Thursday, August 15, 2013

Give the Poor a Fish, or a Fishing Pole: Which Solution Works Best?

Pope Francis and President Obama find themselves in the unusual position of “agreement.” Both have highlighted the need to assist the poor (although Obama uses the euphemism “middle class”). Everyone ranging from Bernie Madoff to Mother Teresa agree that economically aiding the poor is a worthy goal. Disagreements surface in the method, the impact, and the costs of such efforts. The two opposing camps could be labeled as “give them a fish” and “give them a fishing pole.”

The 50 U.S. states provide a laboratory to test which approach works best. States were categorized into quintiles according to the percentage of GDP to support the poor be-tween 1990 and 1999. Financial support included: food stamps, social security income, unemployment compensation and other welfare support. The states were then ranked according to how they fared economically from 2000 to 2012.

The “give them a fish” states, or the ten states providing the most generous welfare benefits at 2.2% of GDP between 1990 and 1999 suffered the slowest GDP growth between 2000 and 2012 at 55.7 percent, had the highest 2013 unemployment rate at 7.7 percent, and had the greatest degree of income disparity with a 2010 Gini coefficient of .468. The quintile of states providing the least generous welfare benefits at only 0.95 percent of GDP between 1990 and 1999 experienced the top economic outcomes from 2000 to 2012 with GDP growth of 73.7 percent, had the lowest 2013 unemployment rate at 5.3 percent, and had the lowest degree of income inequality with a 2010 Gini coefficient of .440.

The lowest welfare spending states included New Hampshire, Delaware, Nebraska, Nevada, Virginia, Wyoming, Colorado, South Dakota, Indiana, the District of Columbia, and Utah. The “give them a fish” or most generous welfare spending states were: California, New York, Rhode Island, West Virginia, Mississippi, Maine, Arkansas, Kentucky, Louisiana, and Alabama.

For all 50 states and D.C. there was a strong negative relationship between 1990 and 1999 welfare spending and subsequent economic performance. This data provide at least superficial support for the hypothesis that overly generous welfare benefits serve neither the poor, nor the broader economy.

Ernie Goss

1 comment:

Theodore said...