We all know that the economic recovery is slowing. While it’s clear that growth is slowing, the reasons why are not so clear. Some blame it on the fiscal cliff of higher taxes and government spending cuts come January 1, unless Congress does something to stop it before the end of the year. Others blame it on the slowdown in global growth, especially in Europe. Still others say that the Fed should have done more. Some even say it’s election-year uncertainty.

One thing is for sure: Public confidence in the economy has fallen significantly since late May. With consumer spending accounting for approximately 70% of GDP, it should not be a surprise that the economy slows down when consumer confidence weakens, as has been the case in recent months.
Today, I want to focus on recent developments in the Welfare State in America. The administration recently gutted the work requirements in the 1996 welfare reform law enacted by President Clinton and the Congress. Most feel this move was blatantly illegal and will be challenged in the courts in the months and years ahead.

Also on the subject of welfare, the number of Americans on Social Security Disability Insurance is exploding, even faster than the rate of new jobs created in this country. Likewise, the number of Americans receiving food stamps is at a record high above 46 million and rising. Ditto for the number of Americans now living in poverty.
Most Americans are unaware of these developments, so this should make for an interesting column. Let’s get started.

Welfare Work Requirement Gutted
In 1996, President Clinton and Congress worked together to pass a sweeping bill to reform welfare in this country. Many consider this legislation the signature accomplishment in President Clinton’s legacy. Within that law was a clear requirement that most recipients must work or at least be actively looking for or training for work at least 30 hours per week in order to receive welfare payments.

The 1996 welfare reform bill, otherwise known as the Temporary Assistance for Needy Families (TANF), ended welfare as an entitlement and empowered states with the authority to create unique and robust welfare-to-work programs, including a specific set of activities that qualified as work. As the name of the bill suggests (Temporary), these benefits were intended to be short-term in nature.

The bill included a requirement that a certain percentage of each state’s welfare caseload (currently 40%) had to be working or preparing for work. A great deal of effort was put into defining what qualified as work, and making sure that work actually meant work and not activities such as bed rest, massage, exercise, personal care, etc.
Shortly after President Clinton signed the bill into law, welfare caseloads fell drastically, while at the same time employment among single mothers rose and child poverty fell. Welfare rolls in some states fell by roughly half, whereas they had never fallen for four decades. In other words, it worked and has been lauded as a bipartisan success ever since.

On July 12, however, the Health and Human Services Department (HHS) issued an administrative order to the states that effectively reverses the work requirements contained in the welfare law. This move is troubling because lawmakers went to great lengths to craft the 1996 reform law such that the work requirement could not be easily reversed, certainly not without congressional approval.
For whatever reasons, President Obama decided to do it anyway. Many Republicans and even some Democrats are stunned and dismayed by this action. It is not entirely clear why the administration chose to make such a controversial, and many say illegal, decision that once again involves executive power. I have some thoughts that I will share at the end of this article.

Congress is moving to block the Obama administration from unilaterally weakening welfare rules after the HHS notified states they may seek a waiver from the program’s work requirements.  The House and Senate Republicans introduced a bill in July to prohibit the administration from implementing its latest policy or approving any change that waives compliance with the program’s work rules.
They claimed the administration had overstepped its bounds in eviscerating planks from the 1996 bipartisan agreement on welfare reform. Senator Orrin Hatch (R-UT) said in a statement:
Gutting welfare work requirements with the stroke of a pen and without congressional input is simply unacceptable and cannot be allowed to stand. No administration should have the power to unilaterally change the law as it sees fit.
It will be most interesting to see if President Clinton will have anything to say about this! Welfare reform, as noted above, was arguably his greatest accomplishment.

Disability Rolls Outpace New Jobs Big-Time
More workers joined the federal government’s disability insurance program in the second quarter than got new jobs, according to two new government reports, a clear indicator of how bleak the nation’s jobs picture is after three full years of economic recovery.
The economy created just 225,000 jobs in the second quarter, the Bureau of Labor Statistics reported earlier this month. But in that same period, 246,000 workers left the workforce entirely to enroll in the Social Security Disability Insurance program, according to the Social Security Administration (SSA).
The disability ranks have outpaced job growth throughout President Obama’s time in office. While the economy has created 2.6 million jobs since June 2009, fully 3.1 million workers signed up for disability benefits. Put differently, the number of new disability enrollees has climbed 19% faster than the number of jobs created during the sluggish recovery.

This doesn’t take into account workers’ dependents that may also qualify to receive disability checks. If we count those dependents, a record 5.4 million people have signed up to collect federal disability checks during the Obama administration.
In just the first four months of this year, 539,000 joined the disability rolls and more than 725,000 put in applications. By April of this year, there were a total of 10.8 million people on disability according to the SSA.

The question is, why have applications for disability insurance skyrocketed over the last three years? The main reason cited is the sluggish economic recovery, and that is certainly a major factor. Another reason is that more and more Americans are seeing their 99 weeks of unemployment benefits come to an end, and they try to qualify for disability. I’m told that almost anyone can get on disability if they hire a lawyer “ whether they are totally disabled or not.
The saddest part of this story is that very few people who get on disability ever get out of the program. According to SSA data, only 1% of disability recipients ever return to the workforce. I doubt that many Americans are aware of that fact.

Still Five Million Fewer Jobs Today
While hiring has been very weak during the recovery, the number of people who have dropped out of the labor force entirely has exploded by 7.3 million since June 2009, according to the Labor Department. Some of those aged into retirement, but most either signed up for disability, stayed in school, moved back in with parents, or just quit looking for a job altogether.

As a result, the “labor force participation rate” “ the number of people who have jobs or are actively looking for one, compared with the entire working-age population “ is now 63.8%, down from 65.7% in June 2009. This participation rate is at the lowest level in 30 years. In previous recoveries, the participation rate has almost always risen, not fallen.
Here’s another stark statistic: If we look back at the 60 years prior to June 2009, the jobless rate topped 8% in a total of only 39 individual months. In the current weak recovery, the unemployment rate has been above 8% for 41 consecutive months.

There is another grim statistic many people are not aware of: The total number of people working is still nearly five million below its pre-recession peak. Think about that. There are almost five million fewer jobs today than before the recession started. The media almost never mention this staggering number. The number of long-term unemployed “ those out of work 27 weeks or more “ is still 5.4 million, almost 1 million higher than when the recovery began, and almost twice the level it ever reached prior to the current recovery.

Record Number of Americans Now on Food Stamps
More people are on food stamps this year than ever before. The Supplemental Nutrition Assistance Program (SNAP) provides financial assistance for purchasing food to low (and no) income people and families. It is a federal aid program, administered by the Food and Nutrition Service of the US Department of Agriculture; however, benefits are distributed by the individual US states. It was enacted in 1964 and is commonly known as the Food Stamp Program.

In the 2011 fiscal year, $76.7 billion in food stamps were distributed. As of March 2012, 46.4 million Americans were receiving on average $133.14 per month in food stamps. Recipients must have near-poverty incomes to qualify for benefits, and in Washington, D.C. and Mississippi, more than one-fifth of residents receive food stamps.

The number of Americans receiving food stamps soared to almost 19% of the population in 2011, and it’s even higher today. As of April, more than 46 million people were in the program, which is expected to cost $80 billion this year. The food stamp rolls have ballooned by almost 40% just since 2009.
Many people believe that the explosion in the number of Americans on food stamps in recent years is largely a result of the Great Recession and the loss of millions of jobs across the country. No doubt that is a big part of the increase. But others, including me, believe that the administration has made a concerted attempt to get more people on the food stamp rolls in order to get more Americans dependent on the government.

US Poverty Rate Nearing Highest Level in 50 Years
The Census Bureau figures for poverty in 2011 will be released this fall in the critical weeks ahead of the November elections. The Associated Press recently surveyed dozens of economists, think tanks and academics, including conservatives and liberals, and found a broad consensus on poverty in the US.
The consensus is that the official US poverty rate rose from 13.2% in 2008 to 15.7% in 2011. If so, that would put the US poverty rate at the highest level in 50 years. Poverty is spreading at record levels across numerous demographic groups in the US, from underemployed workers and suburban families to the poorest of the poor.

The government’s definition of poverty is based on annual income received. For example, the poverty level for 2012 was set at $23,050 (total yearly income) for a family of four. The most common measure of poverty in the United States is the so-called poverty threshold set by the US government. This measure recognizes poverty as a lack of those goods and services commonly taken for granted by members of mainstream society.

More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. Suburbs are seeing some of the largest increases in poverty, including in such political battlegrounds as Colorado, Florida and Nevada, where voters are coping with a new norm of living hand to mouth.
Sadly, no end is in sight. The question is, WHY?

Conclusions: This is a Sad Commentary
Several of my in-house proofers made the comment that this column was more than a little depressing. I can’t disagree. Every sub-topic discussed above is a sad commentary on the state of affairs in our country today: 1) welfare work requirements revoked; 2) Americans on disability at record highs; 3) people on food stamps at record highs; and 4) poverty nearing a 50-year high. All of these are depressing headlines, no doubt about it.
But in the big picture, what may be even more depressing is the question of whether or not these trends are the result of some grand design. Take for example the administration’s latest executive directive to eliminate the work requirements to receive welfare payments just four months before the elections.

Republicans and Democrats largely agree that the Clinton welfare reforms were working “ IF you consider the goal to be more people working instead of on welfare.  Yet Obama chose to fix something that wasn’t broken.  No one can definitively rule out that this was done to increase the number of people who are dependent on the government, and thus more likely to vote for the president in November.

Ditto for those on disability insurance and food stamps, which are both at record highs. Are these facts largely the result of the worst recession since the Great Depression? Or are they partly the result of a larger plan to get more Americans dependent on the government for their daily subsistence?
I can’t say for sure, but I suspect it is a combination of both. I know that is a very controversial statement to make, and I know that some of my readers will take me to the woodshed in their e-mails just ahead. But if you stop and think about these troubling trends in our country, somebody has to at least raise the possibility.

Gary D. Halbert is the president and chairman of Profutures, Inc.  Subscription rates for Forecasts & Trends is $197 for 12 issues and may be obtained by visiting his website at www.profutures.com.

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