The Great Recession is the result of “a failed social contract”.
These words framed the keynote speech by Jared Bernstein, Chief Economic Adviser to Vice President Biden and Executive Director of the White House Middle Class Task Force, yesterday at the New America Foundation conference, “Revising Policy Assumptions in the Wake of the Great Recession: Implications for the Social Contract.” The conference aimed to explore how – in light of all that has happened so far in this recession – to ensure that any new economic policy develops in coordination with our nation’s social policy.
There are a number of reasons why it can be argued that the American social contract is in trouble. Unemployment remains exceedingly high across the nation, and yet corresponding social programs such as unemployment insurance, are constantly under threat. The foreclosure (and related fraud) crisis continues to undermine the security of families and communities. More than one in five children live in poverty and one in four children are on food stamps. The list goes on, but perhaps most tellingly, a national poll conducted in late August found that nearly two out of every three people lack the confidence that their children’s generation will fare better than they themselves have. Confidence in the future has been thoroughly shaken.
However, as one of the conference speakers said yesterday: the recession has not taught us new things – rather, it has reminded us of existing problems. A set of new policy papers released by New America outlines a detailed list of these problems, all of which essentially boil down to one thing: our nation’s social policy is built on the assumption that the economy always works well.
This may seem counter-intuitive at first, for isn’t the purpose of the social safety net to support families in times of struggle (i.e. when the economy is not doing so well)? In theory, yes. But in practice, a closer look reveals that the design of many of America’s safety net policies (from unemployment insurance, to tax credits, and even to cash assistance) are pro-cyclical in nature – meaning that the strength of the safety net largely follows the strength of the economy. Given the current state of the economy, we can imagine the repercussions for the current safety net.
As discussed by researchers at New America, many pieces of the social safety net are tied to employment, such as eligibility rules for unemployment benefits or work requirements within the Temporary Assistance for Needy Families (TANF) program. This becomes problematic when the economy falters. Even what has been hailed as the largest and most successful anti-poverty program, the Earned Income Tax Credit (EITC), is useless if a person loses their job – even though that is exactly the point at which income assistance would be most useful. And because a large number of social benefits, from mortgage deductions to child care assistance, are delivered through the tax code, these benefits are intrinsically linked to income. This link ends up not only generally favoring those with higher income in good times, but again leaving those who lose their incomes during bad times worse off.
Finally, it is state governments – rather than the federal government – that are largely relied upon to fund and implement the safety net. This may work well enough in boom times, when states have more revenue coming in and room in their budgets. However, in times of economic trouble, as evidenced in the current recession, it is states that are fiscally hit the hardest and yet primarily face the demand of increased need in their communities (and bear the responsibility for delivering on it without the spending powers held by the federal government). Given the underlying structure of these policies, it is no great surprise that the American safety net lacks full responsiveness in times of economic crisis. In fact, by current design, such responsiveness is almost impossible.
So what does this mean for our nation’s children and families and how can we revise our social contract in their best interest? The New America authors and conference participants outlined ideas for a new structure of the social safety net, including the creation of more universal, but also contributory benefits (along the lines of our current Social Security and Medicare programs) and an enhanced federal role in existing safety net funding. A discussion of these ideas is a great start and we need to keep thinking. As the nation moves slowly out of this recession, what kind of social contract do we want to exist for the next generation? The time for debate is now.
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