The Great Deprivation

June 7, 2010, 6:00 AM
By NANCY FOLBRE

Everyone keeps calling it the Great Recession, as though they are not too depressed about the prolonged backslide in gross domestic product, which only recently resumed its upward climb.

Backslide may describe what happened to the market economy, but it doesn’t capture what’s happening now in families hit hardest by persistent unemployment.

They are suffering not a temporary setback, but a permanent reduction in their ability to develop their own and their children’s capabilities. Put in terms that economists are fond of, their human capital is being … decapitalized.

A recent article in The Atlantic by Don Peck eloquently describes the negative long-term effects of unemployment, which are particularly serious for the less-educated.

Isabel Sawhill of the Brookings Institution describes the “permanent scarring” of workers’ economic prospects. The economists Timothy Smeeding and Jeffrey Thompson, summarizing recent trends in inequality and poverty, also emphasize the plight of those who lack both financial and human capital.

Data on the percentage of individuals living in poverty have not yet been released for 2009. Ms. Sawhill summarizes efforts to project future trends this way: “bad news on poverty, worse to come.” Her projections, developed in conjunction with Emily Monea, suggest that poverty rates for children could reach 25 percent by 2011.

Research shows that child poverty reduces later educational attainment, perpetuating deprivation. Reduced high-school graduation rates lead to higher crime rates and increased incarceration costs. In California, as in many other states, it costs more to send someone to prison than to college.

The Great Deprivation is the result not just of increased income inequality compounded by persistent unemployment. It reflects the limits of public policies designed for a bygone era.

A significant increase in the average duration of unemployment has rendered our system of unemployment insurance inadequate. Future benefit extensions have become a bone of partisan contention.

Young workers, with limited work histories, often don’t qualify for unemployment insurance at all.

Meanwhile, the only federal cash welfare system for single parents, revised in the mid-1990s to push recipients into paid employment, is so restrictive that many of the eligible don’t even bother to apply.

A recent article in Bloomberg Businessweek by James Warren, finding low welfare rolls mysterious, suggests that many states may be more interested in cutting spending than extending aid. In a cruel double-whammy, cuts in child-care assistance have forced some low-income mothers out of employment.

The fiscal stimulus provided by the American Recovery and Reinvestment Act of 2009 aided safety-net programs such as unemployment insurance and the Supplemental Nutritional Assistance Program. But plans for a second round of fiscal stimulus face considerable opposition because of increased budget deficits.

Such deficits are easier to measure than human-capital deficits. But it’s not clear that they are more economically harmful in the long run. Maybe a well-developed set of “human capital accounts” could improve our overall cost-benefit analysis.

Then, instead of merely cataloging deprivation, we could quantify the Great Human Decapitalization. And heads might roll.