in the labor force. It has been reported that a large number of our Negroes has experienced serious difficulty in obtaining jobs after migrating to the cities, because "··· advancing technology has been reducing the numbers of semi-skilled and unskilled manufacturing jobs for which they could qualify. Despite improvements in the past two years, there are 700,000 few�r factory production and maintenance jobs than at the close of the Korean War."5/

Yale Brozen, Automation: The Impact of Technological Change (Washington: American Enterprise Institute, 1963) p. 18. Hereafter cited as Brozen. y Friedman, Proceedings, op. cit., p. 9.

� Seligman, The Guaranteed Income, op. cit., pp. 72, 80-82. 4/ Robert H. Davis, "The Advance of Cybernation," The Guaranteed Income, op. cit. , p . 51. Commission on Technology, op. cit., p. xiii.

- 78 - Opponents of the view that automation destroys jobs on balance concede that in the short run it may do so. They take issue with the idea that this is a long-range effect. They reason that a change to a labor saving device will lower the costs of production, which will in turn re­ duce the price of the product. Depending on the willingness of consumers to buy more of that product at a lower price, the company may be able to expand sales sufficiently to retain all the workers who were initially displaced by the machine. Indeed, if the cost savings are great enough and the demand sufficiently elastic, automation may even increase the need for workers rather than causing net unemployment.

But let us suppose that this does not occur; that even though production becomes more efficient, and the cost declines, some workers must still be laid off as a result of the machine. Is that the end of the process? Not necessarily. It may well be that although the newly automated industry cannot absorb all the displaced workers, the stimulus to the economy produced by the advancing technology will increase the de­ mand for other products and services and thus create new jobs for the displaced workers. The extent to which this happens depends again on a variety of rather complex economic forces--such as the extent to which technological change absorbs or releases capital for industrial expansion elsewhere and the general level of investment.

Taking all of these factors into account, many economists argue that over a given period of years automation results in a substantial in­ crease in employment opportunities. They support their analysis by turn­ ing to the record of the 1950s. Yale Brazen writes: "Technological change has created more jobs than it has destroyed. The number of civilians at work in 1961 was 7 million higher than 10 years before. Technological change in the growth in our stock of capital... created over 20 million jobs in the 1950s, and about 13 million jobs were destroyed by various causes. The 20 million new jobs created and the 13 million destroyed left a net gain of 7 million positions."!/ Thus, it is argued that the theory of automation and the record of the past give reason for optimism.

The proponents of the "alarmist" view of technological change reject such optimism. They take the position that the experiences of the 1950s and of the recent past demonstrate the job debilitating effects of automation. They cite the fact that half the new jobs created between 1953 and 1962 consisted of part-time work--and that most of this part-time work was involuntary on the part of the worker. It was all he could ob­ tain.� Moreover, between 1957 and 1962, total unemployment increased significantly. Thus, the "alarmist" conclusion is that the technological change of the·l950s did not create more jobs than it destroyed. They find

� Brazen, op. cit., p. 9. � Seligman, The Guaranteed Income, op. cit., p. 86.

- 79 - additional support for their viewpoint in the record of the years since 1964--the years when the economy supposedly has boomed. They interpret the record in this way: while total unemployment dropped significantly, the unemployment rate for unskilled nonfarm workers--those most seriously affected by automation--did not decline significantly.!/ Whatever decline in unemployment has occurred they ascribe to the results of the economic stimulation caused by the Vietnam War; they contend that sufficient stimu­ lation to absorb some of the effects of automation can occur only in a war­ time context. Professor Seligman writes: "Obviously, under... (war) cir­ cumstances, the impact of technology, so visible in peace time, is ob­ scured."2/ Seligman and his like-minded colleagues conclude that unless the war in Vietnam is permanent, the nation will soon witness the coming of serious technological unemployment. Seligman predicts that the date of possible crisis may come as early as 1970, with 9 or 10 million people unemployed--a rate of 11 or 12 percent--due to technological innovation. Robert H. Davis, former Principal Scientist at System Develop­ ment Corporation, sees the future in much the same way. He does not rely exclusively on the record of the past and the present to support his assess­ ment. In his view, cybernation will spread rapidly through the entire economy by 1985; cybernated industry will require only a few employees as monitors, planners, and innovators; as a result, workers will find it in­ creasingly difficult to obtain employment in a cybernated society.3/ Of course, Davis' view contrasts sharply with that of economists like-Brozen and Friedman, who see automation as an insignificant threat to continued growth in employment. The issues are complex and difficult to resolve. Perhaps they can be better understood by examining more closely some of the rationales offered to support the opposing viewpoints.

Many of those who do not worry about the effects of automation believe that, though it may destroy jobs in some industries, there are other industries, less susceptible to automation, which can take up the slack. For example, Alvin Hansen mentions the possibility that the inven­ tion of new products and the creation of new desires for different material goods will lead to increased employment in industries that do not even exist today. However, Hansen indicates his belief that human wants in the field of material goods are not unlimited.4/ Expansion in this sector cannot hope to take up all of the slack. As Hansen-points out, in this situation, the an­ swer might well be increased employment in the service industries. He writes: "... employment has rapidly expanded in the service fields. Indeed in the 10 years from 1947 to 1957 employment in trade increased 23 percent, finance 40 percent, service 32 percent, and public service 39 percent."'E.f The Nation­ al Commission on Technology,Automation, and Economic Progress foresees a y Theobald, The Guaranteed Income, o:e. cit., pp. 20-21. y Seligman, The Guaranteed Income, o:e. cit., pp. 69-71. 3/ Davis, The Guaranteed Income, o:e. cit.' P· 51. 4/ Hansen, o:e. cit., p. 73. 5/ Ibid., p. 79.

- 80 - continued expansion of job opportunities in these sectors. It concludes that between now and 1975, " ...government and services will increase sharply ...contract construction and trade will also increase . ..."_ij

Economists who are committed to the view that automation con­ stricts employment take sharp issue with this assessment. Seligman claims that cybernation is being increasingly introduced into clerical work and into government--and it was government which contributed half of all new jobs between 1952 and 1962.2/ Indeed, technological change in clerical work has already led to a slowdown in the growth of office employment. More­ over, many of the new service jobs have been and will continue to be only part time.3/ Even labor intensive services such as retailing may become increasingly cybernated over the next 20 years.4/ Thus, some economists challenge the theory that services can absorb the increasing work force by maintaining that automation will become as widespread in the service sector as it is in other areas. They see large scale unemployment as the result of this process.

The National Commission on Technology, Automation, and Economic Progress has made projections which indicate increasing growth in the ser­ vice industries; a number of economists outside the government have made projections which indicate precisely the opposite. There are no easy ways to dismiss one view or the other; there seems to be no way to reconcile them. Both groups have made certain assumptions which may prove to be in­ correct. The Commission, which relied on the Bureau of Labor Statistics, takes into account only the major technological changes in American indus­ try that can be identified.SI Yet many of the most important and signifi­ cant inventions are unpredictable.6/ On the other hand, economists such as Theobald have assumed that automation will accelerate as rapidly as techni­ cal and physical limits allow. Of course, such maximum progress may not occur; the rate of technological change may be slowed down by policy deci­ sion or economic limitations. In short, there are two opposing viewpoints; there are potential weaknesses in both viewpoints; and neither viewpoint is clearly right or clearly wrong.

Those who think that automation will not inhibit the economy's ability to expand employment emphasize the necessity for education and training to prepare workers for the new kinds of jobs that will open up. The greatest area of expansion will be in employment requirements for pro­ fessional and technical workers. .z.; Without education and training, as has

1/ Commission on Technology, o:e. cit., p. 29. 2/ Seligman, The Guaranteed Income, o:e. cit., pp.76-77. � Ibid., pp. 81 and 86. 4/ Davis, The Guaranteed Income, OE· cit., pp. 56-57. 5/ Commission on Technology, o:e. cit., p. 30. � Davis, The Guaranteed Income, o:e. cit., p. 44. 7/ Commission on Technology, o:e, cit., p. 31.

- 81 - been indicated earlier, many workers will be unable to take advantage of this expansion. As this analysis has noted, the generally recommended solution to this problem is the use of extensive training and retraining. With such training, it is contended, the unskilled and uneducated will benefit rather than suffer from technological innovations. This analysis is thoroughly repudiated by a number of economists who contend that auto­ mation does not upgrade skills. They rely on the investigations of James R. Bright, who concludes: "There was more evidence that automation often had reduced the skill requirements of the operating work force and occa­ sionally of the entire factory force, including the maintenance organiza­ tion."!/ In this view, then, all of the talk about retraining is super­ fluous; it is nothing more than an attempt to avoid the hard reality that increasing technology will provide fewer jobs of lesser skill levels. The disagreement here is essentially the same as it was concerning services. One an�lysis supports the wisdom of preparing workers for an increasing number and different type of job; the other argues that the nation should not retrain individuals to fill jobs of lower skill levels, few of which will be available.

We will now consider one last aspect of the problem of automation-­ why economic stimulation can or cannot create sufficient additional jobs in spite of automation. It should be obvious that the "alannist" position is that it cannot. As the analysis has noted already, Robert Theobald and those who agree with him claim that Keynesian economics and its theory of demand stimulation are irrelevant in the technological age. Theobald writes: " .•.created demand will lead to purchases of highly efficient and productive machine systems that need few men to control them: i.e., to the installation of cybernation. Thus, in the relatively near future, a policy of forcing rapid growth and demand in order to increase employment opportunities will actually lead to the opposite result: it will raise unemployment rather than lower it."2/ This conclusion does not seem to be in accord with the adminis­ tration's viewpoint. Due to the economic stimulation of the last six years, according to President Johnson, " ..•the rate of unemployment has fallen from 7 percent •..to under 4 percent. The rate for white adult males fell from 5 percent to 2 percent; for Negro men, from nearly 12 percent to les·s than 5 per­ cent."3/ Thus, if automation did lead to unemployment in the early 1960s, de­ mand stimulation appears to have countered the process effectively. It is important to recognize, however, that Theobald is talking about what will hap­ pen in the "near future." As he sees it, the ability to purchase machines rather than to hire men when there is a need to increase demand is a phenomenon

James R. Bright, "Some Effects of Automation Upon Wage Determination," Automation and Technischer Fortschritt in Deutschland Und Den U.S.A., (Frankfurt, 1963) p. 139.

Theobald, The Guaranteed Income, op. cit., p. 100. 1967 President's Economic Report, op. cit., p. 4.

- 82 - that is not yet upon us, but will be "within a relatively brief period."1/ This contention once again involves an area of profound disagreement about the nature of automation.

If an affirmative team can establish that Theobald, Seligman, and those who agree with them are right, then it may well have discovered the ideal situation for the operation of the guaranteed annual income.2/ In the words of Robert Davis: "One of the most serious consequences of cybernation will be the displacement of large numbers of people by machines. As this society is presently organized, the vast majority of citizens must work to live in dignity. If we cannot furnish work in the traditional sense for everyone, then we will have to find other ways to provide the un­ employed with the resources they need to live."3/ In this situation, the guaranteed income would at least provide the affected individuals with a minimum standard of living. Indeed, in Theobald's assessment of the effects of automation, there is a recognition that such a system would have to be extended to include many middle and upper income individuals and families. Theobald writes: "... companies that rely ever more heavily on computers find it necessary to give responsibility to younger people who have an understand­ ing of computer management, thus limiting the prospects of older people who would normally have continued to move up the management ladder .•. it will be necessary... to find ways of insuring the maintenance of the incomes of those in the middle income groups who are threatened by cybernation."Y

III. Are Present Income Maintenance Programs Adequate? Present income maintenance efforts are widely regarded as part of an overall attempt to wipe out poverty. Public assistance and other aid of this kind is primarily a supplement to efforts geared to achieve a more long term solution. Vice President Hubert Humphrey has summed up the present philosophy in these words: "The job of eradicating poverty will be a long one because we cannot simply buy a new way of life for people. It is much more than just a question of money. We must re-educate, re-energize and re­ inspire them. To the extent that such constructive efforts can b� implemented through economic resources, our society can and must make the investment."5/ In the context of this philosophy, many feel that acceptance of a guaranteed annual income plan would be an admission of defeat. In their view, instead of .solving the problem of poverty, this would subsidize it. But must the

1J Theobald, The Guaranteed Income, op. cit., p. 99.

'!:./ Of course, as we have noted before, the affirmative would have to demon­ strate the inadequacy of present income maintenance devices, in addition to showing that massive unemployment will result from the onset of automa­ tion. � Davis, The Guaranteed Income, op. cit., p. 65. � Theobald, Proceedings, op. cit., p. 39. E..f Hubert H. Humphrey in Hitch, op. cit., p. 14.

- 83 - argue guaranteed income plan be viewed in this way? An_affirmative could that some income maintenance is inevitable, even 1n a program whose over­ all aim is the eventual eradication of poverty; and that guaranteeing an income is a better approach than pyramiding the present mosaic of assis­ tance schemes. The purpose of this section is to consider some of the present public assistance schemes with the aim of providing some suggestions for debaters who wish to defend or attack them. Two generic types of aid will be considered: aid focused on payments in cash and aid focused on help in kind. In discussing help in kind, we will be concerned primarily with benefits that act in effect as income supplements, such as public housing. A. Payments in Cash Chapter II has reviewed the extent and effects of poverty. In dealing with this problem, general economic growth and special legisla- tion have been significant over the last several decades. It has been estimated that in 1964 about 20 percent of the American people lived in poverty. However, if 1947 standards had been applied, that figure would have been reduced to 15 percent.!/ In the last two decades, there has been a substantial decline in the incidence of poverty.2/ How much of this success has been due to income maintenance payments is unclear. Gen­ eral economic growth has been responsible for much of the economic improve­ ment felt by all segments of the population. How much have public assistance and related programs contributed? How much are they contributing now? In attempting to throw some light on these questions, the analysis will now examine the effectiveness of current cash transfer programs.

If $1,500 per year is defined as the poverty line for an individual and $3,000 per year as the poverty line for a family of four, it appears that between 8.3 million and 13.6 million poor families received benefits from in­ come maintenance programs in 1961. The precise number is not shown because the Bureau of Labor Statistics data upon which the figures are based used broad categories, which may overlap.3/ It has been said that the effect of these transfer payments in 1961 was to reduce the number of poor families by 35 percent and the number of poor individuals by 29 percent.4/ Thus, it can be argued that current programs substantially reduced the level of poverty; by no means did they eliminate it. About 49 percent of all transfer payments in 1961 went to those who were not poor. Moreover, as this analysis has pre­ viously noted, only 25 percent of those who are poor received any public assis­ tance at all.� Official sources say there are a very large number of American y Commission on Technology, op. cit.' p. 77. y Fal termay_er, op. cit.' p. 222. y Green, op. cit., p. 17. y Ibid., p. 16. 5/ Commission on Technology, o:e. cit.' p. 40.

- 84 - citizens who need assistance if they are to free themselves from poverty and that in many cases that need is not satisfied. This is perhaps the most significant single point against the present system of income mainte­ nance.

What is the reason for this situation? The most important rea­ son, perhaps, is that current programs, for the most part, are structured to benefit specific types of poor individuals and if someone in need falls outside all of the categories, he usually finds it very difficult to ob­ tain sufficient assistance. Otto Ekstein, Professor of Economics at Har­ vard University, reports: "· .. there are still important gaps in our income maintenance system. Families suffering from chronic unemployment are in­ eligible for public assistance in many states. There are only limited provisions against loss of earning power due to temporary disability. There are still many individuals and families who receive little help because they ... are poor for such reasons as mental illness, alcoholism, or drug addic­ tion."!/11-:- After surveying all such restrictions, Christopher ·Green concludes that •• there must be millions of poor families who are not eligible for any of these categorical forms of public assistance. "2/ One analyst asserts that this situation occurs because public assistance--=-except for the general assistance programs--clings to the belief that society should not help the able-bodied poor.3/ If all social insurance and assistance is taken into account, it has been estimated that half of the American poor are left en­ tirely to their own devices.4/ Directed and categorized approaches, it is argued, have not responded to their needs.

A number of major programs are typical of the directed approach. The war on poverty emphasizes retraining and education, which have already been discussed. It also provides a number of public work jobs for the young. Social security is highly directed; its beneficiaries are the aged and those who have the major claim to payments are not poor.SI Veterans pensions and benefits, by their very nature, are confined to a select group of the popula­ tion. The limitations indicated here are discussed in more detail in Chapter III. It may be argued that none of these programs are adequate as a general approach to the problem of poverty. However, a combination of directed pro­ grams might appear capable of handling at least a large part of the problem. After all, social security, veterans benefits, and the work provisions of the poverty program encompass many of the old, the large portion of Americans who fought in war or served in the armed services, and at least some segments of impoverished youth. These programs help many of the poor and they might lJ Eckstein, op. cit., p. 2. '}:./ Green, op. cit., p. 37. � Lewis Meriam, Relief and Social Security (Washington: Brookings Institu­ tion, 1946) pp. 7-9. � Lampman, in A.E.R. May, 1965, p. 526. y Ibid.

- 85 - be expanded. Increased funding of the neighborhood youth corps, for example, might lead to a further reduction in poverty. Nonetheless, there is substantial evidence that these directed programs--no matter how high their funding level--do not reach a significant part of the poor population.

This "forgotten" group is left for state or local general assistance. But payments under these programs amount to only 8 per­ cent of all public assistance expenditures; yet it is said that this is the primary program for 50 percent of 35 million who live in pov­ erty. Thus, the Advisory Commission on Intergovernmental Relations concludes that general assistance is probably inadequate.1/ Aside from the fact that many have moved out of poverty and others have be­ come eligible for directed programs, this apparent inadequacy persists. Do the states disagree with estimates of need, or are they unable, or unwilling, to finance general ·assistance programs at a higher level? Fifteen of the states leave all financing to the local authorities.2/ This situation again raises the question of state and local responsi­ bility for income maintenance. Assuming that state and local programs are inadequate at present, can it be demonstrated that state and local governments are inherently incapable of doing the job? It may not be enough to argue that these programs are presently inadequate in size. The affirmative--to indict them successfully--may be called upon to demonstrate that there are inherent barriers preventing their expan­ sion to an adequate level. Some of the possible arguments in this area are suggested in Chapter I.

There are a number of more specific problems with programs that provide payments in cash. These problems will be grouped here under several main headings that are functional in nature.

1. The Disincentive Problem. For a number of years, soci­ ologists and economists have decried what they describe as the dis­ incentive aspects of public assistance programs. Under present welfare, there seems to be no improvement--in fact, there may be a deterioration-­ in economic__status for recipients who go to work. Christopher Green writes: "There is no financial gain for many AFDC recipients if they re­ fuse assistance and go to work. In fact they may lose certain benefits in kind such as those covering hospital and dental costs. Also, costs such as travel and child care expenses are incurred in going to work." Green denounces " ... the economic irrationality of a plan which effectively entails a one hundred percent marginal tax rate."Y

1966 State Legislative Program of the Advisory Commission on Inter­ governmental Relations (Washington, D. C., October, 1965) p. 443. Ibid.

Green, op. cit., p. 119.

- 86 - In short, the argument is that present welfare encourages individuals to rely exclusively upon it and discourages self-help, supposedly the final goal of all our anti-poverty effort. The House version of the 1967 Social Security Bill, which at this writing has yet to be acted upon by the Senate, would require the states " ... to offer earnings exemptions--the first $30 of earned family income plus one-third of the earnings above that amount would not result in reduc­ tion of welfare payments."Y This proposal would affect only federal grant-in-aid programs; if the states wish to have 100 percent dis­ incentive in their general assistance, they would be able to do so. It seems, then, that the disincentive problem is now widely recognized. However, this point may have been over-emphasized. In discussing it, the Council of Economic Advisers points out that relatively few of the beneficiaries of federal public assistance are capable of working.2/ (However, many among the half of the poor who receive no aid probably - could work. If public assistance were extended to them, the disincentive problem could become more serious.) If the difficulty with disincentives is serious enough and if no action is taken by the Senate on the House proposal, the adoption of a certain type of guaranteed annual income might prove beneficial in solving the problem. As we shall see in the next chapter, a number of the guarantee proposals have built-in incentive features. This might constitute one reason for preferring a guaranteed income to present pub­ lic assistance.

2. The Family Destruction Problem. Critics of the welfare system complain that its aid for dependent children program encourages the destruction, or non-formation, of families. James Tobin summarizes his view of the situation in these words: "Aid for dependent children, which is the main public assistance program, cannot now be given to a family with an able-bodied, employed adult male. In most states, it cannot be given to a family with an able-bodied male in it, whether he is employed or not. Often, the best thing a father can do for the mother and children is to desert them. I think it would be difficult to imagine a worse piece of social engineering ...."3/ The rule described by Tobin applies in at least 29 states, which have a "man in the house" regula­ tion.4/ On the question of how this affects Negro families, Elizabeth Herzog, Chief, Child Life Studies Branch, Division of Research, Children's Bureau, Department of Health, Education, and Welfare, has written: "At­ titudes toward illegitimacy and toward marriage are clearly linked with y The Washington Post, August 18, 1967, p. A-6. y CEA, 1967, OE· cit., P· 141. :Y Tobin, Proceedings, OE· cit., p. 8. 4/ CEA, 1967, OE· cit., p. 141.

- 87 - the economic position of the Negro male. A male head of house who is not a breadwinner and provider is a hazard to the happiness of the mar­ riage, and his loss of economic status is so great a hazard to his intra­ family status that he may de-camp either to protect his own ego or to make his family eligible for support from AFDC.".!/

The breakup of the Negro family has had serious consequences for society and has undermined the Negro's attempt to improve his con­ dition. Daniel Moynihan reports that the result of desertion by Negro fathers has been the creation of a matriarchal society among the Negro community in America. The nature of this matriarchal society, accord- ing to E. Franklin Fraser, leads to: "A failure to provide for children the discipline and habits required for adequate personality development, an inability to cope with social institutions, and juvenile delinquency and adult crime. "1/

This analysis of the relation between the aid for dependent children program and Negro family disorganization is qualified by Moynihan and challenged by other authorities. Is AFDC the main reason for the evo­ lution of the matriarchal society just described? Moynihan sees unemploy­ ment as the most fundamental problem. Negro difficulty in obtaining jobs has persisted even through the recent period of prosperity. There appears to be a.close relationship between rises in Negro unemployment and the breakup of Negro families--"... the cyclical swings in unemployment have their counterpart in increases and decreases in separations (in Negro fam­ ilies)." Only after the head of the family becomes unemployed, does the Negro family begin to feel the AFDC induced pressure for disintegration. The analysis of the effects of disintegration has been challenged at a more fundamental level. A number of social scientists have argued that its im­ pact is not as serious as might appear. A comparative analysis of 174 children from broken homes and 174 children from normal families failed to show any significant difference in intellectual attainment or behavior problems.3/ Nonetheless, many feel that it is undesirable to raise large numbers of children from a certain segment of the population in fatherless family situations; in Moynihan's view, the effects are inevit�bly unhealthy.

The use of a guaranteed annual income might be preferable to aid for dependent children in helping poor Negro families. The word "guarantee" would seem to preclude any regulation like the "man in the house" rule. Of course, aid to dependent children--and indeed the whole welfare program-­ might be amended to end this rule and other similar restrictions. At least

1/ Elizabeth Herzog, "Is There A Breakdown of the Negro. Family?"

2/ E. Franklin Fraser, "Problems and Needs of Negro Children and Youth Resulting From Family Disorganization," Journal of Negro Education, Summer, 1950, pp. 276-77.

3/ Ivan L. Russell, "Behavior Problems of Children from Broken and Intact Homes," Journal of Educational Sociology, November, 1957, pp. 124-29.

- 88 - 21 states no longer enforce "man in the house" prov1s1ons. However, the negative in suggesting such repairs, should keep in mind that if all re­ strictions contrary to the concept of a guarantee are removed, AFDC could become in effect a guaranteed annual income for all poor families with children. This note of warning also applies to possible repairs in other problem areas related to welfare. As this analysis has noted, joint fed­ eral-state programs in the area of welfare are characterized by the incor­ poration of restrictions. Removing all or a great number of these restric­ tions can be seen as an inherent change--a change that might approach closely the affirmative plan to extend a guaranteed income.

3. The Individual Freedom Problem. It has often been charged that the attempt to enforce the restrictions attached to present public welfare programs has led to serious infringements on individual liberties. Milton Friedman complains: "The direct relief and aid to dependent children programs... seem to me to involve an intolerable degree of interference by the government with the personal lives of individuals ...we are converting the social workers into police officials, who are hardly in a position to perform their proper functions. This is the meaning, and it seems to me inconsistent with our basic values."!/ Proponents of Friedman's view cite as examples midnight welfare raids designed to check on the possible pres­ ence of an adult male in a recipient's home or apartment. They see this and similar intrusions as particularly despicable, because these invasions of privacy imply that poor citizens should enjoy a lesser degree of liberty than those who are better off. The vital importance of the right to pri­ vacy--the right that welfare checking often infringes--was expressed in the late Mr. Justice Brandeis' dissent in Olmstead v. United States: "The makers of our Constitution ... conferred, as against the government, the right to be let alone--the most comprehensive of rights and the right most valued by civilized men. To protect that right, every unjustifiable intru­ sion of the government upon the privacy of the individual whatever the means employed, must be deemed a violation of the Fourth Amendment."'!:./ It has not been generally held that welfare investigations con­ stitute a breach of the Fourth Amendment protection against unreasonable search and seizure. However, the California Supreme Court in the recent case of Parrish v. Civil Service Commission, ruled that in order constitu­ tionally to require, as a condition to receiving welfare, consent to a search without the existence of probable cause to believe that welfare fraud has occurred, the state must show an over-riding public interest outweighing the invasion of the individual's privacy. Furthermore, the state must demonstrate that there is no other legitimate way to enforce its welfare regulations.3/ This doctrine has not been adopted by the

lf Friedman, Proceedings, op. cit., pp. 10-11. Y Olmstead v. United States of America, 72 L. Ed. 956 (dissenting opinion). 3/ Parrish v. Civil Service Conunission, 66 A.C. 253. A.C. is the abbrevia­ tion for the Advance Reports of California Supreme Court decisions.

- 89 - Supreme Court of the United States or by other states. However, as Justice Mathew Tobriner notes in the Parrish opinion, the Department of Health, Education, and Welfare has issued new regulations relating to the right of privacy of welfare recipients.!/ These regulations took effect on July 1, 1967. Their stated purpose is to require states receiving federal grants­ in-aid for public assistance to pursue policies consistent with respect for the rights of the individual under the Constitut'ion, the Social Security Act, and Civil Rights legislation. More specifically, the states are enjoined to guard against policies that involve entering the homes of welfare recipients by force, outside of working hours, or in sleeping hours.2/ This summary by no means constitutes the totality of the new regulations;-nonetheless, to the extent that the prohibitions described are obeyed, the problem of infringing upon the liberty of welfare recipients may already have been solved.

If the problem has not been solved, the institution of a guaranteed annual income might eliminate it. Proponents of such an approach maintain that surveillance and checking can be cut to a bare minimum. �ames Tobin puts it this way: "I am not proposing to eliminate constructive social work, but rather to liberate social workers from the kind of petty administration and detective work and surveillance which they are involved in now ...let's put the financial surveillance in the hands of Internal Revenue Service ac­ countants and robots. That is one place where automation is working, where financial surveillance belongs. "3/ In other words, Tobin believes that re­ liance on a guaranteed income proposal administered by the Internal Revenue Service would involve no more prying into private lives than does tax collec­ tion. Whether or not this is true is questionable. The probable extent of inves'tigation under a guaranteed income plan is discussed in Chapter VI.

4. The Problem of Migration. As we have noted before, public assis­ tance benefits often vary widely from state to state. Tobin identifies two pa:rticular questions created by this situation: (1) " ..• false incentives for migration .•. " and (2) "the deprivation of benefits from those invididuals and families who fail to meet residency and eligibility requirements. "4/ The prob­ lem with residency requirements may be disposed of, if courts follow the lead of the United States District Court for Connecticut in the recent case of Thompson v. Shapiro. There the Court held unconstitutional Connecticut's one­ year residency requirement for welfare, on the basis that such a requirement

!I Ibid.:, p. 256. 2/ United States Department of Health, Education, and Welfare, Handbook of Public Assistance Administration (Washington, D. C., March 18, 1966) Part IV, pp. 1-2.

Tobin, Proceedings, op. cit., p. 8.

- 90 - interfered with the right to interstate travel and denied equal protec­ tion of the law.I/ The United States District Court for the District of Columbia has disagreed with the Connecticut court's holding. In Harrell v. D.C. the court rejected the same contentions the Connecticut court accepted. Indeed, the Harrell decision dismissed as " ... too far fetched to justify extended discussion... " the contention that a residency re­ quirement interferes with the right to travel.2/ If the District of Columbia district court's view ultimately prevails, then a national sys­ tem of income maintenance might prove to be the best way of eliminating the welfare problems associated with migration. Once again, it should be pointed out that there is always the possibility of a negative repair that would end the complaint of disparity between the states. Senator Vance Hartke of Indiana has introduced legislation of this kind. His pro­ posal would forbid residency requirements in programs that aid the blind.lf 5. The Psychological Problem. Most sociologists contend that welfare, due to the way it is administered, has negative psychological ef­ fects on its recipients. James Tobin charges that the system of welfare breeds hopelessness and despair and leads to an "aspirational" poverty, the values of which are entirely out of tune with the values of the rest of society.4/ There is support for the position that the poor who do not receive welfare are in a healthier psychological condition than the poor who do. One observer explains: "Evidence is emerging from studies of the recipients of aid to families with dependent children... and others of the dependent poor that there are important differences between the very poor who manage to maintain themselves without public assistance and those who do not have resources to achieve even a minimum level of economic indepen­ dence. For example, negative public attitudes toward mothers dependent on AFDC tend to transfer to the mothers and children, with an associated sense of failure, strong self-disparagement, and hopelessness."5/ The suggestion is often made that a guaranteed annual income would solve this psychological problem, at least to the extent that its seemingly vague as­ pects can be traced to a welfare system linked to public opprobrium. A guarantee, it is argued, embodies the concept of a right and does not have the same demeaning implications that a program of charity does. However, there is evidence which indicates that popular feelings toward income main­ tenance recipients would not differ markedly from present feelings toward

1/ Thompson v. Shapiro, 35 LW 2763-2764. L.W. is the abbreviation for The United States Law Week, which is a journal that compiles current court decisions. 2/ Harrell v. D.C., 35 L.W. 2763. lf Congressional Record, August 1, 1967, p. H9661 (daily ed.). ±/ Tobin, Proceedings, op. cit., p. 45.

5/ Chilman, op. cit., p. 7.

- 91 - welfare recipients. According to a recent Harris poll, 60 percent of the total public is opposed to a negative income tax, while only 28 per­ cent is in favor. Harris writes: "Opposition to the idea is centered in the view that government welfare costs already are too high and that subsidy payments to the poor would encourage too much free-loading."Y If the majority--indeed the vast majority--of Americans regards a guar­ anteed annual income as "free-loading," then its psychological impact might well be as negative as the psychological impact of current public assistance.

6. The Problem of Discrimination. Many analysts feel that there is a significant relationship between racial discrimination and poverty. William Taylor, Staff Director of the United States Commis­ sion on Civil Rights, contends: "Negroes... are leaving the land and have been for some time because of conditions that are so bad that I don't think anybody ... would tolerate them. Those who are still there are surviving not on their own products but on surplus food. And for surplus food they depend upon the county. This is a privilege and not a right which the county or other local authorities have used sometimes as a weapon against any peaceful attempt to redress grievances."2/ Taylor does not indicate how widespread this problem is. Moreover, it is not a problem that affects all of the poor; only one-fifth of the poor are nonwhites.3/ If there is a real problem and the poor are denied welfare benefits-because of race, a guaranteed income would seem to offer a solution.

7. The Problem of Ignorance. According to Doctor Catherine Chilman, many of those who are eligible for welfare today do not receive it. The reason for this is that they do not apply.4/ This failure to apply is often ascribed to simple ignorance on the part of potential welfare recipients. They simply do not know that they are eligible for benefits or they do not understand how to apply for them. Consequently, programs that are designed to help the poor sometimes become partially irrelevant in practice. But would a guaranteed annual income do very much to solve this problem? After all, there will have to be some way of determining eligibility, if the plan is geared to income levels and the poor would have to take the initiative--file applications, reports, etc. One critic of the negative income tax has observed: "The poverty stricken are people who either haven't filed income tax returns in the past or who have only used the short form�-which we have seen will not lJ Louis Harris, Los Angeles Times, August 7, 1967. 'l:.j William Taylor, in Charles E.Whittaker and William Sloane Coffin, Jr., Law, Order and Civil Disobedience (Washington: American Enter­ prise Institute, 1967) p. 75. For additional evidence see the statements of William H. Bursori, Director of Family and Children Services for Georgia in The Los Angeles Times, September 10, 1967, p. G-4. 3/ Lampman, in A.E.R., May, 1965, p. 524. � Chilman, op. cit., p. 19.

- 92 - be enough. These people are generally uneducated, frequently illiterate, do not read the newspapers, have never consulted a tax attorney or accoun­ tant, and therefore simply wouldn't know about the program, and if they did know of it, wouldn't know how to go about participating in it.".!/

8. The Minimum Wage Problem. Unlike programs involving direct government appropriations for the support of the poor, the minimum wage imposes certain requirements on most American employers. It has been de­ scribed as an income maintenance device. First passed during the New Deal, it attempts to assure that wages bear at least some resemblance to adequacy. Its critics regard the minimum wage as counter-productive. They argue that it makes the retention of certain laborers too expensive and that, as a result, employers fire--or refuse to hire--these workers.2/ A study of the effects of successive increases in the minimum wage supports the view that each increase leads to an additional loss of jobs.3/ Those who have de- cried the job destroying effects of the minimum wage have on occasion sug­ gested the substitution of a guaranteed annual income for it. Instead of forcing employers to pay a perhaps uneconomic salary, this proposal would utilize the guaranteed income mechanism to make up the difference between the worker's actual salary and the defined and desirable level of income. There is at least one major question about this. It is recognized that in some situations minimum wage increases do accomplish their goal--employers raise salaries �nd pay the higher cost by increasing the efficiency of their production. It is argued that many such pay increases would not oc- cur if they were not legally required. Companies might simply depend upon the government to see to it that the worker obtains a decent wage. If the government's defined level of guaranteed income were relatively low, employees who would otherwise have benefited from legislatively imposed minimum wages might have to settle for a lower standard of living. Moreover, if the gov­ ernment pays a part of wages through a guaranteed income an employer would have less incentive to encourage efficient production.

B. Help in Kind This section will briefly consider two major types of help in kind to the poor. Both of these--housing and food aid--contribute to income maintenance. They differ from income maintenance primarily because they deprive recipients of meaningful options in disposing of the assistance provided by the government. They are intended to pro­ vide many of the poor with two basic necessities of life--food and shelter. But some of the poor may not need one, or both, of these things, or they may prefer to receive comparable aid and spend it on something else.

y Hitch, op. cit., p. 15.

'l:..f Friedman, Capitalism and Freedom, op. cit., pp. 180-81.

� "Plant Adjustments to the One Dollar Minimum Wage," Monthly Labor Re­ view, October, 1958, p. 1141.

- 93 - Public Housing Programs. The National Commission on Technology, Automation, and Economic Progress paints a picture of deplorable housing conditions in the United States. It presents the following statistics: 1. 6.3 million. families or individuals with incomes less than $4,000 live today in homes that should be torn down;

2. an additional 2.2 million with incomes in excess of $4,000 are in the same situation;

3. even if construction rises by 30 percent between now and 1970, a majority of such dwellings would remain standing.I/ Some sociologists have found that better housing results in a real improvement in the attitudes and performance of poor children .. The ef­ fect on adults is less pronounced.2/ On the other hand, some members of Congress contend that public housing projects concentrate society's fail­ ures and become breeding grounds for crime and despair.3/ Unfortunately, some of today's federal programs seem to hinder rather than help the cause of improving housing conditions for the poor. Urban renewal has displaced large numbers of the disadvantaged, 60 percent of them Negroes. Many dis­ placed Negroes move to another slum, where their presence is likely to put increasing pressure on supply and result in rising rent.4/ Alvin Schorr, family life specialist for the Social Security Administration, points to an example. He writes: "In 1957, Philadelphia found 70 percent of families dislocated by all programs living in quarters that did not meet the standards of the housing code."5/ Even when urban renewal and public housing do work to the benefit of the-poor, many families often refuse to live in the new public housing. One of the major reasons is that they do not wish to live in any neighborhood except the one in which many of them were born and raised. Indeed, one survey concluded that more than half of those that were eligible to apply for public housing would not do so.6/ Two final indictments are directed against present public housing programs. First, it is charged that public housing results in a concentration of "broken families--in particular, lf Commission on Technology, op. cit., p. 87.

'!:./ Slums and Social Insecurity, op. cit., pp. 11-12.

Legislative Analysis, "The Proposed National Home Ownership Foundation" Y {Washington: American Enterprise Institute) September 10, 1967, p. 12.

� Batchelder in A.E.R., op. cit., p. 533. §_/ Slums and Social Insecurity, op. cit., p. 66. £! Harry W. Reynolds, Jr. "The Human Element in Urban Renewal," Public Welfare, April, 1961, pp. 71-73, 82.

- 94 - divorced or widowed mothers with children.... " into the same neighborhood. Tiiis condition, which is due to stringent income limitations on inhabi­ tants of public housing, is hardly conducive to the reconstruction in attitudes necessary to end or decrease significantly the incidence of poverty.1/ Critics have also pointed out that the program has built fewer dwellings than it has demolished, resulting in fewer places for poor fam­ ilies to live.

There have been a number of proposals to improve the housing situation of poor people. In 1966 Congress approved appropriations for two administration sponsored programs, rent supplements and model cities. Tiie first of these provided a rather small amount ($12 million in fiscal 1966 and $20 million in fiscal 1967) to be used in making up the difference between 25 percent of a poor family's income and the rent for standard and acceptable housing. On May 17, 1967, the House of Representatives deleted the appropriation for rent supplements from the 1968 Independent Offices (HUD) Appropriations bill.2/The model cities program envisions a shift in emphasis to the rehabilitation of existing neighborhoods. On the same day it deleted rent supplements, the House reduced the 1968 appropriations for model cities to approximately one-third of the administration's request.3/ Both rent supplements may be restored by the Senate and remain in the bill. Senator Robert Kennedy (D., N.Y.) and Senator Charles Percy (R., Ill.) have proposed new and different approaches to the problem of housing. Senator Kennedy's bill aims to attract private enterprise into building and rehabilitating housing for the poor. Tiie bill offers tax incentives and low-interest rates on mortgages. Unlike the Kennedy bill, Senator Percy's proposal involves home ownership by the poor rather than rental.4/ Though many have hailed the Kennedy and Percy initiatives, Percy's bill is intended to aid those in the $4,000 to $6,000 income bracket, and it appears that Kennedy's is concerned with families who earn from $3,500 to $6,000.5/ Ex­ cept for those who have very large families, the poor are generally defined as those who make less than $3,500 or $4,000 a year. In any case, neither Kennedy's nor Percy's bills have been enacted and therefore are not a part of present federal programs.

'J:.I Friedman, Capitalism and Freedom, op. cit., p. 180. '!:./ Congressional Quarterly,Weekly Report, June 9, 1967, pp. 979-80. 3/ Ibid. ii "The Proposed National Home Ownership Foundation," op. cit., p. 2.

� Congressional Quarterly, Weekly Report, July 28, 1967, pp.1294, 1325.

- 95 - Milton Friedman has suggested that the prov1s1ons of a guar­ anteed income could solve the housing problem, to the extent that it can be solved effectively. He claims: "surely, the families being helped would rather have a given sum in cash than in the form of hous­ ing. They could themselves spend the money on housing if they so desired ... had these families been assisted through cash grants, they would have been spread more thinly through the community."1/ In other words, Fried­ man advocates providing the poor with money rather than help in kind. He argues that the funds would enable the poor to find decent housing without concentrating them in the slums or in a public housing project that in­ cludes only the poor. Of course, fulfilling Friedman's hope could depend upon the size of the guaranteed income.

Food Aid. Food programs aimed to help the poor provide either quantities of surplus agricultural products or food stamps which can be purchased by the individual ahd then redeemed at the local grocery store for certain kinds of food. Direct food distribution has been criticized on two grounds: the available foods from government surplus stock which it provides are not sufficient for a balanced and nutritional diet, and the methods of distribution undermine the self respect of recipients, who are required to line up in front of government warehouses.2/ Due to these and other problems, the Kennedy Administration in 1961 initiated the food stamp program. This program has been attacked as inadequate in the scope of its coverage and in the size of its benefits. Moreover, it seems that many of those who purchase food stamps do not use them to buy the proper kinds of food. The Washington Post reports: "part of the problem is wide­ spread ignorance of nutritional values (in the areas of Kentucky investi­ gated) .... "3/ All of this creates a difficult situation. Evidently, aid in kind in the form of surplus food is nutritionally inadequate; but, at the same time, if the poor are allowed to select their own food through a government sponsored program, nutritional deficiency still occurs. It is difficult to see how the institution of a nationwide income maintenance system would lead to a solution to this problem. Any system that embodies freedom of choice might not be able to confront _successfully the illiteracy and ignorance that afflict many of the poor. Perhaps the nation and its less-fortunate citizens would be better off with a restructured food sur­ plus program that avoided insults to individual dignity and supplied com­ modities sufficient for an adequate diet.

!J Friedman, Capitalism and Freedom, op. cit., pp. 178-80. 2/ Levitan, op. cit., p. 27.

� The Washington Post, August 23, 1967, p. 82.

- 96 - IV. A Final Note

As we noted at the beginning of this chapter, the problems associated with poverty are very complex. Many factors are involved. For example, the lack of transportation facilities has been cited as one reason for some of the conditions of poverty in our major cities.I/ Under these circumstances, a solution may be equally complex. The mosaic of present assistance has not solved the problem.

This chapter has sought to identify some of the problems involved in the present programs, to discuss some of the issues about future prospects .for success, and to suggest areas in which a guaranteed annual income might usefully supplement or substitute for.current efforts. It is not suggested that all of these areas can be exploited at the same time by an affinnative team. The proponents of a new income maintenance system have offered many different reasons for its adoption, some of which have been challenged as contradictory. The wide divergence of views among those who agree on the need for income maintenance is illustrated by a comment of Milton Friedman. He told the National Symposium on Guaranteed Income: "I would say that what Professor Tobin has said is very much in line with what I am going to say, and he and I are really allies on this, but any resemblance between what we say and what Mr. Theobald said is not only coincidental it is inconceivable."'!:./

!/ Commission on Technology, op. cit., p. 53. y Friedman, Proceedings, op. cit. , p. 9.

- 97 - DISCUSSION QUESTIONS

1. What is the theory of demand stimulation? What role does the multiplier effect play in stimulating demand? What are the practical barriers to the success of increased economic stimulation? 2. Explain the alternative theory presented by Chicago econo­ mists for the economic growth of recent years. Do they advocate a con­ tinuing use of the policies indicated by this theory? Why or why not?

3. How rapidly can the nation activate fiscal stimulation poli­ cies if a recession occurs? How might a guaranteed income avoid the danger of delay? What might be the advantage of a guaranteed income in handling recession-created problems after the economy has started to recover but be­ fore a full return to prosperity?

4. Can economic stimulation lead to the creation of jobs for the unskilled? What dangers are there in pursuing such a policy without effective retraining programs?

5. What empirical evidence is there to support the proposition that poverty and lack of skills are closely related? What problems have arisen in the retraining programs designed to remedy skill deficiencies? Suggest some solutions to these problems.

6. Why haven't unemployed workers taken available unfilled jobs? Discuss the following possible reasons: lack of information, lack of skills, unwillingness to relocate.

7. What factor is ignored by the Keynesian theories that are cited to support the "new economics"? What is the significance of this omission? 8. Explain the view that automation creates jobs by increasing demand. Does this theory seem to work out in reality? Discuss �he pos­ sibility that automation in one industry creates increased demand for the products and services of other industries.

9. If the Vietnam War has succeeded in stimulating the economy sufficiently to overcome automation, why couldn't the nation achieve the same degree of stimulation and success in peacetime? Is there an inherent barrier to high-powered non-wartime stimulation?

10. How is service employment affected by automation? Explain the opposing views.

11. What common characteristic of present public assistance seems to deprive many poor individuals of the chance to obtain aid? Could the negative suggest changing this characteristic and treat such a change as a "minor repair" of the present system? How far can the negative go before it is in effect suggesting a guaranteed annual income?

- 98 - 12. What is the affirmative's obligation in indicting present general assistance programs? Why can't the affirmative simply argue that they are in fact at the present time inadequate in scope and benefits? Are there any inherent barriers to the adequate funding of general assis­ tance?

13. How does 'the operation of aid fo·r dependent children in many states contribute to the break-up of families? How significant is this contribution in relation to factors like unemployment?

14. Does present public assistance infringe individual freedom? What new regulations--judicial and administrative--have been issued to govern this area? Does it appear that these regulations will solve what­ ever individual freedom problems currently exist? 15. Why do states impose a residency requirement for the receipt of welfare? Would the reasons have particular validity in some states, e.g., Florida? If individuals will not move to obtain a job, are they likely to move simply to change environments, exchanging one welfare payment for another? Is the fear of welfare-induced migration legitimate?

16. How can any system solve the problem of ignorance among those who could receive welfare but do not know they are eligible or how to apply? Would this problem apply to a guaranteed income system?

17. If employers need a certain number of workers, how can they discharge them when the minimum wage is increased? Were the discharged workers unnecessary in the first place? If so, why were they hired? What role might automation play in this process?

18. Should help "in kind" be preferred to direct cash payments to the poor? Why or why not? Are the poor who receive cash payments likely to spend the money on improved housing? Should the government even concern itself with the choice the recipient makes?

- 99 - BIBLIOGRAPHY American Child v. 48. Issue devoted to a discussion of the guaranteed annual income. Contributors are Martin Rein, Garth L. Mangum, Robert Theobald, James M. Lyday, Richard A. Cloward, Frances Fox Piven, Edgar Cahn, George A. Wiley, Robert Schrank and Eli E. Cohen. (Summer, 1966), 32 pages. "America's Poor. Should They Have to Work at All?" Nation's Business, v. 54 (September, 1966), pp. 34-72.

Burns Eveline, M. "Social Security in Evolution: Toward What?" Social Service Review, v. 39 (June, 1965), pp. 129-40.

"Cause for Debate," Christian Science Monitor (February 5, 1966), Editorial. Chamber of Commerce of the United States. Proceedings of the National Symposium on Guaranteed Income. Washington, D.C. (December 9, 1966) 81 pages. Papers presented: Representative Thomas Curtis,"The Guar­ anteed Opportunity to Earn an Annual Income." (Also in Congressional Record, daily ed., v. 113, January 31,1967, pp. H810-24.) Robert

Theobald, "The Guaranteed Income--What and Why?" James Tobin, "In­ 1 come Guarantees and Incentives." Henry Hazlitt, "Income Without Work. ' (Also in the Freeman, v.16, July, 1966, pp. 20-36.) Milton Friedman, "The Case for the Negative Income Tax."

Cloward, Richard A. "A Strategy to End Poverty," Nation, v. 202 (May 2, 1966), pp. 510-17.

Democratic Study Group Full Employment Steering Committee. An Action Pro­ gram for Full Employment. Reproduced by Hon. James H. Scheuer in the Congressional Record (daily ed., January 19, 1966), pp. A209-13. Edwards, Don and La Latta, Delbert. "Should We Have A Guaranteed Minimum Income for All Americans?" American Legion Magazine, v. 82 (February, 1967), pp. 22-23.

Fisher, O.C. "A Guaranteed Minimum Income For All, Whether They Work or Not, is Not A Definite Threat," Congressional Record (daily ed.), v. 112, (September 22, 1966), pp. A4927-29.

Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press, 1962. 202 pages. (See pp. 191-95.) ----. "The Case for the Negative Income Tax," National Review, v. 19 (March 7, 1967), pp. 239-41. Gallaway, Lowell E. "Negative Income Tax Rates and the Elimination of Poverty," National Tax Journal, v. 19 (September, 1966), pp. 298-307.

- 100 - Gans, Herbert J. "Income Grants and 'Dirty Work.'" The Public Interest (Communications) (Winter, 1967).

Green, Christopher. Negative Taxes and the Poverty Problem. Washington: Brookings Institution, 1967. (A background paper prepared for a con­ ference of experts held June 8-9, 1966, together with a summary of the conference discussion.) 210 pages.

Guthrie, Harold W. "The Negative Income Tax, A Way to Maintain Prosperity," Business Review, v. 24 (January, 1967), pp. 6-8. Hawkins, Donald E. "Pro and Con: The Guaranteed Income," Parks and Rec­ reation, v. 2 (March, 1967), pp. 45-46, 70-71.

Hazlitt, Henry. "The Coming Crisis in Welfare," National Review, v. 19 (April 18, 1967), pp.416-18. Hildebrand, George H. The Negative Income Tax and the Problem of Poverty. Cornell University, Undated. (Mimeographed.)

Hitch, Thomas K. "Why the Negative Income Tax Won't Work." Challenge, v. 14 (July-August, 1966), pp. 13-15. "How About a Negative Income Tax for the Poor? A Pro and Con Discussion," Scholastic Teacher, v. 88 (April 22,1966), pp. 14-15.

Keyserling, Leon H. "Guaranteed Annual Incomes," New Republic, v. 156 (March 18, 1967), pp. 20-23.

Klein, William A. Some Basic Problems of Negative Income Taxation. Madison: Institute for Research and Poverty, University of Wisconsin, 1966. 25 pages. Reprinted from Wisconsin Law Review, no. 3 (Summer, 1966), pp. 776-800.

Lampman, Robert J. Approaches to the Reduction of Poverty. Papers and Proceedings of the Seventy-Seventh Annual Meeting of the American Economic Association, May, 1965. In American Economic Review (May, 1965), pp. 521-29.

Lekachman, Robert. "The Guaranteed Annual Income: Con," Christianity and Crisis, v. 25 (January 24, 1966), pp. 307-10.

Levit an, Sar A. "The Pitfalls of Guaranteed Income , " Reporter , v . 36 , (May 18, 1967), pp. 12-15. Inserted by Senator Jacob K. Javits, in the Congressional Record (daily ed.) v. 113 (May 19, 1967), pp. S7158-60.

Li ttner, Ner. "An Income Floor for All Americans," Public Welfare, v. 24 (April, 1966), pp. 141-44.

- 101 - Nicol, Helen 0. "Guaranteed Income Maintenance: A Comparison of Two Approaches," Welfare in Review, v. 5 (January, 1967), pp. 15-16.

"Guaranteed Income Maintenance: A Discussion of Negative In­ come Tax Plans," Welfare in Review, v. 14 (April, 1966), pp. 1-10.

"Guaranteed Income Maintenance: A Public Welfare Systems Model," Welfare in Review, v. 4 (November, 1966), pp. 1-12. "Guaranteed Income Maintenance: Another Look at the Debate," Welfare in Review, v. 5 (June-July, 1967), pp. 1-13.

Pelly, Thomas M. "Guaranteed Minimum Incomes," Remarks in the House. Congressional Record (daily ed.), v. 113 (April 27, 1967), pp. H4797-98.

"President's Action Spurs Debate of Guaranteed Income," Congressional Quarterly Weekly Report, v. 25 (March 10, 1967), pp. 349-52. Quaal, Ward L. The New Majority. Commencement Speech at Northern Michigan University, January 21, 1967. Inserted by Representative Harold R. Collier in Congressional Record (daily ed.) v. 113 March 23, 1967), pp. Al516-18.

Reagan, Michael D. "Washington Should Pay Taxes to the Poor," New York Times Magazine (February 20, 1966), pp. 24-25, 84, 88, 90.

Ribicoff, Abraham. "The Competent City: An Action Program for Urban America," Remarks in the Senate. Congressional Record (daily ed.) v. 113 (January 23, 1967), p. 8721.

Ripon Society. "The Negative Income Tax: A Republican Proposal to Help the Poor," Ripon Forum, April 10, 1967. Inserted by Representative Charles W. Whalen in the House. Congressional Record (daily ed.), v. 113 (May 4, 1967), pp. H5098-102. Schorr, Alvin L. "Against A Negative Income Tax," The Public Interest, no. 5 (Fall, 1966), pp. 110-19.

Schwartz, Edward E. "A Way to End the Means Test," Social Work, v. 9 (July, 1964), pp. 3-12.

Seligman, Ben B. "Guaranteed Incomes and Negative Taxes : Pro," Christianity and Crisis, v. 25 (January 24, 1966), pp. 304-07. Shaffer, Helen B. "Guaranteed Income Plan," Editorial Research Reports, v. 1, no. 21 (June 8, 1966), pp. 401-17. Speizman, Milton D. "Speenhamland: An Experiment in Guaranteed Income," Social Service Review, v. 40 (March, 1966), pp. 44-55.

- 102 - Symposium: "The Negative Income Tax," Industrial Relations--A Journal of Economy and Society, v. 6. University of California, Berkeley (February, 1967), pp. 121-65. Contents: "Schemes for Transferring Income to the Poor," by C. Green and R.J. Lampman. "Second Thoughts on the Negative Income Tax," by G .H. Hildebrand. "The Case For A Negative Income Tax Device," by E.R. Rolph.

Tobin, James. "The Case For An Income Guarantee," The Public Interest, v. 4 (Summer, 1966), pp. 31-41.

"On Improving the Economic Status of the Negro," Daedalus, v. 94 (Fall, 1965), pp. 878-98. Tower, John G. "Guaranteed Annual Income," Remarks in the Senate. Congressional Record (daily ed.), v. 113 (January 30, 1967), p. 51082.

U.S. Council of Economic Advisers. Economic Report of the President Together With the Annual Report of the Council of Economic Advisers. Transmitted to the Congress, January, 1966. pp. 114-15.

Transmitted to the Congress, January, 1967. pp. 17, 140-42.

Wade, Alan D. "The Guaranteed Minimum Income: Social Work's Challenge and Opportunity," Social Work, v. 12 (January, 1967), pp. 94-101.

Wehrwein, Austin C. "Economist Says Negative Tax Should Replace All Poverty Aid," New York Times (December 19, 1965), p. 41.

Weiss, E.B. "What Will Guaranteed Income Do To Us?" Advertising Age, v. 37 (April 4, 1966), p. 93. Whalen, Charles W. "The Great Society--A Critique and Alternative," House. Congressional Record (daily ed.), v. 113 (May 2, 1967), pp. H4951-54.

Wickenden, Elizabeth. "The Legal Right to A Minimum But Equal Level of Living," Journal of Home Economics, v. 59 (January, 1967), pp. 14-19. (Also in Public Welfare, v. 25 (January, 1967), pp. 8-14.)

Wirtz, W. Willard. Speech Before United Automobile Workers, 19th Consti­ tutional Convention, Atlantic City, New Jersey, March 23, 1964.

Wright, M.A. "The Guaranteed Income: What Does It Guarantee?" Tax Review, v. 28 (May, 1967), pp. 19-22.

- 103 - CHAPTER V

GUARANTEED INCOME PLANS--MECHANICS AND PROBLEMS I. Introduction

This chapter explains and explores various guaranteed income proposals. We will begin by outlining the possible approaches to guar­ anteeing an annual income and will then turn to a discussion of the me­ chanical problems associated with these approaches. The balance of the chapter will survey a number of questions on which the affirmative must make decisions in framing a solution to the problem, and to which the negative must be alert: How many individuals and families are covered by the affirmative proposal? How expensive will the plan be--and can the public bear the cost? Does the institution of the guaranteed annual income make it feasible to abolish some or all existing welfare programs? Is the plan adequate to alleviate substantially or eliminate entirely the problem of poverty? Will guaranteeing an income have a significant dis­ incentive effect? Will the poor spend their payments responsibly? Will the plan encourage higher birth rates among poverty groups--especially if it provides an incremental payment for each additional dependent? Fi­ nally, if the affirmative wishes to, how can it effectively incorporate provisions for public work into the proposal?

II. The Possible Approaches

The first approach to a plan to guarantee an income considered here has been referred to before in this analysis as "filling the gap." This is perhaps the simplest approach, since it involves nothing more than making up the difference between a selected minimum and the actual earnings of the recipient individual or family. As Robert Theobald has outlined it, his proposal would assure an income equal to $1,000 for every adult and $600 for every child in the economic unit. But, a family of four with an income of $1,200 a year would receive a subsidy of $2,000 from the govern­ ment. If the wage earner in the family decided to quit his job and fam­ ily receipts fell to nothing, the subsidy would rise to $3,000 ..!f There are two particular methods of using the income tax as the base for a guaranteed income. The first of these has been suggested by Milton Friedman. This is discussed at some length in Chapter I which con­ tains an example of its operation. It may be better understood if expressed in the following formula: Guaranteed minimum = the break-even point multi­ plied by the negative tax rate. The term "guaranteed minimum" should be self-explanatory; it is nothing more than the amount of the subsidy the gov­ ernment will transfer to the recipient. The term "break-even point" signifies

1/ Theobald, Proceedings, op. cit., p. 43.

- 104 - that level of income at which a subsidy will cease to be granted. The term "negative tax rate" indicates the rate -to be applied against the family's income exclusive of the government subsidy.I/ Friedman has suggested as a possibility a break-even income of $900 for the first person in the family and $700 for each additional person.2/ Friedman himself concedes that this11• level is not necessarily the one that should be employed; he writes, •••The precise floor set would depend on what the community could afford."3/ James Tobin, former member of the Council of Economic Advisers, has proposed a negative income tax that does not seem to differ in prin­ ciple from Friedman's.4/ Tobin chooses to insert different figures into the formula. His break-even level of income is $1,200 per person per year and his negative tax rate is 33-1/3 percent.Sf Thus, a family of five with an earned income of $1,500 per year would receive a subsidy of $500. Of course, the affirmative is not bound by the figures used by Friedman or Tobin, who have suggested the possibility of figures dif­ ferent from those presented here. Our point in explaining their specific proposals is to make as clear as possible the principle governing negative income taxation.

Social dividend taxation is astraightforward guarantee of an in­ come to every family in the population. Unlike all the proposals we have just reviewed, it is not pegged to earnings and does not confine its guar­ antee to those who are in need. Obviously, it does establish a floor be­ low which no citizen or family can fall. There are a number of specific approaches to social dividend taxation. All of them share certain common characteristics; the most important of these is a provision for financing which involves a high tax rate on all incomes above the minimum level.6/ For example, assume the following conditions: a social dividend guarantee

!/ Green, op. cit., pp. 63-64.

� Friedman, Proceedings, op. cit., p. 49. � Friedman, Capitalism and Freedom, op. cit., p. 192. Christopher Green presents two different equations for Tobin's and Friedman's proposals. However, relatively simple mathematical oper­ ation converts the one into the other. As we noted above, the major difference is in the chosen break-even level of income.

Tobin, Proceedings, op. cit., p. 28. Green has an extended discussion of social dividend taxation on pp. 51-56. His attempts to apply the equation for negative tax rates to a social dividend plan on p. 63 is incomplete, since it ignores the financing mechanism. It is, however, an accurate explanation of the interrelationship between the level of guarantee and the break-even level of income.

- 105 - of $500 per person per year and a tax rate of 40 percent on all income over the level of guarantee. A family of four with no income would re­ ceive $2,000 from the government and would pay no tax. A family of four with an income of $1,000 would still receive the $2,000 subsidy, but would pay a tax of $400 (40 percent of the $1,000 excess over the guar­ antee level). The family would thus have a net income of $2,600. The same family, with an earned income of $5,000, would receive the $2,000 allowance and would pay exactly that same amount in taxes. It would en­ joy no gain from the existence of the social dividend plan. Finally, the family of four would suffer a net loss if its self-help income were $10,000. It would receive $2,000; it would be taxed twice that amount. All of this is not as complicated as it might seem, if one keeps two principles in mind. First, remember that everyone--no matter how rich or poor--receives the same amount of money from the government. Second, everyone pays the same percentage of his income above the minimum level to the government.

III. Mechanical Problems In theory, the ways to guarantee a minimum annual cash income may not be difficult to understand. However, attempts to apply this theory raise a number of practical problems. Our purpose in this sec­ tion is to enumerate these problems and suggest how the plan might be constructed to deal with them. Once again we will employ headings that are functional in nature.

Constant Change in the Composition of the Poverty Group. The analysis has indicated previously that many of those who are in poverty in one year are not in the same condition in the succeeding year. In fact, estimates indicate that 30 percent of those who were poor in 1964 were not poor in 1965.1/ This presents a problem for any guaranteed in­ come proposal which seeks to meet the goal of paying its benefits on a current basis. How would program administrato�s be able to grant bene­ fits in 1968 on the basis of 1967 income, when income has changed and the 1967 income record is an inaccurate guide? If that inaccurate guide is used, the program would help many who were no longer in need and would ignore recent additions to the poverty group, who would constitute one­ third of all those actually in need. The problem of nonpayment to the most recent poor might be solved by allowing the individual or family to apply for assistance when its weekly income first falls below the minimum. To avoid the possibility of an individual or family using an unusual lapse in income as the basis upon which to receive benefits, the program could incorporate an averaging provision, which " ... (prevented) payment when a family's income for a given number of past years has averaged above a

!f CEA, 1965, op. cit., p. 163.

- 106 - certain level." 1/ However, this safeguard creates its own dangers. For example, a family which had earned $8,000 a year in each of the previous 10 years might be ineligible under an averaging provision, even if the head of the household suddenly died and income was reduced to a very low level. Obviously it would be difficult for any plan to avoid every one of the problems associated with changes in the composition of the poverty group from year to year. The social dividend approach is an exception; because it lacks criteria, the whole question of who is and who is not poor before the receipt of the subsidy becomes irrelevant.

The Recipient Unit. Though the guarantee the affirmative ex­ tends is to all individuals in the population, it may operate--as we have already noted--on a family unit basis. If it does not, relatively well­ to-do taxpayers might be tempted to drop their wives and children as dependents and qualify them for benefits.2/ Green proposes that the fam­ ily unit, for the purposes of a guaranteed income system, be defined as "mother, father, or legal guardians, unmarried children and students under 22 years of age."3/ The subsidy would be paid to the head of the family unit. Green also-presents some detailed standards for dealing with prob­ lems that might arise under his definition.4/

Wealth versus Income: The Basis for Benefits. Under the present welfare system, an individual's or family's net worth as well as current income is taken into account in computing benefits. In order to receive public assistance the recipient may be required to use up his savings and give up his home ownership.SI Tobin opposes the extension of such require­ ments to a guaranteed income plan. He is concerned with the disincentive effect on anyone who might be just above the poverty line; such an individ­ ual might decide that saving some money is a very risky course of action. On the other hand, ignoring wealth could lead to a situation in which a wealthy individual, who shows no income after personal exemptions and deduc­ tions, could receive assistance. Moreover, even if the exemptions and de­ ductions are included in the income base for the guaranteed income, a ques­ tion still remains: should the affirmative use the tax system's definition of taxable income, which excludes receipts from public transfer payments and interest on state and local bonds? With interest on state and local bonds excluded, some of the wealthy might once again become eligible for payments. Their invested wealth would make no difference. The most effective solution to these problems might be to assess eligibility on the basis of total money income, which would mean that "all forms of cash income are included in deter­ mining whether or not a person or family is living in poverty."6/

!/ Green, OE· cit., p. 106. y Hitch, op. cit., p. 15. 3/ Green, op. cit., p. 101. 4/ Ibid., PP· 101-103. � Tobin, Proceedings, op. cit., p. 7. 6/ Green, op. cit., P· 84.

- 107 - It should be clear from the foregoing analysis that total money income is not the same as taxable income; the latter supposedly excludes certain receipts to insure the equity of the tax system. There seems to be no reason to use such exclusions under a guaranteed income plan.

Some Proposed Exclusions. It has been proposed that certain types of income should not be counted in determining whether an income supplement should be granted to a given individual or family.1/ Three possible exclusions are discussed here: income from social security, gifts, and income in the form of imputed rent and home-grown food. So­ cial security benefits, it is argued, should not be included in total money income for the purposes of the plan because they are an annuity, bought and paid for by the beneficiary. Thus, including them would re­ sult in "drawing down" wealth or savings already subjected to taxation.2/ However, social security is not an entirely self-financing system--as the analysis indicated in Chapter III. The individual does not necessarily contribute an amount sufficient to pay the cost incurred during his re­ tirement.3/ Thus, given the welfare purposes of a guaranteed income plan, it seems not only sensible but fair to include social security benefits. Green maintains that free will gifts should definitely not be included. In his view, inclusion would have the undesirable by-product of discouraging private charity.4/ Finally, it is argued that the income value of the im­ puted rent. (the money a family saves on rent by owning its own home) and home-grown food cannot be counted as income for purposes of determining eligibility. There is no simple, accurate way to measure the true worth of imputed rent or food produced at home.SI The exclusion of home-grown food will have at least one important discernible effect--assistance will go to many farm families who would not otherwise receive aid.

Predicting Need. Previously we have seen how payments in the year following need would lead to often inequitable and sometimes absurd results. On the other hand, our discussion of changes in the composition of the poverty group has brought to light at least one difficulty with cur­ rent payments. Yet this difficulty is not confined to those who suddenly lJ Public assistance is one of the areas in which a question has been raised. It is not discussed at length here, since it appears clear that it should be included in the basis for determining eligibility for payments under a guaranteed income proposal. The technical prob­ lems are discussed in Green, op. cit., pp. 86-90. y Green, op. cit., p. 93.

� Eckstein, OE· cit., P· 7. y Ibid. , p. 93.

5/ Ibid., p. 94.

- 108 - lose jobs and earning power; it affects all of the poor. Poverty-stricken individuals and families who remain in the same condition year in and year out do not have the same income year in and year out. Incomes fluctuate significantly, even when they remain below the poverty level. How will the government know how large any individual's supplement should be? There is the possibility of requiring those who apply for help from the guaranteed income system to file a preliminary estimate of income for the year. How­ ever, the incomes of the. poor are so unpredictable that this might be an unworkable device. Moreover, experience with medicare indicates a general inability on the part of the poor to understand or use relatively complicated financial procedures. .!f As pointed out in Chapter IV, many of the poor have never filed tax returns. Green discusses the possibility of meeting the problem of predicting income by providing the poor with help in filling out the necessary forms,2/ and by using a system similar to the Internal Revenue's procedure for deter­ mining the amount of income to be withheld for taxes.3/ Green presents a number of other suggestions;4/ like the two just mentioned, these others could not be wholly successful, since none of them meets the fundamental prob­ lem--the inherent unpredictability of the fluctuating incomes of the poor. Perhaps the best approach is to utilize a system that comes as close to pre­ dicting income as possible and then rectify the errors of overpayment or under­ payment at the end of the year. In the case of an overpayment, the recipient could reimburse the government or an amount of money equal to the overpayment could be withheld from future benefits. Enforcing Honesty. At a two-day conference of experts discussing the negative income tax, a number of worries were expressed about the honest dispersal of funds under a guaranteed income plan. One participant felt that there would have to be fairly detailed "checkups" to assure honesty in the income reporting of recipients.Sf Indeed, one authority has argued that the amount of verification required-under a negative income tax would equal and possibly exceed the amount required by present public assistance programs. He sees the situation as a dilemma: if there is not extensive checking, a great deal of falsification by recipients and unnecessary expenditures by government may result; if there is checking of sufficient size and depth,

.!! Hitch, op. cit., p. 15. y Green, op. cit., P· 106. 3/ Ibid., P· 110. y Ibid. y Ibid., p. 167.

- 109 - then individual freedom will be infringed even more than it is today. .!J Such a situation would confront the affirmative with a choice between the rising costs occasioned by fraud and the "snooping" which it may choose to decry.

On the other hand, the affirmative might argue that the posi­ tive income tax system has worked efficiently to prevent fraud without-­ for the most part--employing widespread invasions of individual liberty. It should be remembered though that the federal tax system collects at the source through the withholding mechanism, whereas under the proposed pro­ gram the government would be paying rather than collecting funds. However, the affirmative plan could require employers to report all earnings paid out to workers. In this way the government would have a basis for check­ ing incomes and determining fraud, even if the money received by a poor individual was not subject to withholding. In any case, the negative may wish to argue that widespread cheating would occur and that this would cause an unacceptable increase in the cost of the affirmative's proposal.

The Mechanical Advantages of the Social Dividend Approach. Since it would pay its benefits to everyone in the population, the social dividend approach does not have to confront many of the problems we have outlined here. Of course, a social dividend system would still have to deal with the diffi­ culty of selecting the appropriate unit for receiving its benefits. Under a social dividend approach, the temptation to fragment the family unit and receive multiple payments might be even stronger than under some less gen­ erous form of guaranteeing an annual income. The other questions, such as predicting income levels, are not relevant to a social dividend plan. In the words of Thomas Hitch, Vice President and Director of Economic Research, First National Bank of Hawaii: "It would seem that the only way of over­ coming this problem (inability to predict income) would be for the govern­ ment to give a specified sum of money... to every person in the country and then get some of this money back through regular income tax channels from those whose incomes are inadequate."'!}

IV. The Question of Cost Any determination of the cost of a guaranteed income proposal is a function of two things--the outlines of the proposal itself and the num­ ber of people to whom the proposal will apply. With the exception of so­ cial dividend taxation (a plan most affirmatives probably will not adopt) every guaranteed income plan will be applied to only a segment of the pop­ ulation. It will actually pay benefits to a certain defined poverty group. If the Council of Economic Advisers' definition of what constitutes poverty is accepted, and the affirmative wishes to cover this group, then its plan

..!/ Henry Hazlitt, Proceedings, op. cit., p. 14. 2/ Hitch, op. cit., p. 15.

- 110 - will encompass some 34 million Americans. However, as Chapter II pointed out, the Council's figures have been disputed. Rose D. Friedman, former staff member of the National Resources Committee and the Federal Deposit Insurance Corporation, has concluded that the usually accepted standards for determining poverty are incorrect and that a smaller percentage of Americans than is normally estimated are poor.I/ The number of poor will become important to the affirmative when it attempts to assess the costs of the plan. After all, the costs will vary widely depending on how many individuals and families are aided. Whenever the extent of coverage is relevant, this analysis of costs will use the Council of Economic Advisers' figure--not because it is necessarily correct, but because most studies of the cost issue have utilized it.

In addition to the expense involved in the benefits extended by a guaranteed income proposal, the program will also occasion a certain con­ comitant administrative cost.· This administrative cost can be quite large; if present welfare programs are taken as a guide, it may be anywhere from 6.3 to 11.4 percent of the total expenditure for benefit payments.2/ It can be argued that a guaranteed income proposal would have a smaller ad­ ministrative cost than present welfare programs due to its limited amount of personal checking into the lives of recipients. Furthermore, a guaran­ teed income plan would not involve the ancillary social welfare function attached to public assistance. On the other hand, we have seen that check­ ing might have approximately the same dimensions under the negative income tax. If payments are made regularly each month this might increase the financial burden of administration. For example, according to Green, "the Office of Tax Analysis, U.S. Department of the Treasury, has estimated the increased administrative cost of monthly, rather than quarterly, payments, to be about $3.·8 million. However, this is for a plan which would provide negative rate allowances to poor families with children .... "3/Thus, the greater the regularity of the payments the higher the administrative cost. Though the increment for the change from quarterly to monthly installments might not seem substantial, all of the administrative devices of a guaran­ teed income plan might involve as substantial an expenditure as that re­ quired for present welfare programs.

The cost of the benefits themselves varies substantially accord­ ing to the type of guaranteed income plan under discussion. Milton Friedman estimates the cost of a system which would pay a family or individuals 50 percent of the difference between their income and the sum of their tax exemptions and minimum standard deductions at $7 to $9 billion in 1964.4/

1/ Rose Friedman, op. cit., pp. 29-43. y Lora S. Collins, "Public Assistance Expenditures in the United States," Eckstein, op. cit., p. 161. 3/ Green, op. cit., p. 110. if Friedman, Proceedings, op. cit., p. 11.

- 111 - Tobin's plan would require larger expenditures; he sees the cost as somewhere between 2 and 3 percent of the national income ..!f Thus, a guaranteed annual income--even the relatively ungenerous one proposed by Friedman--would be expensive. The question is: Can taxpayers afford that expense? Before examining that question directly, the analysis will consider the cost statistics for and economic soundness of a social dividend plan.

A social dividend plan that guaranteed $3,000 a year to every family in the economy and $1,500 a year to every unrelated individual would have an extimated gross cost of approximately $155 billion per year. That is the total amount of money the government would pay out in income supplements to everyone in the nation. If a tax rate of 37 percent were levied on all payrolls to finance the payments, then the net cost would be $45 billion. Net cost here means "the total redistri­ bution of income involved."2/ In other words, some individuals and families would pay more than they received or would receive more than they paid. The 37 percent tax rate--assuming that it had no serious disincentive effects--would be almost sufficient to pay the total cost of the program, without incurring any additions to the federal budget deficit. It has been said that there is a strong possibility that such a basic change would undermine the economic health of the nation. The magnitude of the expenditure involved would mean that the government would be redistributing a very high percentage of the total national in­ come. In 1952, Senator Paul Douglas, former economist at the University of Chicago, wrote: " ... A quarter (25 percent) of the national income is about the maximum which the government can absorb without seriously im­ pairing individual initiative and private saving with an attendant loss in total efficiency."3/ A social dividend plan would push the govern­ ment's share of the national income above what Senator Douglas once de­ fined as the critical point. Moreover, the addition of a proposed tax of 37 percent on income to present rates would result in a situation in which the government would take a very large portion of an individual's total income. How much can the government take without destroying the whole free enterprise system?

Financing even the less ambitious proposals of Friedman and Tobin might create some serious economic problems. If Friedman's $7 to $9 billion cost or Tobin's approximately $12 billion cost 4/ were financed through deficit spending, the economy might suffer inflationary effects. Can we afford more deficit spending at this time? In January, 1967, the Council of Economic Advisers urged a shift in fiscal policy

.!I Tobin, Proceedings, op. cit., p. 8. 'l:.J Green, op. cit., p. 79.

� Paul H. Douglas, Economy in the National Government (Chicago: The University of Chicago Press, 1952), p. 17. y Green, op. cit. , p. 194 .

- 112 - toward restraint, at a time when they projected the next deficit at something in excess of $5 billion.I/ The need for restraint would seem to be even greater when projections now indicate a deficit much larger than that. Spending the billions required to establish income maintenance without establishing tax procedures for obtaining the money might spell an end to all hope for restraint. The economy might suffer a serious and continuing inflation, which might "generate distortions that can eventually topple an economy from boom to reces­ sion (and) ...quickly erode the country's competitive position in inter­ national markets."Y Deficit spending, then, may not be a desirable way to pay for a guaranteed annual income.

If the affirmative wishes to avoid the problems occasioned by deficit spending, it might advocate that its proposal be paid for by an increase in taxes. What would be the effect of such an increase? The affirmative could argue that it would have no real effect on the ecortomy because depression of growth due to such an increase would be balanced off by the stimulation brought about by the distribution of funds under a guaranteed income. In the view of administration economists, the tax cut of 1964 has .demonstrated the expansionary results of decreased taxes or increased spending. Now the administration is asking for a tax sur­ charge--an increase--which it believes will dampen the inflationary pres­ sures in the economy. Using this analysis, the affirmative might argue that the cost objection is irrelevant, because the impact of its program on the economy will be neutral. Two objections to this analysis will be put forth here. First, tax increases to finance a guaranteed income might cut down on investment and industrial expansion. By its very nature, the affirmative plan acts to redistribute income from those who tend to save to those who tend to spend even more than they receive (the phenomenon of "dissaving"). This would mean that consumer demand for goods and ser­ vices would rise, at the very time that the affirmative is constricting the resources available to expand capacity and thus supply. Moreover, even if this transfer from saving to consumption does not take place, the increased tax rates might discourage investment in new and uncertain areas-­ areas which promise to be of great benefit in the future. Ope study has indicated that high tax rates influence investment decisions for a majority of those whose incomes exceed $25,000 a year, and that 71 percent of those influenced move into more conservative investment.3/

CEA, 1967, op. cit., p. 61.

Ibid., p. 72. Richard Goode, The Individual Income Tax (Washington: The Brookings Institution, 1964), pp. 52-53. It should be noted that this was a study of 746 "active investors" not a study of a cross-section of the population.

- 113 - Finally, financing a guaranteed income by substantial increases in taxes might be objected to as simply unfair. The tax burden on many individuals and corporations now is widely regarded as very high. If the President's proposed surcharge is approved, the burden will become even heavier. For example, the Secretary of the Treasury, Henry Fowler, reports that the corporate income tax would rise to a percentage level higher than that during the Korean War though the institution of other tax breaks since then will somewhat reduce the burden.I/ Of course, an affirmative that pro­ posed a further increase would raise the rate even higher. Obviously, at some point--for both individuals and corporations--taxes can become too high. Whether the affirmative proposal results in excessive taxes is a mat­ ter for debate.

Several years ago, before the expansion of the Vietnam war, the affirmative might have argued in favor of financing its proposal out of the constantly growing federal tax receipts. In 1964, Walter Heller, former chairman of the Council of Economic Advisers, forecast an increase in fed­ eral tax revenues of $35 billion between 1965 and 1970.2/ These increases have been occurring. But they are unavailable for increased nondefense spending because we are running what will probably be the largest deficit in peacetime history. If the war should end or abate significantly, these funds might provide a revenue source for financing a guaranteed income. There is one final source the affirmative could consider. It could propose to abolish all or a substantial part of our present welfare programs and to use the money thus saved to pay the cost of universal in­ come maintenance. Milton Friedman writes: "In 1961, government spending amounted to something like $33 billion (federal, state, and local) on direct welfare payments and programs of all kinds: old age assistance, social security benefit payments, aid to dependent children, general as­ sistance, farm price support programs, public housing, etc."3/ Thus, the saving might be as high as $33 billion, though the affirmative may choose to abolish only certain programs and to retain a number of others. The objection to such a course on a purely technical level is that, as Fried­ man indicates in the statement above, the funds today are expended by state, local, and federal governments. A purely federal plan financed by abolishing welfare would involve persuading the state to cooperate at a time when the states confront mounting pressures for new or expanded programs.

There are other more substantive arguments for not ending wel­ fare in return for establishing a guaranteed income. First, social secu­ rity is the bulk of the money figure Friedman presents; it is in many

1/ Congressional Quarterly, Weekly Report, August 18, 1967, p. 1588.

� Walter W. Heller, New Dimensions of the Political Economy (Cambridge, Mass.: Harvard University Press, 1966), p. 151.

3/ Friedman, Capitalism and Freedom, op. cit., p. 193.

- 114 - ways a self-insurance system paid for during the productive years. To deprive the self-insurers of benefits now, especially if the substitute pays less, might place the government in the position of breaking faith with a large number of its citizens.I/Second, many present programs pro­ vide social services as a by-product-:- These social services were aimed at aiding the poor in their attempt to escape from poverty. Many would oppose the elimination of such remedial programs.2/ As we have pointed out earlier, Robert Theobald sees the necessity or expanding public pro­ grams for health care in conjunction with guaranteeing an income. Final­ ly, substituting a s ystem like the negative income tax for welfare might result in lowering the present benefits of many recipients.

V. The Financial Adequacy of Various Guaranteed Income Proposals

A plan that would abolish welfare would make the adequacy of benefits under a guaranteed income an important question. However, even if there is no change in welfare, the question of adequacy is still impor­ tant. After all, an affirmative need that decries the poverty of a fifth of our citizens is hardly well complemented by a plan that does little more than raise slightly the level of deprivation. Of course, the affir­ mative might concentrate on what is wrong with the way public assistance is administered, argue that these faults are inherent, and then present a plan concerned with these faults rather than with changing benefit lev­ els in any way. If the affirmative chooses to do this, however, it must remember that its universal program will aid many not now covered by pub­ lic welfare. The affirmative must justify the whole program including the extension of assistance to those who have not previously received it. Unless the affirmative relies exclusively on the kind of analysis that concentrates on a discussion of means, most negatives will probably com­ pare benefit levels under the plan with benefit levels under the present system. This section proposes to suggest the outlines of some compari­ sons between suggested plans and the present system.

Under Milton Friedman's plan a family of four with no income would get a supplement of $1,500 per year. Tobin would provide the same incomeless family with $1,600, which he admits is wholly inadequate to lift them from poverty. In his view, an "adequate" program might cost as much as $25 billion a year.3/ Thus, neither Friedman nor Tobin would provide the four-member family-unit with more than $1,600; yet that fig­ ure is $80 less than the average annual income of AFDC families in 1961.4/ Indeed, under Friedman's scheme, an end to welfare would leave families lJ Tobin, Proceedings, op. cit., p. 27. 2/ Thomas B. Curtis, Proceedings, op. cit., p. 17.

3/ Tobin, Proceedings, op. cit., p. 48.

4/ Chilman, op. cit., p. 19.

- 115 - today receiving AFDC worse off financially in 41 of the 50 states.1/ Moreover, Friedman and Tobin's plans are equal to only half of the­ poverty level for a family of four. However, it should be noted once again that Friedman puts forth his schedule of benefits only as a sug­ gestion; he speaks of a guaranteed income as high as society can af­ ford and desires.If

Christopher Green--and some other students of guaranteed in­ come--propose a negative income tax program as a supplement rather than a substitute for public welfare. Green writes: "It seems clear that even if a negative rate plan is adopted public assistance programs can­ not be eliminated without making public assistance recipients worse off in monetary terms. Instead, the adoption of a negative rate plan would mean that there would be two public transfer programs, one federal and one state, instead of one program designed primarily to assist the poor."3/ Green's suggestion would obviate the problem of making many poor welfare - recipients worse off than they were before the institution of the affir­ mative plan. It would not solve the other question: the inadequacy of benefits under most of the programs proposed, as well as under today's public assistance. Assuming that benefits would not be adequate, the only real solution here is a higher level of benefits, an increased cost, and more difficulty in obtaining finance without damaging the economy. Social dividend taxation and Theobald's "filling the gap" ap­ proach both provide an amount of money sufficient to assure that no individual and no family will continue to live in poverty, as it is pres­ ently defined. It is argued that the first of these is very expensive and both run a real danger of undermining or destroying individual incen­ tive, as the analysis will explain in the next section. However, they do guarantee a standard of living equal to what many economists consider a decent minimum in American society.

VI. The Disincentive Problem Revisited A guaranteed income proposal could create disincentive effects in two areas. It might result in a diminution of state public welfare efforts and/or in a falling off of private self help. Proponents of the guaranteed income are aware of both of these possibilities and have often suggested safeguards through the introduction of checks and controls in the plans they propose. The purpose of this section is to outline the disincentive problems in both areas and to provide a basis for assessing the suggested safeguards.

1/ Green, op. cit., p. 90. If Friedman, Capitalism and Freedom, op. cit., p. 192.

� Green, op. cit., p. 91.

- 116 - It could be argued that if the federal government commits itself to an absolute income guarantee, other sources of aid to the poor (joint federal-state public assistance and general assistance, to name just two) may gradually be withdrawn because the federal gov­ ernment has assumed the ultimate responsibility. State participation in the public assistance program is not compulsory; the states could withdraw at any time, if they wished to do so. Under the pressure of demands for other services, states might use the institution of a pro­ gram like the negative income tax as an excuse to save money in one area and divert it to another. This presents a problem for the af­ firmative. If the affirmative does not propose to abolish all welfare, presumably its aim will be to assist those not presently covered and to make up deficiencies for those who today receive aid. What it may end up doing--after a withdrawal of state and local support--is to assume the burden of paying the bill for the support of all the poor. This would lead to a substantial increase in costs and to a corres­ pondingly more difficult job for the affirmative in defending the practicality of its plan.

Is there any way to prevent the falling off in support from other sources? The affirmative might condition its guarantee upon the continued fulfillment by the states of their responsibility in other areas of welfare. That kind of condition would enable the states to, in effect, abolish most programs that assist the poor. Such a possibil­ ity seems antithetical to the concept of a guarantee. However, the af­ firmative could reply that the states today have the power at least to curtail substantially the public assistance programs and their attendant expense by the simple act of nonparticipation. They have not done so. The negative should be prepared to supply a reason why their attitude will change under the affirmative proposal. Still, there is always the possibility that a universal income maintenance system will alter the situation enough to induce one or several of the states to place the federal government in the embarrassing position of taking on the whole burden or of leaving deprived citizens solely to their own devices. So it appears that the affirmative, in defending its advocacy of a guarantee, has to accept either the burden of increased cost or the burden of es­ tablishing a workable safeguard against the diminution of support from other areas.

The affirmative also faces the problem of the vastly increased cost that could result from the destruction of individual incentives. For example, it has been contended that a "filling the gap" approach that would bring all citizens above the poverty level would cost as much as $24 billion a year--$12 billion to make up the present difference between actual personal income and the poverty gap and another $12 billion to pay the additional sums required after most of those whose earned income is below the poverty level and many of those who make just slightly more quit their jobs and apply for government benefits. .!/ The fundamental assumption

1/ Green, op. cit., p. 165.

- 117 - behind this statistic--that financial incentives are necessary to induce people to work--has been challenged by Robert Theobald. He believes that people will work at tasks which interest them and benefit society without a monetary incentive. Of course, even in his view, individuals eligible for aid may abandon their present jobs; but it is said that the economic cost due to that will be made up by their economic contributions in other areas of endeavor. He writes: "... The best results are obtained when the individual has the maximum of freedom to pursue his own lines of work ... it would appear that this freedom can be most effectively assured if each individual receives his income as a right--the first step in this direc­ tion is the introduction of an income floor and income maintenance."!/ This optimistic view of human nature is rejected by many other economists. In their view, most people do not like to work, especially at the jobs they presently hold. They predict a massive destruction of individual incentive, leading to a stop in the production of "even the most neces­ sary goods and services."2/ Because such a stop could not be tolerated, wages would have to rise substantially to attract workers back into these areas. Furthermore, it is possible that they could not be attracted at all, unless salaries for essential menial occupations rose to unjustifiably high levels, raising the possibility that a janitor could earn as much as a well-paid teacher. There is some empirical support for the view that people will not work unless forced to do so by financial pressures. In many cases, as we have already reported, welfare recipients lose $1 in benefits for every dollar they earn. This situation is analogous to the type of guar­ anteed income that would provide no monetary incentive for employment. Available data do not indicate that the poor supported by public assis­ tance have fulfilled Theobald's hope by engaging in creative, individual endeavors. Indeed, the lack of incentives seems to have led in many cases to resignation to a life of inactivity and reliance on welfare. James Tobin writes: "Families on public assistance ...cannot better their posi­ tion by working, unless they can earn enough to get off relief altogether. This is generally so unrealistic and distant a prospect that it is a source of frustration and despair rather than of incentive."3/ The fact that the publicly supported poor have not chosen to work in socially use­ ful areas does not necessarily mean that they would refuse to do so under all circumstances. Presently, it is argued, social workers discourage welfare recipients from working for free, because the social welfare pro­ fession fears that work may be made a requirement for receipt of public

y Theobald, Proceedings, op. cit., p. 41. '!:.! Hazlitt, Proceedings, op. cit., p. 13. y Tobin, .Proceedings, op. cit., p. 46.

- 118 - aid.1/ Consequently, opportunities for useful and constructive work may not be made available. If they were, perhaps welfare recipients would respond.

Many of the proponents of a guaranteed annual income perceive the disincentive danger and have attempted to guard against it. Tobin has suggested that recipients of negative income tax supplements be al­ lowed to keep two-thirds of all their self-help earnings up to a certain point.2/ Friedman's plan in principle operates in much the same way; a family-would lose only $1 of the government benefits for every $2 it earned.3/ These provisions would supposedly assure that most individuals would continue to work or to seek work because labor would yield financial rewards. Christopher Green analyzes the probability of success in these words: "The poor, like those who are not poor, may put a high value on leisure. But now, more than in earlier days, leisure tends to involve expenditure, and this increases the incentive to earn. In a society so consumption-oriented as that of the United States it does not seem likely that a transfer by taxation plan with a 50 percent rate over the long run would create a substantial reduction in the work done by the poor."4/ How­ ever, a study of the OASDI program, which reduces benefits $1 for every $2 earned between $1,200 and $1,700, shows that there is at least a mar­ ginal disincentive effect. After workers turn 72 and are no longer sub­ ject to this 50 percent reduction, participation in the labor force by and earnings of retired workers rise.Sf The change is not all that large, however; the SO percent incentive feature seems to work fairly well. Even Theobald has recognized the usefulness of some incentive provision by pro­ posing that recipients of the guaranteed income be allowed to keep a "pre­ mium of 10 percent of the value of their private income."6/

Even if the affirmative adopts a scheme that encourages rather than discourages work, it must take into account the fact that at a cer­ tain level the built-in incentive feature may no longer be effective. Pro­ viding an income sufficient to banish poverty may be inconsistent with a

1/ Roger A. Freeman, "Public Works and Work Relief," in Joseph M. Becker, S.J., In Aid of the Unemployed (Baltimore: The Johns Hopkins Press, 1965), pp. 190-91. Hereafter cited as Becker.

2/ Tobin, Proceedings, op. cit., p. 48.

3/ Friedman, Proceedings, op. cit., p. 49. 4/ Green, op. cit., pp. 123-24.

5/ Lowell E. Galaway, The Retirement Decision, An Exploratory Essay, Department of Health, Education, and Welfare, Research Report No. 9 (1965) pp. 18-23.

6/ Theobald, The Guaranteed Income, op. cit., p. 237.

- 119 - desire to encourage work. A family might settle for $3,000 a year, even if it could keep 50 percent of an additional $2,000 earned from a sub­ stantial investment of labor. Thus, if the guaranteed income is not as high as the poverty level, the affinnative can be accused of not better­ ing substantially the economic conditions of the poor; if it is raised to that level, there may be a serious disincentive. The Council of Eco­ nomic Advisers points out: "The poor cannot be expected to work without pay, any more than can the rich. If sufficient ·cash support were offered to raise each poor household's income to a fixed minimum, such as the pov­ erty threshold, then recipients would have no incentive to obtain outside earnings up to the level of the income guarantee."1/ The CEA is referring to a "filling the gap" approach. Nonetheless, it Is possible that any pro­ gram that raised families above the poverty level, no matter what its in­ centive features to attain an even higher income, would tempt individuals to sacrifice some income in return for total leisure.

VII. The Responsible Use of Unrestricted Grants Traditionally, foes of unrestricted aid to the poor have contend­ ed that there is a strong likelihood that it will be spent irresponsibly. There seems to be an assumption in many quarters that most of those who are poor have already demonstrated their inability to order their own lives. The image of the welfare recipient purchasing liquor rather than food for his family is as old as the private and governmental impulse to aid the indigent. Those who evoke this image favor some sort of aid in kind or monetary aid with strings attached. Many proponents of a guaranteed annual income have a high regard for the maturity of the poor. Tobin reports that "there is no evidence that recipients of welfare are any more or less responsible than other people in spending their incomes."2/ It is argued that Tobin's state­ ment is borne out by an examination of the experience under foreign income maintenance proposals. Senator Edward Kennedy of Massachusetts told the Subcommittee on Employment, Manpower, and Poverty:

Sixty-five of the major industrial countries of the world have one system or another of family allowances... our immediate response on this generally has been that if these child allowance funds are given to a parent, the parent might discard his or her responsibilities and fail to see that the benefits of this money should go to the child. But in actual practice, the record on this has been quite dramatic, and the opposite result has been quite compelling: these funds have inured to the benefit of the children in nearly all cases.�

]} CEA, 1967, op. cit., p. 142. '!:./ Tobin, Proceedings, op. cit., p. 24.

� Edward M. Kennedy, Examination of the War on Poverty, op. cit., p. 34.

- 120 - Moreover, it is argued that the present system does not provide any effective way to check abuse, except in programs concentrated on aid in kind. .!J In this situation, Milton Friedman has argued, the nation would be far better off with a system of unfettered spending by the individual than with a system that invades the private lives of re­ cipients, convinces them of their own incompetence to manage their a�fair�,.but fails to provide any meaningful pressure for responsible d1spos1t1on of funds.2/ It has even been suggested that if irrespon­ sible expenditure does result in any given case, present public assis­ tance can be used to supplement the guaranteed income allowance. Thus, if an individual used his income maintenance subsidy to purchase a new car and ran out of funds to support himself and his family, then public assistance could step in and provide the necessary support. The disad­ vantage of this is obvious; it would not only permit but would encour­ age the dissipation of resources. Perhaps the affirmative team that does not intend to abolish pr�sent welfare should propose a condition that no other government cash benefits may be received in a year in which a negative subsidy is paid, unless those benefits were initially listed as sources of income or an emergency has arisen. Of course, the receipt of unexpected income will be counted against the individual or family in determining their next year's subsidy or at the end of the year when overpayments and underpayments are corrected. Yet it may be desirable to minimize the chances for overpayment. The family may have no funds with which to reimburse the government at the time of reckoning and it may have a real need in the succeeding year, so that its subsidy should not be cut then.

VIII. The Problem of Birth Control Concern has often been expressed over the possibility that a guaranteed income plan which provides additional funds for each addition­ al dependent might not lead to increased birth rates among the poor. This worry is tied in with the present concern over population growth, espe­ cially among the poor who have a difficult time finding the funds for the adequate upbringing and education of a large number of children. The poor might ignore long-range obligations attached to a larger family and see additional children as a way of increasing the subsidy under the guaran­ teed income. Alvin Schorr maintains that this simply will not occur. He concludes: "A rigorous scientific demonstration has not been provided that income maintenance will lead to a higher birth rate or that it will not. A new income maintenance program would in all probability lead some people, including some people who are poor, to have additional children. But this effect would probably be trivial in relation to concurrent developments and

�/ Tobin, Proceedings, op. cit., p. 24. 2/ Friedman, Proceedings, op. cit., p. 47.

- 121 - not discernible in subsequent population figures."Y Moreover, experi­ ence with family allowance systems directly aimed at increasing the birth rate has shown that such income maintenance is not generally sue- cessful in achieving its objective.� Those who worry about the possible promotion of larger fami­ lies under a guaranteed income have suggested a safeguard. James Tobin told the Chamber of Conunerce that: "when incomes were raised to a level adequate to allow human dignity, the question of introducing a declining level of exemptions for families with more than two or three children would have to be seriously considered."3/ Even without detailing the specifics of such a provision, observers have noted several objections to it. First, many poor families are already large in size; to penalize them would be unfair. After all, it can be presumed that most of these large families were not the result of a desire to increase an income subsidy the family knew nothing about. One solution here would be to make the restrictions on family size or the decline of the allowance prospective rather than general. Thus, a guaranteed income would not encourage larger families in the future, but would exact no penalty for the past. The second problem with any attempt to deter large families is the widespread ignorance of birth control techniques among the poor. No system should penalize someone for doing something he does not know how to avoid. The possible provision of birth control information and devices would run into the opposition of an indeterminately large num­ ber of the American people. Certainly the Catholic Church has opposed such proposals in the past. If that opposition was again successful, would it be fair for the affirmative to impose what is in effect a finan­ cial punishment on those who have large families? Finally, the affirma­ tive cannot assume the existence at the present time of a viable popula­ tion control program available to the general public. It must show the likelihood that such a program will be adopted or it might be able to provide for it in the affirmative plan. The affirmative should remembe.r that it cannot derive its advantages from such a plan provision; if it can establish a birth control program at all, it can do so only to avoid the possible disadvantages created by the institution of the plan (see the discussion of medical care, scramblers, and their relation to affir­ mative plans in Chapter I).

IX. The Possibilities of Public Work Chapter I put forth a rationale for allowing the affirmative to include public work as part of its plan. Our purpose here is to examine some of the practical difficulties associated with such an inclusion.

1/ Alvin L. Schorr, "Income Maintenance and the Birth Rate," Social Security Bulletin, December, 1965, p. 30. 2/ Green, op. cit., p. 47. See Chapter VI of the Analysis.

3/ Tobin, Proceedings, op. cit., p. 43.

- 122 - Many of the problems with public work were explored at length by college debaters in 1964-65. This section of the analysis will confine itself to highlighting some of the more prominent ones. The strongest reason for the inclusion of public work, aside from its obvious solution to the incentive problem, is that a guaranteed income plan without it might worsen an already critical problem in the area of service jobs. William Vogt writes that "millions of service jobs are unfilled in the United States, and it is obvious that men and women will often prefer to exist on small welfare payments rather than take the jobs. "Y A program that made welfare payments available to a larger number of people--perhaps in larger amounts--could induce those who work in such service jobs now for small wages to quit and turn for their livelihood to the guaranteed income system. Incorporation of pub­ lic work involving service jobs would not only prevent this from happen­ ing, but might also result in providing more workers to fill the large­ scale shortage.

In addition to service jobs, the affirmative might also seek to employ construction, rehabilitation, and maintenance of public works. It should be realized that if the affirmative chooses this avenue, it may run into real delay problems. Roger Freeman, Research Associate at the Hoover Institution on War, Revolution, and Peace of Stanford Univer­ sity, has.suggested that public works cannot be instituted on a substan­ tially expanded basis in a reasonably short period of time. He attrib­ utes this to the local fights that rage over what projects should be done first, how they should be done, and where they should be done.2/ The problem of delay, if it does exist, should not prove to be a serious ob­ stacle for the affirmative. A guaranteed annual income could be instituted immediately and its able-bodied recipients could be required to agree to go to work as projects became available. The prospects of having to work in return for an income guarantee should have at least some effect on those who might think about quitting their jobs to enjoy a leisurely government­ sponsored retirement.

Much of the discussion about public work for the poor or the unemployed has centered on the possibility of instituting construction programs. For example, Roger Freeman, in discussing public works as a program to aid the unemployed, wrote of a need for public facilities reaching into the hundreds of billions of dollars. He specifically cited highways, water and sewerage construction, educational facilities, and

1/ Vogt, The Guaranteed Income, op. cit., p. 165.

� Freeman, Becker, op. cit., p. 181.

- 123 - hospital and institutional construction,!/ If this is the type of pub­ lic work the affirmative wishes to use, it must take into account cer­ tain skill problems. No one doubts that much if not most of the con­ struction listed by Freeman requires highly skilled labor, and most of the chronically unemployed and the poor who would benefit from a guar­ anteed income program suffer from a severe deficiency in skills. Free­ man notes: "Even in the 1930s, when joblessness was quite general, some WPA projects were held up for lack of the necessary skilled labor, al­ though thousands of unskilled workers were available.".Y Thus, construc­ tion projects may not be a suitable vehicle for employing the unemployed and the poor. The affirmative could choose to require that the beneficiaries of its plan work in areas that do not require high skill levels. For example, unskilled labor can be used to work on "the clearing of streams, construction of fire trails, reforestation, paving of roads, and urban park development."3/ Two arguments are raised against this proposal. First, critics ask; are the areas of need for such projects congruent geographically with the areas in which unemployment and poverty are con­ centrated? If most of the employable poor are in the cities, public works needs in the countryside would be ineffective as sources for em­ ployment, especially in light of the fact that most of the unemployed are unwilling to relocate (see Chapter IV). The second objection to using projects with a high need for unskilled labor is that work on these projects will not prepare the unemployed poor to leave them eventually for employment in private industry. In short, working on projects like reforestation does not increase skill levels. Unskilled workers can be put to work for the moment digging ditches or raking leaves, but how long can that kind of employment be provided? The solution here may be to put the recipients of the guaranteed income to work on projects that do re­ quire skill levels and to train them to handle the tasks. In effect, this would be government-sponsored on-the-job training, which it seems could be made a condition of the affirmative plan for the able-bodied poor.

There is some danger that the new jobs may go not to the unem­ ployed poor who really need them, but to others who are presently employed at wage rates not significantly different from the guaranteed income and who might find public work more attractive. Of course, this is the dis­ incentive problem again, but with a new twist. Now, instead of abandoning jobs for a government-financed leisure, relatively low-paid workers might decide to exchange their present positions for more desirable ones. If this occurredJ the inclusion of public work in the plan would not meet what is presumably its major goal--to avoid the destruction of incentives. The

1/ Ibid., p. 182. 2/ Ibid., p. 185.

3/ Joseph M. Becker, William Haber, and Sar A. Levi tan, "Policy Recom­ mendations" in Becker, op. cit. , p. 299.

- 124 - affirmative could argue here that the types of public work its plan offers are not significantly more attractive than most of the jobs presently held by low-paid workers. This answer would be undermined by an affirmative pro­ gram that offered a combination of work and retraining; even if the work was not all that attractive, many might see a guaranteed income associated with retraining as a superior alternative to their present positions.

Finally, there is the whole question of the relation between pub­ lic work and private enterprise. An expanded public work program, espe­ cially one that concentrated on construction, would put the government in­ creasingly in competition with private enterprise. It might be possible to avoid some of this through greater use of private contractors and construc­ tion firms. On the other hand, it may be difficult, because of collective bargaining agreements, to assure that private business will hire the unem­ ployed poor. The program could fund public works and require that recipients of the guaranteed income seek work in this area, but it would have no way of knowing whether work was legitimately sought, since most contractors might automatically prefer skilled workers at higher wages. However., the funding to private contractors could be arranged so that they are paid a profit and their administrative costs, while the workers are reimbursed by the govern­ ment through income maintenance and made available for free. It is question­ able whether most private contractors would be willing to engage in such a procedure, since it would involve complications such as retraining on a large scale which most private contractors are not experienced in carrying out.

X. A Final Note

This chapter has raised difficult questions associated with a pro­ posal to guarantee to all citizens a minimum annual cash income. These ques­ tions are particularly important in formulating a debate plan. There is a broad range of alternative means to implement a universal income maintenance program. In choosing among these alternatives, the affirmative must be care­ ful to be aware of the implications of each choice. For example, as we have seen, the addition of retraining provisions might make unskilled public work more attractive to a society concerned with rehabilitating the poor; at the same time, it might also induce workers to abandon less promising but neces­ sary jobs that pay approximately the same amount as the guaranteed income.

- 125 - DISCUSSION QUESTIONS

1. What is the difference between the "filling the gap" ap­ proach and Tobin's and Friedman's plans? Why is social dividend taxa­ tion so different from any other approach? Explain the taxing mecha­ nism of the social dividend proposal.

2. How can a guaranteed minimum avoid the problems associated with paying benefits to a family only very temporarily deprived of its income? Should the plan deny help to such a family?

3. Is the tax system's definition of taxable income suitable for use under a guaranteed income plan? Why or why not? 4. What ways might be employed to enforce honest reporting by applicants for aid under ·a guaranteed income proposal? Do any of these seriously infringe individual freedom? Why does the positive tax system have an advantage over a negative income tax in preventing fraud?

5. How does a social dividend plan avoid some of the problems that affect other approaches?

6. Why does governmental disposition of an "excessive" portion of the national income deter individual initiative and increases in indus­ trial efficiency? What is "excessive"? Can the government absorb more than 25 percent of the national income without endangering the economy? Is there anything sacred about Senator Douglas' choice of that figure?

7. How would a transfer of disposable income from wealthier to poorer individuals affect the economy's capability to meet increased demand? What is "dissaving"? What is the influence of high tax rates on investors? Is this an undesirable influence?

.8. What figure did Professor Friedman cite in 1962 when he discussed possible savings due to the abolition of welfare? Could these savings be used to pay for a guaranteed income? Are there any practical obstacles? Any substantive objections?

9. What good would a guaranteed income do if it paid relatively low benefits (e.g., $1,500 a year for a family of four)? If the benefits are relatively high--at or above the poverty level, is there a danger of destroying individual incentive? Does the inclusion of an incentive fea­ ture necessarily avoid the danger of creating a disincentive?

10. Is there a danger that a federal guarantee of a minimum in­ come would cause the drying up of aid to the poor from other sources? Could the plan be constructed in a way that reduced this danger? Would it be legitimate to provide that the federal guarantee would operate only if the states continued to contribute at a prescribed level? Why or why not?

- 126 - 11. Is a financial incentive necessary to induce people to work? Has our experience with welfare programs validated Robert Theobald's view that individuals will work even when the work yields no monetary re­ ward? Are present welfare programs a good indication of probable response to work opportunities by recipients of a guaranteed income?

12. Does past experience indicate that the poor spend unrestrict­ ed aid in a responsible fashion? Do safeguards in present public assistance effectively prevent irresponsible expenditure? How can a guaranteed income plan attempt to insure that an individual or family spends the benefits sen­ sibly? Assess the wisdom of granting additional funds through regular pub­ lic assistance to families that rapidly exhaust the guaranteed income allow­ ance.

13. What are the possible problems associated with a declining level of payments for large famllies? 14. What are the barriers to the use of construction and heavy public works as part of a guaranteed income plan? Are there any advantages? Could private construction firms be used in a program aimed at employing the unskilled and the poor? Should they be used? Why or why not?

15. How would the incorporation of public work into the affirmative plan affect incentives to continue working in the private· economy? What might be the effect on those whose salaries in unattractive jobs are approximately the same as the guaranteed income? Would the use of construction coupled with retraining provisions or the simple inclusion of retraining create additional problems? What are they?

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"The Invisible Americans," Saturday Evening Post, v. 236 (December 21-28, 1963), pp. 28-38.

Bernard, Sydney. Fatherless Families: Their Economic and Social Ad­ justment. Waltham, Mass.: Brandeis University, The Florence Heller Graduate School for Advanced Studies in Social Welfare, 1964. 68 pages. (Papers in Social Welfare, no. 7.)

Besner, Arthur. "Economic Deprivation and Family Patterns," Welfare in Review, v. 3 (September, 1965), pp. 20-28.

Carter, Barbara. "The Jalopy Nomads," Reporter, v. 30 (May 7, 1964), pp. 31-33.

Chilman, Catherine· S. "Child-rearing and Family Relationship Patterns of the Very Poor,"Welfare in Review, v. 3 (January, 1965) , pp. 9-19.

Cloward, Richard A. "The War on Poverty: Are the Poor Left Out?" Nation, v. 201 (August 2, 1965), pp. 55-60.

Cloward, Richard A. and Elman, Richard M. "The First Congress of the Poor," Nation, v. 202 (February 7, 1966), pp. 148-51.

Coles, Robert. "The Poor Don't Want to be Middle-class," New York Times Magazine (December 19, 1965), pp. 7, 54-58.

Heise, Kenan. They Speak for Themselves; Interviews With the Destitute in Chicago. Chicago: Young Christian Workers, 1965. Herzog, Elizabeth. "Some Assumptions About the Poor," Social Service Review, v. 37 (December, 1963), pp. 389-402. Irelan, Lola M. and Besner, Arthur. "Low-income Outlook on Life," Welfare in Review, v. 31 (September, 1965), pp. 13-19.

- 136 - Jacobs, Paul. "America's Schizophrenic View of the Poor," Nation (lOOth Anniversary Issue, 1965), pp. 191-97. Kempton, Murray. "When You Mobilize the Poor," New Republic, v. 151 (December 5, 1964), pp. 11-13.

"Low-income Families," Family Economics Review March, 1965), Whole issue, 28 pages.

Oppenheim, Micha F., comp. The Culturally Deprived; A Bibliography. New York: National Conference of Christians and Jews, Lazarus Library of Intergroup Relations, 1964.

Pearl, Arthur and Riessman, Frank. New Careers for the Poor; The Non- professional in Human Service. New York: Free Press, 1965. 273 pages.

Pilisuk, Marc. "The Role of the Poor in the War on Poverty," Correspondent, no. 34 (Spring-Summer, 1965), pp. 107-10.

Piven, Frances. "Participation of Residents in Neighborhood Community Action Programs," Social Work, v. 11 (January, 1966), pp. 73-80.

U.S. Congress. Joint Committee on the Economic Report. Low-income Families. Hearings before the Subcommittee on Low-income Families; 84th Cong., 1st sess. Washington: U.S. Government Printing Office, 1955.

U.S. Department of Commerce. Bureau of the Census. Low-income Families, 1960. (Its Supplementary Reports no. PC(Sl)-43). Washington: U.S. Government Printing Office, 1964.

U.S. Women's Bureau. Who Are the Disadvantaged Girls 16-21 Years Old? Washington, 1964.

Waterman, Kenneth S. "Local Issues in the Urban War on Poverty," Social Work, v. 11 (January, 1966), pp. 57-63.

VII. Housing, Slums, and Urban Problems. Aronov, Edward and Smith, Hamilton. "Large Families, Low Incomes, Leasing ... Washington Test of this Public Housing Formula Succeeds," Journal of Housing, v. 22 (October, 1965), pp. 482-87.

Duhl, Leonard J., ed. The Urban Condition. New York: Basic Books, 1963.

Fasteau, I. Jack and Silverman, Abner D. Two Year Progress Report: Joint Task Force on Health, Education, Welfare Services and Housing. Wash­ ington: U.S. Department of Health, Education, and Welfare and U.S. Housing and Home Finance Agency, 1965. 79 pages.

- 137 - Fossum, John C. "Rent Withholding and the Improvement of Substandard Housing," California Law Review, v.53 (March, 1965), pp. 304-36.

'Grosser, Charles F. "Community Development Programs Serving the Urban Poor," Social Work, v. 10 (July, 1965), pp. 15-21.

Hunter, David H. The Slums: Challenge and Response. New York: Free Press of Glencoe, 1964.

Janssen, Richard F. "Housing the Poor," Wall Street Journal (October 11, 1965), pp. 1, 10.

Klein, Woody. "Housing the Poor," Commonweal, v. 82 (June 11, 1965), pp. 377-79.

Lander, Bernard and Birnbaum, Richard. The Utilization of Subsidized Housing in Family and Welfare Services. The Lavanburg-Corner House, 1964. 90 pages.

Levi, Julian H. "Focal Leverage Points in Problems Relating to Real Property," Columbia Law Review, v. 66, no. 2 (February, 1966), pp. 275-85.

Reiner, Janet S. and Reiner, Thomas A. "Urban Poverty," Journal of the American Institute of Planners, v. 31 (August, 1965), pp. 261-66.

"The Renewal," New Yorker, v. 41 (January 1, 1966), pp. 35-45.

Schaller, Lyle E. "Housing for the Nation's Poor: II. Are Rent Supple­ ments the Answer?" Christian Century, v. 83 (January 12, 1966), pp. 44-47.

Sexton, Patricia Cayo. Spanish Harlem: Anatomy of Poverty. New York: Harper & Row, 1965. United States Conference of Mayors. Economic Opportunity in Cities: Local Anti-poverty Programs. Washington, 1966. 107 pages.

Worsnop, Richard L. "Public Housing in War on Poverty," Washington: Editorial Research Reports (July 22, 1964), pp. 523-40.

- 138 - CHAPTER VI

SELECTED FOREIGN EXPERIENCES IN INCOME MAINTENANCE

INTRODUCTION

The preceding chapters have dealt with the conditions of pov­ erty and unemployment in the United States, as well as present and pro­ posed approaches to income maintenance. These problems are not confined to the United States. Other industrialized countries have experienced similar problems. Some of the concepts discussed in earlier chapters of this analysis--but not a guaranteed annual cash income to all citizens-­ have been adopted in other countries. Although conditions, of course, are not exactly the same in other countries, their experiences may throw some light on the problem in this country. The results of foreign efforts in the field, may indicate possible or probable results for the United States in the event certain of these foreign programs are incorporated into the American aystem. Some of them might be adopted without making basic changes in the system itself.

The countries to be examined in this chapter are Sweden, France, and Canada. All three are industrialized nations with extensive income maintenance programs, both in the field of welfare and in the field of manpower policy. In their approaches to income maintenance, which is in each case employment-oriented, there may be significant implications for American policy.

I. CANADA

About the same time that President Johnson announced the "War on Poverty," Canada embarked upon a comprehensive program for the utilization of human resources and the elimination of poverty. To this end, government programs on the federal, federal-provincial, and provincial levels have been inaugurated and expanded with two major objectives in mind: first, to provide the maximum opportunity of employment to the maximum number of citizens; and second, to guarantee a livelihood to those unable to find employment. It may be argued that by expanding programs which were in operation before 1964, and by supplementing them with new programs, Canada has, in effect, guaranteed an annual income to all of its citizens. It has not approached the problem by means of a single guaranteed-income act, but through the use of an entire net­ work of programs at all levels of government.

A. Characteristics of the Canadian Labor Force

The Canadian labor force is composed of roughly eight million work­ ers, and has been steadily increasing for the past 20 years. Canada experi­ enced a large postwar "baby boom" in the years immediately following World

- 139 - War II, and at the present time they are entering the labor force, just as they are in the United States. Technological change has had a major impact upon the job re­ quirements of the Canadian labor market, but these changes are familiar to most industrialized countries. An OECD study, Manpower Policy and Programmes in Canada, completed last year, noted that:

Underlying (Canada's) cyclical swings in the extent and nature of labour demand are other longer­ run changes in manpower needs. These can be traced back in many instances to a variety of technological developments. They involve a shift in labour demand away from "blue-collar" or production occupations to a variety of "white-collar" occupations.y

Canada is comparable in size to the United States and, as here, Canada experiences differences in manpower requirements in different parts of the nation. Just as the United States has its Appalachia, Canada has its Atlantic Maritime Provinces--areas in which unemployment is high and in many cases poverty is passed from generation to generation. Employment growth varies widely between regions, as it does between our states. The Atlantic Maritime Provinces, for example, experienced no change in the employ ment of male workers between 1951 and 1962; in Quebec, there was an increase of 14 percent, and in the Pacific Region there was an increase of 27 percent.2/ One difference needs to be emphasized when comparing the Canadian labor-situation with the American experience. This was explained by the OECD: " ... Over the course of a year from one-quarter to one-third of Canadian unemployment can be attributed to seasonal swings in labour require­ ments. This fact is important to remember when comparing unemployment levels in Canada with those of other countries."3/ The American labor situation is also characterized by broad changes resulting from seasonal employment swings-­ Canada's seasonal problems, however, seem to be far greater.

B. Employment and Manpower Policies

The Canadian employment and manpower goals appear to be the same as those in the United States. In the words of Allen J. MacEachen, former Canadian Minister of Labour:

Organization for Economic Cooperation and Development, Manpower Policy and Programmes in Canada, Paris, 1966, pp. 25-26. Hereafter cited as OECD. 2/ Ibid., p. 27. 3/ Ibid., pp. 27-28.

- 140 - The goals of employment policy can be expressed in terms of the achievement of high level, productive, and freely chosen employment. High level includes reasonably continuous or sustained employment so that seasonal and cyclical fluctuations in employment are moderated to the extent possible. High level and sus­ tained employment should also apply to all of the re­ gions of Canada. Moreover, these goals of employment policy must be achieved within the context of a viable and competitive economy.

The goals of manpower policy can be expressed in terms of ensuring the nation's manpower resources are developed effectively so that they will meet the dynam­ ic requirements of growth in the economy, and also meet the needs of each individual for the full development of his potential in human terms.I/

The basic difference between manpower and employment policy lies in the fact that employment policy operates to improve the demand for labor in a quantitative sense, while manpower policy operates to im­ prove the supply of labor in a qualitative sense. Government policies operate in both areas: the former in order to make the job available in the first place, and the latter in an effort to make the worker capable of fulfilling the requirements of the job.

Most of the Canadian government's operations in the area of employment policy have been directed toward counteracting seasonal and regional problems;and activities in the manpower field have been almost exclusively involved with training, retraining, and education. 1. Counteracting Seasonal Unemployment

Seasonal unemployment in Canada is quite substantial. At least 325,000 more persons are unemployed in the winter than in the summer.2/ It should be remembered that a shift of this magnitude in the Canadian labor force doubles the unemployment rate.

The Canadian government has initiated two programs in attempts to counteract the effects of seasonal unemployment: the Municipal Winter Works Incentive Programme, and the Winter House Building Incentive Pro­ gramme. Beginning in 1958, under the terms of the Municipal Winter Works Incentive Programme, the national government offered to share the cost of certain local projects as an incentive to winter construction. These

Honorable Allen J. MacEachen, Minister of National Health and Welfare, "Government Manpower and Employment Policy in Canada," Address to the Fifteenth Annual Conference at the Industrial Relations Centre, McGill University, June 8, 1964.

2/ OECD, op. cit., p. 43.

- 1 41 - projects include streets and sidewalks, parks and playgrounds, and water and sewage facilities. Initially 647 municipalities participated in the program; by the winter of 1963-1964, this number had increased to over 2,700. By that time the number of people employed daily on winter works programs averaged 39,000 for the six-month period between the first of November and the first of May ..!f

The Winter House Building Incentive Programme, first established in 1963, involves less government participation than Winter Works: Under the programme, the Federal Government provided a direct payment of $500 in cash to the owner-builder or the first purchaser of a house on which the major part of the construction was completed during the period from 1st December to 31st March. The $500 payment applies to a single house, and to each unit in multiple residential buildings.... A four-unit building, for example, qualified for an incentive payment of $2,000.�

During the first year of its operation, bonuses paid by the government for winter housing construction amounted to an estimated $14 million. This expenditure had a leverage effect on the timing of roughly $568 million in construction, creating a total of some 205,000 jobs, includ­ ing both on-and off-site positions.3/ At that rate of federal invest­ ment, the cost to the government per job created on the winter housing program averaged about $68 per job--probably one of the least expensive job-opportunity programs in any industrialized nation, and considerably less expensive than American job-creation programs.

2. Promoting Regional and Area Expansion

The Atlantic Maritime Provinces in Canada have approximately the same problems that plague Appalachia. The Canadian government, aware that the industrial base of the area had moved away, first attempted to relocate workers in more favorable employment climates. In fact, the government offered to pay one-half of the costs incurred in moving workers from one area to another.4/ But the Canadian government discovered, just as the American federal government is learning, that:

1/ Ibid., p. 45.

2/ Ibid.

3/ Ibid. 4/ This relocation program is administered by the Manpower Consultative Service of the Canadian Department of Labour, which is charged with most of the administrative details of manpower adjustment programs.

- 142 - In areas of declining job opportunities there is a substantial core of workers who are unable or unwilling to move. There have been several instances in the past of groups of workers that have transferred from such areas to other parts of the same province, only to return to their homes, and to unemployment, within relatively short periods of time. A closer examination reveals that the bulk of migrants are young adults. Migration in the over 35 group, where unemployment rates are the highest, have been quite low.y

The older workers, who need employment opportunities the most, are simply unwilling to move to areas where the jobs are available. With this prob­ lem in mind, in 1963 the Canadian government initiated the Area Develop­ ment Agency, which was empowered to grant substantial tax benefits to in­ dustries locating in one of 35 designated areas of high unemployment. In the following two years, over 200 firms had either located in these areas or had indicated their intent to do so in the near future. The firms planned to employ some 17,000 workers once they were in operation.3_/

3. Vocational Education

The Technical and Vocational Training Assistance Act of 1960 provides the legislative basis for most of the training programs in Canada. The Act's elimination of the legislative ceiling on federal contributions to provincial vocational programs gave the provinces the expanded resources needed for the development of facilities designed to meet specific local problems. The reported results have been impressive: between 1960 and 1964 the number of openings in vocational and technical training nearly tripled, increasing from 108,000 student places in 1960 to 300,000 places in 1964.�

The effectiveness of in-plant training is well-known in the United States. Canada has had such a program in operation since 1961, and it has expanded constantly since its inception. Originally involvi�g some 22,000 workers hired by private industry and trained under government financing, this program within three years had increased to well over 31,000 workers by 1964. This program may well be significant in its relation to the American labor situation, for Canada has experienced many of the same problems with advancing technology as the United States. The OECD has observed: "The man­ power adjustment problems created by the increasing pace of automation and technological change have their initial impact at the plant level, and fre­ quently involve the complex issue of job security. Many of the human prob­ lems created by technological change can be most effectively handled at the level of the individual company or plant."i.f

1/ OECD, op. cit., p. 49. 2/ Ibid., p. 50. 3/ Ibid., pp. 54-55. 4/ Ibid., p. 57.

- 143 - Thus by programs directed both at the demand and the supply sides of the employment situation, the Canadian government attempts to provide the maximum employment opportunity to the maximum number �f citizens. But what of the Canadians who are unable to work? Their security appears to be guaranteed by a variety of programs.

C. Welfare Programs Allen J. MacEachen crystallized the government's welfare policy in his announcement of the signing of the Canada Assistance Plan agree­ ments, released on August 25, 1967: "It is no longer enough to provide simply financial assistance to needy persons, important as it may be. Help must also be offered to enable persons to overcome the problems or disabilities that may have prevented them from achieving their full poten­ tial."!/

Before analyzing the welfare programs which exist on all levels of Canadian government, it is important to establish the relative roles of the levels of government in the provision of public assistance, since such a question is relevant to the "state-versus-federal-action" presump­ tion in this year's debate topic.2/ The Canadian federal system is orga­ nized actually and philosophically in a way similar to our federal system, although the Canadian provinces seem to have considerably more autonomy than do the states. Minister of National Health and Welfare MacEachen put the Canadian position on where responsibility lies on August 25, 1967: "The Canada Assistance Plan recognizes the primary role and responsibility of the provinces in the field of public assistance, and the concern and responsibility of the Government of Canada to ensure that assistance and welfare services are available to all who require them."3/ The position of the Canadian government, then, appears to be that the-provincial gov­ ernments have the primary responsibility in the field of welfare, and that the role of the national government should be to coordinate and assist provincially-initiated programs.

Two of the things that should be remembered particularly about the federal programs in operation in Canada are: first, such programs deal with specialized areas of welfare, and not with general programs for all citizens; second, if a particular province is both able and willing to undertake the administration and/or the financing of its own system of wel­ fare, the national government withdraws from administration, or financing, or both, as the provincial government desires.

1/ Allen J. MacEachen, "Canada Assistance Plan Agreements Signed with All Provinces," Department of National Health and Welfare News Re­ lease, August 25, 1967, p. 3. 2/ See Chapter I of"Problems of Federal Assistance to the Unemployed," op. cit. 3/ "Canada Assistance Plan Agreements Signed with All Provinces," op. cit., p. 3.

- 144 - 1. Federal Programs

Welfare programs of a purely federal nature generally fall into two categories: those concerned with persons over 65, and those concerned with persons under 18. Federal benefits are available for both groups.

Old-Age Pensions. The Canada Pension Plan, established in 1965, is a contributory social security system. Financing of the pro­ gram is accomplished by equal contributions of 1.8 percent of employee earnings by employee and employer alike (self-employed persons pay the total 3.6 percent) on earnings between $600 and $5,000 annually. The pension itself is 25 percent of the contributor's average annual pen­ sionable earnings, including the exempt $600. Thus the maximum pension guaranteed by the Canada Pension Plan is $1,250 a year, or roughly $104 a month. The Canadian Department of National Health and Welfare estimates that this program applies to 92 percent of the Canadian labor force.y

In addition to the Canada Pension Plan, the Old Age Security Act of 1951 guaranteed to all citizens aged 70 or older a "universal pension" of $75 a month ($900 a year), regardless of their previous employment status. This pension is granted to all citizens, whether or not they ever participated in the labor force, and is called simply a "flat-rate" pension. Both the age and income levels of this program are being expanded. The age level is being gradually reduced so that by 1970 the universal pensions will be granted to all citizens, even if they continue to work, from the time of their 65th birthday. But more important for students of welfare programs are the changes in the levels of income guaranteed by the pension act. In December, 1966, amendments to the 1951 Act added "a program of income-test supplements to the existing pension in order to provide a "guaranteed income" of $105 a month ($1,260 a year) to every aged person."2/ Specifically, the amendments provide for:

... Payment of a supplement up to $30 a month during 1967 to all old-age security pensioners whose other income is defined as below a speci­ fied level. Added to the $75 universal pensions

Research and Statistics Directorate, Department of National Health and Welfare, Canada. Health and Welfare Services in Canada. Ottawa; August, 1966, p. 54.

2/ Daniel Gerig, "New Pension and Medical Care Legislation in Canada," Research and Statistics Note, U.S. Department of Health, Education, and Welfare, Social Security Administration, Office of Research and Statistics, Note #2-1967, January 13, 1967, p. 1.

- 145 - this will give a "guaranteed income" of $105 a month. The size of the supplement will be reduced by $1 for each two full dollars of other income.... Thus all pensioners with an average of $60 a month or more of other in­ come will receive no supplement. ..!f

The "other income" computed for the income test of the flat-rate supple­ ments does not include any amounts received by pensioners under the con­ tributory insurance pension (Canada Pension Plan). Therefore 92 percent of the Canadian labor force is guaranteed income higher than $105 a month upon reaching their 65th birthday, and the remaining 8 percent of the labor force and all citizens not in the labor force are automatically guaranteed a minimum annual income of $1,260 a year from age 65, once the program is fully operative, as it will be by 1970.

During fiscal year 1966, before the supplementary pensions were enacted, some 1.1 million pensioners received over $927 million.2/ It is estimated that the cost of the supplements will add between $260 and $280 million to the overall cost of the program.l.f

The Canadian government has also circumvented the traditional problem of fixed-income versus cost-of-living increases. The amount of the pension is automatically adjusted upwards annually between 1 and 2 percent by means of a specially-constructed Pension Index which reflects changes in the Consumer Price Index. Because of this provision, pen­ sioners' buying power does not decrease as prices rise; rather, the price increases are paralleled by increases in the size of the pension, without waiting for specific legislative consent, and, of course, without the time lag which would otherwise necessarily result.

Family and Youth Allowances. Just as the Canadian government is concerned with the aged, so too are Canada's youth major recipients of federal benefits. There are two programs designed to provide for them: the Family Allowance Program, and the Youth Allowance Program.

Since 1944, the federal government has made direct payments to all families with one or more children under the provisions of the Family Allowances Act of 1944, at the rate of $6 a month for each child under age 10, and $8 a month for each child aged 10 to 15.4/ Every fam­ ily with children receives benefits regardless of income, and such in­ come received is not taxable. In September, 1964, this policy was ex­ tended by the Youth Allowance Program, which grants $10 a month to all

1/ Ibid., p. 2-3. 2/ Health and Welfare Services in Canada, op. cit., p. 61. � Daniel Gerig, op. cit., p. 2. 4/ U.S. Department of Health, Education, and Welfare. Social Security Administration, Office of Research and Statistics. Social Security Programs Throughout the World 1967, February, 1967, pp. 32-33.

- 146 - children aged 16 or 17 who are either in school or disabled (the Family Allowance Act made no such stipulations).!/ Last year alone, nearly $552 million was paid to 2.8 million families under the provisions of the Family Allowance Program; the average amount received by each family totaling $16.59 a month, or $199.08 for the entire year.2/ In addition, the Youth Allowance Program made payments totaling $46.5-million for ap­ proximately 405,000 youths in fiscal 1966 (the first full year of its operation).,Y

Thus, federal welfare programs operate primarily in two areas: the guarantee of a minimum annual income to persons over the age of 65, and the guarantee of some sort of an income to the families of persons under the age of 18. Problems of social welfare for persons between the ages of 18 and 65 have been considered outside the province of the purely federal program. But this does not mean that the programs are nonexis­ tent or that the federal government does not participate in them: to the contrary, the federal government is involved in problems of general wel­ fare and works closely with the provinces in the formulation and the ad­ ministration of federal-provincial programs.

2. Federal-Provincial Programs

On August 21, 1967, the last of the Canada Assistance Plan Agreements alluded to earlier was signed with Quebec, thus bringing the plan into full operation. Since the legislation is so recent, it is difficult to assess its effects. Basically, the plan:

....Provides new and additional monies for the integration, expansion, and improvement of public assistance programs administered by the provinces. It provides a firm but flexible frame­ work within which the federal government, provin­ cial governments, municipalities, and voluntary agencies can co-operate more effectively in social welfare programs designed to reduce and prevent dependency and poverty ....Under the plan, the fed­ eral government cannot only increase the help it has been providing to the provinces for the needy aged, blind, and unemployed, but also help with the costs of assistance to needy mothers and their

y Ibid., pp. 32-33. y Health and Welfare Services in Canada, op. cit., p. 64.

3/ Ibid., p. 66. Note: The apparent divergence from the $6, $8, or $10 a month rate in the yearly statistics is explained by the fact the payment begins during the month of the child's birthday; there­ fore some children were not eligible for the entire year and received less than the $120 maximum annual total.

- 147 - families, and children in the care of child welfare authorities. The... Canada Assistance Plan has en­ abled most provinces to make substantial progress towards replacing separate programs for different kinds of needy people by a single, comprehensive scheme designed to meet need more adequately, what­ ever its cause may be.l)

Until the enactment of the Canada Assistance Plan, there were four major federal-provincial programs: The Blind Persons Act of 1951, the Disabled Persons Act of 1954, the Unemployment Assistance Act of 1956, and the National Welfare Grant Program of 1962. The Canada Assistance Plan makes no substantial structural changes in the distribution of benefits to the needy, but rather concentrates on governmental aspects of the programs: coordination, cooperation, and financing. Thus, it seems reasonable to assume that the payments of benefits under the Canada Assistance Plan will be much the same as they were before the plan became operative, with the quantitative (and apparently beneficial) difference that "significant in­ creases in social assistance rates have been made in almost all provinces as a result of the plan. "Y

Programs for the Blind and the Disabled. In order to qualify for allowances under the provisions of the Blind Persons Act and the Dis­ abled Persons Act, the applicant must show financial need. There is no specifically stated minimum allowance that is granted, but the maximum allowance totaled $900 a year before the passage of the Canada Assistance Plan, and the average allowances granted to persons qualifying under the acts were $850 to the blind and $880 for the disabled. These allowances seem small, and it seems unlikely that they would automatically be suf­ ficient to provide a living income, but it must be remembered that per­ sons qualifying for allowances under these acts are not precluded from receiving additional allowances under the provisions of different wel­ fare programs.3/ A significant number of people have been aided under the provisions-of these acts. Statistics for the fiscal year 1966, how­ ever, tend to mask the real magnitude of the programs' oper�tions, for Quebec during that year withdrew from the program in order to begin a set of independent programs on its own. In 1965, the last year for which full nationwide statistics are available, over 5,400 persons received aid under the Blind Persons Act, and some 53,000 received aid through the Disabled Persons Act.

1/ Allen MacEachen, op. cit., p. 1.

2/ Ibid., p. 2.

3/ There are, however, certain programs which persons rece1v1ng pensions under the terms of the acts are not allowed to receive: allowances are not available under both of these acts to the same person, nor may any person receive a pension under the Old-Age Security Act and a pension under one of these acts simultaneously.

- 148 - A significant point in connection with the Disabled Persons Act lies in the fact that it can provide a major source of aid for the unemployables in Canadian society. A person can qualify for an allow­ ance if he is "suffering from a major physiological, anatomical, or psychological impairment, verified by objective medical findings; the impairment must be one that is likely to continue indefinitely without substantial improvement.... "Y

Unemployment Assistance. Canada's unemployment insurance sys­ tem covers all employees in industry and commerce, with the exception of salaried employees receiving more than $5,400 a year. Costs of the program are met by equal contributions made by employer and employee, with additional contributions made by the government. Our program, by way of comparison, does not cover as many workers, and employees do not contribute to it.

In Canada, to qualify for unemployment assistance a potential recipient must have made contributions during 30 weeks of the past two years, he must be capable of work, and he must register as available for work. Having met these conditions, the worker is eligible for assistance unless: "unemployment was voluntary, dismissal for misconduct, work stoppage in which [he was] directly interested, refusal of suitable offer [of subsequent employment], or failure to undergo directed training."2/ Benefits under the program range from a minimum of $24 a month for a - single person to a maximum of $108 a month. There are additional sup­ plements for dependents of the unemployed worker ranging from $8 to $36 a month for each additional dependent. The maximum length of time regu­ lar unemployment assistance may be received is a period of 52 weeks. But under the National-Provincial Agreement, both the duration and the size of payments are made flexible: "Assistance under the National-Provincial Program [is] available to needy persons exfiausting benefit rights or for whom benefit rights [are] inadequate."lf

3. Provincial Programs All of the provinces have specific programs to assist those mothers who need financial aid. The rates vary widely, and are deter­ mined by the costs of living in the particular provinces, as well as the amount of need. But perhaps the most important program of a purely pro­ vincial nature is the "general assistance" provided by each province. "All provinces make legislative provision for general assistance on a means or needs test basis to needy persons and their dependents who can­ not qualify for other forms of aid. "4/ Many of the provinces, in addi­ tion, make provision for additional benefits to persons whose allowances

1/ Health and Welfare Services in Canada, OJ2, cit., p. 71. y Social Security Programs of the World, OJ2, cit., p. 32. 11 Ibid., p. 33. 4/ Health and Welfare Services in Canada, OJ2, cit.' p. 86.

- 149 - under the various other welfare programs are inadequate to sustain them. Here, then, is the final level of the network of federal, federal-provincial, and provincial programs by which Canada maintains the income of all of her citizens. There are a number of specific programs for specific groups, but in the final analysis, anyone who fails to qualify for one of these programs may ultimately qualify for the provincial general assistance program.

Canada, then, does not guarantee a specific minimum annual cash income to all of her citizens. Rather, Canada seems to guarantee that if her citizens are not able to provide for themselves and for their families, then some level of the Canadian government will assist them.

II. FRANCE

The philosophy of the French income-maintenance effort is contained in the preambles to the 1946 and the 1958 French constitutio�s, which pledge: "Whoever, because of his age, his physical or mental state, the economic sit­ uation, finds himself unable to work, has the right to obtain from the com­ munity the proper means of existence."!/ French governments since the Second World War seem to have regarded this more as an employment guarantee than a promise of income maintenance; their primary efforts have been in the area of manpower and employment policy. At the present time, therefore, all Frenchmen are not guaranteed an income. They are guaranteed "the proper means of exis­ tence"--an opportunity to work, if able.

A. Employment and Manpower Policies

French employment problems are necessarily different from the prob­ lems experienced by either Canada or the United States, for the active French population is static in size. In fact, between 1954 and 1962 the French pop­ ulation available for employment remained the same size--about 19 million workers. And by 1970 it is estimated tha1: the size of the labor force will only increase to slightly over 20 million.2/ Thus the major problem which French authorities face is not so much one-of providing jobs for workers en­ tering the labor force, although the problem does exist, but rather of fitting the worker to the job. This involves the practical requirement of knowing where the job exists, and then either finding a worker with the requisite skills or training a worker to take the job.

1/ Alvin Schorr, Social Security and Social Services in France, U.S. Depart­ ment of Health, Education, and Welfare, Social Security Administration, Division of Research and Statistics, Research Report #7, Washington, 1965, p. 4. 2/ Jack Stieber, "Manpower Adjustments to Automation and Technological Change in Western Europe," Adjusting to Change, Appendix, Vol. III, Technology and the American Economy, The Report of the Commission, Studies prepared for the National Commission on Technology, Automa­ tion, and Economic Progress. February, 1966, p. III-75.

- 150 - 1. The Employment Exchange

In order to provide employment opportunities, it is necessary to determine exactly where the jobs and the workers are. Consequently, French employers and French workers are required to register respectively their job vacancies and their unemployment with the French Employment Exchange, workers registering with the exchange for the first time are interviewed and given a test to determine their occupational aptitudes and skills. Employers registering vacancies must include all relevant information such as a description of the work, the terms and conditions of employment, and the way in which the applicant can go about applying for the job.

The French have not been satisfied with the operations of the Employment Exchange, because it seems that in practice registered employers and employees alike use it as a last resort, and without much hope.1/ Could an American form of employment exchange gain the confidence of both-employers and employees--something the French Exchange has failed to do? Presumably this would depend upon the efficiency and effectiveness of its operation.

2. Vocational Guidance and Training

Vocational training in France is generally directed under the provisions of two programs: the Vocational Training for Adults Program (VTA) and the National Association for the Rational Training of Manpower for all Occupations (ANIFRMO). In addition, there is widespread use of the apprenticeship system by employers, usually in the artisan trades and in factories.

The VTA program, first established in 1939 to provide trained workers for the war effort, was reorganized after the war with the three­ fold objective of "meeting requirements for skilled manpower, facilitating the retraining of workers from depressed areas, and making promotion pos­ sible for all those who have not been able to undergo normal training. "Y When workers are undergoing training they are not gainfully employed. As a result, compensation is given to enable the trainees to support their families for the duration of the program. Thus, "Trainees receive allow­ ances equal to the minimum guaranteed wage in the region plus family al­ lowances and unemployment insurance coverage ....All trainees receive free housing and travel expenses ...."3/ Under the VTA Program most of those receiving training were trained Tn the building and metal-working trades.

1/ Ibid., p. III-80.

2/ Laurent Lucas, "France," International Trade Union Seminar on Active Manpower Policy, Supplement to the Final Report, Vienna, September 17-20, 1963. p. 20. Jack Stieber, op. cit., p. III-85.

- 151 - Consequently, in 1949, ANIFRMO was established. Since then ANIFRMO has expanded constantly so that its training facilities are not more than twice that of the VTA program. Its primary activities are: 1. Direct control of more than 100 centers with an annual intake capacity of 50,000 trainees in 1965, to be expanded to 75,000....

2. Supervision of private centers created by firms or trade organizations which can be ap­ proved and subsidized, provided they adhere to ANIFRMO standards.!/ Even with the vocational training programs in operation, by far the majority of French workers who are trained learn their trade through the apprenticeship system. In 1961 there were approximately 686,000 apprentices in France, and over 200,000 of them were in govern­ ment-run establishments.2/ Is such a system desirable? A number of criticisms have been made of the system: 1. Excessive use of classroom instruction; 2. State training induces a psychological maladjustment to the technical rhythm of indus­ trial production and a dislike of manual labor;

3. Vocational training on the job does not give apprentices a high enough standard of tech­ nical knowledge; 4. It is only possible to provide apprentices with modern and varied tools in large firms.�

3. Geographical Mobility

Equally significant in an economy characterized by rapid tech­ nological change and a static labor force are problems of geographical mobility. As job requirements change, so do the areas in which jobs are available. Thus, at any one time there may be high unemployment in one area of France, while another area may not be able to fill vacancies in exactly the same field. In May of 1967, there were roughly 188,000 ap­ plications for work at the Employment Exchange which were not satisifed;

!( Ibid., p. III-84.

2/ Ibid.

3/ B. Vrillon, "France," International Management Seminar on Active Manpower Policy: Supplement to the Final Report, April 14-17, 1964, Organization for Economic Cooperation and Development, Social Affairs Directorate, pp. 50-52.

- 152 - at the same time, there were over 35,000 requests for workers which were not met. It might be suggested that the workers were not qual­ ified for the positions available but this does not seem to be the case: in the area of forestry, for example, it is reported there were 113 requests for employment in which qualified workers were not able to find jobs. At the same time, there were 120 requests for forestry workers which were not filled. The same is true in nearly every em­ ployment field ..!_I The problem, then, seems to be one of geographical mobility of workers. The French government recognized this some years ago: "With evolving techniques and needs, it is impossible to guarantee every worker, for the whole of his life, a particular job in a particu­ lar place. Thus, the problem of manpower mobility arises."2/ To this end, the Economic and Social Development Fund was established in 1955. Workers who are displaced and who wish to accept employment elsewhere in response to offers from the Employment Exchange are granted between $400 and $600 to cover moving expenses, as well as a "settling-in" al­ lowance. But very few workers were relocated. Between 1955 and 1963 only about 4,000 allowances were granted.

As long as workers are unwilling to move to new locations, it does not matter that jobs are available. The jobs are simply not going to be filled, and the workers are going to remain unemployed. The same results were experienced in Canada. It may be concluded that the majority of workers simply will not leave their homes, even if remaining there means poverty and unemployment, and even if moving-­ at no personal expense--means a job.

B. Welfare and Social Security Programs

By far the predominant part of the French welfare and social security system is employment-related. Workers who are unable to find suitable employment are not guaranteed an income until work becomes available. There are, of course, a number of programs for the disabled and the aged, as well as a generous family allowance program.,

1. Unemployment Insurance

Technically speaking, France does not have an unemployment insurance system; instead, the nation established in 1959 a system of unemployment allowances which are granted from the general budget to qualified workers. In order to qualify for unemployment allowances,

lf Minister of Social Affairs, Statistiques du Travail et de la Securite Sociale, May, 1967, pp. 4-5.

'!:./ Laurent Lucas, op. cit., p. 20.

- 153 - a worker must be registered with the Employment Exchange, and have made himself available for work. Other conditions for receipt of the allow­ ance as well as the allowance size include:

An employee may lose his allowance if he refuses a job offer or is found to be an "excessive drinker." He may also be required to work on a government pro­ ject in return for his unemployment allowance. Allow­ ances may be paid up to a ceiling (which is rarely attained) of two-thirds of previous household earn­ ings, exclusive of family benefits, and may continue indefinitely. In Paris a married worker receives ... $1.46 per day exclusive of family allowances for children. After one year, allowances are reduced 10 percent every twelve months.lf There are no particular stipulations on the type of job offer which the unemployed must not refuse in order to continue his allowance.

There is a mandatory reduction of 10 percent each year in the size of the allowance. In other words, the French unemployment allowance system does not guarantee a subsistence income for the long-term unemployed worker (when long-term is considered to be over a period of some years). The secondary unemployment compensation program, established privately by the major employer and labor federations in 1958, does not make provision for workers unemployed for over 20 months. ASSEDIC, a contributory insurance fund,isprivately administered and is available to all who have contributed to it. Benefits range from about 35 percent of previous daily earnings upwards, regardless of need.

While the government allowances to the unemployed who are able to work may be described as something short of a guaranteed income, it appears that the security of unemployables is guaranteed by the French government.

2. Provision for the Disabled

Accurate information is difficult to gather concerning French programs of aid to the disabled, since the latest statistical information concerning the number of people covered is for the year 1962, and is grouped with assistance to the aged. The amount of money, however, allocated for the benefit of the physically and mentally disabled has been substantial, and it is said. that persons falling into these categories are being provided for. In 1966, $87.8 million was allocated for the physically handicapped, and $140 million for the mentally ill.b1

1/ Jack Stieber, op. cit., p. III-79.

2/ Etudes et Conjoncture, Revue Mensuell de l'I.N.S.E.E., June, 1967. Institut National de la Statistique et des Etudes Economiques, p. 155.

- 154 - 3. Social Insurance--Old-Age Pensions

Under the French system, old-age pensions, health insurance, maternity insurance, disability (work-related) insurance, and death insurance are all grouped together under the title "social insurance." Roughly three-fourths of the French population is covered by this pro­ gram. The program is financed by contributions made by both employers and employees. A number of changes have recently been made in the lev­ els and method of financing. Employer contributions have been increased to 17 percent of payrolls, and employee contributions have been put on a graduated scale up to 6.5 percent of earnings. All salaried workers, with the exception of agricultural employees, are eligible for old-age benefits, as soon as they reach the age of 60. A person may receive a pension and still continue to work, but few Frenchmen do so. In 1964 only 19 percent of male workers and 7 percent of female workers over the age of 65 were still working.I/ The amount of the pension is determined by a fairly complicated but seemingly equitable system up to 20 percent of the worker's annual earnings during the last 10 years of work.

Also included in social insurance are various health and dis­ ability programs which affect members of the labor force (as opposed to the disability programs for the unemployables discussed above). All salaried workers and their families and the employable unemployed are eligible for benefits.

This insurance provides for the partial re­ imbursement of medical, pharmaceutical, and hos­ pitalization expenses as well as for the payment of cash benefits as partial compensation for loss of earnings during the period of disability. These benefits are given, according to specified criteria, to the insured (both reimbursement and cash bene­ fits) and to his family (reimbursement of expenses only).y

In this way Frenchmen are guaranteed that not only will they be reimbursed for their medical and hospital expenses during a time of illness, but they will also be compensated for their loss of earnings during the time that they are unable to work. Another program for French workers is the death insurance program. In order to mitigate the expense of a funeral and burial, the French program

1/ Yearbook of Labor Statistics, 1964. International Labor Organization. Table 3. '2:../ Comite Franc-Dollar, Business Operations in France, A Guide for Ameri­ can Investors, Washington, April, 1959, p. 24.

- 155 - guarantees to the survivors of an insured person a lump-sum payment "in an amount equal to 90 times the daily income of the deceased."..!/

4. Family Allowances The question of family allowances, and the more philosophical question of family policy in general, is an important concern of the French government and people, for: "A substantial French consensus views the family, as a unit, as the ultimate beneficiary of government policy .... Family policy is most directly expressed in social security benefits. Of total benefits paid out, 35 percent is in the form of family allow­ ances."2/ Coverage is virtually universal, and the amount of the bene­ fits received by each family varies on scales determined by: (a) the num­ ber of children in the family, and (b) the area in which the family lives. No family is eligible for benefits unless there are two or more children in the home. Benefits are increased from 22 percent of a base figure for the second child to 33 percent for the third and each following child. The French government determines benefits on the basis of the size and the location of the family, in order to provide a more equitable distribution of funds from the point of view of the expense to the parents.

Because of the importance of family policy to the French, con­ siderable research has been done concerning the effects of the family allowance program. Some argue that family allowances lead to larger fam­ ilies. Others maintain that, if this is true, then the French birth rate should be increasing at a slower rate now than it was a few years ago, since family allowances have not kept pace with the rising wage rates-­ and thus have become less important as a factor in family income. Yet the French fertility rate has continued to climb slowly, with little re­ gard for income or family allowances.3/ Even more important, if family allowances are supposed to affect the-fertility rate, then it would seem that the influence should be strongest among low-income families. Yet from all indications, the rate is rising faster among families with higher income than among the poor.4/ These facts led Alvin Schorr to the conclu­ sion that: "In France the family allowance might encourage some poor fam­ lies to have more children and others, by placing them on the route to

1/ Economic Policies and Practices, Paper No. 7, European Social Security Systems, U.S. Congress Joint Economic Committee, September, 1965, p. 20.

2/ Alvin Schorr, op. cit., p. 3.

3/ Paul Paillet, "Influence de nombre d'enfants sur le niveau de vie de la famille--evolution de 1950 a 1961," Population, 1962, #2, pp. 421, 427.

4/ Les Institutions Sociales de la France, Documentation Francaise 1963, pp. 31, 985.

- 156 - higher income, to have fewer children."!/ The weight of the evidence, then, appears to rest with those who argue that family allowances have little or no effect on the French fertility rate, but rather operate to ease the financial burden of parents who have the children, and who would have had the children whether or not family allowances existed.

C. Summary

French manpower and employment policy, coupled with welfare and social insurance, does not automatically guarantee an income to all French citizens. Rather it attempts to provide the maximum employment opportunity, but will not aid those able to work who are for one reason or another un­ willing to work. The basis of the French system is the provision of an opportunity for those able to work, and a guarantee for those who are not.

III. SWEDEN

Programs in Sweden have been of particular interest to students of manpower and welfare programs. Jack Stieber, in his analysis of Western European manpower programs, says that "most countries have a long way to go to reach Sweden's level of achievement in manpower p9licy and can learn much from the Swedish experience."'!:./

A. Characteristics of the Swedish Labor Force

It has been said that the first thing that strikes the student of the Swedish labor picture is that in Sweden full employment is a reality and has been maintained for over 20 years. "Sweden has had a very high level of employment since the end of the Second World War. In fact, the supply of labor has been so short that many workers [nearly 200,000--the majority Scandinavians] have been brought in from other countries. Unemployment has averaged less than 2 percent since the end of the war.3/ But this low unem­ ployment rate can be deceiving. This figure is a national one, and just as pockets of poverty and unemployment exist in the United States, so do they exist in Sweden:

Despite its high level of employment nation­ ally, Sweden has been plagued with regional pock­ ets of unemployment where the rate is as high as lf Alvin Schorr, op. cit., p. 9. y Jack Stieber, op. cit., p. III-114.

� Economic Policies and Practices, Paper No. 5, Unemployment Programs in Sweden. U.S. Congress, Joint Economic Committee, April, 1964, p. 15.

- 157 - 10 percent of the labor force. These depressed areas are in the two northernmost sparsely set­ tled counties [Norrbottens and Vasterbottens]. In May, 1965, four northern counties accounted for 45 percent of the total registered unem­ ployed,.!./

Since Sweden is an industrialized nation, it also experiences some structural unemployment because of advancing technology. Most of the unemployment in the northern provinces is of this type--not seasonal but structural.

B. Employment and Manpower Programs The basic administrative agency designed to combat unemployment is the National Labor Market Board. It operates employment offices, pro­ grams to combat regional unemployment, programs to combat technological unemployment, and programs to combat cyclical unemployment. It is an interesting example of a centralized agency dealing with a variety of the problems of manpower policy.

1. Operations of the National Labor Market Board

The National Labor Market Board is staffed at the administrative level by representatives of the government, management, and labor. The Board maintains a complete system of manpower offices spread throughout the country:

There are 25 county labor boards, 25 regional offices, and 233 local offices. They provide quick information on employment changes within their areas. County job vacancy lists are published by the county labor boards of the different counties each week and sent to the county employment offices. Vacancies, which cannot be filled this way and are suitable for exchange on the national level are reported by the regional employment office to the National Labor Mar­ ket Board in Stockholm. In the Employment Service Division this material is compiled on a daily as well as weekly basis for publication in national vacancy lists which are distributed to all employment offices. Daily reports canceling vacancies filled are sent by the Employment Service Division to each office. Infor­ mation as to the existence of job vacancies in differ­ ent parts of the nation are broadcast daily over the

1/ Jack Stieber, op. cit., p. III-102.

- 158 - radio. Advertisements in the Swedish newspapers are also used .... Bulletins are inserted periodi­ cally on television, and folders are distributed in the employment offices.!/

The Employment Service Division fulfills only one of nine major functions of the National Labor Market Board. Other operations include the encourage­ ment of labor mobility, contracyclical and contraseasonal programs, advice given to the Ministry of Finance concerning the use of Investment Reserves, the supervision of public work programs, and far-reaching operations in statistical and forecasting analysis.2/ Students of the subject report that the employment operations of the Board are effective and extensive. "The annual report of the Board for 1963 shows that its offices were notified about 1,143,000 vacancies and effected 914,000 placements."3/

2. Programs to Combat Regional Unemployment

Sweden does experience relatively serious problems of regional unemployment. In order to alleviate these difficulties, the government operates one program to encourage labor relocation in areas of job surplus, and another to encourage industrial location in areas of manpower surplus.

Labor Mobility. Reports from Sweden indicate that it has had considerable success with its program of labor relocation. In comparing the results of its program with the experience in Canada and France, ana­ lysts emphasize the unique aspects of the program which in their view con­ tribute to its successful operation.

One obvious reason for the effectiveness of the labor relocation program in Sweden is the fact that benefits and allowances are so much higher than they are in other countries. Sweden maintains four separate types of relocation allowance, including travel expenses, family allowances, starting allowances, and settlement allowances. The worker who moves to take a new job is reimbursed for the expense of moving his family, his be­ longings, and even for maintaining two residences while searching for a home in the new area. He is given a grant to tide him over until his first pay day (up to a ceiling of about $100). Only workers relocating from the northern provinces are eligible for settlement allowances: y Unemployment Programs in Sweden, op. cit., p. 17. y Carl G.· Uhr, Sweden's Social Security System, U.S. Department of Health, Education, and Welfare, Social Security Administration, Office of Research and Statistics, Research Report #14, Washington, 1966, pp. 108-110. Ibid., p. 110.

- 159 - ....Workers living in Norrland are eligible for a special type of allowance called a settle­ ment allowance if they will accept relocation in another part of Sweden. This settlement allowance amounts to a lump-sum payment of up to 2000 kronor ($400). The idea behind this special allowance is that the unemployed from this part of Sweden are so far behinq the rest of the population that it is necessary to give them a new start in life.... It will enable them to get new furniture and clothes and will help them adjust more readily to the new environment.1/

A natural deterrent to labor mobility has been the ownership of a home, and the problems which arise from value depreciations. Workers do not wish to lose money when they move. As a result, the Swedish govern­ ment has instituted a program whereby it will purchase homes from these workers, in order to prevent financial loss to them:

In the fall of 1964, the Labor Market Board was authorized, on an experimental basis, to buy a limited number of privately-owned dwellings from unemployed workers who seek employment elsewhere. These houses will be offered for sale in the open market as "spare-time houses," or rented to the municipality.y

The cost to the Swedish government of this program between 1958 and 1963 was approximately $6 million, and for fiscal year 1963 alone roughly $2 million. "A rough approximation of the cost of the relocation program in the United States, assuming a similar allowance, would be about $45 mil­ lion."Y There are, however, some important differences which must be con­ sidered before comparing the Swedish results with possible benefits to the United States. For example:

1. The homogeneity of the population is an important factor. The Swede who moves from north­ ern Sweden to Stockholm or Goteburg will encounter other Swedes who possess the same social character­ istics.... And 99 percent of the population is Luth­ eran, and there are no significant racial minorities. lJ Unemployment Programs in Sweden, op. cit., p. 24. y . Jack Stieber, op. cit., p. III-107.

3/ Unemployment Programs in Sweden, op. cit., p. 24.

- 160 - 2. High levels of employment exist throughout Sweden. A general labor shortage has existed in the industrial areas since the end of the Second World War .... This means that jobs are available for the un­ employed in the depressed areas. It is only a matter of inducing them to move.!/

Despite the mobility of workers in Sweden, they have experienced a high turnover rate with relocating workers: Roughly one-third soon re­ turn to their previous residence, and others move a second time to a new area. Some argue that even the present rate of success in relocation is due to the unique employment conditions which exist in Sweden: "It is nec­ essary to point out that relocation assistance has been successful for the reason that an excess of demand exists for labor throughout Sweden. With a rise of unemployment throµghout the country, relocation assistance would lose most of its effectiveness."2/

Industrial Location. Beginning July 1, 1965, the Swedish govern­ ment instituted a massive program of industrial relocation, designed to in­ duce industry to make increased use of labor productivity by relocating in areas of labor surplus. For industries relocating or opening plants in northern Sweden, direct financial assistance from the government for build­ ing and machinery costs is available. At the same time, for industries not qualifying for grant programs, the government has instituted a substantial loan system whereby industries are granted long-term low-interest loans in order to finance the same type of relocation. But both programs are still in the experimental stages, and only about $160 million has been allocated to the entire program. 3. Programs to Combat Technological Unemployment

Sweden has been experiencing the same technological displacement which plagues any major industrial nation. And the Swedish method of deal­ ing with it is much the same as solutions elsewhere. The primary means are training and retraining programs. Training programs have come to play a more and more important part in Swedish manpower policy. Expenditures by the government have increased nearly 5,000 percent in the last 10 years. Increases in the scope of the program have kept pace with expenditure in­ creases.

The program has progressed from 55 courses in 14 trades for 364 workers in 1957 to 776 courses in more than 100 occupations for 40,000 workers in 1964. The 1964 figures include a large portion of publicly­ supported training within industry, which is increas­ ing.y

1/ Ibid., p. 21. 2/ Ibid., p. 25. 3/ Jack Stieber, op. cit., p. III-112.

- 161 - Trainee allowances during the period of training are relatively high, as compared with ·allowances in other countries, amounting to approximately two-thirds of average earnings.

Unlike France, Sweden does not have a highly-developed appren­ ticeship system. The lack of such a program has been described by Dr. M.S. Gordon of the U.S. Department of Labor as the major cause of rela­ tively high u�employment among Swedish teenagers. He argues that voca­ tional training alone does not guarantee a permanent job: "A young person leaving a technical or commercial school tends to go through a period of joblessness before he gets his first job, and like the young worker in the United States, is likely to experience a number of job changes before he settles down in a relatively permanent job."1/ But the training pro­ grams which do exist have been quite successful-:- "About 80 percent of those trained receive jobs immediately in the occupations for which they were trained."'!:./

4. Programs to Combat Cyclical Unemployment Typical of any country industrially oriented is a susceptibility to business cycles and fluctuations in the levels of business activity. Sweden is no exception. In order to deal with this problem, the Swedish government has made use of two types of contracyclical programs: emergency standby public works, and Investment Reserve funds.

Standby Public Works. The Swedish public works programs are like various public works programs which have been adopted from time to time in the United States. They are designed to even out business cycles by employ­ ing workers who cannot find work in time of recession. Under the Swedish system "extensive preparation is required to facilitate the rapid applica­ tion of employment-creating measures in a recession. A general emergency budget, including a reserve of state and municipal building and road con­ struction projects and government orders from industry, is an integral part of this preparation."3/ Then, when unemployment reaches proportions that cannot be alleviated by other means, the prepared public work measures can be implemented. The types of projects carried out under these appropriations are road-building, harbor clearance, forestry, and the like. But:

Emphasis is placed on roadbuilding and forestry projects because these can be used during periods of seasonal unemployment [as well as during recession periods]. The total of all projects in this reserve is many times larger than the volume of construction that could be undertaken in any one year, since the l./ M.S. Gordon, Retraining and Labor Market Adjustment in Western Europe, U.S. Department of Labor, Office of Manpower, Automation, and Training, August, 1965, p. 93. y Unemployment Programs in Sweden, op. cit., p. 26. 3/ Ibid., p. 43.

- 162 - purpose is to let the Labor Market Board choose among several possible projects in a given geo­ graphical area if and when unemployment occurs there._y

Professor Martin Schnitzer, in his study of the Swedish public work pro­ grams, estimated the cost and the magnitude of similar projects in the United States, were such a program to be enacted: Employment [on public relief works] over the five-year period [1958-1963] has ranged from a high of 15,000 to a low of less than 1,000 during the summer months of 1958. Trans­ lating this into U.S. terms, given a 20 to 1 ratio in the work force, would mean a maximum of 300,000 and a minimum of 20,000... the cost of executing public relief works amounted to 260 million kronor ($50,000,000) for the fis­ cal year 1961-62 and 380 million kronor ($73,000,000) for 1962-63.... A rough estimate of the cost of a similar program in the United States would be $1 billion for 1961-62 and $1.5 billion for 1962-63. The estimate is based on the ratio of the two labor forces to each other. [In 1963 the number of workers employed on Swed­ ish programs averaged about 10,000 a month.]2/

Investment Reserves. A second anticyclical device is the In­ vestment Reserve program. It is a complex program designed to make available a substantial total of private capital in time of recession. Under its provisions, companies are permitted to set aside a certain percentage of their pretax income as an "investment reserve." Approxi­ mately one-half of this amount must be set aside in the national bank for use in time of crisis. The other half continues to be a part of the company's working capital, but is not considered taxable income. This second half, however, is also subject to call by the government in time of need, and the company is required to produce it on demand.

Swedish companies must use their investment reserve funds for the purchase of machinery, the construction of buildings, and the like, thus creating a substantial number of jobs during the recession. The reserves were called into play twice between 1958 and 1963, and in doing so the Swedish government found that in order to have the employment­ creating effects felt at the right time the reserves must be called up well in advance of the real depths of the downturn. In 1958, when the

.!/ Ibid., p. 44. 2/ Ibid., pp. 45-46.

- 163 - reserves were called up, "the maximum employment effect of the reserve was not felt until 15 months after the permission for the release was granted by the Labor Market Board in May, 1958. By that time, the re­ cession was over and the upturn was well under way."1/

Sweden, then, by maintaining both geographical and occupation­ al mobility in its workers, and by maintaining flexibility and long-term accuracy in its government employment agencies, has managed to mitigate considerably the effects of regional, technological, and cyclical unem­ ployment. But Sweden does not ignore those unable to work.

C. Welfare Programs Swedish welfare programs operate in fields of old-age pensions, unemployment insurance, and maternity and family allowances.

1. Unemployment Insurance

Unemployment insurance is generally not emphasized in Sweden as much as other programs, for the reason that, as we have already noted, unemployment is not a serious problem. Unemployment coverage is voluntary rather than compulsory, and only covers about half of the Swedish labor force. Yet the program is not considered inadequate because: "The lion's share of the ... 1.6 million employees who are not covered by this insurance work in occupations with little or no risk of unemployment, and therefore feel no need for this kind of protection.2/ For those employees who feel the need for some sort of coverage, the Swedish government contributes about two-thirds of the cost of financing the programs. The employee pays the rest--employers do not contribute.

Benefits in time of unemployment vary widely, as does the number of weeks in which a person is eligible to receive assistance, depending upon which of the over 40 unemployment insurance funds the insured belongs to. 2. Old-Age Pensions

There are two pension programs: one a universal system, granted to all citizens, and one an earnings-related system, which is supplementary to the universal pension plan. The Universal Plan is like the Canadian plan:

1/ Martin Schnitzer, The Swedish Investment Reserve, A Device for Economic Stabilization? (Washington: American Enterprise Institute, July, 1967) pp. 28-29. 2/ Carl G. Uhr, op. cit., p. 93.

- 164 - [It] ...pays pensions in uniform amounts to every citizen of given civil status from age 67, regardless of whether he or she has ever been gainfully employed, irrespective of whether the person is or remains employed after the pension becomes payable, and regardless of what earnings the pensioner had in his earlier career. The basic pensions are differentiated only according to the pensioner's marital status, being uniform amounts that are higher by 55 percent for married pensioners living with their spouses than for sin­ gle pensioners.lf

The actual rate of universal pensions presently stands at 90 percent of a base amount (135 percent for a married couple) which is 420 and 630 kronors a month. This means that under the coverage of the universal pensions alone, a single person may receive upwards of approximately $1,000 a year.'!:)

In addition to the universal pensions, there is a supplementary program which is earnings-related. It amounts to 3 percent a year of former employment earnings, an.d all persons who have earned $58 a year or more are eligible to receive benefits. The amount of benefits received varies in accordance with the earnings of the pensioner.�

3. Family Allowances

Perhaps the most interesting aspect of the Swedish family allow­ ance program is that it was instituted for the specific purpose of raising the Swedish birth rate. Benefits are generous: a mother receives a lump­ sum payment of $175 at childbirth.4/ Specific family allowance programs grant 75 kronors a month for each child, including the first (about $180 a year). "In addition, youngsters of ages 16 and 17 receive students' al­ lowances ($9.60 per month in 1963) durin6 the school year for continuing their studies in academic or vocational schools and institutions."5/ De­ spite these benefits, it is reported that "Sweden has a lower birth rate now than at the time that public debate about a population crisis led to the adoption of family allowances."!:}

1/ Ibid., p. 42.

2/ Social Security Programs Throughout the World, 1967, op. cit., p. 199.

3/ Carl G. Uhr, op. cit., p. 42. 4/ European Social Security Systems, op. cit., p. 36.

5/ Carl G. Uhr, op. cit., p. 12. 6/ Alvin Schorr, op. cit., p. 8.

- 165 - A FINAL NOTE

It should be noted that the information assembled in this chapter suggests questions beyond the scope of this analysis. While a welfare system may be feasible in a given country, it may not be workable in the United States. Moreover, assuming that a given sys­ tem would be workable and effective here, it may not be politically acceptable in this country. How great is the tax burden attributable to the foreign welfare programs surveyed? How much regimentation is involved? While it may be argued that the adoption of foreign programs would resolve the question of a guaranteed cash income, what is the price? How much income should be redistributed by the government through a welfare system? In Sweden, where a socialist government has been in power since 1932, 1/ it is estimated that at least 14 percent of the national income is redistributed through the social welfare sys­ tem.2/

1/ 1967 Information Please Almanac, p. 156.

2/ The New World Almanac, 1967, p. 653.

- 166 - DISCUSSION QUESTIONS

1. Compare the "flat-rate" old age pension with the graduated, employment-oriented pension. What are the advantages and disadvantages of each?

2. Discuss the Canadian programs to counteract seasonal unem­ ployment, comparing them with United States efforts in the same field.

3. How has Sweden's full-employment economy influenced its employment efforts?

4. What are the possible reasons for the failure of family allowance programs to increase the birth rate, even when specifically designed to do so?

5. Compare the Canadian and the French unemployment assistance programs. Which has the greater benefit for the long-term unemployed? For the never-employed? 6. Compare the Swedish National Labor Market Board with the French Employment Exchange. Why is it that the Swedes have been satis­ fied while the French have not?

7. Which is more fruitful for government policy--increasing the demand for workers or improving the quality of the labor force it­ self--in terms of getting more people employed, and thus maintaining their income level? Consider the Canadian experience. Does this anal­ ysis apply when the economy is in full employment?

8. Discuss Swedish inducement for worker relocation. Could these be successfully operated in the United States despite demographic differences?

9. Compare Swedish relocation programs with Canadian relocation programs. Why has one succeeded and the other failed?

10. French labor unions are not satisfied with the apprentice system; Swedish labor unions are not satisfied because they don't have one. Discuss the advantages and the disadvantages of the system itself. Should more use of apprenticeship be made in the United States? 11. Compare the Canadian and the United States "war on poverty." What are the differences between the two, paying special attention to the principle of subsidiarity?

12. Does tying the receipt of unemployment assistance to taking any job offered maintain or destroy incentives? Discuss the French approach. 13. What is the advantage to tying aid programs to cost-of-living indices? What are the results for the recipient's buying power?

- 167 - 14. Compare training programs in the three countries studied. Should some of these programs be incorporated into the American system? 15. What is the Swedish approach to public work for the unem­ ployed? Is such a system practical for the United States?

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