Experts, Child Poverty, and Budget Cuts

By Itzik Saporta (Translated from Hebrew by Yoav Kleinfeld, edited by Ami Asher)

Experts” claim that cutting child benefits will eventually result in reducing child poverty. They support this with an argument which may sound plausible to some, but – regrettably – has no bearing on reality. An essay on shoe-string theories

Cutting child benefits has become something that appears so necessary, that even those who acknowledge that child poverty in Israel is high accept it as axiomatic. The very notion that a NIS 3.5 billion cut in child benefits is a necessary part of the overall budget cut, as if the country’s economic health depends on it, makes my stomach roll. But what turns absurdity into an abysmal travesty is that out of the general budget cut these “experts” prescribe for the next two years (some NIS 30 billion), cuts to child benefit programs represent some 12 percent. If this isn’t crazy, I don’t know what is.

Go ahead, ask – what am I getting so worked up for? These cuts may yet be the perfect plug for all holes. After all, the Arabs and the Haredim (ultra-Orthodox Jews) keep popping kids like there’s no tomorrow, and such cuts may hedge this growth. Not only that, but it could force certain populations and women into the workforce, thus further reducing child poverty. In this manner, and in appalling contrast to actual reality, the so called “experts” believe cutting benefits would reduce poverty. For some reason or other, they ignore the fact that cutting child benefits in Israel has already resulted not in a reduction of poverty, but in raising it to unbearable proportions. In addition, whenever benefit cuts are mentioned, we hear day in and day out that universal benefits are wasteful. This is why we need differential benefits. And this is what the new Minister of Welfare and Social Services had to say on the subject:

“Child benefits must also be reviewed. They should not be completely eliminated, under any circumstances and even for high earners, because through them the state manifests its encouragement and support of children. But perhaps we should look into setting different benefit levels for those who are financially better off.”

Studies on the decision making process of whether to have kids or not are generally based on the work of Gary Becker, who stands out even among hardline imperialist economists in the world. Becker explained away every single human behavior, be it discrimination, marital choices, crime, childbearing – you name it – as the outcome of utilitarian choices, and mostly financial at that. According to Becker, any analysis of childbearing decisions must refer to children as a commodity or means of production. Becker’s model explains that the demand for children derives from the price set for the marginal child (the youngest for which parents receive a benefit) – an incredible theoretical framework. Regardless of the study’s results, anyone who accepts this as a plausible working model for research is not in his right mind. Children, marriage, crime, workers – are not commodities. Oh, the heights of intellectual achievement, so far beyond me.

Anyone interested in this theoretical framework is welcome to read a study published this month about the effects of decreasing child benefits in Israel on fertility among various groups. I read it, and found no dramatic relationship between the two variables.

In Israel, where many workers earn relatively low wages, work often makes for a new type of slavery – workers, who remain poor, are treated as a commodity. The last massive cut in child benefits in 2002-2003 resulted in more children living in poverty, while at the same time the ratio of children from households with at least one breadwinner rose to 63%. In a miser’s country, even work becomes a problem more than a solution. Since 1998, the number of children in Israel living in poverty rose by 61%, primarily because of benefit cuts. Whereas in 1998 the rate of poverty reduction due to child benefits transferred to families by social security was 37%, it is now only 15%. Taking away all child support would place poverty at 41.9%, not much higher than the current 35.6%. In fact, the research department of the National Insurance Institute recently announced that planned cuts are expected to raise the rate of poverty among children to more than 37%. Israel already ranks first in OECD lists of child poverty, so why go the extra mile?

The problem starts when number crunching economists do not account for the cost of poverty in their formulas (now it’s me, plunging into economic rationales), let alone the ethical issues arising from accepting poverty in a rich society in the first place. The entire policy is designed to prevent people from having children, while those unfortunate to be born are forced into a life of poverty. It’s a “visiting the sins of fathers and mothers upon sons and daughters” of sorts. Imagine a society in which no working person lives in poverty – now that kind of thing could significantly reduce the rate of families and children living in poverty.

jessi cohen

You don’t have to be an Arab or a Haredi Jew to be riled up when hearing cuts to child benefits are spoken of as a necessity. Jessi Cohen protest tent camp, 12 Sep, 2011. Photo: Yuval Ben-Ami

Without overexerting myself, I found several articles dealing with the effects of child poverty on children and on the economy. The scenario involves disparity in levels of education leading to lower wages, decreased production levels, crime, and more. In the US, the cost of child poverty was found to be 4% of the national product. Since in Israel the cost of poverty approaches that number we are talking about NIS 40 billion. I do not know of any such study carried out in Israel. The reason for this must be the unquenchable need of researchers to prove that the root of our problem lies with the ultra-Orthodox and Arabs, and even economists have lost their art and forgot that poverty comes with a financial bottom-line.

Having said that, what can we actually do to significantly reduce child poverty? Here we plunge into a debate over universal benefits, differential benefits, and other options. Is it possible that other budget measures could lower poverty? In 2007, the OECD published a study showing that benefits are more effective than work in reducing child poverty. This question is being asked frequently now in Europe, with the ongoing crisis. The major conclusion is that even special (differential) programs to reduce poverty in certain populations have to be implemented within the framework of a universal policy. I read another study recently, examining what would likely happen in the US – where many tax breaks go to parents supporting children – if parents were to be provided with benefits of $4000 a year. The study found that such benefits would cut child poverty by half. One must keep in mind the rate of child poverty in the US is significantly higher than in Europe, but still lower than in Israel.

So it’s true we now have a gifted Finance Minister who is a quick learner, but as usual he is being taught lessons he might as well forget. Since he does not know which books to pull off the shelf, every economist who whispers in his ear can steer him in the wrong direction. The main issue is not who occupies the position of Minister of Finance, but with experts who feed off dodgy theories, not only regarding poverty, but also regarding economy in general. That, and a public educated by these experts, accepting their teachings at face value.

You don’t have to be an Arab or a Haredi Jew to be riled up when hearing cuts to child benefits are spoken of as a necessity. Every citizen should demand child poverty to be slammed down, and cutting benefits is not the way. To me, it’s hard to accept that this is the situation in one of the world’s 25 wealthiest countries. Whatever your political party line may be, you still ought to consider the fact that we’re all being stuffed with baloney.

Itzik Saporta is a senior lecturer at the Tel Aviv University Faculty of Management

This post originally appeared in Hebrew on Haokets.

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