Washington must do more to fight poverty, two economists say

Economists Alan Blinder and Sheldon Danziger would like the federal government to take more-direct measures to reduce poverty. That's not been the approach of the Reagan administration. It has been basically relying on economic recovery, with its accompanying drop in unemployment, to reduce poverty levels in the United States. With encouragement, the private sector can do most of the job, the administration contends.

To a limited degree the plan is working. The latest Census Bureau numbers show a decline in poverty to 14.4 percent last year, down from 15.2 percent in 1983.

But Mr. Blinder, a professor at Princeton University, and Mr. Danziger, director of the Institute for Research on Poverty at the University of Wisconsin, believe the decline in poverty could be speeded up by improvements in the welfare system.

``[Economic] growth is necessary but not sufficient'' to reduce poverty quickly, says Blinder. So he suggests a boost in welfare payments.

Danziger urges a national minimum for welfare payments, plus more ``workfare'' programs providing jobs for those entitled to welfare.

Any boost in welfare payments is not a popular idea these days. One reason may be that many people have a ``tremendously exaggerated'' view of the size of welfare costs to the nation, says Blinder. Actually, he says, welfare ``is a very small sum which creates a tremendous amount of political stew.''

The basic welfare program, Aid to Families With Dependent Children (AFDC), was paid to around 11 million people in 1984. It cost a little more than $14 billion, or about $110 per recipient per month.

Welfare's $14 billion compares with 1984 federal spending on defense of $227 billion; on health, $30 billion; and on veterans benefits and services, $25.6 billion. Annual welfare benefits are only about $2.2 billion more than monthly interest costs on the national debt.

Using an economic equation based on historical trends, last spring Blinder and Rebecca Blank, an assistant professor of economics at Princeton, calculated a decline in poverty to 13.5 percent in 1984. That prediction was too optimistic.

Danziger and Peter Gottschalk, professor of economics at Bowdoin College, Maine, almost hit the bull's-eye of the actual decline with a forecast of 14.5 percent.

Blinder guesses the Danziger-Gottschalk forecast was better, because their calculations put somewhat more emphasis on the damage in recent years to ``transfer payments'' to the poor, such as lower welfare payments in non-inflated terms. Blank and Blinder's own equations put greater stock in the reduction of unemployment as a poverty cure.

``We can't dismiss the possibility they were right and we were wrong,'' Blinder concedes.

Economic growth, such as the rapid 6.7 percent rate in 1984, trims poverty especially among white males, Danziger notes. But it is of less help to blacks and Hispanics, whose poverty rates are still above the 1964 level, when President Johnson declared the ``War on Poverty.''

Those on welfare saw the median maximum payment by states drop 27 percent in real terms between 1970 and 1983, since state governments did not raise the benefits in line with accelerated inflation.

Some liberals charge that the decline in real welfare benefits has hurt children the most and should be arrested.

Some of the administration's favorite conservatives have held that government transfer payments such as welfare must be low enough that those relying on them are financially uncomfortable. In this way, the argument goes, welfare recipients are pushed to find work, even if that work is hard, dirty, or otherwise undesirable.

The decline in real AFDC benefits, however, began even before the Reagan years. The motive for many state governments may have been as much to trim spending as to encourage work. In any case, all the excitement over ``welfare queens'' has made it difficult for politicians to advocate welfare boosts.

``It is not possible,'' says Blinder, ``to set up a government program to give money to the poor or the rich which will not result in some people ripping off the system.''

He guesses the legal tax loopholes given one rich individual might equal the illegal payments given all the welfare queens in America.

His preference would be a complete conversion of welfare to a federal program, with benefits standardized nationally except for adjustments that take into account differences in local or regional cost of living. This, he says, would mean that the poor were not tempted to move from low welfare benefit states, such as Mississippi, to high-benefit states, such as New York.

Social issues also have a considerable bearing on poverty, Blinder notes.

For instance, one element in the smaller-than-expected decline in poverty could be the growth of family instability.

Many of the poor families are headed by divorced or unmarried mothers unable to make a reasonable living and not getting adequate support from fathers.

A decline in the number of jobless does less to lift poor female households out of poverty than it does male-headed families, Blinder says.

What is most important for keeping poverty going down, since boosts in welfare or other transfer payments are not likely to be immediate?

``Make sure the Federal Reserve keeps us out of recessions,'' Blinder replies. If the number of jobless goes down further, so will the poverty rate.