Despite wrenching opposition from inside his own party, President Bill Clinton joined Republicans to “end welfare as we know it” in 1996. Like other reformists, Clinton had come to believe that open-ended government aid was hurting the very people it was meant to help, consigning generations to a cycle of teenage motherhood, dependency on government checks, and ultimately poverty. As Ron Haskins, welfare-reform architect on the GOP side, so succinctly put it, “Nonwork is the surest route to poverty.”
That truism has already been lost on this White House as President Obama mounts an election-year campaign against income inequality. The numbers since 2009 tell a troubling story: People are joining the ranks of the “enrolled” far faster than the ranks of the employed.
Isn’t that just another way of saying the economy remains sluggish, unemployment is still high, and people need help? Yes — and no. It’s also easier to collect benefits. Food stamps, a program established for the poor, has morphed into support for the broad population of unemployed. Relaxed standards — assets, including bank savings, are no longer a barrier in most states — meant that by 2010 half of all households with a working-age unemployed adult were collecting food stamps, according to the University of Chicago’s Casey Mulligan.
Since 2009 the number of Americans on food stamps has shot up from 21 million to 47 million, one-sixth of the country. That number hasn’t dropped, even as the economy recovers. While some economists say the lag is normal and predict that levels will soon fall, others fear that food stamps, combined with continued extensions of unemployment benefits, can become a way of life that discourages work. More insidious is the Social Security disability program, because its permanence can encourage claims of incapacitating pain and mood disorders to make government aid a way of life. Disability rolls, at 8.8 million, have doubled since 1995 — even though Americans aren’t any sicker than they were when the program was conceived.
Research by MIT’s David Autor vividly shows how the program has become permanent welfare for some, discouraging those with limited disabilities from reentering the workforce. Large numbers of work-capable Americans voluntarily exit the labor force to collect disability, while others spend years at home trying to qualify for the rolls — while their work skills atrophy, he writes.
For a compelling look at the cultural dangers of disability insurance, read the Lexington Herald-Leader’s 2013 investigation into Appalachian poverty, where income from government checks outstrips wages and salaries. “Claims of mental and physical ailments now echo through the mountains,” writes John Cheves. “Disability checks — yielding as much as $710 a month per person — have become the go-to form of relief,” typically combined with food stamps.
If there was any entrepreneurial spirit alive to combat the economic distress of coal’s decline, those aid checks have snuffed it out. Cheves’s quotes from local figures — like a school principal describing children’s assumptions that they will remain government wards — sound sadly like the dependency culture that has so discouraged aid workers in foreign-aid wards like Haiti.
Of the 69 welfare-type programs run by Washington, only a fraction — most prominently the Earned Income Tax Credit, which some lawmakers favor expanding — require recipients to work. That’s one thing when jobs are scarce, as they’ve been for the past five years. But as the economy improves, it’s time to focus on creative ways to help people, particularly the long-term unemployed, back into the job market.
The percentage of working-age adults who have simply dropped out of the labor force — giving up on even looking for a job — is at historic highs. That’s hardly a recipe for robust economic growth — or for helping people at the bottom move closer to the top.
This story is from the February 3, 2014 issue of Fortune.