Economics Society

The Rise of the “Dependocracy”

Annie Lowery has an interesting article on NYT describing the state of the nation’s poor  population these days. She notes that while access to certain material goods has gotten easier, overall their overall financial fragility has increased over the last few decades.

Image Source: The Economist
Image Source: The Economist


As she notes:

Indeed, despite improved living standards, the poor have fallen further behind the middle class and the affluent in both income and consumption. The same global economic trends that have helped drive down the price of most goods also have limited the well-paying industrial jobs once available to a huge swath of working Americans. And the cost of many services crucial to escaping poverty — including education, health care and child care — has soared.

“Without a doubt, the poor are far better off than they were at the dawn of the War on Poverty,” said James Ziliak, director of the University of Kentucky’s Center for Poverty Research. “But they have also drifted further away.”

The author notes that this situation exists despite the billions of taxpayer dollars that have been spent on the “War on Poverty:”

Decades of economic growth, however, have been less successful in raising the incomes from work of many poor families, prompting a strong conservative critique this year that hundreds of billions of dollars in antipoverty programs have failed to make the poor less dependent on government.

There is a strong point in this last statement. While helping out those who need temporary assistance or are permanently disabled is a good thing, creating a permanent underclass dependent on government transfers is not. Indeed, the primary mechanism for this shift is disability, which has increased dramatically since the welfare reform initiatives started under the Clinton administration:

Source: Department of Health and Human Services, Social Security Administration Credit: Lam Thuy Vo / NPR


As a recent excellent NPR piece by Chana Joffe-Walt noted:

In the past three decades, the number of Americans who are on disability has skyrocketed. The rise has come even as medical advances have allowed many more people to remain on the job, and new laws have banned workplace discrimination against the disabled. Every month, 14 million people now get a disability check from the government.

Part of the reason for this increase is that states have a great incentive to move people off welfare and into the disability rolls: welfare is funded partially by the states but disability is funded entirely by the federal government. As a result a “disability-industrial” complex has arisen in America. This sector, notes the author:

…has just one goal: Push more people onto disability. And, sometimes, it seems like the government is outmatched. This is especially true in the legal system.

Daytime TV in many places is full of ads from lawyers who promise to fight the government and win the disability benefits you deserve. There are tons of YouTube videos about getting disability — one lawyer, one webcam. The standard form is a let’s-get-real chat about how to win this thing.

There is one man who takes much of the credit for this industry: Charles Binder. “When we started,” Binder told me, “I don’t think anybody else was advertising.” What’s more, most people who applied for disability were denied and never had a hearing. Binder, and the lawyers who followed him, changed that. “I’ve created some of the problems for the government because so many people appeal,” Binder says.

When he started in 1979, Binder represented fewer than 50 clients. Last year, his firm represented 30,000 people. Thirty thousand people who were denied disability appealed with the help of Charles Binder’s firm. In one year. Last year, Binder and Binder made $68.7 million in fees for disability cases.

This “industry” exists, in part, because the jobs that unskilled workers would have sought are often no longer there. As Joffe-Walt also notes:

There used to be a lot of jobs that you could do with just a high school degree, and that paid enough to be considered middle class. I knew, of course, that those have been disappearing for decades. What surprised me was what has been happening to many of the people who lost those jobs: They’ve been going on disability.

So now we can connect some dots: the poor are increasingly able to buy flat screen TV’s and iPhones (items most middle-class people assume are luxury goods) but the jobs that would have funded these purchase 40 years ago are mostly gone, replaced by government transfers in one form or another. In a past generation, a middle-aged man started a small business if he lost his job. Today, he claims “back pain” makes him unable to work and goes on disability for the rest of his life. How, I wonder, does this phenomenon correlate to the rise in the wealth of the 1%? Is this the tradeoff for the richest? Must the 1% fund the poorest in order to keep its lop-sided gains of the last decade? Is this the right structural shift for this country?

My own view is that many economists are alarmed (correctly) by the rise in inequality in America, but we should look at what is happening at the bottom of the pyramid as well as the top. Allowing the emergence of a plutocracy in the U.S. is wrong, but so is allowing the creation of a “dependocray” that relies on government (and ultimately the money it takes from the wealthy) to for its existence.


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