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BUDGET PROPORTION: One of three elasticity determinants (time period and substitute availability are the other two) stating that the elasticity of a good tends to be greater when the proportion of the budget devoting to the good is greater. In other words, the price elasticity of demand for housing (which takes up a sizeable portion of most budgets) is greater than that for a pair of socks (which does not take up much of most budgets). Even small percentage changes in goods that constitute a sizeable share of income can be quite large in absolute terms. As such, buyers tend to more sensitive to price changes in big-budget expenditures. This elasticity determinant works primarily for the price elasticity of demand.

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Collecting WELFARE

I know word travels quickly among pedestrians of Shady Valley, but perhaps you haven't heard the latest. Pollyana Pumpernickel, the proprietor of Pollyana's Pet Palace, is no longer a pet proprietor. She's fallen on hard times, and fallen quite hard. Her husband of twelve years, Paul Pumpernickel has dumped her and their three young children to pursue insurance alternatives with Tricia Comer -- Smilin' Ted's sister and business partner in the All Comers Insurance Agency. Pollyana is distraught, to say the least. Paul Pumpernickel had been the dutiful househusband and caring father in his marriage partnership with Pollyana, but those duties fell onto the heavily burdened shoulders of Pollyana. The burden was too much. Pollyana's Pet Palace plundered into oblivion, leaving Pollyana penniless and jobless. Her only alternative was our government's public assistance program -- what you and I know as welfare. She's not pleased with her current social status, and neither, apparently is Winston Smythe Kennsington III, who ridicules poor Pollyana at every opportunity.

Catching Your Fall

Welfare, or public assistance, is part of the federal government's safety net of benefits for those who, like Pollyana, have fallen onto hard times. Along with Social Security and other New Deal programs, it sprung from the 1930s Great Depression. The 1930s was a period in which many people plummeted to the hard-packed, drought-parched ground. Bunches of consumers lost their income as the unemployment rate ran well into double digits. Bunches also lost their savings as thousands of banks closed their doors. These people fell, and fell hard, with nothing to keep them from crashing onto the jagged rocks.

As one part of the safety net system, welfare was designed to catch women (originally widows) and their dependent children who were knocked down by the economy's turbulence. While single mothers and their children are the primary group of welfare recipients today, the program has been expanded over the years to assist others who are poor. Unlike social security, which is based on age and disability status, the criteria for welfare is poverty.

A Myth or Two Makes for Good Campaign Speeches

Before we get into the nuts and bolts of the welfare system, it's a good idea to dispel a few myths often propagated by vote-seeking politicians.

  • All (or most) welfare recipients are black. The overwhelming majority of those who receive welfare benefits are white. What is true, however, is that blacks are more likely to be on welfare than you would expect from their share of the general population. While blacks make up about 13 percent of the population, they constitute about 25 percent of those on welfare. While blacks tend to be poorer than whites, poverty hits all races.

  • All (or most) blacks are welfare recipients. In general about 10 percent of whites and 30 percent of blacks are officially poor. While blacks might have a greater likelihood of being poor, and less likelihood of being wealthy, that whites, they're not all poor.

  • All (or most) welfare is paid to people who don't really need it. The welfare system, like Congress, has it's share of fraud and corruption. There are a number of people who collect welfare even though they hold down jobs. The few who accomplish this, however, get far more publicity because of office-seeking politicians, than the millions who play by the rules.

  • All (or most) welfare recipients are out for a free ride at the taxpayers expense. Our economy is filled with lazy, shiftless people. Some are poor, others work in factories, and still others are in positions of wealth and power. But the overwhelming majority of welfare recipients would rather have a job than collect welfare.
The Welfare Mess

Almost anyone you ask tends to agree that our current poverty-fighting welfare system is a big mess. It has an overbloated bureaucracy, wastes a lot of tax dollars, and doesn't seem to help the poor. Let's see why.

  • While welfare is mandated by the federal government, each state is responsible for operating it's own system. As such, we really have 50 different welfare programs, some better than others.

  • In particular, each state provides part of the funding on top of any federal tax dollars, and it sets up it's own qualification guidelines. Some states tend to be very generous, with loose guidelines and others have extremely rigid qualifications with minimal payments. As you might expect, the "easy" states tend to have poor people move in to collect benefits.

  • The "welfare system" is actually composed of several different programs. Let's see if we have enough space to list a few. At the top of the list is the Aid to Families with Dependent Children, which is what we normally think of in terms of welfare. There's also Supplemental Social Insurance, which is part of the social security system, but provides benefits based on need rather than age or disability. We also have food stamps, school lunch programs, assorted veteran's benefits, Medicare, Medicaid, housing assistance, low-rent public housing, earned income tax credits, low-income energy assistance, job training programs, and the list goes on. A big problem is that separate federal, state, and local government agencies deal with these different programs. Because there's little co-ordination, some people are boggled by the paperwork and don't get needed benefits, while others play the system like a concert violin and get undeserved stuff.
How Well Does It Work?

A common theme of this Guide is that perfection is seldom found in our economy. The big question when we trek through something like the welfare system is whether or not the minuses cancel our the pluses.

  • First, the pluses. Over the decades, our welfare system has provided valuable assistance to millions of poor people. In so doing, it has help many remove their names from the poverty roster of our economy. It's also helped compensate, to some degree, for the unequal distribution of resources, income, and wealth that's caused by luck and happenstance.

  • Now, the minuses. A lot of tax dollars are eaten up by the bureaucratic system that administers welfare. While any government program in a complex economy is besieged with waste, the welfare system abuses that privilege. Because single mothers who aren't working are the ones targeted for benefits, the system has tended to encourage large families, unwed mothers, divorces, and unemployment.
Does It Get Any Better Than This?

Suggested alternatives for improving welfare are as numerous as there are politicians, administrators, welfare recipients, and taxpayers. While almost everyone has a thought on the matter, let's ponder a few of the more popular.

  • Tie it to concrete blocks and dump it into the ocean. The suggestion has been made more than once (usually by deeply entrenched members of the second estate) that we should rid ourselves of the entire system. People would thus need to fend for themselves and undertake the personal investments needed to improve their lives. Truly needy people would be helped by private charities. (Of course, without welfare, people would be willing to work for lower wages and thus the labor cost for businesses would decline.)

  • Simplify, streamline, and consolidate. The whole system could be more effective if it were coordinated. Rather than hundreds of agencies, forms, and qualification guidelines, the poor, the taxpayers, and all parties concerned would benefit by getting rid of the layers upon layers of bureaucracy. The big obstacle, however, is that the bureaucratic layers have created lifelong careers, political power, and assorted special interest groups. One person's wast is another's income. None of these are easy to eliminate.

  • A stepping stone. The original objective of our safety net programs, especially welfare, was to catch people who fell. These recipients would then bounce back. However, over the years, many people have hit the safety nets without bouncing. The welfare system could be better if used to help people to invest in productive skills or otherwise improve themselves, rather than providing just consumption. Suggested reforms include education, job training, work incentives, and drug rehabilitation. However, if not implemented right, the system could do little more than provide some businesses or governments with a source of cheap labor.

While improvements are possible in our welfare system, it's nice to know that someone like Pollyana Pumpernickel is protected from excessive hardship when her life crumbles. With a little bit of luck and some hard work, her stay on the safety net will be temporary. Had it not been there, however, her problems and those of society might have been far worse. Homelessness, drug abuse, drug dealing, prostitution, thievery, suicide, or any number of other socially despicable problems could have been in Pollyana's future. Millions of other hardworking, taxpaying consumers are a natural disaster, closed factory, or major illness away from following Pollyana's path.

Creating WEALTHxxx A Careful View Of WORKER SAFETY


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