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Obama’s Decision: Millions More on the Dole

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
July 24, 2012

1.  Welfare Work Requirement Gutted by Obama

2.  Disability Rolls Outpace New Jobs Big-Time

3.  Still Five Million Fewer Jobs Today

4.  Record Number of Americans Now on Food Stamps

5.  US Poverty Rate Nearing Highest Level in 50 Years

6.  Conclusions: This is a Sad Commentary

Overview

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

One thing is for sure: Public confidence in the economy has fallen significantly since late May, as I reported in my blog last Friday (see chart). With consumer spending accounting for apprx. 70% of GDP, it should not be a surprise that the economy slows down when consumer confidence weakens, as has been the case in recent months.

On Friday, we will get the “advance” estimate of 2Q GDP. The pre-report consensus is that 2Q GDP will slow to only +1.2% (annual rate), down from 1.9% in the 1Q. If the number comes in as expected, that will be even more discouraging for consumers. I will comment on the GDP report in my blog this Friday and will likely have more to say in the E-Letter next Tuesday.

Today, I want to focus on recent developments in the “Welfare State” in America. The Obama administration recently gutted the “work requirements” in the 1996 welfare reform law enacted by President Clinton and the Republican-controlled Congress. Most feel this move was blatantly illegal and will be challenged in the courts in the months and years ahead.

Also on the subject of welfare, the number of Americans on Social Security Disability Insurance is exploding, even faster than the rate of new jobs created in this country. Likewise, the number of Americans receiving food stamps is at a record high above 46 million and rising. Ditto for the number of Americans now living in poverty.

Most Americans are unaware of these developments, so this should make for an interesting E-Letter. Let’s get started.

Welfare Work Requirement Gutted by Obama

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

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

The bill included a requirement that a certain percentage of each state’s welfare caseload (currently 40%) had to be working or preparing for work. A great deal of effort was put into defining what qualified as work, and making sure that “work” actually meant work and not activities such as bed rest, massage, exercise, personal care, etc.

Shortly after President Clinton signed the Republican-authored bill into law, welfare caseloads fell drastically, while at the same time employment among single mothers rose and child poverty fell. Welfare rolls in some states fell by roughly half, whereas they had never fallen for four decades. In other words, it worked and has been lauded as a bipartisan success ever since.

On July 12, however, President Obama’s Health and Human Services Department (HHS) issued an administrative order to the states that effectively reverses the work requirements contained in the welfare law. This move is troubling because lawmakers went to great lengths to craft the 1996 reform law such that the work requirement could not be easily reversed, certainly not without congressional approval.

For whatever reasons, President Obama decided to do it anyway. Many Republicans and even some Democrats are stunned and dismayed by this action. It is not entirely clear why the Obama administration chose to make such a controversial, and many say illegal, decision that once again involves executive power. I have some thoughts that I will share at the end today.

Republicans are moving to block the Obama administration from unilaterally weakening” welfare rules after the HHS notified states they may seek a waiver from the program’s work requirements.  House and Senate Republicans introduced a bill on Wednesday of last week to prohibit the administration from implementing its latest policy or approving any change that “waives compliance” with the program's work rules.

They claimed the administration had overstepped its bounds” in eviscerating planks from the 1996 bipartisan agreement on welfare reform. Senator Orrin Hatch (R-UT) said in a statement:

“Gutting welfare work requirements with the stroke of a pen and without congressional input is simply unacceptable and cannot be allowed to stand. Neither the Obama administration nor any administration should have the power to unilaterally change the law as it sees fit.”

It will be most interesting to see if President Clinton will have anything to say about this! Welfare reform, as noted above, was arguably his greatest accomplishment.

Note: I have included a link to an article from the Heritage Foundation on this subject below, which includes a link to the actual directive sent by HHS to the individual states.

Disability Rolls Outpace New Jobs Big-Time

More workers joined the federal government’s disability insurance program in the 2Q than got new jobs, according to two new government reports, a clear indicator of how bleak the nation’s jobs picture is after three full years of economic recovery.

The economy created just 225,000 jobs in the 2Q, the Bureau of Labor Statistics reported earlier this month. But in that same period, 246,000 workers left the workforce entirely to enroll in the Social Security Disability Insurance program, according to the Social Security Administration (SSA).

The disability ranks have outpaced job growth throughout President Obama’s time in office. While the economy has created 2.6 million jobs since June 2009, fully 3.1 million workers signed up for disability benefits. Put differently, the number of new disability enrollees has climbed 19% faster than the number of jobs created during the sluggish recovery.

This doesn’t take into account workers’ dependents that may also qualify to receive disability checks. If we count those dependents, a record 5.4 million people have signed up to collect federal disability checks since Mr. Obama took office.

In just the first four months of this year, 539,000 joined the disability rolls and more than 725,000 put in applications. By April of this year, there were a total of 10.8 million people on disability according to the SSA.

Disability vs. Jobs

The question is, why have applications for disability insurance skyrocketed over the last three years? The main reason cited is the sluggish economic recovery, and that is certainly a major factor. Another reason is that more and more Americans are seeing their 99 weeks of unemployment benefits come to an end, and they try to qualify for disability. I’m told that almost anyone can get on disability if they hire a lawyer – whether they are totally disabled or not.

In fiscal year 2011, the disability insurance program paid out $119 billion to 8.3 million people, accounting for approximately 18% of all Social Security spending. The Congressional Budget Office (CBO) expects that number to jump by 71% to $204 billion by 2022, as the number of disabled workers and their dependents receiving money increases to 12.3 million.  At the rate of growth projected by the CBO, the disability trust fund is on a fast-track to insolvency in just four years.

The saddest part of this story is that very few people who get on disability ever get out of the program. According to SSA data, only 1% of disability recipients ever return to the workforce. I doubt that many Americans are aware of that fact.

Still Five Million Fewer Jobs Today

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

As a result, the "labor force participation rate" – the number of people who have jobs or are actively looking for one, compared with the entire working-age population – is now 63.8%, down from 65.7% in June 2009. This participation rate is at the lowest level in 30 years. In previous recoveries, the participation rate has almost always risen, not fallen.

Here’s another stark statistic: If we look back at the 60 years prior to June 2009, the jobless rate topped 8% in a total of only 39 individual months. In the current weak recovery, the unemployment rate has been above 8% for 41 consecutive months.

There is another grim statistic many people are not aware of: The total number of people working is still nearly five million below its pre-recession peak. Think about that. There are almost five million fewer jobs today than before the recession started. The media almost never mention this staggering number because it is so damning for the Obama administration!

The number of “long-term unemployed” – those out of work 27 weeks or more – is still 5.4 million, almost 1 million higher than when the recovery began, and almost twice the level it ever reached prior to the current recovery.

Record Number of Americans Now on Food Stamps

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

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

As you can see in the chart below, the number of Americans receiving food stamps soared to almost 19% of the population in 2011, and it’s even higher today. As of April, more than 46 million people were in the program, which is expected to cost $80 billion this year. The food stamp rolls have ballooned by almost 40% just since 2009.

Percentage of US Civilians Getting Federal Food Aid

Many people believe that the explosion in the number of Americans on food stamps in recent years is largely a result of the Great Recession and the loss of millions of jobs across the country. No doubt that is a big part of the increase. But others, including me, believe that the Obama administration has made a concerted attempt to get more people on the food stamp rolls in order to get more Americans dependent on the government. Now there is proof.

The Department of Agriculture has recently come under fire for its “aggressive” ad campaign, including a 10-part series of Spanish-language “novelas,” (TV ads) to convince people to go on food stamps – at a time when millions are already enrolled.

The novelas are a 10-part miniseries (soap operas) in which the characters try to convince a woman named Diana to go on food stamps, even though her husband works and she doesn’t think her family needs government assistance.

In Episode 4, Diana says (in Spanish), “I don't need help from anyone. My husband makes enough to take care of us." But her friends are persistent, and by Episode 10 Diana is enrolled and singing the food stamp program’s praises.

The novelas have drawn sharp criticism in recent weeks. Among those in Congress calling for an end to the program is Senator Jeff Sessions (R-AL), who said:

“It has become increasingly clear that, in recent years, the mission of the food stamp program has been converted from targeted assistance for those in need into an aggressive drive to expand enrollment regardless of need. Food stamp spending has quadrupled since 2001, yet USDA complains that too many eligible people continue to resist enrollment. ... Read as a whole, USDA's activities suggest that the program administrators take personal offense when people who technically qualify for their largesse decline to accept -- and see it as an obstacle to overcome.”

To be fair, the novelas were produced in 2008 by the USDA and have been used continuously since then. On July 13, the USDA reportedly bowed to mounting pressure and ceased airing the novelas. The agency continues to run ads for food stamps in English.

US Poverty Rate Nearing Highest Level in 50 Years

The Census Bureau figures for poverty in 2011 will be released this fall in the critical weeks ahead of the November elections. The Associated Press recently surveyed dozens of economists, think tanks and academics, including conservatives and liberals, and found a broad consensus on poverty in the US.

The consensus is that the official US poverty rate rose from 13.2% in 2008 to 15.7% in 2011. If so, that would put the US poverty rate at the highest level in 50 years. Poverty is spreading at record levels across numerous demographic groups in the US, from underemployed workers and suburban families to the poorest of the poor.

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

More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. Suburbs are seeing some of the largest increases in poverty, including in such political battlegrounds as Colorado, Florida and Nevada, where voters are coping with a new norm of living hand to mouth.

Sadly, no end is in sight. The question is, WHY?

Conclusions: This is a Sad Commentary

Several of my in-house proofers made the comment that today’s E-Letter was more than a little depressing. I can’t disagree. Every sub-topic discussed above is a sad commentary on the state of affairs in our country today: 1) welfare work requirements revoked by Obama; 2) Americans on disability at record highs; 3) people on food stamps at record highs; and 4) poverty nearing a 50-year high. All of these are depressing headlines, no doubt about it.

But in the big picture, what may be even more depressing is the question of whether or not these trends are the result of some grand design. Take for example the Obama administration’s latest executive directive to eliminate the work requirements to receive welfare payments just four months before the elections.

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

Ditto for those on disability insurance and food stamps, which are both at record highs.  Are these facts largely the result of the worst recession since the Great Depression? Or are they partly the result of a larger plan to get more Americans dependent on the government for their daily subsistence?

I can’t say for sure, but I suspect it is a combination of both. I know that is a very controversial statement to make, and I know that my liberal readers will take me to the woodshed in their e-mails just ahead. But if you stop and think about these troubling trends in our country, somebody has to at least raise the possibility.

I’m reminded of the famous quote from historian Alexis de Tocqueville:

“A democracy … can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.”

Obama is not only increasing the number of voters on the government dole, but is also issuing Executive Orders that ignore the intent of the Constitution.  Do I think he’s lining himself up to be a dictator?  No, but it’s obvious that he’s trying to build a class of loyal Democratic voters increasingly made up of federal government beneficiaries.

I’m also reminded of another famous quote from White House Chief of Staff, Rahm Emanuel, shortly after President Obama took office in 2009, in the depths of the Great Recession:

“You never want a serious crisis to go to waste, and what I mean by that is an opportunity to do things that you didn’t think you could do before.”

I am not afraid to be one of those making these observations and asking these questions!

If you agree with me, I encourage you to let me know. Most of the time, I only hear from those who disagree.

Hoping you’re not too depressed after reading this,

 

Gary D. Halbert

SPECIAL ARTICLES

Obama Guts Welfare Reform
http://blog.heritage.org/2012/07/12/obama-guts-welfare-reform/

Those going on disability outpace those finding jobs
http://www.weeklystandard.com/blogs/americans-joining-disability-outpaces-americans-finding-jobs_648660.html

Obama’s Worship of Centralized Power
http://www.realclearpolitics.com/articles/2012/07/24/obamas_america_--_and_ours_114878.html

 

 

 

 


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Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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