From 1978 to 1982, the poverty rate rose by almost a third to 15 percent. By 2009 the poverty rate stood at 14.3 percent—about where it was when the War on Poverty began. As Peter Ferrara explains in America’s Ticking Bankruptcy Bomb, after the War on Poverty commenced, work among low-income Americans collapsed.16 In 1960, nearly two-thirds of low-income households were headed by persons who worked,17 but by 1991, the proportion had fallen to one-third, with only 11 percent working full time, year round.18 With the government providing so much in free welfare, many people chose not to work.
Once caught in the web of the welfare state, the poor face grave difficulties in trying to break free, a problem Art Laffer has called the “poverty trap.” Simply put, welfare recipients who go to work lose their benefits as their income rises. This is effectively an extra tax on work that must be paid on top of the usual array of federal, state, and local taxes. Laffer and others have shown that the effective tax rate on those trying to work to get off of welfare can even exceed 100 percent.
Once free of welfare, those trying to remain productive face the burdens and disincentives of welfare state tax rates. Despite the popularity among politicians of one-time tax rebates, these are largely political gimmicks. With regard to work incentives, the most important metric is the tax rate—the lower the rate, the greater the incentive to work, save, invest, start businesses, expand businesses, create jobs, and produce, because the producer is free to keep a higher percentage of what he or she produces. The higher the tax rate, the bigger the disincentive to work.
HOW TO LIBERATE WORK
In 1996, when I served as Speaker of the House of Representatives, the Republican majority enacted the most successful national welfare reform in history, which restructured the failed New Deal-era Aid to Families with Dependent Children (AFDC) program. More than a legislative reform, it was a cultural reform that valued work and restored the dignity that welfare had destroyed for millions trapped in the system.
The reform returned the share of federal spending on the program to each state in the form of a “block grant” to be used in a new welfare program redesigned by the state based on mandatory work or education for the able-bodied. Federal funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, effectively paying the states to expand welfare. The key to the 1996 reforms was that the new block grants to each state were finite, not matching, so federal funding did not vary with the amount the state spent. If a state’s new program cost more, the state had to pay the extra costs itself. If the program cost less, the state could keep the savings.
To give the states broad flexibility in designing the new replacement program, the AFDC’s status as an entitlement was ended. The reasoning was simple: states would not be free to redesign their programs if their citizens were entitled to coverage and benefits as specified in federal standards. The reformed program was renamed Temporary Assistance to Needy Families (TANF).
The reform was opposed bitterly by the liberal welfare establishment, with Senator Daniel Patrick Moynihan, the Urban Institute, and others predicting the reforms would create a “race to the bottom” among the states and would produce a million starving children within a year.
But quite to the contrary, the reform was immensely successful, exceeding even the predictions of its most ardent supporters. The old AFDC rolls were reduced by two-thirds nationwide, even more in states that pushed work most aggressively. “As a result, in real dollars total federal and state spending on TANF by 2006 was down 31 percent from AFDC spending in 1995, and down by more than half of what it would have been under prior trends,” according to Forbes magazine.19
At the same time, because of the resulting increased work by former welfare dependents, child poverty declined every year, falling by 2000 to levels not seen since 1978. Ron Haskins of the Brookings Institution reports that by 2000 the poverty rate for black children was “the lowest it had ever been.”20 Because of their renewed work effort, the total income of these low-income families formerly on welfare increased by about 25 percent.
There was just one problem with the 1996 reforms: they only reformed one federal program.
The federal government sponsors another 184 means tested welfare programs, including Medicaid, Food Stamps, twenty-seven low-income housing programs, thirty employment and training programs, thirty-four social services programs, another dozen food and nutrition programs, another twenty-two low-income health programs, and twenty-four low-income child care programs, among others.
All these programs could and should be block granted back to the states just as AFDC was in 1996, effectively shedding the federal government of responsibility for welfare. With the states in charge, each one could structure its welfare system to suit its own particular needs and circumstances. State control would also allow states to experiment with different reforms, as real-world results would prove what works and what doesn’t. Economic and political competition among the states would lead them to adopt what has proven to work best.
To restore the traditional American incentives to work, save, invest, start and expand businesses, create jobs and produce, America also needs broad based tax reform—namely, an optional 15 percent flat tax, where every taxpayer could choose to file under the new flat rate tax or under the old tax code.
America’s traditional work ethic still permeates this country, but it is being undermined by government disincentives. Whether these programs and policies are well-intentioned efforts to help the poor or socialist acts of class warfare, they hurt those they purport to help by devaluing the work ethic. The Founders understood what kind of policies promote a productive citizenry—low taxes, low debt, low regulation, maximum freedom. We could learn profoundly from their example.
THE BETRAYAL OF THE PRIVATE SECTOR
America has risen to become the richest, most powerful country in the world. It owes that achievement to its longstanding belief in the tremendous capacity of individuals to accomplish great things. Our nation’s amazing contributions to science, industry, finance, and medicine were not the product of government initiative and bureaucratic control. They came from the genius and labor of individual men and women—many of whom, like Benjamin Franklin, Andrew Carnegie, and John D. Rockefeller, started with practically nothing.
The Founders of this great nation envisioned an economic system comprising a wide variety of energetic private interests, all pursuing their own enlightened self-interests under a carefully constructed system of federalism. The government they created was charged with creating a legal and policy environment that would allow the American economy and civil society to flourish.
That government was not authorized to become the producer and director of the great drama that is America. And yet the Progressive movement, strongly influenced by the purported “efficiency” of nineteenth-century Prussian “planning,” and later of Soviet “planning,” has embraced a top-down director’s role for the government over the lives of the American people.
One of the two great political parties in the United States has essentially abandoned its responsibility to represent the private sector. It is now focused almost entirely on the demands of the public sector—state and federal government employees, their unions, and to the extent the Democrats listen to the private sector at all, the crony capitalists who profit from influencing government.
Government employee unions have become the largest contributors to the Democratic Party’s election campaigns and its candidates, followed by a string of other government-related special interest groups. As a result of this fixation on the public sector, for the past several years, state and federal government employee payrolls have been expanding rapidly, even while job creation and incomes remain stalled among the private-sector workers who pay their salaries.
The political power of this party depends on increasing the percentage of the population that depends on Big Government and that votes to keep it
in power. It is now imperative that the American people, who value and honor the legacy of freedom they have received from the Founders, step forward and restore the traditional American commitment to work and independence—or settle for a life of dependency on Hayek’s road to serfdom.
CHAPTER SIX
CIVIL SOCIETY THE UNITED CITIZENS OF AMERICA
When flood waters from Iowa’s Cedar River drowned 1,300 city blocks and 4,000 homes in more than four feet of water blocks and 4,000 homes in more than four feet of water in June 2008, Christian Fong—the son of a Chinese immigrant and a Nebraska farm girl—acted. A native-born Iowan, Mr. Fong began to organize volunteers in a broad, faith-based initiative to evacuate and care for flood victims.
Fong and the faith-based group Serve the City worked alongside the police and National Guard to save lives and property in the flood-ravaged area. After the emergency ended, Christian Fong knew his work had only just begun. He launched a new group, Corridor Recovery, devoted to getting the community back on its feet. With 5,000 volunteers, Fong’s organization brought together dozens of local civic groups including churches, businesses, and charities to assist in delivering flood assistance to the needy.
Corridor Recovery, bolstered by Boy Scout volunteers, restored 100 houses per week that summer and fall, and even delivered services to government agencies, shattering the expectations of the federal bureaucrats who had been sent to handle the recovery. The group also served as an information hub for redevelopment grants and aid, and engaged in various other initiatives geared toward the area’s long-term recovery.
FEMA predicted the flood would permanently shutter 40 percent of Cedar Rapids’ businesses, but through the efforts of Corridor Recovery, half of those supposedly doomed enterprises are now open for business. Cedar Rapids is back on its feet today because its citizens stepped up when their community needed them. For his efforts, Fong, a successful business executive before the floods, was lauded as the “Hero of Cedar Rapids.”
Christian Fong is an everyday American hero. He does not have a cape or a fancy title; he is just a citizen who takes his responsibilities to his community seriously. He showed extraordinary leadership during the Iowa flood, but he could not have done it alone. He tapped into America’s greatest resource—individuals voluntarily gathering together within the framework of civil society. With such efforts, the entire community united to save the lives and property of friends, family, neighbors, and strangers.
The community’s response in Cedar Rapids is not unique—it’s rather common for ordinary Americans to band together to achieve a common purpose. A few years before the Cedar Rapids flood, Hurricane Katrina had struck the Gulf Coast with unprecedented ferocity. In Mississippi, ordinary citizens and civic groups met that challenge head-on and jump-started the region’s recovery. Disaster victims were assisted by nearly a million volunteers who donated 10 million man-hours (worth $143 million in labor costs) and $400 million in financial assistance.1 From Catholic Charities USA, the Salvation Army, and the Red Cross to small church congregations and independent volunteers like Compassion First, Americans came together to help those in need. The civic activism in Iowa and the Gulf Coast reflect the kind of energetic civil society that the Founders believed was a critical component of early American civilization.
The Declaration of Independence does not catalog acceptable and unacceptable pursuits of happiness and does not instruct people on how to live out their freedoms. This was not the concern of the Founders, who focused on limiting government’s power to infringe on individual freedom, especially the right of individuals to live their lives as they see fit, including through associations.
Thanks to the Founders’ successes and sacrifices, successive generations of Americans have enjoyed the freedom to pursue the good and virtuous life. A brief history of American civil society will show how our dedication to neighbor, community, and country became a hallmark of American Exceptionalism.
CIVIL SOCIETY IN ACTION
America’s frontier settlers knew firsthand the value of mutual assistance through informal institutions. As they moved west, pioneers assembled into makeshift communities of wagon trains. Individuals and families created communities by binding their fates together, combining their labors and resources for their mutual defense against the elements and hostile Indian tribes. Notably along the Oregon Trail, pioneers aided each other and provided common defense in the absence of government. When the pioneers set down roots, they created organic communities, with individuals cooperating with each other to erect homes, barns, churches, schools, civic buildings, roads, and bridges.2
Before a formal local government was established in an area, civil society—individuals pursuing a common goal either through an organization or through an informal group—accomplished myriad individual and mutual aims. In the movie Witness, the Amish community barn-raising vividly illustrates what had once been a common American experience—dozens of families coming together to build a barn for their neighbor and to share a meal and socialize after the work was done.
The settlers’ interdependence did not conflict with the tradition of American individualism. Rather, civil society married the two through a system of interdependent free institutions and associations. As author Michael Novak notes, the settlers “took pride in being free persons, independent, and self-reliant; but the texture of their lives was cooperative and fraternal.”3
Such associations were often geared toward ensuring the settlers’ physical survival, but others served Americans’ intellectual needs, giving rise to scores of schools and educational institutions across the colonies. Benjamin Franklin was energetically involved in such efforts, founding the Junto, an association dedicated to self-improvement and doing social good, and later establishing the American Philosophical Association and the school that would become the University of Pennsylvania.4
Likewise, churches relied on the private generosity of their congregations and the public. St. Patrick’s Cathedral, an icon of American Catholicism and New York City architecture, raised much of the funds for its construction through appeals to local Catholics, mostly impoverished Irish immigrants who scrimped and saved their nickels and dimes to help build the majestic church.5 Throughout America, similar instances of collective generosity enabled the creation of museums, hospitals, zoos, charities, and countless other civic-minded institutions.
CIVIL SOCIETY:AN AMERICAN INNOVATION
From its inception, the United States has featured a dynamic civil society comprising a multiplicity of private associations and organic structures. This was one of the most striking and unique features of American life according to Frenchman Alexis de Tocqueville. He observed, “In the United States associations are established to promote the public safety, commerce, industry, morality, and religion. There is no end which the human will despairs of attaining through the combined power of individuals united into a society.”6
The Founders’ insistence on limited government created the space for this flourishing civic life. In turn, to this day, civic groups check and balance government power by fulfilling roles that government is tempted to assume, and by cultivating habits of personal responsibility that make individuals more capable of challenging government encroachments in their affairs.
In the eighteenth century, governments throughout the world suppressed civic groups as threats to their power. But America was different from the start. As historian Gordon Wood observes, after the American Revolution “newly independent American men and women came together to form hundreds and thousands of new voluntary associations expressive of a wide array of benevolent goals,” including “mechanics societies … orphans’ asylums … societies for the promotion of industry, indeed societies for just about anything and everything that was good and humanitarian.” Wood further notes, “There was nothing in the Western world quite like these hundreds of thousands of people assembling annually in their different voluntary associations and debating about everything.”7
Edmund Burke, the great defender of the American cause in the British Parliament, argued that such private associations were the foundation of a strong, stable society:To be attached to the subdivision, to love the little platoon we belong to in society, is the first principle (the germ as it were) of public affections. It is the first link in the series by which we proceed towards a love to our country, and to mankind. The interest of that portion of social arrangement is a trust in the hands of all those who compose it; and as none but bad men would justify it in abuse, none but traitors would barter it away for their own personal advantage.8
Burke’s “little platoons”—voluntary associations acting independent of government—bind us to our communities and country in unions that promote individuals’ interests through common means. These platoon-families of civic organizations, professional societies, and religious congregations serve as an intermediate entity between the individual and the vast state apparatus.
Today, civil society encompasses a wide variety of groups and associations. For example, the Boy Scouts of America is an exemplary instance of a civic organization that enriches our daily lives. The Scouts encourage education, habits, and virtues that lead to personal success, and teach our youth the importance of contributing to the public good. Other common examples include neighborhood watch committees, school carpools, little league, the Farm Bureau, and the Red Cross.
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