Patterns of Resource Inadequacy

Resource inadequacy refers to two related but distinct problems: episodic financial shortfalls and persistent poverty. These are not hard-and-fast categories. Some households are beset by both problems at once, and others experience alternating periods of each. But this distinction highlights two general patterns of social distress that require different public policy responses.

Episodic resource inadequacy results from a particular event or crisis—childbirth, illness, aging, unemployment, divorce—that overwhelms a household whose income is usually well above the

poverty line. Suddenly, the household's income is disrupted or expenses for necessary goods and services (most often medical) exceed its income. These episodes sometimes drive households into poverty, but often the shortfall is covered by savings, private or public insurance, changes in household membership, or the entry of unemployed household members into the work force.

In contrast, poverty is characterized by an ongoing low level of income and wealth. In this sense, poverty is a time- and culture-bound circumstance. A standard of living that we would deem impoverished in the United States in 1988 might well be superior to that of a nineteenth-century American family or a present-day Mauritanian family—neither of which would be considered impoverished by its own culture's standards.^[7]

By current American norms, about four households in ten experience at least one year of poverty in the course of a decade.^[8] Households impoverished by contemporary American standards generally suffer from both material and cultural disadvantages vis-à-vis more mainstream households. Three of these households experience poverty-level incomes in more than one year during the decade, and roughly one in ten falls below the poverty threshold for the entire decade. For every household that is impoverished all or much of the time, then, there are many more that experience poverty intermittently, frequently spending years only barely beyond outright destitution.

Episodic Inadequacy and Social Insurance

With the exception of aging, the conditions that trigger episodic resource inadequacy are unpredictable and, as a rule, people beset by such problems are not blamed for their difficulties. Unemployment was once an exception to this rule, even when dismissal was caused by macroeconomic forces, but this tendency seems to be changing. Nor is blame usually cast in situations that may reasonably be seen as the consequences of purposive action (divorce, childbirth), although in specific instances such acts may be deemed irresponsible or negligent.

That such episodic problems call for social insurance to prevent beleaguered citizens from falling into poverty is an idea that has taken hold across the world.^[9] Indeed, in comparison to many

Western European societies, the United States has been laggard in accepting the concept of social insurance and in implementing this concept through public social programs. Nonetheless, even here social insurance now has an extensive history and public support and government funding for specific programs are high.^[10]

The essential task of social insurance is to widely distribute, over time and a broad population, much of the cost of individual crises. Though programs vary widely, several principles are common to all. First, the more short-lived the hazard, the more easily it may be handled. Lengthy episodes can be accommodated so long as they are relatively rare or their annual costs are either relatively low or balanced by high contributions. (Longer life expectancies, which create longer periods of retirement for a larger proportion of the population, upset this balance and are now posing serious difficulties for social insurance programs like social security.) Second, social insurance programs must have some mechanism by which potential beneficiaries contribute to the support of the system. Such contributions take various forms: labor, service in the armed forces, and payment of income or payroll taxes. Third, programs must establish guidelines and formulas for distributing the resources to beneficiaries. Typically, social insurance programs redistribute resources horizontally (across an individual's life cycle) rather than vertically (from rich to poor). Although some vertical redistribution occurs,^[11] cross-strata reallocation is neither the primary objective nor consequence of these programs.

In the United States the largest social insurance program by far is social security (OASDI); smaller insurance programs include: Medicare, railroad retirement, black lung payments, workers' compensation, unemployment insurance, and veterans' benefits.^[12] If we measure American public provision against the programs of many other advanced societies, universal medical-care insurance and general child-care assistance are the most obvious gaps in American social policy.

One explanation for these gaps is the widely accepted notion that American political culture supports a peculiarly strong preference for market as opposed to public solutions to social problems. In this cultural climate private insurance flourishes, but it is inherently unable to meet all the basic needs of many individuals and remain profitable. For example, there are no realistic private coun-

terparts for public benefits for dependent children, support for single-parent households, and unemployment insurance. And profitability requires that private insurance contracts for illness, disabling injury, retirement, or death pose limitations on eligibility or on the size and duration of benefits. Further, contributions are generally risk-rated, with participants who face the greatest risks paying the highest premiums. But because individual risk and ability to pay are often inversely related, those with the greatest need for insurance are also those least likely to be able to afford it.

Among those fortunate enough to have private insurance, there are wide variations in the breadth and depth of coverage. Many professionals, managers, and unionized industrial workers acquire fairly thorough private coverage through group insurance. But large portions of the population do not belong to such groups and do not have the resources to purchase individual policies.^[13] Even people who succeed in obtaining, say, private medical insurance find that exclusionary riders, deductibles, and coinsurance and copayment provisions may leave them personally liable for substantial medical costs. Similarly, workers covered by private retirement pensions often discover that inflation, not to mention fund mismanagement or the demise of the sponsoring firm, cuts deeply into the value of their pensions. Other difficulties arise when workers change employers.^[14] Sickness, disability, and life insurance are less troubling in these regards, but good coverage can be quite expensive.

Some of the deficiencies of private insurance are amenable to reform through legislative pressure and initiatives. But the ultimate responsibility for meeting the needs of vulnerable citizens is apt to remain a public matter.

Poverty and Social Merging

Poverty associated with varying degrees of material and cultural disadvantages, the second pattern of resource inadequacy, is not so obviously constructed of discrete problematic episodes. Relatively few households are perpetually impoverished, but many face lengthy spells of poverty or near poverty.^[15] Thus the distinction made earlier between problems arising from income disruption and problems stemming from occasional need for expensive services is rather

irrelevant to the plight of households for which even fairly modest expenses can pose a continuing problem.

Nor do the needs of the poor lend themselves to traditional social insurance solutions. People in poverty are not generally coping well with their material needs, and they require both intangible and material resources in order to merge with more materially successful portions of society. As I will detail in subsequent chapters, it is possible to link this infusion of resources to a beneficiary's contributions, but it is generally less feasible to make public benefits a reward for prior contributions as is the case with social insurance. Rather, the crux of social merging involves concurrent self-help contributions: people near the bottom of the socioeconomic ladder receive benefits that facilitate and supplement their own efforts to increase their material resources in socially acceptable ways, with the ultimate goal of merging with the socioeconomic mainstream.

In contrast to the essential task of social insurance programs—spreading the costs of episodic individual problems—the basic task for merging programs is to improve people's long-term incentives, opportunities, and capacities for meeting basic needs in socially acceptable and personally dignified ways. This is a more demanding enterprise than providing social insurance, but the progress made in the last 150 years by advanced societies offers hope of further reducing the proportion of their citizens who cannot meet basic needs.

The United States does not now have prominent social programs whose primary efforts are focused on merging objectives. Instead we have a series of programs that provide resources for basic needs to people with little or no income and wealth at the time of application. These means-tested public assistance programs include AFDC, Supplementary Security Income (SSI), Medicaid, food stamps, general assistance, veterans' pensions, housing assistance programs, and basic educational opportunity grants.^[16] Throughout the 1980s the largest public assistance income maintenance program, AFDC, has had 10–11 million beneficiaries a year (largely single women and their children), slightly less than a third as many as social security. These recipients received $13–15 billion in benefits annually—a bit less than one-thirteenth the amount spent on social security in the early 1980s.^[17] And overall

AFDC expenditures have remained fairly constant, while social security outlays have risen sharply from year to year.

According to the measures used by the federal government, at any given time roughly 30 to 35 million Americans experience poverty. But there is significant turnover among the poor, and "the poor" are not a homogeneous group. Indeed, one may wonder whether a single label—the poor—adequately describes the life situation of all Americans whose income and wealth are at the lowest levels.^[18] In the sociological literature we find two contending schools of thought. What we could call the attitudinalist position is exemplified by the analyses of Edward C. Banfield.^[19] For him, the predicament of lower-class people is miserable, not because they are sound persons without opportunities, but because they are flawed individuals who cannot take advantage of constructive opportunities. Banfield attributes this improvidence to an individual's inability to delay gratification, to a general incapacity to take the future into account. Accordingly, he faults social policies aimed at this underclass for creating unrealistic expectations and for encouraging flawed individuals to continue, indeed to expand, their improvidence.

In contrast, Herbert J. Gans offers a situationalist interpretation of the plight of the poor.^[20] Gans describes the poor as generally sound people who face unusually discouraging circumstances beyond their control. Where Banfield sees improvidence, Gans contends that what constitutes rational action for severely disadvantaged people may differ sharply from what is rational for middle-class citizens. Specific forms of public intervention, he argues, may provide the resources and skills the poor need to overcome some of the social disadvantages they suffer.

Few views about the impoverished are capable of bridging these two schools of thought. But if we acknowledge the obvious—that the poor, like other large social groups, includes both miscreants and relatively sound persons—our attention shifts from speculating about the character of these persons as a class to trying to understand how individuals end up in one category rather than another. For instance, what life experiences set apart the underclass that Banfield discusses? What kinds of disadvantages are germane and how frequently do these experiences arise? Such investigations belie many popular generalizations about the poor. For example,

minorities do not constitute a majority of the poor, although some minorities are disproportionately represented. And the vast majority of low-income Americans either work, sometimes full-time,^[21] or have compelling reasons for not working. Most members of this latter group, which constitutes well over half of the total, are single mothers and their children; in smaller numbers are the elderly, the physically disabled, and the blind. It is this group that holds a near monopoly on the receipt of public assistance supported by the federal government. The working poor, in contrast, receive little or no public assistance and their number includes higher proportions of single persons, childless couples, and two-parent families.

More importantly, it does not appear that attitudes alone are responsible for poverty. Across the socioeconomic spectrum most Americans profess nearly identical attitudes toward matters such as work and family obligations.^[22] Realizing what these attitudes call for does vary markedly, owing to a variety of subtle psychological factors as well as obvious sociological factors that are beyond an individual's control.^[23] Thus we might reasonably ask that social programs encourage responsible activity. For instance, we should expect them to support the efforts of the disadvantaged to merge with mainstream society or, at the very least, programs should not foster the growth of an underclass that makes no sustained effort to live by the values of mainstream society.

Unfortunately, American means-tested programs not only fail to support merging objectives, they may actually discourage them. In chapter 6 I will examine this issue in detail, but for now two points are of particular relevance. First, public assistance programs rarely emphasize improving incentives, opportunities, and capacities for constructive activities among impoverished people. With the exception of basic educational opportunity grants for needy college students,^[24] public assistance programs are designed to provide subsistence-level material support for specific categories of impoverished people.

Second, the major means-tested income maintenance program, AFDC, is not limited to persistently poor people. There is substantial turnover among recipients, and leaving or joining the program often hinges on discrete events, such as a change in household composition or finding or losing a job. In this, AFDC addresses episodic resource inadequacy, similar to the forms of insurance

discussed earlier.^[25] Equally important, AFDC and allied programs (most notably Medicaid) contain significant financial disincentives for recipients to improve their lot in the work force.^[26] The strength of these disincentives has led some policy analysts to assert that these means-tested programs are functioning as poverty-maintenance devices, perhaps with the latent purpose of social control by regulation, rather than as social merging programs.^[27]

Although expenditures for AFDC are but a fraction of those allocated to social security, the United States does spend an unusually high proportion of its income-maintenance budget, about 12 percent, on means-tested programs. Only a few other industrial nations come close on this score.^[28] One disputed interpretation of this statistic is that the United States has a larger proportion of low-income persons.^[29] An alternative interpretation proceeds from the fact that we spend a smaller proportion of gross national product on social insurance forms of income maintenance than do other advanced societies.^[30] Perhaps, then, we rely on means-tested programs to meet some needs that other societies address through social insurance. Whether or not this interpretation explains the discrepancy, it raises the notion that a change in the balance of social insurance and means-tested programs might be beneficial. As a concept, social insurance seems truer to American values of self-reliance and individual effort. Social insurance programs, therefore, are more likely to be perceived as fair and would be less politically vulnerable than our present means-tested programs.

From this analysis of resource inadequacy problems, we may conclude that American public policy could be strengthened in three ways. First, because the concept of social insurance is fairly widely accepted and works reasonably well in the American context, social security should be expanded to cover a broader range of both hazards and people. Specifically, people overwhelmed by episodic crises would be covered by social insurance rather than having to apply for means-tested public assistance programs. Second, we need to devise programs that improve the opportunities available to disadvantaged people and provide the incentives and training they need to take advantage of these opportunities. Third, we need some type of income-maintenance and medical program to provide for those people who cannot on their own join the mainstream because of mental illness or retardation, addiction to

various substances, chronic and disabling physical afflictions, and criminality or other serious psychological deficits.^[31] Policy recommendations concerning the first two of these enterprises constitute the final goal of this book.