What the Poor Need Most.(welfare reform efforts)

For much of the twentieth century, it was generally assumed that to help the poor, one must give them money, because that was what they chiefly needed. Today a new consensus has arisen on helping the poor. In the words of a 1987 manifesto (published by AEI) that accurately forecasted the evolution of welfare policy, "low income is in a sense the least of [the] problems" of many among the poor, for whom "a failure to take responsibility for themselves and for their actions is at the core." While it is easy to transfer money, "to overcome behavioral dependency requires a much more human, complex, and difficult engagement."

Dependency cannot be overcome by income transfers, but it can be overcome by the promotion of the habits or virtues that foster self-reliance. The "difficult engagement" of contemporary anti-poverty policy lies in its attempt to encourage the virtues of thrift and diligence.

To some extent, the effort to encourage these virtues is self-contradictory, because it amounts to subsidizing self-reliance. For example, if a welfare mother eager to work is given a subsidy to help pay for transportation to her job (or for child care), is she self-reliant (because she is working) or dependent (because her work-related expenses are subsidized)?

The obvious answer is, both. Policies designed to promote thrift and diligence recognize that self-reliance and dependence are not all-or-nothing propositions. Subsidies for transportation and child care aim to wean the poor from absolute and prolonged dependency. They offer an incentive, or at least reduce a disincentive, in the hope of promoting virtuous behavior and assisting the poor in gradual steps to more and more self-reliance.

Encouraging the virtue of thrift certainly helps the poor to help themselves. Some of the reforms in this area reverse long-time welfare policies. For example, in the pre-reform welfare system persons who received Aid to Families with Dependent Children routinely had their assets seized if they saved more than $1,000. This strongly discouraged saving among the poor. A 1997 survey of credit union members with low incomes found that 49 percent of the recipients of public assistance among them agreed that "I would save more, but the government would cut my benefits if I did."

The 1996 welfare reform law permitted states to raise these limits, in order to reduce welfare recipients' disincentive to save. As of now, almost all states have increased asset limits.

In addition to removing disincentives to saving, the movement to encourage thrift among the poor also incorporates efforts to reward poor people who do save. "Typically, the poor have been told they should work hard and save more," observes Michael Sherraden, the leading proponent of policies designed to increase the savings of poor Americans, "but historically, there have been few programs or incentives to encourage them to do it."