The Economics of the Welfare State

The Economics of the Welfare State

A Review Outline In 1997, a bipartisan initiative created the State Children’s Health Insurance Program (or SCHIP). In 2007, Democrats and Republicans fought over efforts to expand the program. This example illustrates the debate over how much help government should provide to lower income families. Collectively, the government programs devoted to health care, income support, and other programs to reduce economic insecurity are called the “welfare state.”

Following is a brief outline of important points on the Economics of the Welfare State.

I. Poverty, income Inequality, and Public Policy
   A. The logic of the welfare state
        1. Definition: The welfare state is the collection of government programs
            designed to alleviate economic hardship.
        2. Definition: A government transfer is a government payment to an
            individual or a family.
        3. Definition: A poverty program is a government program designed to aid
            the poor.
        4. Definition: A social insurance program is a government program
           designed to provide protection against unpredictable financial distress.

B. The problem of poverty
        1. Definition: The poverty threshold is the annual income below which a
            family is officially considered poor.
        2. Definition: The poverty rate is the percentage of the population with
            incomes below the poverty threshold.
        3. Trends in poverty
             a. graph of the U.S. poverty rate from 1959 to 2006
        4. Who are the poor?
             a. minorities
             b. female headed households
             c. lack of adequate employment
        5. What causes poverty?
             a. lack of education
             b. racial and gender discrimination
             c. bad luck
         6. Consequences of poverty

   C. Economic inequality
        1. Definition: Mean household income is the average income across all
            households.
        2. Definition: Median household income is the income of the household
            lying at the exact middle of the income distribution.
        3. Definition: The Gini coefficient is the most widely used measure of
            income inequality.
        4. How to calculate Gini coefficients
        5. The distribution of income around the world

    D. Economic Insecurity
        1. Sudden loss of income
        2. Sudden increase in expenses

II. The U.S. Welfare State
    A. Means-Tested programs
        1. Definition: A means-tested program is a program available only to
            individuals or families whose income falls below a certain level.
            (An investigation into the financial well-being of a person to 
            determine the person's eligibility for financial assistance.)
        2. Definition: An in-kind benefit is a benefit given in the form of goods or
            services.
        3. Definition: A negative income tax is a program that supplements the
            income of low-income working families.

    B. Social Security and unemployment insurance

    C. The effects of the welfare state on poverty and inequality

III. The Economics of Health Care
    A. The need for health insurance
         1. Definition: Under private health insurance, each member of a large
             pool of individuals pays a fixed amount to a private company that agrees
             to pay most of the medical expenses of the pool’s members.

    B. Government health insurance
         a. Medicaid
         b. Medicare
         c. Military health care

    C. The problem of the uninsured

    D. Health care in other countries

    E. The health care crisis and proposals for reform

IV. The Debate over the Welfare State

     A. Problems with the welfare state
    
     B. The politics of the welfare state

Web Resources

• For U.S. poverty data, go to the Census Bureau at  

        http://2010.census.gov/2010census/

• For global data on poverty, go to the World Bank PovertyNet at http://web.worldbank.org/.

• To find the most recent federal spending data from the Office of Management and Budget go to http://www.whitehouse.gov/omb/.

• For information and data on health insurance in the United States go to the Census Bureau at http://www.census.gov/hhes/www/hlthins/hlthins.html.

SOURCE:  WORTH Publishers, 2010.

1 BONUS POINT is available for correct answers to these questions.  Copy the questions, show your answer, save your work and submit it via an email attachment to dmckee@educatoronline.net.  The answers must be received by Tuesday, April 25 for credit. 

ThM

IdentiIIdentify the choice that best completes the statement or answers the question.

____     1.   Since 1973, the poverty rate for Americans over 65 has fallen, while it has increased for Americans under 18. An important reason for this is that:

a.	the food stamp program was eliminated in 1973.
b.	older Americans are reluctant to retire, and they are taking jobs away from the younger generation.
c.	a very small fraction of the population under age 18 lives with people over 65.
d.	most people under age 18 are unmarried and therefore have access to only one income.
e.	spending on programs that benefit the elderly (such as Social Security and Medicare) has increased, while aid to families with children has not kept up with inflation. YOUR ANSWER:

____     2.   The single most important factor influencing children's later socioeconomic attainment is:

a.	race.
b.	education.
c.	health care.
d.	geographic mobility.
e.	parental income.  YOUR ANSWER:

____     3.   Economists believe that the most important cause of the increase in income inequality is:

a.	the elimination of many income redistribution programs.
b.	rapid technological change.
c.	the failing education system.
d.	pervasive discrimination.
e.	immigration. YOUR ANSWER:

____     4.   The ________ identifies the income at which half of the population earns more and half of the population earns less.

a.	median household income
b.	mean household income
c.	poverty level
d.	Gini coefficient
e.	unemployment rate YOUR ANSWER:

____     5.   The largest ________ program in the United States is ________.

a.	social insurance; Medicaid
b.	social insurance; Social Security payments to retired persons
c.	means-tested; farmers' aid
d.	means-tested; Social Security payments to retired persons
e.	means-tested; food stamps YOUR ANSWER:  The AP Exam is less than 1 month away.  It's time to start your review process!