American Exceptionalism Part 4: The Social Safety Net

Among Western democracies the United States spends less on social welfare than any other country. As noted in our previous post the United States never adopted socialism nor did a political party that actively promoted “socialism” ever take more than 6% of the popular vote (1912). As a consequence, the United States never adopted a strong social safety net. During the depression and after WWII, the United States did create and expand a number of social welfare programs. Under President Roosevelt’s New Deal, Social Security (1935), Welfare Programs (1935) and Food Stamps (1939) were enacted.  In 1943, because of the booming economy, the food stamp program was ended.  The first Unemployment Insurance program was begun in Wisconsin (1932) and subsequently spread to other states. President Johnson’s War on Poverty was highlighted by the creation of Medicare and Medicaid (1965) the re-establishment of a permanent food stamp program, as well as a number of efforts to expand employment.

Nevertheless, all of these programs were thought of as specific responses to specific problems and not part of an overall social safety net. Let’s look at the differences in the “safety net” between the United States and a typical European democracy (Germany) and a European country that considers itself to be a social democracy (Sweden). What is clear is, that outside Social Security, Medicare and Medicaid, the United States does not have social welfare programs like European countries and other advanced countries around the world.  At least 19 European countries as well as Canada, Israel, Japan, South Korea and a number of other countries provide child payments. The United States does not.  The U.S. is the only country that doesn’t provide parental leave nor publicly paid sick leave. The United States is the only country without a universal health system that is publicly funded. The differences are demonstrated in the table below.

As a consequence, the United States has:

• A poverty rate of 23.1% compared to 11.3% in both Germany and Sweden although the definitions of poverty vary.
• In the U.S., 27.7% of its income goes to the bottom 40% compared to 30.9% in Sweden and 30.4% in Germany
• The ratio of the income of the top 20% to the income of the bottom 20% is 8.4 in the U.S. while it is 4.5 in Germany and 4.2 in Sweden
• Moreover, in the U.S. the bottom decile only receives 1.7% of total income compared to 2.9% for Germany and 3% for Sweden.

When we compare health outcomes the divergence is just as great:

• The United States spends 17.1% of its GDP on health while Germany spends 11.2% and Sweden 11.0%
• Despite spending more, life expectancy in the United States is only 78.5 compared to 81 in Germany and 82.4 in Sweden.

By now the picture should be clear; the United States has not put up the same safety net as almost all other advanced countries and the result is more poverty and worse health. Why did the U.S. never adopt safety net programs popular in every other advanced country?

Alberto Alesina, Edward Glaeser and Bruce Sacerdote wrote an article asking “Why Doesn’t the U.S. have a European-Style Welfare State?” They explored economic, political and behavioral reasons for the substantial differences between the United States and Europe. Their conclusions were:

“Our bottom line is that Americans redistribute less than Europeans because (1) the majority believe that redistribution favors racial minorities, (2) Americans believe they live in an open and fair society and that if someone is poor it is their own fault, and (3) the political system is geared toward preventing redistribution.”

These conclusions need an explanation, and because they were made in 2001 they need to be updated.  Let’s start with the idea of racial bias, which has probably the most support in the academic literature. Eric Luttmer found in a 2001 study that “individuals increase their support for welfare spending as the share of local recipients from their own racial group rises.” Lee and Roemer, in a 2006 article, conclude that “In common with others, we suggest that voter racism decreases the degree of redistribution due to an anti-solidarity effect: that (some) voters oppose government transfer payments to minorities whom they view as undeserving.”

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Finally, Alena Samuels, writing in The Atlantic, notes that the United States, under the welfare reform program spearheaded by the Clinton Administration in 1996, shifted cash transfers from individuals to block grants to states. The program, called TANF (Temporary Assistance for Needy Families), left the states with the responsibility to determine

• who is eligible for assistance and under what conditions;
• what benefits families receive;
• how long families receive benefits (up to 60 months for adults receiving federally funded assistance);
• what services, if any, adults receive to help them prepare for employment;
• what employment activities are required of adults (subject to federal performance measures described below); and
• what benefits, if any, children receive if a parent is not eligible for benefits.  

The first thing to note about TANF is that it decreased benefits available to the poor everywhere in the United States. In 1996, 68% of the families living in poverty received TANF benefits; by 2015, that had declined to only 23%.  Moreover, as shown in the chart below, the whiter the state, the more families received benefits and the blacker the state, the fewer families received TARF benefits. The Urban Institute, using data from the Center on Budget and Policy Priorities, found that the whitest states have the highest TANF-to-poverty ratio. (It must also be noted that there is a strong correlation between the “whiteness” of a state and its per capita income. They include Vermont, which gives TANF to 78 families for every 100 families in poverty, and Oregon, which gives TANF to 46 families for every 100 families living in poverty. States that have the lowest TANF-to-poverty ratio are those with high shares of African Americans, including Louisiana, which gives benefits to four families for every 100 living in poverty, and Arkansas, which gives benefits to seven families for every 100 living in poverty. This is shown in the following chart.

It is interesting to see how the attitude of Americans to the safety net changes as the words used to describe it change.  When it is labeled “Assistance to the poor,” only 9.7% of the people (in 2020) believed the level of assistance was too high compared to 67.9% who believed it was too little. On the other hand, when Americans are asked whether “welfare” is too much or too little, the results are reversed, with 41.6% believing it is too much compared to 23.9% who believed it was too much.

But racism is not the only reason the United States has a penurious welfare system compared to Europe. One explanation often put forward is the degree to which the political system exhibits proportional representation. Alesina et. al. found that in a sample of European countries, the higher the proportionality the larger the welfare transfers. (The rationale for this is that in systems which are based on geographic representation, welfare programs would be more specific or “pork barrel” programs, while in those systems where geographic representation is weak, welfare programs will tend to be more universal).  In fact, the following chart shows just that. Notice that the USA is in the bottom right corner of the chart –low transfers and low proportionality.

Conclusions

The United States has never developed the social welfare programs present in Europe.  While part of the reason for this is the peculiarity of our history (see my last post which discusses why the U.S. rejected Socialism). Another part is our particular political institutions –two party democracy and federalism. The final reason, which hopefully is beginning to wane, is racial prejudice, which identifies many of the potential welfare recipients as African Americans and thus allows a racial stereotype of the poor as lazy and unworthy to determine governmental generosity.