american free enterprise chapter 3 section 4 providing a safety net

American Free Enterprise

Chapter 3 Section 4

Providing a Safety Net


Objectives: Summarize the U.S. political debate on ways

to fight poverty. Describe the main programs through which

the government redistributes income.


Prosperity is just a hazy memory in East St. Louis, IL. Run-down buildings, weed-covered lots, poverty,

unemployment are constant companions in this Illinois town that has 40,000 residents.

This town was once a boom town along the banks of the Mississippi River (330,000 residents in the 1970s).

In the 1970s, firms packed up and left East St. Louis for a variety of reasons (mainly tax) and found better

opportunities in other cities. Few businesses were left to tax, jobless rate increased, city

was almost in bankruptcy, could not provide the basic services, i.e. garbage collection, police/fire


The Poverty Problem: The free market has proven better at generating

wealth than any other economic system, the wealth is spread unevenly throughout society.

This leaves us with a poverty threshold – an income level below that which is needed to support

families or households. In 2000 – the poverty threshold was $ 11,869 (for a

single parent under the age of 65 – one child). For a four-person family (2 children) it was $ 17,463. East St. Louis had a median income of $ 12,000.


The Government’s Role: The opportunities that the free market offers can lift

the working poor into the middle class. Yet, in poor areas (in East St. Louis - for example)

economic opportunities are limited because of factors such as a lack of local jobs and few educational opportunities.

As a society, we recognize some responsibilities to the very young, the very old, the sick, the poor, and the disabled.


For these people, the government tries to provide a safety net.

Various federal, state, and local government programs help to raise people’s standard of living, their level of economic well-being as measured by the ability to purchase the goods and services they need and want.


In a society that prefers limited government activity in the economy, poverty does pose some tough questions.


The Welfare System: 1930s, the main government effort to ease poverty

has been to collect taxes from individuals and redistribute some of those funds in the form of welfare.

Welfare – a general term that refers to government aid for the poor.

It has many types of redistribution programs System began under President

F.D. Roosevelt following the

Great Depression.


Lyndon B. Johnson has a program called “War on Poverty” that he started in the 1960s.

Welfare payments soared in the 1960s and 1970s.

In the 1990s, critics of welfare

voiced their concern that people

were becoming dependent on the

system and unable or unwilling to

get off it.


1996 – Congress made sweeping changes in the welfare system.


Cash Transfers

1. T A N F 2. Social Security

3. UnemploymentInsurance

4. Workers’ Comp


Redistributing Programs: 1. Cash Transfers

State and Federal governments provide transfers – direct payments of money to poor, disabled, and retired people.

Types of Programs Temporary Assistance for Needy Families (TANF)

This program replaced the Aid to Families with Dependent Children (AFDC)

This program does not give direct federal welfare payments. The money goes to the states to design and run their own programs. They have to set up work incentives and establish a lifetime limit for benefits. This reform was to move people from welfare dependence to the work force.


Types of Programs Social Security

Created in 1935 during the Great Depression. It provides direct cash transfer payments to retired people

to supplement their income after they stop working. It also pays to disabled people as well. The program collects payroll taxes and redistributes that

money to current recipients. Unemployment Insurance

A cash transfer funded by federal and state governments. Provides money to eligible workers who have lost their job. Must show that they have made efforts to get work during

each week that they receive assistance. Usually will last 6 months. Hardship case is 12 months.


Types of Programs Workers’ Compensation

Provides cash transfers to state funds to workers’ injured on the job.

Most employers must pay workers’ compensation insurance to cover any future claims their employees might make.


In-Kind Benefits: This is goods and services provided for free by the

government or they provide it at greatly reduced prices.

Most common would be food giveaways, food stamps, subsidized housing, and legal aid


In-Kind Benefits: Medical Benefits

Health insurance for the elderly, disabled, and the poor.

Medicare covers Americans over the age of 65. Medicaid covers some poor people who are

unemployed or not covered buy their employer’s insurance plan.

Medicaid is administered by the Social Security program.

Both programs are extremely expensive to run


In-Kind Benefits: Education

Federal, State, and Local governments all provide educational opportunities to the poor.

The Fed funds programs from preschool to college.


In-Kind Benefits: Faith-Based Initiatives

Started in 2001 by President George W. Bush To get nongovernmental support for people in

need. Use faith-based organizations, charities, and

community groups first to help during disasters or people in need.

President Bush felt that religious organizations have been the most successful delivering social services.


Faith-Based Initiatives These groups have used money to solve

problems, provide compassion to people in need.

This program allows these groups to compete for federal funds to carry out their

mission or charitable activities.


REVIEW:1. How does welfare attempt to raise poor

people’s standard of living?2. Why does poverty exist in a free market

economy?3. What is the difference between cash

transfers and in-kind benefits?4. How is Social Security an example of

income redistribution?

american free enterprise chapter 3 section 4 providing a safety net

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