In a blog post today, Mark Thoma shows a graph giving the poverty rate with and without "the safety net," the euphemism for government welfare programs. It is from the Center on Budget and Policy Priorities. The Center looks at all government transfers to low-income people and then asks: What would the incomes of those people look like if there were no such transfers?
That's a pretty good question and one worth asking. The poverty rate was declining fairly steadily before President Johnson, in 1965, started his so-called Great Society programs and increased government transfers to low-income people. Since then poverty has declined, but more slowly. Is it just possible that government anti-poverty programs affect people's incentives to earn income? At a conference I attended at the Hoover Institution years ago, Thomas MaCurdy, who studies welfare programs, said he often talks to welfare recipients who know, to the dollar, the amount of income they can earn up to before losing such benefits as Medicaid, and they make sure they are just below that number.
So the only way the graph of the Center on Budget and Policy Priorities makes sense, given that the Center titled it "Poverty Rate Would Have Been Twice as High in 2010 Without the Safety Net," is if welfare has zero effect on incentives. Does Mark Thoma believe that?