American Free Enterprise

1. American Free Enterprise Chapter 3 Section 4 Providing a Safety Net

2. American Free Enterprise • Objectives: • Summarize the U.S. political debate on ways to fight poverty. • Describe the main programs through which the government redistributes income.

3. American Free Enterprise • Prosperity is just a hazy memory in East St. Louis, IL. • Run-down buildings, weed-covered lots, poverty, unemployment are constant companions in this Illinois town that has 40,000 residents. • This town was once a boom town along the banks of the Mississippi River (330,000 residents in the 1970s). • In the 1970s, firms packed up and left East St. Louis for a variety of reasons (mainly tax) and found better opportunities in other cities. • Few businesses were left to tax, jobless rate increased, city was almost in bankruptcy, could not provide the basic services, i.e. garbage collection, police/fire

4. American Free Enterprise • The Poverty Problem: • The free market has proven better at generating wealth than any other economic system, the wealth is spread unevenly throughout society. • This leaves us with a poverty threshold – an income level below that which is needed to support families or households. • In 2000 – the poverty threshold was $ 11,869 (for a single parent under the age of 65 – one child). • For a four-person family (2 children) it was $ 17,463. • East St. Louis had a median income of $ 12,000.

5. American Free Enterprise • The Government’s Role: • The opportunities that the free market offers can lift the working poor into the middle class. • Yet, in poor areas (in East St. Louis - for example) economic opportunities are limited because of factors such as a lack of local jobs and few educational opportunities. • As a society, we recognize some responsibilities to the very young, the very old, the sick, the poor, and the disabled.

6. American Free Enterprise • For these people, the government tries to provide a safety net. • Various federal, state, and local government programs help to raise people’s standard of living, their level of economic well-being as measured by the ability to purchase the goods and services they need and want.

7. American Free Enterprise • In a society that prefers limited government activity in the economy, poverty does pose some tough questions.

8. American Free Enterprise • The Welfare System: • 1930s, the main government effort to ease poverty has been to collect taxes from individuals and redistribute some of those funds in the form of welfare. • Welfare – a general term that refers to government aid for the poor. • It has many types of redistribution programs • System began under President F.D. Roosevelt following the Great Depression.

9. American Free Enterprise • Lyndon B. Johnson has a program called “War on Poverty” that he started in the 1960s. • Welfare payments soared in the 1960s and 1970s. • In the 1990s, critics of welfare voiced their concern that people were becoming dependent on the system and unable or unwilling to get off it.

10. American Free Enterprise • 1996 – Congress made sweeping changes in the welfare system.

11. American Free Enterprise

12. American Free Enterprise • Redistributing Programs: • 1. Cash Transfers • State and Federal governments provide transfers – direct payments of money to poor, disabled, and retired people. • Types of Programs • Temporary Assistance for Needy Families (TANF) • This program replaced the Aid to Families with Dependent Children (AFDC) • This program does not give direct federal welfare payments. The money goes to the states to design and run their own programs. They have to set up work incentives and establish a lifetime limit for benefits. This reform was to move people from welfare dependence to the work force.

13. American Free Enterprise • Types of Programs • Social Security • Created in 1935 during the Great Depression. • It provides direct cash transfer payments to retired people to supplement their income after they stop working. • It also pays to disabled people as well. • The program collects payroll taxes and redistributes that money to current recipients. • Unemployment Insurance • A cash transfer funded by federal and state governments. • Provides money to eligible workers who have lost their job. • Must show that they have made efforts to get work during each week that they receive assistance. • Usually will last 6 months. Hardship case is 12 months.

14. American Free Enterprise • Types of Programs • Workers’ Compensation • Provides cash transfers to state funds to workers’ injured on the job. • Most employers must pay workers’ compensation insurance to cover any future claims their employees might make.

15. American Free Enterprise • In-Kind Benefits: • This is goods and services provided for free by the government or they provide it at greatly reduced prices. • Most common would be food giveaways, food stamps, subsidized housing, and legal aid

16. American Free Enterprise • In-Kind Benefits: • Medical Benefits • Health insurance for the elderly, disabled, and the poor. • Medicare covers Americans over the age of 65. • Medicaid covers some poor people who are unemployed or not covered buy their employer’s insurance plan. • Medicaid is administered by the Social Security program. • Both programs are extremely expensive to run

17. American Free Enterprise • In-Kind Benefits: • Education • Federal, State, and Local governments all provide educational opportunities to the poor. • The Fed funds programs from preschool to college.

18. American Free Enterprise • In-Kind Benefits: • Faith-Based Initiatives • Started in 2001 by President George W. Bush • To get nongovernmental support for people in need. • Use faith-based organizations, charities, and community groups first to help during disasters or people in need. • President Bush felt that religious organizations have been the most successful delivering social services.

19. American Free Enterprise • Faith-Based Initiatives • These groups have used money to solve problems, provide compassion to people in need. • This program allows these groups to compete for federal funds to carry out their mission or charitable activities.

20. American Free Enterprise REVIEW: • How does welfare attempt to raise poor people’s standard of living? • Why does poverty exist in a free market economy? • What is the difference between cash transfers and in-kind benefits? • How is Social Security an example of income redistribution?