Low-balling benefits

James Devine jdevine at popmail.lmu.edu
Fri Sep 25 11:28:30 PDT 1998

Brad wrote: >Under AFDC, you lost federal matching funds if you cut benefits to try to induce the poor to move elsewhere. The fact that you lost federal matching funds was a brake on the low-balling.

>Do people migrate for benefits? Probably not much. Do conservative state
>legislators believe that people migrate for benefits? 100%. How much
>low-balling did the federal match in AFDC prevent? I don't know, but we're
>going to find out over the next decade and I am scared...

Do people migrate? My impression is that the downward equalization of benefits prevents migration from being more than a marginal effect. The state governments study what their neighbors are doing, so as to preempt in-migration. So there's no big incentive for people to move.

Of course, budgetary woes -- e.g., the result of the recession that will hit the US in a year or two (sometime after the November election) -- fuel this downward movement of poor-relief benefits. I notice that Jamie Galbraith's book CREATED UNEQUAL finds that state & local government spending behaves much more similar to private consumption than to federal government spending (pp. 280-1). That is, it is normal for the state and local governments to break the old-fashioned Keynesian rule that "thou shalt not try to cut budget deficits in a recession." At the same time, they are likely to do so on the backs of those with little political clout, i.e., the poor.

(Back in the 1970s, colleagues of mine at Berkeley investigated the question of capital flight inside the US: does capital move to find low wages and taxes in other states and municipalities? their answer was: not very much at all; instead, in general local capital lobbies hard for government subsidies and wage cuts. Their success at doing so means that they don't have to migrate (which would imply various costs).)

Jim Devine jdevine at popmail.lmu.edu & http://clawww.lmu.edu/Departments/ECON/jdevine.html

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