Speech

For Release on Delivery Thursday, June 3, 1971 1:00 p.m. P.D.T. (4:00 p.m. E.D.T.) RACE AND WELFARE An Economic Assessment Remarks By Andrew F. Brimmer Member Board of Governors of the Federal Reserve System At the Seventieth Annual Commencement of San Francisco State College San Francisco, California June 3, 1971 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis RACE AND WELFARE An Economic Assessment By Andrew F. Brimmer* I gladly accepted the invitation to address this year's graduating class at San Francisco State College. I accepted on the assumption that you did not ask me to participate because you wanted to hear the kind of exhortations about the responsibilities of young people in society which usually characterize commencement exercises. Instead, since you know something about my background and interest, I assumed that you came expecting me to focus on an important economic issue which also has relevance for the society in which all of us must live -- and hopefully help to improve. At the same time, however, I also know that a commencement exercise is a time for congratulations on the enormous efforts which most of you have made to arrive at this juncture in your educational experience. Consequently, I congratulate you on your accomplishments, and I urge you to look forward to employing your skills -- especially your capacity to look critically on the ills around you -- to help create a more humanitarian society. Of course, in the light of the experiences * Member, Board of Governors of the Federal Reserve System. I am grateful to Miss Harriett Harper of the Board's staff for assistance in the preparation of these remarks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 2 - which many of you have had on this campus in the last few years, I know that there is no need to point out to you the enormous deficiencies which still plague our nation. I know also that I do not have to dwell on the opportunities you will have to help overcome these short-falls. Nevertheless, I do want to encourage you to join with the rest of us in tackling the work to be done in the years ahead. Having said that, let me go on to identify an economic issue whose resolution should have the highest national priority. This is the problem of public welfare. The simple fact is that the accelerated growth of dependency on public welfare is creating a permanent "underclass" in America. If allowed to continue unchecked, I am afraid that it may undermine further the already weakening support of efforts to bring about a greater measure of economic equality in the United States. Moreover, the problem of welfare is increasingly acquiring racial overtones. The representation of blacks and other minorities in the welfare system is expanding at an accelerating rate -- with a dispro- portionate share of the growth being accounted for by families headed by black females. While a number of factors help to explain this development (including the legacy of racial discrimination and segre- gation in this country), the central presence of the black female on the welfare stage is inescapable. Furthermore, the increased association of the welfare program with blacks has implications that are far-reaching. It has strengthened the distorted image (held by so many whites) of the black community Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 3 - as a subculture of American society plagued by poverty with little capacity to support itself. While the facts belie such a view, the actual dependence of a sizable fraction of black families on welfare casts a patina of incapacity on the community as a whole. This helps to obscure (for blacks as well as for whites) the real economic progress that blacks are making in the United States. Moreover, the apparent linkage between welfare and black people contributes to hostility toward blacks — especially on the part of working (but lower income) white persons. Thus, an unfortunate by-product of the present welfare system is the aggravation of racial tension. But the most tragic feature of the welfare system is the large number of the nation's children in families dependent on welfare. Black children make up a disproportionately large percentage of that total. Aside from the stigma of dependence that sets them apart -- from affluent black children as well as from white children -- there is a great danger that the welfare system may sap the will and determination of these young people to make the necessary effort (through the acquisition of marketable skills) to become self-supporting. In the light of these circumstances, I am personally convinced that a vigorous national commitment must be made to break the cycle of successive generations of dependence on public welfare. We must be prepared to make the investment -- although it will obviously be enormous--that is necessary to underwrite the quantum jump from depen- dency to self-sufficiency for a significant part of our population. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 4 - In my judgment, further tinkering with the existing patch-work system of public welfare will simply continue what -- in fact -- is nothing more than a system of charity and alms-giving that does more to perpetuate misery than it does to generate opportunity. What is needed is a rational system of income maintenance -- however it is described. It does not matter whether some would call it a negative income tax or a guaranteed minimum income. Aside from providing enough income to meet present minimum needs of dependent families, such a system must also provide incentives for those aided to contribute to their own improvement. Thus, opportunities to obtain training for useful work and the presence of meaningful jobs, once trained, must be integral features of such a system. Above all, any plan adopted must provide avenues along which the children of those families currently entrapped in a web of dependency can escape to self-sufficiency as they approach maturity. I realize that the establishment of such an ideal system can- not be accomplished immediately. We may as well accept the fact that both budgetary and political constraints pose immense obstacles at the present time. However, it is crucial that we begin to move immediately in the right direction. For this reason, as I indicated in the spring of last year, I personally favor the adoption of the basic features of the Family Assistance Program (FAP) recommended by the Administration. While I share some of the reservations expressed by a number of observers with respect to the Program, I think there are far more reasons Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 5 - to praise the plan than to damn it. This is especially true from the point of view of the black community for whom the FAP would represent an early and significant step on the road toward an improved standard of living for a sizable number of families still suffering from the economic deprivations of a long history of discrimination and its corrosive consequences. I will amplify these major points in the rest of these remarks. The Expanding Welfare System In December, 1969, there were more than 10.7 million people receiving cash payments under some type of public assistance program sponsored or supported in part by the Federal Government. The largest of these plans was the one providing aid to families with dependent children (AFDC). At the end of 1969, there were 1.9 million families enrolled under this plan, and 7.3 million persons were receiving aid -- of whom 5.4 million were children. Thus, AFDC (the program which the typical observer has in mind when he thinks of "public welfare") accounts for about 68.5 per cent of the total number of persons receiving cash payments. There were three other Federal programs with sizable enroll- ments: old-age assistance (2 million); aid to the blind (80 thousand); and aid to the permanently and totally disabled (803 thousand). There were also 422 thousand general assistance cases. These figures do not include the 19.3 million persons enrolled in the health insurance programs under Social Security (of whom 7.2 million had claims approved and received $4.2 billion in reimbursements). Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 6 - Total parents under the four programs mentioned above (excluding medical and general assistance) amounted to $6.3 billion in 1969. Over half of this amount ($3.6 billion) was paid under AFDC. Old-age assistance payments amounted to $1.8 billion; the disabled received $827 million; and the blind got $94 million. If the $5.2 billion of payments under the various medical assistance plans are included, cash transfers in the form of welfare payments totaled $11.5 billion in 1969. While funds to finance welfare payments are provided by all levels of government, just one half of the total ($6.0 billion) was contributed by the Federal Government in 1969. The States provided nearly two-fifths ($4.2 billion), and local governments put up slightly more than one-tenth ($1.3 billion). In the last few years, the pro- portion of total welfare payments originating with the States has been rising somewhat, while the shares of both Federal and local governments have trended downward — but only slightly„ During the last two decades, the public welfare system -- whether measured by the number of recipients or total payments -- has expanded much more rapidly than the country as a whole. This is partic- ularly true of AFDC. For example, from 1950 through 1960, the number of beneficiaries under AFDC rose by 38 per cent vs 19 per cent for the total population. Between 1960 and 1969, the number receiving AFDC payments again rose by 38 per cent, while the population expanded by only 12 per cent. The comparison with personal income tells the same Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 7 - story: in the 1950's, AFDC payments rose by 90 per cent vs 76 per cent for aggregate personal income. Between 1960 and 1969, personal income increased by 85 per cent, but AFDC payments jumped by 236 per cent. An even more dramatic picture of the growth of AFDC emerges when the comparison is made — not with total personal income -- but with the sub-total of Government transfer payments (Social Security, unemployment benefits, welfare payments, etc., which represent income to the recipients). In both 1950 and 1960, AFDC payments were 4.2 per cent of such transfers, but by 1969, they had risen to 5.7 per cent. Since 1969, the AFDC program has continued to expand rapidly. Under current law, total AFDC payments are estimated at $5.3 billion for fiscal year 1971 (ending this June 30) and at $6.8 billion in fiscal 1972. The Federal Government's share is still expected to be well over half the total in each year — rising from $3.0 billion in 1971 to $3.8 billion in 1972. Moreover, there is no prospect that the rate of growth of AFDC payments will slow appreciably in the near-term. Consequently, the problems of welfare reform are mainly problems arising with respect to AFDC. Racial Characteristics of Welfare Recipients As I mentioned above, much of the current discussion of the welfare system has acquired racial over-tones. While one seldom hears the virulent racist jokes which were once commonplace -- and public -- commentaries on race relations in this country, the life and times of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 8 - welfare recipients are becoming standard fare for night club comics, newspaper columnists, and even for popular folksingers. And, although the intended humor is supposed to be directed at the general mosaic of "life on welfare," in many cases the racial slurs just beneath the surface frequently show through. On the other hand, the heavy representation of blacks in the welfare program is inescapable. This is especially true in the case of the AFDC. In October, 1970, about 49.3 per cent of the family heads covered by the program were white, and 50.7 per cent were Negroes and y other nonwhites-". In 1969 (when the latter two groups could be dis- tinguished separately in the statistics), black family heads constituted 45.1 per cent of the total; other nonwhites accounted for 6.9 per cent, 2/ and whites made up 48.0.— Over the last decade, black families as a proportion of total AFDC coverage increased appreciably while the proportion for other groups generally declined. For instance, in 1961, whites constituted 51.8 per cent of the total, Negroes 43.1 per cent, and other nonwhites made up the remaining 5 per cent. The representation of blacks in other segments of the welfare system is far less marked than it is in AFDC. In the case of old-age assistance, in 1965 (the latest year for which a racial breakdown is available), about three-quarters of the recipients were white, one-fifth 1/ For comparison, it should be kept in mind that blacks constitute only 11 per cent of the nation's population* 2/ In passing, we might note that the slight rise in the white proportion in 1970 was partly a reflection of the impact of the recession in the national economy in that year. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 9 - were Negores, and about 3 per cent were other nonwhites. Among those receiving disability benefits, over three-fifths were white, less than one-third were blacks, and about 6-1/2 per cent were other nonwhites. So, while we must not deny the fact that a disproportionate percentage of welfare recipients are blacks, all of us should protest vigorously any attempt to exploit the racial characteristics of those receiving public assistance. The Plight of Women and Children Since the principal Federally-supported welfare program (AFDC) is focused on the needs of children, the sizable number of aid recipients who are women and children from broken homes is not sur- prising. Likewise, one is not surprised to note on the welfare roles the large percentage of the total that consists of families headed by black females. But what I personally find distressing is the fact that dependence on public welfare seems to have become a way of life for successive generations of American citizens. The absence of fathers in the home of the typical family receiving welfare assistance has been widely noted. In October, 1970, women headed 82 per cent of the AFDC families, and the father was absent from about three-quarters of these homes. In contrast, the mother was absent in less than 10 per cent of the cases. Yet, only one-sixth of these mothers were employed or in training, so the need for some form of outside aid was self-evident. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 10 - As indicated above, black women head a substantial proportion of the households dependent on AFDC. This situation reflects both the high incidence of poverty and the considerable number of divided families in the black community. For instance, in 1970, of the 4.9 million black families in the United States, 1.4 million, or 29 per cent were below the poverty level (defined last year by the Federal Government as $3,968 for a family of four). The corresponding figures for the nation were: total families, 51.9 million; poor families, 5.2 million, or 10 per cent. For whites: total families, 46.5 million; poor families, 3.7 million, or 8 per cent. So, while black families constituted 9.5 per cent of all families, they accounted for 28 per cent of those trapped in poverty. Among the 1.4 million poor black families, 820 thousand (57 per cent) were headed by females. In contrast , females headed 37 per cent of all poor families in the nation and only 27 per cent of poor white families. Moreover, poor families headed by black females are the poorest of the poor. For all families, the median income deficit (the amount required to raise a family1s income to the poverty threshold) was $1,110 in 1970. It was $1,024 for whites and $1,316 for blacks. However, it was $1,492 for families headed by black females, compared with $1,219 for those headed by white females. While the income deficit per family member was smaller for black women's families (because the latter typically contain a larger number of children) than was the case for white women's families, these figures do provide a rough indication of the extent of the deprivation under which they live. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 11 - The frequency of divided families in the black community has also been widely noted. In 1970, just over one-quarter of all black families were headed by females, compared with 9 per cent for whites. While the proportion for black families has stabilized in the last few years, it has risen substantially in the last two decades -- from 17 per cent in 1950, through 22 per cent in 1960, to 27 per cent last year. For white families, the ratio remained essentially unchanged throughout the period. The situation of many of our children was equally distressing. In 1969, there were 5.4 million children in families receiving assistance under AFDC. These children represented three-quarters of the 7.3 million persons in the 1.9 million families receiving such aid. The vast majority of these children were concentrated in large families. In fact, one-third of them were in families with 6 or more children, and well over one-quarter were in families with 4 or 5 children. About 8 per cent were in one-child families, 14 per cent were in families with 2 children, and 16 per cent were in families with 3 children. Furthermore, the children of families on welfare have represented an increasing proportion of the poor children in the last decade. In 1960, there were 9.4 million children in families below the poverty level; in the same year, 2.4 million children were receiving aid under AFDC. Thus, the latter were equivalent to 25 per cent of the former. By 1970, the number of poor children had risen slightly to 9.8 million. However, the number of children in AFDC families had more Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 12 - than doubled -- climbing to 5.4 million -- and represented 55 per cent of all of the poor children in the country. To some extent, this sharp increase reflects program changes designed to provide greater coverage of needy families. Yet, it also provides a rough index of the size of the task which must be under- taken if successive generations of children are to be rescued from continued dependence on public welfare. The reality of such a danger is clearly indicated by the duration of assistance to some of the families currently being aided by AFDC. In 1969, about 10 per cent of the families had been receiving payments for less than one year. However, when the percentage distribution of the rest of the families, by number of years since the first receipt of assistance,is taken into account, the picture which emerges is far from comforting. The typical AFDC family had been receiving aid for an average of 6 years. About one-fifth had been on welfare between 6 and 10 years, and one-eighth had been on between 11-19 years. Just over 2 per cent had been aided for more than two decades. These statistics confirm the impressions gotten from the reports of social workers and others in close contact with welfare families: the welfare system has developed to the point where several 3/ The statistics were as follows: less than one year, 10 per cent; one year, 18 per cent; two years, 12 per cent; three years, 8 per cent; four years, 7 per cent; five years, 6 per cent; 6-10 years, 19 per cent; 11-19 years, 13 per cent; and 20 years and over, 2 per cent. (The duration was unknown for 6 per cent of the families.) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 13 - hundred thousand cases now exist where mothers and daughters (and even grandaughters) have grown to maturity depending on public assistance as a way of life. So, the legacy of dependency -- and its attendent depri- vations -- is transmitted from one generation to another, and one of the chief causes of poverty becomes poverty itself. Consequently, in my opinion, if there were no other reasons for this country to adopt a rational system of income maintenance, the need to save the coming generations of our children from such an experience is more than sufficient to justify moving ahead without further delay. The Family Assistance Program For this reason, despite several drawbacks in the plan, I would support the adoption of the Administration^ Family Assistance Program (FAP) as the principal means through which the Federal Govern- ment provides assistance to needy families. It will be recalled that, in broad outline, the proposed FAP would have the Federal Government pay a basic income to all families who could not provide for themselves -- whether they are employed or unemployed. It would be geared to dependent families with children, and it would replace entirely the AFDC. Under the proposal, persons (except mothers with preschool children) who accept assistance would be required to register for work or training. It is estimated that in the first year of the program, over half of the families covered would have one member employed or undergoing training. The FAP would work in the following fashion: A family's basic allowance would consist of $800 for the first two members and $400 per member for each of the next three additional members. Thus, for a family of four, the allowance would be $2,400 per year, with the family excluded from receiving food stamps. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 14 - Cash payments to families would be computed by adjusting the basic allowance to account for the earnings of the family. The first $720 of family income would not affect the payments because it is assumed that there are basic costs of transportation, lunches, clothing, etc., associated with taking a job. Cash payments to families would then be reduced by 66 oents for each additional dollar of earnings above the $720 minimum. A simple numerical example will illustrate the program's operation. Assume a family of four has a cash income of $2,000. The first $720 of this income would be disregarded, leaving a balance of $1,280. A family's cash payment would then be reduced by 66 per cent of this amount, or by $845. This sum ($845) would be subtracted from the family's basic allowance of $2,400, tfiaking its cash payment after earnings $1,555. , So far only a rough idea can be provided with respect to the probable coverage of the family assistance program. The projections available were prepared by the Department of Health, Education and Welfare in February of this year. According to these estimates, in 1972, about 3.6 million families would be covered; of these, 2.2 million (three-fifths) would be white, and 1.4 million (two-fifths) would be nonwhites. These families would include close to 18 million persons — of whom 11 million would be children. Gross payments would approximate $4.1 billion, and nonwhites would receive about $1.8 billion -- or 44 per cent. These annual payments would average around $1,134 for all families, about $1,027 for white families, and about $1,304 for nonwhites. However, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 15 - since nonwhite families are expected to be somewhat larger (averaging 5.3 members vs 4.7 members for whites and 4.9 members for all families), payments per capita would be somewhat higher for nonwhites: $231 for all families, $219 for whites, and $246 for nonwhites. In 1969, there were 1.9 million families participating in AFDC, involving 7.3 million persons, of whom 5.4 million were children. Outlays under the Federally aided programs amounted to $3.6 billion, and the average monthly payment per family was $193 (just over $2,300 per year). Compared with the existing AFDC, the proposed FAP would have a significantly different impact on particular groups of families. For example, in 1972, a somewhat greater proportion would be white (61 per cent vs 49 per cent), and the proportion of nonwhites in the total would decline sharply (to 39 per cent from 51 per cent). The proportion of aided families headed by men would rise dramatically (from less than one-fifth to one-half) and the relative position of families headed by females would drop from over four-fifths to just under one-half. More- over, family heads who were full-time, all year workers would constitute almost one-third of FAP recipients, compared with less than one-tenth under the AFDC. Finally, while over four-fifths of the AFDC family heads did not work in 1970, less than one-third would be in this category in the first year of the FAP. On balance, it appears that FAP would represent a considerable improvement — compared with the existing AFDC program -- in about 21 States. Of these, 13 are Southern States (with a heavy concentration of Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 16 - blacks) , and most of the remainder are Western States (with a sizable proportion of Indians and Mexican-Americans among their populations). In 1970, the average for the largest amount of annual payment under AFDC for a family of four in the 13 Southern States was approximately $1,524. However, the average payment varies greatly among these States, and in some it is much below $1,000. Thus, given an annual payment of $2,400 for a family of four, there would be an increase of roughly $876 (or 57 per cent) compared with the amounts received by the average AFDC family in that region. While the exact status of families under the old and new programs cannot be determined, there appears to be no doubt whatsoever that the new proposal would result in a real improvement. In 30 States there would not be an opportunity to make further improvements -- unless these States and local governments maintained their existing programs at substantially the same levels. Under the existing AFDC program, the average for the largest amount of annual payments for a family of four for basic needs in these States in 1970 was $3,216. Under the FAP (and assuming the 100 per cent maintenance factor at the 1970 level) , the new arrangement would require the States to add roughly $816, or 34 per cent. The 30 States include primarily the heavily populated northern industrial States plus California. Most of these have a sizable concentration of low-income persons (including nonwhites) in urban areas. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 17 - Assessment of Reservations Regarding FAP Having reached this conclusion, permit me to say that I also recognize that a number of reservations have been expressed about several features of the FAP. These criticisms have been especially strong in the black community. But, in my personal opinion, these limitations (while serious) need not be fatal — particularly if they are approached with perception and sensitivity. Perhaps the most important limitation, as seen by some observers, is the requirement that a sizable proportion of aid recipients be availabe for work or training. If this requirement is held to those actually capable in this regard, it would be not only an acceptable feature of FAP, but also a necessary part of a viable program for income maintenance. Otherwise the program will fail to perform what should be one of its basic missions: to encourage those dependent on welfare to strive to improve their own condition. A good deal of the criticism of the work or training require- ment in the FAP seems to arise from the fear that mothers with minor children will be forced to leave their homes -- and their children -- to accept low-status jobs yielding incomes at or below the poverty level. In fact, as already indicated, the provision would not apply at all to mothers with preschool children. Nor would it apply to a mother or other female caretaker of a child, if the father or another adult male relative is in the same home and is registered. An exemption would also cover a woman (as well as a man) who is unable to work or be trained Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 18 - because of illness, incapacity or age, or who is needed at home on a continuous basis because of illness or incapacity of another family member. Furthermore, it should be remembered that men will make up 1.8 million, or one-half, of the 3.6 million family heads to be covered by FAP. In contrast, there were only 436 thousand male family heads (or 18 per cent of the total of 2.4 million families) receiving benefits under AFDC in 1970. Thus, an additional 1.4 million male family heads would be brought under coverage of the program, while approximately 200 thousand fewer female family heads would be enrolled (an attrition that may reflect at least partially the substitution of husbands for wives among aided families). Consequently, with a much heavier representation of men, it is not unreasonable to expect them to seek employment or training — as their health and abilities permit. Even in the case of women presently covered by AFDC, a substantial number are also employed or in training. For example (using the bench marks of the 1969 statistics as an index), of the roughly 2 million female family heads receiving benefits in October 1970, it is estimated that about one-sixth (or well over 340 thousand mothers) were holding jobs or undergoing training. Approximately another 280 thousand (or one-seventh) were incapacitated for employment. Also in 1970, about one-third of the mothers on AFDC (more than 600 thousand women) were full-time homemakers. Thus, around one-quarter (or 500 thousand) of the female family heads receiving AFDC benefits in 1970 (purely on the basis of the over-all statistics) might be considered Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 19 - eligible for employment or training. Consequently, if women beneficiaries under FAP were to be distributed with respect to work-status in roughly the same proportions as they are under the AFDC, almost half of the female family heads (about 900 thousand) would be exempted from the work or training provision in any case. Perhaps another 300 thousand or so would keep the jobs they already have or continue the training in which they are already enrolled. Finally, many of the remaining one-half million female family heads would qualify under one or more of the other exemptions of FAP. But, on balance, the effect of the work or training require- ment under FAP undoubtedly would be to encourage more welfare recipients to seek employment. However, this conclusion is not as strange (nor is the requirement as harsh) as it may appear to some observers. There is well-founded evidence (e.g., the results of the New Jersey Graduated Work Incentive Experiment) showing that poor people prefer to work — even when they receive an income supplement. The record is also full of examples of employers receiving large numbers of applications from unemployed poor persons in the labor force in response to even modest recruiting efforts. On the basis of these experiences, I am reasonably confident that the work or training provision of FAP would lead to a constructive outcome. On the other hand, the FAP must not be used as a device to force poor people to return -- against their will -- to the homes of rich people to serve long hours as aooks and maids, or as low-paid Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 20 - laborers on plantations and corporate farms, or as sweat-shop workers on the fringes of our industrial society. At the same time, welfare recipients (along with other disadvantaged members of society) should not conclude that jobs which match their skills and abilities (particularly after they have had a genuine opportunity to acquire training and experience) are too lowly to be performed. So, fundamentally, much of the success (or failure) of the FAP work or training provision will depend on those public officials responsible for the administration of the program: they must insist that the training involved is mean- ingful and that the wages, hours, and working conditions on the jobs offered are not sub-standard. And above all, in the long-run, the economy must be expanding at a rate sufficient to provide a sustainable measure of full employment. Another criticism of FAP is that the minimum benefit of $2,400 for a family of four is already below the poverty level. In fact, some have suggested that the minimum be raised to $5,500, while others have argued for $6,500. While one can agree that the proposed minimum is too low, we should not confuse our preferences with a clear- headed assessment of the probabilities in the near-term. Even a figure of $3,600, compared with $2,400, would extend coverage of FAP from 18 million to 69 million persons, and increase the net cost from $4.1 billion to $25 billion. Extending the minimum benefit to $5,500 would cost an extra $71 billion and cover more than half the population Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 21 - of the United States.—^ The cost and coverage consequences of the $6,500 figure would be so large that it would be virtually impossible to carry on a meaningful discussion of its impact. So, in my personal judgment, these larger magnitudes are beyond the realm of probablity, and even the $3,600 figure is most unlikely to be taken seriously by the Congress at the present time. To me, the reason is self-evident: the American public is simply not willing at the present time to underwrite a system of income transfers on such a scale. Concluding Observations In closing these remarks, let me repeat the major theme stated at the outset: our existing system of public welfare -- although it is continuing to expand rapidly -- is not providing a means to increase the probability that those families dependent on it will become capable of self-support. In fact, it may perpetuate generation after generation of poverty among the people now entrapped in the system. Consequently, we need to get on with the task of designing -- and implementing -- a rational system of income maintenance. For this reason, despite its weaknesses, I favor the early adoption of some version of the Family Assistance Program which the 4/ These alternative estimates were prepared by Josephine Allen for Charles L. Schultze, et. al., Setting National Priorities: the 1972 Budget, Brookings Institution, Washington, D. C., 1971, Ch. 8, p. 187. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - 22 - Administration recommended last year. Its establishment would mean that a sizable number of welfare recipients — and particularly the poverty-stricken families headed by females — would benefit substantially. So, rather than get bogged down in an unpromising debate over the merits and limitations of a few specific features of the plan, we should devote our energies to the early launching of an income mainten- ance program with the broad features of the FAP. Once this is in place, we can always work to make further improvements. In the meantime, the adoption of the FAP would create a promising basis for checking the increased dependence on public welfare of a growing segment of our population. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

Andrew F. Brimmer (1971, June 2). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19710603_brimmer

@misc{wtfs_speech_19710603_brimmer,
  author = {Andrew F. Brimmer},
  title = {Speech},
  year = {1971},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19710603_brimmer},
  note = {Retrieved via When the Fed Speaks corpus}
}