A SORCERER IN SEARCH OF SOURCES: THE WIZARDRY OF GEORGE GILDER
Waitzman, Norman
When David Stockman, the Sorcerer of supplyside Fantasia, characterized George Gilder's Wealth and Poverty as "Promethean in intellectual power and insight," Gilder quickly gained prominence as...
...And just as it would be an absurd exercise to divide the military budget by the nation's population and declare that national security adds $3,500 onto the income of the average family of four, so it is absurd to perform the same exercise regarding welfare services of the same public character...
...Indeed, while all welfare expenditures were about 8 percent of GNP in 1971, and 11 percent in 1976, this latter percentage has generally remained stable or even declined, something Gilder does not acknowledge...
...Surely, such a procedure ignores the fact that welfare benefits do not increase proportionately with family size...
...they are far less than what the average comparable, nonwelfare household has, not more...
...508...
...For Hobbs and Gilder, yes...
...A close look at Gilder's sources indicates that his best-seller was something of a Trojan Horse...
...Mainstream economics tells us that unless the person with the coupon would ordinarily spend all $10 on ice cream, the ice cream, while it may have cost society $10 to produce, is not worth $10 to the purchaser...
...12) The distortion in growth rates above is a minor gaffe compared to the fact that Gilder both ignores and wrongly assesses the impact of inflation and of certain economic trends and demographic changes...
...Disability insurance in all its multiple forms encourages promotion of small ills into temporary disabilities and partial disabilities into total and permanent ones...
...Social Security payments may discourage concern for the aged...
...4) This flaw is compounded because Gilder chooses to make the size of the typical welfare family larger than it really is...
...It is based on the number of people receiving Medicare, Medicaid, and veterans' health benefits, and assumes that all welfare recipients get benefits from at least one of these programs...
...And as anyone who bothers to visit a welfare family can attest, their lives are neither attractive nor more luxurious than the lives of working families...
...And he says that these programs paid out $200 billion worth of benefits to 50 million individuals annually (even though his expanded definition of "welfare" did not reach $200 billion until 1977...
...2) Why does Gilder compare the welfare estimate for a family of four to the median income of all households, most of which have fewer than four members...
...But far more is wrong with Gilder's analysis...
...15.8 million received none of these...
...How then are Food Stamps, Medicaid, and other in-kind subsidies to be valued...
...Therefore, even the $7,750 welfare figure cited in (7) above is a bloated estimate compared to a private cash income of $7,750...
...SIC LRITY "WFI FARC...
...In order to succeed," says Gilder, "the poor need most of all the spur of their poverty...
...Though the passage is footnoted, the citation, a New York Times article, refutes rather than supports Gilder's contention...
...Yet the poverty rate for all persons decreased from 12.1 percent to 11.6 percent over the course of the decade...
...In a feeble attempt to compensate for these substantial exclusions from the recipient estimate, Hobbs and Gilder tag on an extra 2.5 million, bringing their final estimate to an even 50 million...
...Welfare benefits of the family of four (which is not the "typical" welfare family) were less than $7,750 in 1976, not $15,000...
...administrative costs of programs are treated as benefits received—and all these contentions act to skew Gilder's welfare estimate upward...
...received average benefits that brought them 30'X above the official poverty line, something that could only be achieved by two full-time workers at the minimum wage...
...9) A "resourceful welfare family" with no aged members, Gilder says, "could get benefits from seventeen programs...
...Of those, at most 25 percent received Medicaid, Medicare, or any kind of veterans' benefit...
...They base their analysis, first of all, on misleading comparisons and a faulty method—multiplying average individual benefits by the size of the "typical" welfare family...
...In 1976, AFDC, Food Stamps, and Medicaid payments amounted to $6,000 on average, for a welfare family of four...
...The present welfare system, says Gilder, creates poverty: Unemployment compensation promotes unemployment...
...Another falsity...
...Part of the value of the coupon is lost in the circumscription of choice...
...10) Gilder assumes that an in-kind transfer costing a dollar has the same value as a dollar in cash...
...Since income distribution is highly skewed in the U.S...
...Rather than welfare programs, it is poverty that is demeaning...
...After Ronald Reagan seconded the motion, Gilder became the Sorcerer's Apprentice...
...Charles Hobbs and hence George Gilder make the same error with respect to school lunches, unjustifiably excluding 5.5 million from the welfare population estimate...
...The relevant comparison is between families of the same size...
...Based on figures in the U.S...
...The figures cited from various studies on New York's AFDC, Food Stamp, and housing programs corroborate the evidence in (7) above, which counters Gilder's figures...
...Though Gilder argues that these programs are the tip of the iceberg, they indeed are the iceberg...
...Yet what of recipients of unemployment compensation and school lunches, many of whom do not benefit from these three programs...
...Consider the estimate of 47.5 million "welfare" recipients in 1976...
...They adopt a simple growth rate, which ignores compounding...
...they have barely held their own or declined over the past ten years—not increased...
...5) Since the average individual benefit is figured by dividing the "welfare budget" by the "welfare population," anything that decreases the former or increases the latter would act to shrink the size of this benefit...
...After adjusting the welfare budget and the welfare population accordingly, the estimate for the average benefit per individual is trimmed to $2,500 in 1 976...
...A mother and one child receive proportionately more benefits than a mother and two children, and so on...
...budget, it is probable that the average administrative cost is about 8 percent of the total welfare budget...
...The issue has received considerable attention in economics literature but is not settled...
...To uniformly apply an individual benefit as a multiplier, as Hobbs and Gilder do, skews the estimated benefits of larger families higher than they really are...
...When correct, the book's sources often contradict Gilder's citation...
...grew one and a half times as fast as GNP and three times as fast as wages during the 1970s (even though his source covers only 197176...
...In 1979, for example, the mean income for a family of four was $25,050, that is, 50 percent higher than the $16,500 he cites...
...Gilder, of course, would not let something as empirical as an on-site visit interfere with his ideological arithmetic...
...8) Gilder asserts that poor families on welfare do as well as two full-time workers together at the minimum wage: Poor families alone...
...He then manufactures an attractive, even luxurious picture of the present welfare system that satisfies the need of radical conservatives for a rationale to make deep cuts in AFDC, Medicaid, Social Security, and other social programs...
...It now turns out that Gilder has imitated Stockman in several respects...
...While the vast majority of households that receive AFDC or other public assistance income also receive Food Stamps and Medicaid, they generally do not receive veterans' benefits, unemployment compensation, Social Security, supplemental security income, and others on Gilder's list...
...The crucial goal [of a welfare program]," says Gilder, "should be to restrict the system as much as possible, by making it unattractive and even a bit demeaning...
...While Gilder cites programs from all three categories, it is evident that his main concern is with the first: aid to the needy...
...Consider economic factors...
...a substantial proportion of the income goes to the rich), the mean income is significantly higher than the median, typically by 20 percent...
...This number is then multiplied by four to obtain the "typical" family's welfare benefit...
...For 1979, for example, the Census Bureau estimates that 6.5 million households received unemployment compensation, representing 21 million individuals...
...His conceptual bias, for example, leads him to include in the "welfare budget" programs for which the typical welfare family is either ineligible or has no use...
...I) G111)(12 Al ER -FS US early in the text to the legerdemain of the statistician, writing, "The statistician can make great play with medians...
...But Gilder should heed his own admonition, since he himself compares a mean estimate (of welfare benefits) to a median estimate (of income...
...The philosophy of "rugged individualism" notwithstanding, the factual evidence shows that welfare programs have helped the poor, and not robbed them of their spurs...
...3) Hobbs and hence Gilder arrive at the "typical" family's welfare estimate by dividing an estimate of the "welfare budget" by an estimate of the number of welfare recipients so as to obtain an individual welfare estimate...
...Moreover, it is not true that all component parts of the welfare package kept pace with inflation...
...For example, the average AFDC benefit declined 19 percent in real terms between 1969 and 1979, according to a study by Richard Kasten and John Todd...
...But poverty was also reduced among blacks, persons in female-headed households, and in households of unrelated individuals over the age of 18...
...It is common knowledge that New York welfare benefits far exceed the nation's average...
...7) A Joint Economic Committee study, however, notes that income security programs fall into three general types—aid to the needy, social insurance, and deferred compensation...
...Gilder leaves one perplexed, therefore, about exactly how welfare programs were "extended beyond their mandate" during a decade of declining benefits...
...Despite the fact that economic conditions would have pointed in the direction of increased poverty, welfare programs—even in the face of declining average benefits—helped to alleviate it...
...Financial Assistance for Elementary and Secondary Education, for example, awards grants to school districts to provide facilities for the handicapped and to administer special programs, such as bilingual education...
...Free or reduced-price school lunches and public or subsidizedrent housing, however, do reach a larger proportion of AFDC households (43 percent and 18 percent respectively) than the programs just listed...
...When they jibe with Gilder, they are often unfounded...
...While the introduction of Food Stamp programs, which are indexed to food prices, helped to mitigate the decline of AFDC benefits in many states, the average AFDC plus Food Stamp benefit declined 9 percent between 1974 and 1979...
...These estimates, which Gilder calls "real averages, not extreme cases," are then compared to the median income for all households —$14,500 in 1976 and $16,500 in 1979...
...The entire comparison is thereby put into a new perspective when noncomparables are made comparable...
...The corresponding benefit for a household of four, even ignoring errors (3) and (4), is $10,000 for 1976, two-thirds of the $15,000 Gilder estimate...
...It is this more popular conception of the welfare recipient—the poor, generally femaleheaded household receiving AFDC, Food Stamps, Medicaid, and subsidized housing—that also elicits Gilder's vituperation: The fundamental fact in the lives of the poor in most parts of America today is that the wages of common labor are far below the benefits of AFDC, Medicaid, Food Stamps, public housing, public defenders, leisure time, and all the other services of the welfare state...
...Yet the more children there are in a welfare family (everything else being equal), the less benefits per family member are received...
...This is factually incorrect...
...And while other benefits—Medicaid, housing assistance, and energy assistance—held their own or increased over the period, the increase was not sufficient to compensate for the decline in AFDC payments...
...For this reason, Food Stamps can be more legitimately treated at face value than Medicaid, since food subsidies, studies show, more closely replace ex507 penditures that the recipient would have made without the subsidy...
...A preferable method is the "exponential growth rate," which figures growth instantaneously, thus eliminating the problem of time horizons...
...While expenditures for social programs nearly doubled in real terms during the 1970s, the eligible population grew as well...
...If all of the funds targeted for lunches and housing were diverted solely to AFDC recipients, the welfare family of four in 1976 would be better off by $1,750...
...In other words, it pays for average householders to quit their jobs and go on the dole...
...As a result their growth rate is not only exaggerated but capricious, because it can take on a whole range of values by either increasing or decreasing the time horizon over which it is measured, even while the actual rate of growth does not change...
...I: Methodological Errors RELYING SOLELY on a Heritage Foundation study by Charles Hobbs, Gilder maintains that welfare programs in the U.S...
...In other words, even if we accept Gilder's estimate of $3,740 per individual and the highly questionable methodology, the "typical" welfare family of two and three would receive $7,500 and $11,220 respectively, not $15,000...
...Are workers' compensation payments, Financial Assistance for Higher Education, community alcoholism treatment, special benefits for disabled coal miners, 506 Indian benefits, veterans' benefits, all to be huddled under the rubric "welfare...
...Obviously, benefits that come closest to simply replacing what recipients would in any case have spent their money on can be treated with less distortion as cash equivalents...
...Much of this was the result of the impressive inroads made on poverty among the elderly...
...For Gilder, government is a colossal insurance company whose excessive generosity has created perverse incentives and a gross dependency...
...Second, the size of the average welfare family is exaggerated...
...II: Substantive Errors IS SOCIAL...
...Indeed, the mean and median size of families receiving such benefits as Food Stamps, Medicaid, and public, subsidized housing is three or less, not four...
...Aid to Families with Dependent Children (AFDC) makes more families dependent and fatherless...
...Rather than $16,500 in 1979, for example (which is lower than Gilder's welfare estimate), the mean income of all households was $19,554 (higher than his welfare estimate...
...Thus a generous estimate of the cash equivalent of yearly benefits for a welfare family of four in 1976 is $7,750, well below the wages of working families...
...6) At the same time, the estimated welfare budget is too high because various administrative costs of programs are treated as benefits received by the welfare population...
...III: Growth Rates & Incentives (I I) GILDER AND IIORBS ASSERT that, in the 1970s, welfare grew two and a half times as fast as GNP...
...Consider his citations on welfare...
...This trend has continued into the 1980s...
...and 505 means or averages...
...Also, the evidence is for New York only, while Gilder's claim covers the entire nation...
...But as shown above, the welfare population in 1976, a year that witnessed more households taking unemployment compensation than 1979, was, at minimum, 68.8 million persons, not 50 million...
...Dividing the expenditure figure by the recipient figure for 1976 yields $3,740 in benefits per recipient, prompting Gilder to allege that the "average welfare family of four" received a whopping $15,000 worth of subsidies in 1976 and close to $18,000 worth in 1979...
...In order to comprehend the reason for an increase in the numbers on the welfare roles, one has to look toward overall economic conditions and demographic changes rather than toward public spending...
...But on examination, the rationale collapses when one examines Gilder's empirical props...
...The median size of households below the poverty level is two, not four...
...Social Security payments, comprising one quarter of the estimated "welfare budget," go on average to a household of two...
...Gilder's welfare estimate is 30 percent lower than the mean income of comparable households, not, as he alleges, 10 percent higher...
...the overlap between recipients of various programs is severely overestimated...
...Consider a situation where, in lieu of a salary of $10, one is given a nontransferable coupon for $10 in ice cream...
...Kasten and Todd estimate that, based solely on increased unemployment and slower wage growth, the poverty rate in 1979 would have been 2.4 percent higher than in 1969...
...With this method, the growth rate of welfare would not be nearly as meteoric as Gilder maintains...
...Wrong again...
...Correcting a few of these methodological and mechanical errors yields $10,000 in benefits for a family of four in 1976, not $15,000...
...It is interesting to note that medical transfers constitute over 80 percent of the total market value of housing, food, and medical inkind transfers...
...When the welfare family's benefits are figured from the bottom up, so as to correct many of these errors, it becomes clear that a very generous estimate of their magnitude, even when incorporating less widespread benefits such as housing subsidies, amounts to $7,750 in 1976—about half of Gilder's projection...
...To gather what this signifies, consider that the mean (or what is commonly called the average) of three numbers, say 1, 10, and 100, is 37, while the median is 10 (the middle number...
...But for Gilder, poverty is a necessity...
...When David Stockman, the Sorcerer of supplyside Fantasia, characterized George Gilder's Wealth and Poverty as "Promethean in intellectual power and insight," Gilder quickly gained prominence as a New Right ideologue...
...Moreover, the typical welfare benefits have in real terms shrunk since then because of inflation a trend that, of course, discredits Gilder's entire thesis that perverse incentives have spread throughout the country owing to the growth of welfare statism...
...One can go out and purchase bilingual teaching in the public schools just about as easily as one could lay claim to a prorated strip of public road or a share of national security...
...The bulk of the programs that are additions to the typical family's welfare benefits cited in (7) do not provide cash benefits or even services that remotely resemble what an individual would or could purchase...
...Gilder and his source are wrong...
...Only an atypical family contending with a special host of deleterious circumstances including, among others, a child or mother with a handicap, a legal problem affecting large groups of low-income persons, an infant who does not have access to essential nutrients, a language barrier in school, could tap into all 17 programs that Gilder cites...
...It leads him also to treat public goods as private goods and in-kind transfers as cash equivalents where they clearly are not, and to figure growth rates in a way that grossly distorts them...
...Perhaps this is why Gilder prefers to make no citation for his false claim that "welfare recipients in most states kept up with inflation or improved their position through the tripling of food stamps and other in-kind supports" during the 1970s...
Vol. 30 • September 1983 • No. 4
