There are no good options, just less bad options

TO BE NOTED: From the NY TIMES:

"States Slashing Social Programs for Vulnerable

By ERIK ECKHOLM

PHOENIX — Battered by the recession and the deepest and most widespread budget deficits in several decades, a large majority of states are slicing into their social safety nets — often crippling preventive efforts that officials say would save money over time.

President Obama’s $787 billion stimulus package is helping to alleviate some of the pain, providing large amounts of money to pay for education and unemployment insurance, bolster food stamp programs and expand tax credits for low earners. But the money will offset only 40 percent of the losses in state revenues, and programs for vulnerable groups have been cut in at least 34 states, according to the Center for Budget and Policy Priorities, a private research group in Washington.

Perhaps nowhere have the cuts been more disruptive than in Arizona, where more than 1,000 frail elderly people are struggling without home-care aides to help with bathing, housekeeping and trips to the doctor. Officials acknowledge that some are apt to become sicker or fall, ending up in nursing homes at a far higher cost.

Ohio and other states face large cutbacks in child welfare investigations, which may mean more injured children and more taken into foster care. Despite tax increases, California has ended dental coverage for adults on Medicaid, all but guaranteeing future medical problems.

“There’s no question that we’re getting short-term savings that will result in greater long-term human and financial costs,” said Linda J. Blessing, interim chief of the expressing the concerns of officials and community agencies around the country. “There are no good options, just less bad options.”

Arizona has one of the nation’s highest deficits in relation to its budget. As revenues sank late last year, forcing across-the-board cuts this spring, the child protection agency stopped investigating every report of potential abuse or neglect, and sharply reduced counseling of families deemed at risk of violence. Some toddlers with debilities like autism and Down syndrome are not getting therapies that can bring lifelong benefits. And here, as in other states, the drive to help disabled people live at home has been set back.

Mary Beth Thompson, 57, who lives in an apartment with two small dogs here, is on the growing waiting list for help. Seriously overweight, with chronic pain and weakness on her left side, she has trouble moving about and cannot step into the bathtub without falling, she said, displaying the cast on her broken wrist.

“I can’t even walk to do the laundry anymore,” she said from the chair where she spends most of her days playing with her dogs, one of which she has trained to knock the handset off the telephone so she can reach it when she falls.

Winona Conn, 75, who uses a wheelchair because of a paralyzed leg, has been on the waiting list for home aid for a year. “It feels like you’ve been shelved,” she said.

In Florida, recent modest cuts in home aid came on top of a growing backlog, while the number of people in need keeps climbing. State support for home and community services was reduced by $2 million in 2008, and the waiting list has grown to 50,000 from 30,000, said E. Douglas Beach, secretary of the Department of Elder Affairs.

Reluctantly endorsing another $1 million in cuts next year to salvage a different program, Mr. Beach told legislators, “It’s like trying to decide whether to give up your first-born boy or your first-born girl.”

Mary Lynn Kasunic, president of the Area Agency on Aging in Phoenix, described the potential consequences. “If you don’t give people a bath a couple times a week, change the linens and make sure they get their medicines, their health will decline much faster,” she said. “They end up in the emergency room in a crisis, and then in a nursing home.”

The Illinois governor’s budget proposal would scale back home visits to ill-equipped first-time mothers, who are given advice over 18 months that experts say is repaid many times over in reduced child abuse and better school preparation.

“We spend $1.2 billion a year on child welfare,” said Diana M. Rauner, director of the Ounce of Prevention Fund in Chicago, which channels government money to private agencies. “You’d think we’d spend a lot of money to keep people out of that system.”

Ohio’s proposed budget “will dramatically decrease our ability to investigate reports of abuse and neglect,” with some counties losing 75 percent of their investigators, said Joel Potts, director of the Ohio Job and Family Services Directors’ Association, which represents county officials.

New York State is using stimulus money and a tax increase to avoid most of the large cuts in child care, nurse visits to inexperienced mothers and other services that were originally proposed. But if revenues keep falling by the billions, “all bets are off,” said Karen Schimke, president of the Schuyler Center for Analysis and Advocacy in Albany, which studies child and family issues.

As in many states, Arizona’s crunch came on fast and hard. In January, the newly seated Republican governor, Jan Brewer, had to cut $1.6 billion from a $10 billion annual budget — squeezing all the reductions into the final five months of the fiscal year ending June 30.

Arizona expects a $3 billion shortfall in the next fiscal year. In a speech to legislators in March, Ms. Brewer proposed to fill the chasm with $1 billion in spending cuts, $1 billion in federal stimulus money and — in a risky idea she floated after emphasizing her conservative credentials — $1 billion raised through “a temporary tax increase.”

Some Republican legislators still argue that state expenses are too large, while officials say that carving another $2 billion from the budget will wreak havoc. Ms. Blessing, of the Department of Economic Security, said her agency had already laid off 800 workers, including 15 percent of its child protection investigators, and imposed furloughs amounting to a 10 percent pay cut.

In one bit of good news for the department and its clients, the state has secured $18 million from the stimulus package to save child care subsidies for the working poor.

But some efforts to prevent child abuse, like in-home counseling of troubled families, have been deeply cut. This presents investigators with a stark choice: either remove children and put them in foster care or, as one case worker put it, “wait for something bad to happen.”

Idolina Moreno, 36, and her five children are still together and happier, she says, because they have been visited weekly for the last several months by a counselor who defused a simmering crisis. One daughter was angry and violent, Ms. Moreno said, and badly bruised the infant boy; Ms. Moreno admits to throwing a plastic bat to stop her. A school nurse called Child Protective Services.

Instead of removing the children, the agency called in a counselor who meets with family members both individually and together. “She’s been wonderful,” Ms. Moreno said.

Officials said it appeared likely that the counseling will continue for now. But she has also been told that special therapies for her mentally retarded 6-year-old son may be eliminated. “I don’t know what I’ll do if that happens,” she said. “I’m really worried.”

“Governments need to take quick and decisive action to avoid the financial crisis becoming a fully-blown social crisis,”

TO BE NOTED: From the NY Times:

"Safety Nets Not Enough to Allay Fears in Europe

By MATTHEW SALTMARSH

PARIS — It never occurred to Arancha Calvo that she would lose her job. Yet two weeks ago Ms. Calvo, a Madrid native, was laid off from a €60,000-a-year position as a sales executive in Spain for L’Oréal, part of a general downsizing at the French cosmetics company.

“I feel like a complete loser,” she said.

Fortunately, Ms. Calvo, 44, doesn’t have immediate worries about money. As a 19-year veteran of the company, she received €150,000, or $198,000, in severance pay. She also receives about €1,000 a month in state unemployment benefits, which were based on her most recent salary. She has rental income from two apartments she owns. And she lives with her parents.

Nevertheless, she worries about the future, especially over her prospects of re-entering the job market if the recession drags on. “Two years from now, I’ll be 46,” she said. “Who’s going to employ me then?”

In some ways Ms. Calvo’s story is typically European: The blow of losing her job was cushioned by a strong social safety net and the support of family. This is the Europe that most non-Europeans believe exists behind the rising jobless rates released each month.

On Wednesday, the European Union’s statistical agency said the unemployment rate in the 15 countries that share the euro rose to 8.5 percent in February from 7.2 percent a year earlier. It was lowest in the Netherlands, at 2.7 percent, and highest in Spain, at 15.5 percent.

By contrast, the U.S. figure rose to 8.1 percent last month, from 4.8 percent a year earlier. The faster rise there can be explained by the fact that Europe started the recession with a higher rate of unemployment, and it also tends to be harder and more expensive to remove employees in Europe. But Europe is by no means a homogenous welfare state. Different approaches to labor — rooted in history and enshrined in national policy — mean that Europeans who are thrown out of work can face a reality, and a future, very different from that of their neighbors.

Whether workers are well protected by the state or not, most experts agree that rising unemployment is becoming an increasingly acute social and economic problem in Europe.

“The worry here is not about social support,” said Elie Cohen, a professor at the Institut d’Études Politiques in Paris. “It’s about finding another job as the crisis lasts.”

Around the world, many people feel that governments are not doing enough to protect jobs. The stimulus packages enacted in most countries have favored financial bailouts and tax cuts instead of job creation and social protection. On Wednesday, labor unions called on government leaders at the Group of 20 summit meeting in London to agree on more generous support for those who lose their jobs in the financial crisis.

During a recession, as tax receipts fall, European countries simultaneously spend more on welfare. This process, known as automatic stabilizers, forms part of the debate about whether Europe should stimulate its economy as much as countries with lower outlays, like the United States and China.

“Governments need to take quick and decisive action to avoid the financial crisis becoming a fully-blown social crisis,” the secretary general of the Organization of Economic Cooperation and Development, Ángel Gurría, said this week.

Demographics, too, are a challenge. On the one hand, workers fear that as they age, they will be at a disadvantage when competing for scarce jobs against younger, less expensive workers. Experts also fear a shortage of skilled workers, as Europe’s population ages and becomes more of a burden on budgets.

Despite the advent of the single market, the labor market in Europe is fragmented. In Spain, the jobless rate runs as high as 25 percent in some regions, according to the country’s National Statistics Institute. And unemployment has spread from the construction sector to broader industry and services as domestic demand shrinks and global demand for automobiles drops.

Carlos Martín, an economist with the Workers Commissions, the biggest Spanish trade union, said that government projections that the country would begin to pull out of the crisis next year were unrealistic and that hundreds of thousands of jobs would be lost in hotels, restaurants and retailing. “Six months from now, we’ll be looking at five million unemployed,” he said. “This is going to be a deep, broad crisis that is going to last a lot longer than two years.”

The German imperial chancellor, Otto von Bismarck, had something more generous in mind when he designed the world’s first social insurance program — initiated in the 1880s — on the assumption that the welfare state should help smooth economic cycles.

“In Germany, there was this class system, with the richer classes feeling guilty and frightened of the working classes, creating this paternalism,” said Richard Layard, a professor at the London School of Economics. “In the U.S. and the U.K. it was the belief that all have the same opportunities, and if you don’t succeed it’s your fault. Now, it’s the belief that the more people you mobilize, the shorter the recession will be.”

In Britain, where the jobless rate is running at 6.5 percent and two million people are out of work, the unemployed receive the same allowance for six months, no matter how high their previous income was. After that the amount drops according to savings. The model is based on the assumption that the objective of a welfare system is to limit poverty.

“No one’s helping you,” said Irene Richardson, 53, of Southport, England, who lost her job as a sales assistant at Woolworths in January when the company, a household goods retailer, closed its stores. She is now struggling to find a new job and to survive on the £60.50, or $87, a week she receives from the government as a jobseekers’ allowance.

In France, the closure of midsize companies suppling the German export economy has been a particular problem. The unemployment rate is 8.6 percent; for those under 25, it climbs to 21.5 percent.

Unemployment assistance is based on contributions made, the contract held and years worked. Full-time employees can claim for a period of 18 months, slightly longer for people over 50, and they can receive a maximum of 75 percent of their most recent salary for six months, less for the remainder. After that, they pass to a basic monthly payment. Those on limited contracts receive far less generous payouts.

The flip side is that French employees and employers pay a hefty premium — approximately 20 percent of gross salary from employees and around 50 percent from companies — in social charges. This builds inflexibility into the labor market by making employers reluctant to hire.

Germany, where unemployment stands at 7.4 percent, has been affected by the collapse in its exports of goods like luxury cars and precision industrial instruments. But this has kicked its flexible benefits model into gear.

Six months ago at Trumpf, a machine tool maker in Baden-Württemberg, orders were up, sales were strong and there was a hope that the crisis might bypass the family-owned company that was founded in 1929.

“Then the crisis hit us, in November,” said Heidi-Melanie Maier, a spokeswoman. By the end of December, halfway through the company’s financial year, orders had fallen 20 percent.

So far, Trumpf has not cut jobs. Its 4,500 employees in Germany — of 8,000 worldwide — are on short-term work, but with a twist: Employees still receive full pay because when the company introduced overtime to deal with a previous surge in orders, workers were not paid extra. Now, that money is being used — with government help — to pay wages. That is why there is still not a sense of panic about swift job losses.

“The system, in principle, can work,” said Roland Döhrn, head of growth and labor cycles at RWI Essen, a policy institute. “But the problem facing companies is that after a time, it becomes very expensive to prolong short-time work.”

To hear Prime Minister Silvio Berlusconi of Italy, the global financial downturn has barely touched his country. Italy “is healthy,” he said recently, because 83 percent of Italians own their own homes, families know how to save, the country’s small and midsize businesses are extraordinary and the Italian banking system is solid.

But the on-the-ground statistics tell a different story. The latest figures from the national statistics agency Istat put the unemployment rate at 7.1 percent for the fourth quarter of 2008, up from 6.6 percent a year earlier.

But experts note that these figures do not taken into consideration Italy’s vast underground economy.

“Before, we used to speak of the ‘fourth week’ syndrome,” said Enrica Amaturo, dean of the Sociology Faculty at the University of Naples, referring to the moment in the month when families began to have cash-flow difficulties. “Now it’s become the third week.”

The crisis is accentuating the discrepancies within the Italian unemployment support system, which is structured to benefit select categories of workers.

When Alessandra Santoro, 31, lost her job in October at a client relations company in Rome that worked with Alitalia, the former national airline of Italy, she got no severance pay because she had been hired on a short-term renewable contract, which was simply not renewed.

She also gets no government unemployment benefits, since Italy’s welfare system does not cover short-term and part-time employees.

Ms. Santoro sent out dozens of résumés, first in her field of human resources — she has two master’s degrees — then for lower-paying secretarial work, to no avail. On Monday she started working as a salesperson in a chocolate shop, thanks to a tip she got from a friend. The job doesn’t pay much — Italy has no minimum wage — but “I need to pay the rent,” she said. And like others in her position, she feels that the longer she is out of the professional marketplace, the harder it will be to get back in.

“I’m afraid that employers will be more apt to hire someone younger,” she said.

Matthew Saltmarsh wrote from Paris, with reporting from Victoria Burnett in Madrid, Judy Dempsey in Berlin, Elisabetta Povoledo in Rome and Julia Werdigier in London."

But rather than resorting to layoffs, Mr. Koppe asked half his employees to come in every other week.

TO BE NOTED: From the NY Times:

"Europe, Aided by Safety Nets, Resists U.S. Stimulus Push

By NICHOLAS KULISH

VIENENBURG, Germany — Last month Frank Koppe gathered together all 50 of his employees at Koppe-Apparatebau for coffee, cake and the kind of bad news that has lately become all too familiar. He told them the small company’s business, designing and manufacturing custom equipment for industrial plants, had been sliced nearly in half.

But rather than resorting to layoffs, Mr. Koppe asked half his employees to come in every other week. The government would make up roughly two-thirds of their lost wages out of a fund filled in good times through payroll deductions and company contributions.

The program — known as “Kurzarbeit,” which translates as “short work” — and others like it lie at the heart of a heated debate that has erupted on the eve of next week’s Group of 20 meeting of industrialized and developing nations and the European Union, creating a rift between the Obama administration and European governments. The United States is pressing for a coordinated package of stimulus plans by member countries to encourage economic growth, something that Prime Minister Mirek Topolanek of the Czech Republic, which holds the European Union presidency, has called “a way to hell.”

But virtually all European governments, led by budget-conscious Germany, are resisting the American pitch, saying the focus should be on stricter regulation of financial markets.

The Europeans say they have no need for further stimulus right now because their social safety nets, derided in good times by free market disciples as sclerotic impediments to growth, are automatically providing the spending programs that the United States Congress has to legislate.

Europe’s extensive job protections and unemployment benefits are “bad in the upswing, because firms don’t dare to hire people, because then they are glued to them,” said Hans-Werner Sinn, president of the Ifo Institute for Economic Research in Munich. “In the downswing, it’s good if the people are glued to the companies. They keep their jobs. They keep their income. They keep consuming.”

The German Federal Labor Office projects that it will spend some $2.85 billion this year for more than a quarter of a million people who end up on Kurzarbeit. In comparison, the agency doled out around $270 million last year, as the financial crisis first began to bite, and roughly $135 million in both 2006 and 2007.

That is a relatively small amount of money compared with the $787 billion stimulus package passed by Congress, but the Kurzarbeit program’s defenders in the German government say it is carefully calibrated to keep people on the payrolls, where shared burdens mean an efficient deployment of resources.

The big numbers at the top of stimulus bills — promises of future highways, for instance — are not the same as money going into consumers’ pockets right now, and from there into cash registers, economists here say.

“While the magnitude of stimulus has been much less in Europe’s case, the stimulus has been getting much better traction in Europe than in the U.S. so far,” said Julian Callow, chief Europe economist at Barclays Capital in London. He cited a German incentive program that gave consumers around $3,400 to trade in old cars for new ones and that had led to 22 percent more auto registrations in February compared with the previous year.

“Europe can still do significantly more and needs to do it, but the needs for the U.S. have been much more pressing,” Mr. Callow said.

Germany already has generous unemployment benefits compared with the United States. And many German companies give workers the flexibility to save overtime hours, carrying over the pay for a rainy day. In the United States, despite scattered reports of unpaid furloughs and wage cuts, companies still rely heavily on layoffs to control labor costs.

As of July 1, Germany’s roughly 20 million pensioners are receiving an additional 2.4 percent in the former West Germany and 3.4 percent in the former East, the highest increases since 1994 and 1997, respectively.

Germany’s chancellor, Angela Merkel, believes the Americans have underestimated the economic impact of the country’s two stimulus packages, worth a total of about $110 billion. Indeed, in terms of immediate stimulus, according to calculations by the International Monetary Fund last month, Germany has committed to stimulus spending this year equal to 1.5 percent of the country’s gross domestic product, compared with 0.7 percent in France and 2 percent in the United States. According to a report from Bruegel, a research center in Brussels, while Germany churns out 19 percent of the European Union’s economic activity, it accounts for 37 percent of the group’s stimulus spending.

American critics, like Adam S. Posen, the deputy director of the Peterson Institute for International Economics in Washington, say that Germany needs to do more. “As a hugely export dependent economy, they have the most to gain from others’ fiscal efforts,” he said, “and the most at risk if the global trade contracts further — worse if they are accused of free-riding on leakage from others’ programs.”

Mr. Posen and others argue that while Germany may be doing more stimulus spending than others in Europe, it is counseling other European countries — many of which share the euro as their common currency — not to spend their way out of recession either, but to count on their safety nets to do much of the job.

“They’re the ones who basically browbeat other countries into not spending,” he said, “who give intellectual and political backbone to other countries’ conservative leanings not to stimulate.”

Without knowing it, Mr. Koppe’s 25 employees are playing their small part in keeping the German economy afloat. But nearly 70,000 employees of the automaker Daimler have been placed on short-hour status. On the bright side, it means they are able to play with their children, tend to their gardens or — with further government incentives — receive the kind of advanced training that will make them even more skilled when orders pick up again.

Harder times all but certainly lie ahead for Germany. Commerzbank said Monday that it expected the German economy to contract by a shocking 6 to 7 percent in 2009, roughly double earlier projections and the worst decline of the postwar era. Critics of the German government’s cautious approach to stimulus fear that because Germany is feeling the brunt of the worldwide recession last, its policymakers are underestimating its force.

Indeed, to travel between the United States and Germany is to find two countries experiencing the economic slowdown completely differently. The severity of the downturn does not appear to have sunk in yet in for Germans. There was no real estate bubble here, and few people have a substantial portion of their savings or retirement accounts invested in the stock market. The unemployment rate has risen more than a percentage point, to 8.5 percent in February from 7.1 percent last November. But, significantly, the latest figure is still lower than it was just a year ago.

“In contrast to America, our social systems are not on the decline right now,” Mrs. Merkel said Sunday night in a widely watched interview on a television talk show. “Pensions are not cut, unemployment insurance is not reduced. On the contrary, we can register stable and, in some sectors, also rising expenditures, and this makes me hope that our social market economy will enable us to cope with this complicated situation.”

Michael Hartmann, 49, a welder here at Koppe and one of the workers on shortened hours, said he and his wife were trying to save, buying cheaper groceries and driving less to save on gasoline, but doing nothing as severe as they would if he were laid off. “Of course I’m concerned about the reduced wages, but it’s better than getting fired,” Mr. Hartmann said.

In the meantime, he is learning a complicated welding technique at a nearby vocational school, which he hopes will make him more attractive to his current employer, or others looking for skilled workers.

Victor Homola and Stefan Pauly contributed reporting from Berlin."

"How bleak were communist societies with no charitable tradition, no volunteering, no civil society. "

From the Guardian:

"Thank goodness the poor don't rely on philanthropy

Donations are drying up as the recession bites - exposing the nonsense of the Tory belief in charity replacing the welfare state

Comments (119)

• 
• • Polly Toynbee
  • The Guardian, Saturday 10 January 2009
  • Article history

At the height of the boom the BBC led with the good news that the businessman Sir Tom Hunter was pledging to give away £1bn. "With great wealth comes great responsibility," he said. "I am not going to hide it under a bushel."

This heralded, many said, the new age of philanthropy, when the mega-rich would redistribute their wealth voluntarily( A GOOD THING ). No need for higher taxes: once they had every mansion, super-yacht and jet they could ever use, their excess wealth would buy glory with patronage to match the Rockefellers, Carnegies and Medicis. There was much pressure on the Treasury to give even bigger tax breaks for donations to charity.( A GOOD IDEA )

But that was then. This week Sir Tom Hunter said he would not be giving away £1bn, following losses in his investment empire. Last year Hunter was 68th in the Sunday Times rich list: this year he is expected to have dropped a few places, but not to drop out altogether. He has given over £35m for business enterprise lesson in schools and to projects in Africa.

Charity can expect a hard knock in the recession, with 52% in a recent poll expecting to cut back giving. A PriceWaterhouseCoopers survey expects charity incomes to fall by £2.3bn in 2009 - a sizable chunk out of last year's total of £10.6bn. One in three charities was laying off staff by the end of last year. Half of them say they are unable to meet increasing demands for their services. The British Red Cross cancelled its 2008 winter gala ball - an event that usually raises £500,000 - for lack of a corporate sponsor. Shelter lost £400,000 at the end of 2008 when corporate sponsors cancelled donations. "Giving from rich individuals, which had been flagged up as the next big thing, has gone down the pan," said the director of fundraising at British Red Cross.

A Response column in yesterday's Guardian from the ESRC Centre for Charitable Giving and Philanthropy said that these reports were alarmist and risked becoming self-fulfilling. It's certainly true that much giving continues; the BBC's Children in Need did well on the day (though badly in follow-up fundraising). However, Stephen Bubb, the head of the Association of Chief Executives of Voluntary Organisations, paints a pretty grim picture from where he sits, as do others overseeing the sector. The Charities Aid Foundation warns that in the last recession giving dropped by 64% - while demand rose by 90%. ( WOW )

Charity is the battle cry of the Conservatives, the answer to everything, the gentle face of their shrink-the-state rhetoric. Last June David Cameron launched a policy on the voluntary sector that "will provide many of the solutions to tomorrow's problems". The document on cities by the Tory MP Chris Grayling stresses that the "potential of our voluntary sector to tackle the difficult social problems in our most deprived areas is huge". Iain Duncan Smith concludes that small, local voluntary organisations are the best answer to his "broken Britain", lavishing praise on amateur community voluntarism.( IT IS A GOOD THING )

But in this mish-mash, they confuse two very different sectors - Duncan Smith's romantic Victorian vision of little battalions and the burgeoning third sector that increasingly takes on government contracts. Locally and nationally, those contracts are an arm of the welfare state, paid for out of taxation, not donations. Stephen Bubb points out that it's the huge increase in government support that has doubled the size and success of the voluntary sector in the last decade, delivering employment, social care and children's services. State funds to the voluntary sector now exceed public donations.( REALLY? )

This is just as well, as donations dry up in recession. And consider where charitable money from the public flows. This year, for the first time, religious institutions received most money - churches, mosques, synagogues and the like. Although only 7% of donors give to the religions, it is the small number of big donors who raise so much for religion. Next comes medical research - cancer mostly - and then children, followed by hospitals/hospices, overseas aid and animals. Looking at those priorities, it's worth remembering that every time someone gives to charity, the taxpayer is obliged to donate too. When, for instance, someone gives to the tiny Odinist Fellowship (which seems to take five times more money than it spends on Odin worship), we taxpayers put in up to another 28%, willy-nilly.( A BIT SILLY. YES. )

The randomness of charity is part of its charm, adding to the rich texture of society. How bleak were communist societies with no charitable tradition, no volunteering, no civil society. How desolate life would be without the impulse to give and volunteer - from raffles to sponsored runs, fetes to balls, tin-rattling poppy sellers to hospital friends' trolleys - for good or eccentric causes( I AGREE ).

Charity is mostly a social good in itself, but it is no substitute for the state( NOT IN RESPECT TO HELPING THE TRULY NEEDY. NO. ). It's an add-on: free-wheeling, often innovative, sometimes a beacon showing how to do things better, with ideas to lead the state sector( YES ). But it is minute compared to the welfare state( YES. AND WE HAVE ONE IN THE US ). Rightwing thinktanks that claim the welfare state has stunted Victorian voluntarism conveniently forget how little health, welfare or education charities ever delivered( TRUE. IT WAS INADEQUATE. ). The voluntary sector has only become more important by taking welfare state contracts to do things a democratically elected government chooses. The money is accountable - whereas random funds from philanthropists take a taxpayers' subsidy unaccountably.

As donors turn off the taps in a recession, what a disaster if the welfare state were seriously dependent on haphazard generosity. In the boom time, when I researched attitudes of high earners for the book Unjust Rewards, time and again the rich justified their extreme pay by citing philanthropy( SILLY ). It was a thin excuse as the top 10% give proportionally less of their income than the bottom 10% - so philanthropy should be a reason to pay more to low earners and less to the rich( I AGREE ). But imagine if all those powerful philanthropists devoted their energy to persuading fellow plutocrats to pay all their due taxes without resorting to avoidance. That would raise billions more - and do immense civic good.( I AGREE. I DO NOT BELIEVE IN VIOLATING THE LAW, EVEN WHEN IT COMES TO TAXES. SILLY VICTORIAN ME. )

• Polly Toynbee is the author, with David Walker, of Unjust Rewards polly.toynbee@guardian.co.uk"

Private Sector Philanthropy is very desirable, admirable, and important, but we cannot allow the truly needy to suffer. A Robust Social Safety Net is needed to ensure that we not allow needless human suffering on a theory. Human Suffering is all too real.

"if executives and directors on Wall Street and in Detroit deserve a safety net, why should American families be left out in the cold?"

Robert Reich makes a mistake:

"Monday, January 05, 2009

Stimulate the Economy by Mending Our Safety Nets

Lots of talk this week about the proposed stimulus. One high priority ought to be the most vulnerable members of our society. The safety net created in the 1930s to protect Americans from extreme poverty is in tatters. Now that we’re in the worst downturn since the Depression, that safety net needs mending. This should be a key part of any stimulus plan.( WRONG. WE SHOULD DO IT, BUT IT IS NOT A STIMULUS. IT SHOULD BE DONE IN ORDER TO HELP OUR CITIZENS GET THROUGH THIS DOWNTURN. MAKING IT PART OF THE STIMULUS ADDS ANOTHER LAYER OF JUSTIFICATION THAT THE SOCIAL SAFETY NET DOESN'T NEED. )

Unemployment insurance, for example, was created in 1935, when most people who lost jobs had held those full time positions for some years. But most people who are losing jobs now have not been in them all that long. Typically, the last ones hired are the first fired. And many job losers have only worked part time.

Either way, they don’t qualify for unemployment benefits. In fact, fewer than 40 percent of people now losing their jobs qualify. So a necessary step toward mending our safety net is to get unemployment benefits to everyone who loses a job. And if it's a part-time job, partial benefits.( FINE )

Or take welfare. Remember it? It was also started in the depths of the Depression. We officially abolished it in 1996, during the strongest job-creating recovery in memory. We substituted a new law that gives people a maximum of 60 months in their lifetimes to get aid for themsleves and their kids. Over the last dozen years, as more and more people hit that 60 month limit, the nation's welfare rolls naturally declined -- even though the percent of families in poverty stayed roughly the same, just under 10 percent.

But now that we're in a Mini-Depression, many more families are moving toward poverty. So that 60 month limit should be lifted, at least until the economy turns up again.( FINE )

Food stamps are another strand of the safety net. As of September, 2008, a record 31.5 million Americans were receiving them. That's roughly 10.3 percent of the population, each receiving $100 per month per family member. These numbers can be expected to rise considerably in 2009 and 2010. The current economic emergency is putting many more Americans at risk. Food stamp allocations should be increased. ( FINE )

Finally, let's make the Child Tax Credit fully refundable( WE'RE REALLY JUST GIVING THEM MONEY. BUT IT'S FINE. ). Right now, it's not fully refundable to low-income families who don't pay enough income taxes to qualify. As a result, an estimated 10.6 million children were ineligible for it in 2007, and an additional 11 million received less than the full amount.

Giving American families more economic security during this meltdown isn't just fair. It's also good policy, because the money they get to buy goods and services keeps other people in jobs. In fact, strengthening our national safety net is one of the fastest and most direct ways to stimulate the economy. ( IT WILL HELP, BUT THAT'S NOT THE JUSTIFICATION. )

And, after all, if executives and directors on Wall Street and in Detroit deserve( HAVE ) a safety net, why should American families be left out in the cold?"

As I've said, the Social Safety Net is not part of the stimulus.

"At least three distinct groups are especially vulnerable, each quite differently "

Robert Reich with some nice thoughts:

"Holiday Thoughts about Three Especially Vulnerable Groups

I try to be optimistic ( GOOD LUCK ) -- especially this time of year when the days are short and cold, when almost everybody things everyone else is having a better time than they are, and now that we're in the worst economic downturn in almost anyone's memory. Yet I also try to be realistic about the effects of this Mini-Depression. At least three distinct groups are especially vulnerable, each quite differently:

1. The poor and near poor, with family incomes typically under $20,000 a year. Their connections to the labor force are tenuous at best, often involving part-time and temporary jobs. They're also the first to be let go during downturns. Not surprising, this recession is taking a toll, and about to take a larger one. Few in this group qualify for unemployment insurance, and an increasing number have exhausted the five-year maximum for temporary welfare assistance. To the extent they're getting by, they're moving in with relatives. The media have missed this story almost entirely. ( THEY SHOULD RECEIVE HELP. EVER HEARD OF A GUARANTEED INCOME? )

2. Middle and lower-middle class households whose breadwinners are within five years of being eligible for Social Security. Many are in danger of losing jobs and a large number are already working fewer hours. They're cutting back on all discretionary purchases. But their biggest problem is that both their savings and the value of their homes have shrunk dramatically, and probably won't bounce back before they planned to retire. Social Security will cover about 40 percent of their pre-retirement earnings. So many are now planning to work well beyond age 65. This will be a particular challenge for blue-collar workers whose earnings have depended largely on physical labor. Their bodies may not last. ( GOOD POINT )

3. Middle and lower-middle class retirees. Most are dependent on income from savings, which has declined sharply. They're cutting expenses where they can, but they're running out of resources. To the extent they can turn to their children for help, they are doing so. That means a large and growing cohort of middle-income people between the ages of 35 and 65 have begun subsidizing their parents, even though they and their immediate families are under financial stress. Here's another untold story. ( MOST OF US UNDERSTAND THIS )

Other Americans are in distress but these three groups are particularly worrisome, and in the years ahead it seems likely they'll be in worse shape than they are today. If this is to be avoided, these three groups will need distinct public policies crafted to their particular needs. More on this to come.

In the meantime, happy holidays."

The answer is a guaranteed income with health care, but I won't hold my breath for even a second. I'm not an optimist.

"Globalisation seemingly erodes governments’ ability to redistribute wealth"

Here's an interesting post on Vox by G. Bertola and A. Lo Prete:

"Globalisation seemingly erodes governments’ ability to redistribute wealth. This column presents new evidence of the tradeoff between integration and redistribution, showing that financial development has filled in where government has receded. The current crisis may pose political challenges to both financial development and economic integration."

Before we go on, let me say one thing. I would expect, and I hope, that as countries get wealthier, government spending and welfare spending will go down. That's my libertarian side. How low, time will tell. But I also preface this on the following: that the people on the bottom rung of income and the middle class getting wealthier. In essence, there can only be a cutback in government spending if people are wealthier and capable of weathering life's vicissitudes on their own. That's one reason I'm a Democrat. I'm for a robust, to use the word of the day, social safety net. Truthfully, I believe that would actually help us through this crisis we're in now, as people wouldn't be as terrified as they currently are. As it is, there's clearly not a panic like in the 30s.

So, let's see what they say:

"The current global financial crisis highlights the vexed issues of what role national governments should and do play in an internationally integrated economic system. In Dani Rodrik’s (1998) classic analysis of data from the 1960s to the early 1990s, openness to international trade was found to be associated with a larger share of government in GDP."

More International Trade= More Government as measured by percentage of GDP. That's interesting.

"Government policies meant to shelter citizens from risk may indeed be more important in countries where international market access fosters opportunities to trade but also exposes workers to more frequent and intense shocks."

Creative Destruction increases, so to speak, leaving workers more subject to changing jobs and careers. However, the first statistic just said that government was growing. It didn't divide it up, did it?

"More recent and precise data on social expenditure in 18 OECD countries confirm Rodrik’s observation. In Figure 1, the fraction of GDP spent on such policies is larger in OECD countries that import and export more, perhaps because they are small and near to each other or because they choose to deregulate international trade.

Figure 1. Public social expenditure and trade openness

It would be nice to know which it is. However, this seems to say that there is more social spending in countries with more trade.

"Another mechanism is relevant, however. Redistribution may be more useful in more open economies but national governments are less powerful if economic integration allows private agents to seek more lenient taxes and more generous subsidies across countries’ borders. Competition among systems (Sinn, 2003) may reduce the viability of collectively enforced national policies, making income redistribution negatively associated with international openness. It is not difficult to find such a relationship in the data."

Wait a second, this sounds like the opposite.

"In Figure 2, we plot deviations from countries’ means of social expenditure and openness, which capture reasons for countries to be permanently more or less open, or more or less inclined to social expenditure. The relationship is negative. This suggests that as technological progress and multilateral trade liberalisation have made borders less of a barrier to economic activity, the scope of redistribution policies has become smaller.

Figure 2. Public social expenditure and trade openness, deviation from means

The line seems to be pointing down now. That's the opposite direction, isn't it? The countries are spending more, but the spending is more concentrated?

"As an increasingly globalised economic system increases the risk households face and makes it harder for governments to enforce redistribution policies, something has to pick up the slack. Our CEPR Discussion Paper 7048 finds that, controlling for country and time effects, the negative association between openness and redistribution illustrated in Figure 2 is more pronounced when and where financial markets are better developed. As globalisation progressed, financial development substituted for government policies. In theory, this makes a lot of sense. Financial markets must indeed be more important if international competition makes it difficult to implement social protection schemes while introducing new sources of income risk. In a more risky world, absent heavily redistributive national welfare states, credit and insurance volumes have to increase."

I thought that government expenditure was going up. So, it's going up, but the countries are spending less on the social safety net. Is that the thesis? Then what are they spending more on?

"Globalisation increases aggregate incomes but erodes redistribution, and it could decrease welfare if it were not accompanied by better insurance against new and larger risks. In our empirical work, following Jappelli and Pagano (1994), we proxy the accessibility and efficiency of household financial markets by loan-to-value ratios – the percentage of a house purchase price that may be financed by mortgages. Available indicators are significantly and sensibly related to openness and social policy developments. Over time, loan-to-value ratios increased from about 75% on average in the 1980s to about 90% in the 2000s. They differed sharply across countries in the 1980s, when loan-to-value ratios already exceeded 80% in the UK and the US but were only slightly above 50% in Italy and Greece. By the late 1990s, the loan-to-value ratios in all our OECD countries exceeded 70%, and by the early 2000s they ranged up to 115% in countries such as the Netherlands.

From the perspective of this column, a high loan-to-value ratio is a good thing. Borrowing allows households within countries to buffer the ups and downs of international competition without having to rely on collective redistribution and makes it possible to reap the fruits of globalisation in terms of overall competitiveness. For individual households, it is beneficial to be able to borrow a lot and go bankrupt upon negative income shocks. But there can be too much of a good thing."

So, people are going into debt to keep up their standard of living, because Government money to them has gone down. This sounds like Robert Reich.

"If individual repayment risk is not properly packaged and diversified, financial market development can be a source of aggregate instability. Financial markets are indeed in trouble and, if our perspective on past developments is correct, their fragility does not bode well for globalisation. The breakdown of private financial markets excites calls for stronger redistribution. If redistribution is national (as it has to be as long as politics are national), it will only be sustainable if national borders become less permeable to economic activity."

So, let's see. If governments have to spend more on their citizens, they will have to trade less. Does that follow?

"Researchers will be looking carefully at signs of such reversals. Not only financial market development, but also trade and social policies will change as a consequence of the current economic turmoil. The character of these developments may foster confidence in the structural character of the empirical relationships we detect in our paper, which could so far be spuriously driven by trending factors other than those we focus on."

I guess we'll have to wait and see.

"And policymakers should also be keenly aware of these mechanisms. The path that led to the Great Depression was paved by protectionism and an increasing role of government. Rescuing financial institutions fosters confidence, but using the rising power of governments in the current financial storm to bail out manufacturers distorts competition and reduces confidence in further economic growth. To steer clear of the Great Depression path in a world where redistribution is no longer very effective and financial markets are key to the sustainability of international integration, we must develop an internationally coordinated financial regulation framework and avoid retracing backwards decades of international integration and financial development."

Now it sounds like they're warning against this inevitability, and arguing that trade be kept going, otherwise we''ll have a depression.

Let's take stock:
1) As countries trade more, governments get bigger
2) But less goes to the social safety net
3) People go into debt because of the loss of income from government
4) If the social safety net needs more spending, then it might be necessary to trade less
5) Trading less is bad, because it can lead to a depression

Why did the social safety net go down?
A. Capitalists got richer, and cut wages and benefits and influenced the government to get out of their way. Is that it?

Well, Martin Wolf is not going to like the no trading idea, and neither do I. I take it that they don't as well. Fortunately, I have Dani Rodrik on my blog. Let's see what he says:

"Economic theory and intuition suggest that as economies become more globalized, the ability of governments to undertake redistributive policies and to engage in social spending erodes. After all, a large part of the tax base--corporations, financial intermediaries, and skilled workers in particular--become internationally mobile and can evade taxes needed to finance those public expenditures. "

I would think that as countries get wealthier, the hope would be that the people would get wealthier, so that there would be less need for a social safety net, although there will always need to be one, and the certainty that it's there if needed. Rodrik's thesis seems to be as well that Capitalists command more of the wealth and workers lag behind due to the growing wealth and power of the Capitalists.

"This is important because historically countries that are more exposed to international trade have actually had larger public sectors, in part to insulate their citizens from shocks originating from abroad. This fact, along with the lack of an obvious decline in the overall tax take in major advanced economies, has led many observers to think that the hypothesized decline of the welfare state has not in fact taken place."

I don't think that the welfare state has gotten smaller. Does anyone? We've just lived through the largest increase in government spending ever it seemed like.

"Another interesting argument Bertola and Prete make is that private finance seems to have partly filled the whole left by public transfers. The claim is that more developed financial markets are able to supply the insurance and consumption-smoothing provided traditionally by the welfare state in very open economies. They use the share of house prices financed by mortgages as an indicator of financial development."

I think it's more like they thought that people had gone into debt, as Robert Reich does:

"Borrowing allows households within countries to buffer the ups and downs of international competition without having to rely on collective redistribution and makes it possible to reap the fruits of globalisation in terms of overall competitiveness. "

It does certainly seem that this is going to be diminished for a time.

"I am sure this argument made a lot more sense a year ago, when the authors were doing their original research, than it does now. It will take a while until we think of finance, and housing finance in particular, as a source of insurance and stability.

Bertola and Prete are aware of this of course. So they conclude thus:

Financial markets are indeed in trouble and, if our perspective on past developments is correct, their fragility does not bode well for globalisation. The breakdown of private financial markets excites calls for stronger redistribution. If redistribution is national (as it has to be as long as politics are national), it will only be sustainable if national borders become less permeable to economic activity.

Indeed. Welcome back to the political trilemma of the global economy."

How can we be welcomed back to a trilemma? Does it go away?

"Sometimes simple and bold ideas help us see more clearly a complex reality that requires nuanced approaches. I have an "impossibility theorem" for the global economy that is like that. It says that democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full."

Is this logically impossible, or just a fact of life?

These three:
1) Democracy
2) National Sovereignty
3) Global Economic Integration
Can't exist simultaneously. Only two of three.

I don't see how this can be logically impossible, but let' see.

Here is what the theorem looks like in a picture:

It looks like a triangle. In what sense is a theorem?

: an idea accepted or proposed as a demonstrable truth often as a part of a general theory :

Okay. What's the general theory?

"To see why this makes sense, note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs."

So it looks likes it 2 and 3 can't go together, since one is global, and one is national. What about free trade agreements? I suppose that there are always going to be unresolved issues, but 3 seems to be a matter of degree. What does "deep" mean? Complete?

"So what do we do?

One option is to go for global federalism, where we align the scope of (democratic) politics with the scope of global markets. Realistically, though, this is something that cannot be done at a global scale. It is pretty difficult to achieve even among a relatively like-minded and similar countries, as the experience of the EU demonstrates."

Get rid of countries. Forget it.

"Another option is maintain the nation state, but to make it responsive only to the needs of the international economy. This would be a state that would pursue global economic integration at the expense of other domestic objectives. The nineteenth century gold standard provides a historical example of this kind of a state. The collapse of the Argentine convertibility experiment of the 1990s provides a contemporary illustration of its inherent incompatibility with democracy."

Nations do that now. All agreements are trade offs. I don't understand the need for "only". Is this some kind of Kantian Argument?

"Finally, we can downgrade our ambitions with respect to how much international economic integration we can (or should) achieve. So we go for a limited version of globalization, which is what the post-war Bretton Woods regime was about (with its capital controls and limited trade liberalization). It has unfortunately become a victim of its own success. We have forgotten the compromise embedded in that system, and which was the source of its success."

I don't see why we should give it up. By that standard, we should certainly get rid of the UN. It couldn't stop The Congo, Sudan, or Rwanda, or about 30 other smaller wars. It has a terrible success rate. It's violations are beyond any forgetting, and involve abetting.

"So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man's land."

If you can give up some of each and compromise, it's not unsolvable or mutually contradictory in any way. He needs a Venn diagram or some other depiction of his "theorem". It looks more like a simple relationship between three chosen facets of human institutions. One could throw war, famine, ethic conflict into this mix, and really complicate things.

I'm perfectly content with his default position. As near as I can tell, it's what I actually believe. I wouldn't call it a theorem.

As for the Welfare State and Global Trade argument, I don't quite get it. It seems clear that government expenditures have risen. The only point that's worth considering is the basic argument that global trade has shifted power, wealth, and influence to one group of people at the expense of another. But I can think of lots of ways to correct that imbalance which don't involve Socialism, Communism, or any other debunked human arrangement. We have a Welfare State, Corporate Capitalism, and so does Sweden. It's merely a matter of emphasis, some of which is related to culture and trial and error, but all of which is related to Human Agency at bottom.

I don't feel near as disoriented as others do. The 1930s would have certainly disoriented me much more. So, maybe this comes down to basic assumptions of Human Agency, and the Existential Situation we find ourselves in, which is not near as dire as some must be presuming.

"then I’m a libertarian in the sense of the term dominant in contemporary public discourse"

God bless Will Wilkinson for wading into the " Who's A Libertarian?" nonsense. At least he's readable. Nevertheless, and maybe it's age, he spends a hellish amount of time on this issue, as well as on the meaning of the word "coerce". I was thinking of doing an Austinian analysis of "coerce", but didn't last more than five minutes. It's more interesting than who's a libertarian, which is uninteresting to the point of being a soporific. Some people seem to think it's like a brand, say "Coca-Cola" or "Tide", and you can be sued for copyright or trademark infringement, or whatever the hell it is.

Anyway, I think that I agree with Wilkinson, but we have very different ways of expressing our views. I use negative and positive liberty, and, if it interests you, go read Berlin's "Two Concepts Of Liberty", from where I derive these concepts. If not, fine.

"Why don’t I get 100% on economic issues? Because, like noted socialists Milton Friedman and F.A. Hayek, I support a redistributive safety net.

One might be a WSPQ-libertarian for many, many different reasons. I happen to think principled constraints on government power are extremely important for the very same reasons I think rooting out sexism and racism are important: because people need to be free."

I agree here.

Anyway, here's Austin:

"there is no simple and handy appendage of a word called "the meaning of the word (x)"

Definitions of words are messy affairs, and, if you are going to examine them, it's best to come prepared with a decent armory of conceptual and analytical weapons.

"I just took the “World’s Smallest Political Quiz.” It says I am a… libertarian!"

To hell with the quiz. Do you think I'm Raymond Smullyan or Martin Gardner for God's sake?

How Much And What Kind Of Pain?

Anthony Randazzo gives a free market solution to the current crisis on Reason. It's interesting, but he asks the following:

"Ultimately, the debate over what to do comes down to a threshold of pain and perspective. Capitalist philosophy suggests that short-term financial pain—even a great degree of pain—will prevent long-term financial destruction. The markets, in other words, are going through a cleansing process. But this is not acceptable to many, particularly the politically motivated, who always prefer to solve future problems at a later date.

Here's the issue: Are we willing to consider all treatment options, or will we dive for the quick, easy, and untested procedure and then hope for the best?"

The problem is that some of the pain will fall on parts of the economy not directly involved in this financial crisis.

In order for people to accept such pain, I believe that we would have to put in place a more significant social safety net which would address the issue of people being destitute or wiped out in such a crisis.

So, there are really two options:

1) Put in place regulations to keep such crises from occurring.

2) Have a social safety net to address the problem of the truly needy, in which case such pain might be accepted.

Otherwise, no matter how much we might want to leave government totally out of this equation, it won't be possible.