Category: The Economy

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From The Archives NYC ARCHIVES The Economy THE FRONT ARCHIVES

Black Monday, 1987: Wrong Medicine

Pundits’ Prescriptions and Why They Won’t Work

The rule of thumb in the con­sensus industry is that it takes a week or so for the process of opinion formation to work its magic. But within hours after the sun set on Black Monday, pundits re­vealed their instant decoding of the market’s bleak mes­sage. They’re wrong, of course — danger­ously wrong. But let’s inspect their con­sensus before skewering it.

The villains were quickly identified: the “twin tower” deficits — trade and bud­get — and program trading. All that is needed is a good dose of austerity. We’ve been living beyond our means for years, mortgaging our children’s future. Cosmo­politan types like Flora Lewis provide the international dimension: Japan and Ger­many, two countries who’ve profited nicely from our trade deficits, should renounce their stingy ways and stimulate their economies. Germany should forget its obsessive fear of inflation (born in the Weimar era, when it took a wheelbarrow full of marks to pay for a haircut) and embrace monetary ease. And Japan should get cracking with its frequently announced (and frequently deferred) public works program. Said stimuli will keep the world afloat while we tighten our own belts.

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There are differences of shading, of course. The Beltway consensus, shared by the Times editorial page and Sam Donaldson, says fiscal prudence demands spending cuts and tax increases. The ever-sharp presidential mind worries that increasing taxes might depress the econo­my — so spending cuts should do the en­tire job. All the markets require is a signal of Washington’s good intentions. Once we get our fiscal house in order, it’s years of smooth sailing ahead. After all, the economy is in fine shape; business conditions are “fundamentally sound,” as they said in Herbert Hoover’s day.

Let’s look at each of these points.

  • Program trading. Computer-driven strategies may have intensified the market collapse, but they didn’t cause it. Mechanized trading allows machines to do the same things humans do, only faster; the silicon traders were programmed to act on the same criteria as the flesh-­and-blood variety.
  • Trade deficit. Everyone agrees that this is a major problem; how to solve it is another matter. Many Democrats feel their arguments in favor of a protectionist trade bill have been strengthened — ­never mind the disastrous consequences of the Smoot-Hawley tariff in the 1930s. Wall Street and orthodox Republicans are coy about admitting it, but their solu­tions involve a good dose of austerity, which would cut imports by slowing the U.S. economy, and more cost-cutting in industry, which would improve our com­petitiveness. But in all their talk about the balance of trade, mainstream pundits miss the real point — the volume of trade. As that old graybeard, Karl Marx, put it: “What appears in one country as exces­sive importing appears in the other as excessive exporting, and vice versa. But excessive importing and exporting has taken place in every country,… i.e. overproduction, fostered by credit.…”
  • Budget deficit. Without the U.S. budget deficit, Japan and Germany would not have those enviable surpluses. Indeed, the whole world economy might well have gone down the tubes in­ the early 1980s without Reagan’s massive deficits. In fact, the deficit declined from $220 billion in fiscal 1986 to about $150 billion in fiscal 1987, which, according to the conventional wisdom, should have cheered the markets. Further cuts in the deficit would be positively Hooverian. Using the crash as an excuse to cut Social Security and medicare — as banker Peter Peterson recently recommended — would be criminal.

The real time bomb in all this is the high level of corporate and personal debt, a problem to which the chorus of thumb­suckers has yet to address itself. (Third World debt is a whole untouched story in itself.) Even though the cumulative feder­al debt doubled in the Reagan era, when measured against GNP, it is still propor­tionally lower than the debt accumulated during the New Deal and World War II. Private debt, however, is at unprecedent­ed levels. Instead of taking advantage of the bull market to sell wads of new stock, companies have bought back their stock, often on credit. In the 1920s, however, corporations sold tons of new stock to a gullible public — relieving the public of a good deal of its wealth, but cushioning corporate balance sheets against the shocks of the Depression. Now, corporate balance sheets have lost all their spring. A cascade of private debt defaults is the likely mechanism whereby Wall Street’s crisis will spread to Main Street — though it might take a year or two.

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Immediate silver linings are few — aside from the fact that Mort Zuckerman may never get his chance to deface Columbus Circle. While it’s tempting to celebrate exuberantly the demise of yuppie culture and all the other horrendous phenomena of the Reagan/Thatcher/Koch era, capi­talism is not notable for its equitable division of pain.

Still, there are openings for the left here — practical ones, utopianism aside. The first casualty of Black Monday is the entire ideology of laissez-faire. The left should make this point in a pure and forceful way: unregulated markets tend toward crisis, not equilibrium. This isn’t an excess that needs to be controlled — it’s in the very nature of markets. Despite their populist disguise, most regulations have been devised largely to protect vest­ed interests. Over the next few years, as the crisis unfolds, we must press for regulations that amplify social control over capital.

Second, we must resist all the calls for austerity. “We” as a nation may have been living beyond our means, but for every BMW-driving yuppie, there’s a host of folks for whom the ’80s have been no party — the homeless, factory workers, farmers, blacks and other minorities, not to mention the old American middle class. The great crime of the Reagan defi­cit is not its existence, but that it’s been wasted on weapons and tax cuts for the richest. Redirecting that spending to those most in need makes good economic sense and satisfies the demands of social justice. If and when the political spec­trum shifts to the left, we can let our agenda get more ambitious. ❖

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Black Monday, 1987: The Crack-Up

The Crack-Up: After Stock Market Gloom, Doom
October 27, 1987

RECALL FOR A moment the balmy days of last August. The Dow was comfortably above 2700. The only thing on Wall Streeters’ minds was wheth­er it would break 3000 by year-end; more cautious souls feared that might take until mid-1988. You (literal­ly) couldn’t find a bearish ad from a tipsheetmonger in Barron’s. Economists said a recession was possible — in 1988 or 1989. Until then, the economy was in fine shape.

The market started drift­ing lower in late August. An­alysts weren’t sure where it might end — a 5 or 10 per cent “correction” was like­ly — but it was all quite healthy. The market had gone three years without even a 10 per cent drop, the longest stretch in modern history. Stocks had gotten ahead of themselves, and the market had to squeeze out the weak hands. Once the market had corrected it­self, a buying opportunity would be upon us. Prices stabilized around Labor Day and then rallied. Maybe the ride — to 3000, or was it 4000? — had begun.

On Wall Street, October is the cruelest month. It was the month of the 1929 crash, several mini-crashes in recent years, and now the month of the 1987 crash. Comparisons to the grand­daddy of all financial disas­ters are not out of line. Black Monday 1987’s de­cline was the worst since World War I — almost twice as savage as that of Black Tuesday 1929.

Most of the time, the gy­rations at the corner of Broad and Wall matter little to ordinary mortals. As the saying goes, the market has predicted 10 of the last 4 re­cessions. But not in 60 years has the real economy de­pended so much on the jug­glers of fictitious capital. In New York City, a quarter of the new jobs in recent years were finance related. The local real estate market bucked the anemic national trend because brokers were willing to pay 23-year-olds $100,000 a year to hawk their products. Those sala­ries, and the booming stock market, made it seem ratio­nal to pay a quarter-of-a-mil for a studio apartment or $20,000 for a summer rental in the Hamptons. National­ly, about 40 per cent of this year’s gain in consumer spending— one of the few bright spots in the U.S. economy — depended on the boom. Countless corpora­tions used their high stock prices as collateral to bor­row insane sums at 14 per cent interest. Corporate and personal debt, usually for­gotten in Calvinist homilies about the federal deficit, are at record levels, much of it secured by ephemeral paper value. And as stocks fall, lenders will demand real money, setting off a whole new wave of selling.

In many ways, the U.S. is in even worse long-term economic shape than it was in 1929. Then the U.S. was an international creditor; now it’s the world’s biggest debtor. In 1929, the U.S. was on the verge of world leadership in technology and manufacturing; now, with Rust Belt industries struggling to keep up with Japanese competition, America’s prosperity is built on the same financial ser­vices that were hurt worst on Monday.

This is very, very serious stuff. And it probably has a long way to run. Last Fri­day, after a 108-point drop in the market, I visited the bars at the South Street Seaport to see how the young gunslingers were tak­ing it. Not a worried look on any face; not a worried word on any lip. Today, after a 500-point drop, small-fry in­vestors interviewed on FNN were in a buying mood. These folks are almost al­ways wrong.

Why did it happen now? The market actually lacked some of the classic signs of a major top. Interest rates had been rising, but not to fatal levels. (High interest rates are a stake in the heart of a speculator.) But the bubble had to burst sooner or later. However you counted, either by ratios of prices to earnings or by divi­dends, stocks were massive­ly overvalued by historical standards — worse than in 1929 by both measures. Wall Street was an accident wait­ing to happen.

Here’s how the latest Di­agnostic and Statistical Manual, the handbook of psychiatry, enumerates the phenomenology of mania: elevated, expansive, or irritable mood; increased activ­ity; talkativeness; thoughts racing in a flight of ideas; inflated self-esteem, delu­sional grandiosity; distracti­bility, with attention too easily drawn to unimportant or irrelevant stimuli; exces­sive involvement in activi­ties that have a high poten­tial for painful conse­quences, like (debt-­financed) buying sprees, foolish investments, reck­less driving. Recall Grenada, standing tall, junk bonds, Reaganomics, Baby Jessica. Then recall what usually fol­lows a manic binge: depression.

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Black Monday, 1987: Didn’t We Almost Have It All?

Wall Street Sings Along

There’s nothing wrong with the economy.
—Ronald Reagan, with some irritation

There’s a worldwide Las Vegas going on.
—anonymous financial consultant

MONDAY NIGHT was a beautiful night, cool and calm, a refreshing breeze to keep one alert. A perfect night for heavy drinking, and by coinci­dence many financial pro­fessionals seemed deter­mined to do just that. South Street Seaport’s North Star bar, which specializes in ob­scure British beverages, was doing excellent business. The Dow Jones stock index had just dropped 508 points, or 22.6 per cent; the compa­rable drop on Black Tuesday in 1929 was only 12.8 per cent. The stock market, which had broken record af­ter record since the ’82 depression, had just experi­enced the financial equi­valent of nuclear war. It was a good excuse to drink.

A well-dressed young man from a prominent Wall Street firm felt part of the blame lay with computeriza­tion. All the brokers have sell programs on their com­puters, and, when the Dow or some other index hits a certain level, the programs take over. “It keeps feeding on itself. They have it set up for certain levels. What to sell, how much, and when it hits that level: Boom, press the button, sell! It just keeps feeding on itself.” The young man didn’t really seem that upset, or maybe he was just stunned. He laughed a lot. “We had peo­ple losing tens of thousands of dollars in 20 minutes. We knew last week the market was down at record levels, we knew it was going to go down. But nothing like this.”

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Behind the technical fac­tors, he felt, was an attitude problem. “Investors’ confi­dence was really shaky,” he said. It was merely idle to guess about causes; “They’ll give ya a hundred reasons. If it’s oil yesterday, today it’s the dollar, tomorrow it’s what they did in Japan last night. There’s a million rea­sons: it all boils down to what the investor thinks. So long as investors believe in the stock market, the fuck­in’ dollar could be worth a penny.”

As for what makes inves­tors lack confidence, no one at the North Star seemed to have any idea. They did know that the smart money would go into gold or silver. And debt would be more popular than equity (stock); anyone could tell that stock wasn’t going to be popular. The young professional and his four peers, all drinking beer from big mugs, felt proud that the market’s mechanisms had been able to withstand the day’s shocks. “The system is still intact,” he said triumphant­ly, and there were congrats all around.

I wasn’t convinced; “You don’t think this is the crisis of capitalism?” I asked naively.

“Obviously it indicates that there was a correction in the economy,” the profes­sional said.

“A necessary downside correction in the economy,” another added. “But if you look at the top 10 technical quantifiable indicators of the broader United States economy, it’s lookin’ strong.”

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The first man emphasized that what mustn’t happen is for people to “take their money out of the banks and put it in their fuckin’ mat­tresses. That’s when we’ll all be sellin’ pencils!” That would represent a crisis of confidence. And confidence is key. Two “freelance construc­tion workers” had come to the North Star to celebrate the crash. They described themselves as “joyously pes­simistic.” “We’re fucked anyway!” one said.

I went over to Harry’s at Hanover Square, the ulti­mate bankers’ bar, hoping to find older people. The yup­pies at North Star had rec­ognized that their perspec­tive was limited. “We’ve never seen a fuckin’ bear market.”

A mature man with expe­rience in the bond markets said of the crash, “There’s no reason for it. It’s basic psychology.” Fred Pisculli, a vice-president at Shearson Lehman Brothers, ex­plained that once “the fit hit the shan — that’s an Iranian joke — the lemming instinct took over.” Both men thought the U.S. economy is basically very strong, that people just got carried away, like lemmings. Pisculli em­phasized that the crash presents opportunities: “This is a bonanza. This is the time that people will make for­tunes.” He also, however, said that now is a good time to buy gold, and that Leh­man is very heavy into gold.

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Pisculli said “a calming influence is what’s needed.” He said I could be that calming influence. He said that if I reported that things are basically fine, then every broker would send my clip out. My byline would be “all over the world.” The stock market crash, twice as se­vere as in 1929, was essen­tially a question of attitude rather than information (as I had suggested to him). “No. Not information,” he said. “Perception. Percep­tion is the main word here.”

I wanted to create good perceptions and help the country; but it was hard not to remember the story a young banker had told me earlier in the evening. The story was about what would happen if banks start losing their ability to guarantee de­posits. (As the following day’s New York Times said, “Among the key differences between the economy of the 1920s and 1930s and today’s is the advent of Federal de­posit insurance…”)

“Someone at the office was kidding around, saying there wouldn’t be any problem be­cause FDIC or Federal Home Loan Bank Board will be able to bail out the different banks.” The young banker smiled at me in a dazed sort of way. “And someone just leaned over and goes, ‘Yeah, two trillion in deficit, yeah, like they have another six or seven laying around to give to ev­eryone when they want their money.’ ” ❖

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Neighborhoods NEWS & POLITICS ARCHIVES NYC ARCHIVES The Economy THE FRONT ARCHIVES

Lin-Manuel Miranda Can’t Save All Our Favorite Places

Galicia restaurant in Washington Heights will close in June after three decades thanks to what its owner says is a demand for a 400 percent rent hike.

In the struggle against skyrocketing New York rents, it helps to have Lin-Manuel Miranda on your side. When news broke in January of the upcoming closing of Coogan’s, a beloved Irish pub in Washington Heights, after its landlord, NewYork-Presbyterian Hospital, demanded a $40,000 per month rent increase, Miranda tweeted to his 2.3 million Twitter followers, “I love Coogan’s. My stomach hurts from this news.” (2,300 likes.)

Within 48 hours, an online petition to save the restaurant had garnered more than 15,000 signatures, and local politicians had started making calls to the hospital demanding that it renew Coogan’s lease at a reasonable rent. By the end of the week, Coogan’s co-owner Dave Hunt had a handshake deal for an affordable lease renewal. That night, he signed the papers in the back room of the pub as the celebration was already under way in the bar. Manhattan Borough President Gale Brewer and Congressman Adriano Espaillat were there, as was Miranda, singing “Happy Birthday” to patrons and tweeting about the victory. (3,600 likes.)

A week or so later, on January 21, Washington Heights residents gathered once more, this time for a rally to save Galicia, a Spanish restaurant three blocks north of Coogan’s. According to owner Ramón Calo, Galicia’s landlord, Edel Family Management, was demanding a $20,000 per month rent increase. Standing in front of handmade posters reading “Save Galicia” and “Salvemos a Galicia,” activists and politicians spoke out to call on the landlord to offer Galicia more reasonable terms. Another online petition — “Let’s Save Galicia Restaurant, too!” — went live. To date, the petition has gathered only 1,600 signatures. Miranda didn’t tweet. (Zero likes.) According to Calo’s son Cristian, Galicia recently lost a court battle for its survival and will be forced to close on June 30.

More than a quarter-million small businesses exist in New York City employing more than 1.2 million workers, and the Small Business Congress estimates that more than a thousand close each month, many for reasons other than rising rents. Local advocates are hoping for the passage of a robust Small Business Jobs Survival Act, which was reintroduced by Washington Heights Councilmember Ydanis Rodriguez for the umpteenth time in the City Council on March 22. The proposed law would grant lease renewal rights to commercial tenants, somewhat leveling the playing field between small businesses and landlords, who currently can evict store owners at will when their leases expire, regardless of how much cash and sweat equity they’ve put into their businesses.

Lena Meléndez, an activist with Dominicanos Pro Defensa Negocios y Viviendas (Dominicans in Defense of Businesses and Housing), says the lack of legal protections for small business owners are especially devastating in neighborhoods like Washington Heights and Inwood, where rezoning is likely. “We are talking about the decimation of any kind of wealth that has been amassed by this majority-minority community,” she says.

Calo, who built his business in the lean years of the 1980s, says that now, after so many people worked to build up the neighborhood, it’s hard to see landlords and developers looking to cash in: “They’re getting the luxury of eating the steak while we were stuck with eating the bone.”

***

Calo says he came to New York in 1985 from Boiro, a small town in the region of Galicia on the northwest coast of Spain. He hadn’t originally intended to stay, but after five years in the city he had an opportunity to become co-owner of a restaurant at 172nd Street and Broadway. His friends said he was crazy. “Why would you go up there? You’re going to end up dead!” he recalls them telling him. But he remembers thinking, “I’m only going to sell food. I’m not going to do harm to anybody. So why shouldn’t I be able to go?”

Calo knew for years that renewing his lease, which was set to expire in October 2017, might be difficult, so in 2015 he began calling his landlord to start negotiations. For the next two years, he says, he called a couple of times a week, finally receiving his landlord’s offer only a few weeks before the end of the lease. Calo figured the highest rent increase he could sustain was about 40 percent of the $5,000 a month he was paying. Edel Family Management asked for a 400 percent jump, Calo says, which would raise his rent to $25,000 a month. (Edel Family Management did not respond to a Voice request for comment.)

The landlord also wanted him to expand into the commercial space next door, an expensive and disruptive proposition that still wouldn’t have brought in enough revenue to cover the increase. “It was basically a diplomatic way to ask for us to leave,” says Calo.

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Calo started crying shortly after being asked how he felt about his eviction. A minute or two later, he came back to the table and said, “I can’t lie: pretty bad. It’s just tough, knowing that one person can just say, ‘This is the end for you. You have to start over.’ ” He said he was worried about his employees, many of whom had worked at the restaurant for years. He was concerned about his financial future. And he was saddened by the prospect of losing the physical space where he’d made so many memories: the times when taxi drivers and truckers came for a warm meal late at night, the dance parties he and the staff had had while cleaning up after closing.

“The location itself is part of the family. It’s where my sons grew up. My wife works here. I’ve worked here for thirty years. It’s just a heartbreaking struggle — how one person can determine whether this is the end or not.”

***

An early version of the SBJSA was first introduced in 1986 by then-Councilmember Ruth Messinger. It was first voted down in 1988, and has resurfaced multiple times since, with 27 councilmembers signing on as co-sponsors by 2016. Yet the bill has never made it to a full council vote, as real estate interests have complained that its provisions were of dubious legality and would present too much of a hardship for commercial landlords.

The goal of the SBJSA is to make it so that no one person can determine whether a small business owner like Calo has to leave. The bill guarantees the right to a minimum ten-year lease renewal for all commercial tenants (with a few exceptions, such as if the tenant has broken the lease or violated tax or license laws). Crucially, if the tenant and landlord are not able to agree on terms, the bill would also send the dispute to an independent arbitrator, who would set a rent based on comparable prices in the area and the landlord’s and tenant’s finances, among other criteria.

With so many failures in the bill’s past and the powerful real estate lobby led by the Real Estate Board of New York (REBNY) dead set against it, Steven Barrison, a spokesperson for the Small Business Congress, has worried that it will again fail to even be put for a vote. Small Business Committee chair Mark Gjonaj has received significant donations from the real estate industry — $96,070, more than 10 percent of his total campaign contributions in 2017 — with new Council Speaker Corey Johnson right behind him at more than $63,000.

Reginald Johnson, Gjonaj’s chief of staff, told the Voice in a statement: “Councilman Gjonaj is committed to addressing the needs of New York business owners. He wholeheartedly supports the objective of reducing the cost of owning a business in New York and looks forward to reviewing and debating the bill in committee.” Corey Johnson also offered a statement, which read, in part, “I am committed to giving the Small Business Survival Act [sic] the hearing and full consideration that it has been denied for too long, so that it can be debated on its merits.” REBNY did not respond to a request for comment.

Jenny Dubnau of the Artist Studio Affordability Project, an SBJSA supporter, shares Barrison’s skepticism. “These quote-unquote ‘progressives,’ when it comes to what’s going on in our city, they’re not progressive when it comes to real estate policy. It’s shocking.”

Rodriguez, the latest councilmember to introduce the bill, says he’s committed to it, but says it’s just “one of many measures that I want to put in place to protect mom-and-pop stores,” including adding local-business requirements for developers who get public money.

As of this writing, no hearing on the bill has been scheduled.

***

In the past, the bill’s opponents have argued that its passage would harm landlords and disincentivize developers from investing in property, and therefore ultimately hurt small businesses. They’ve also argued that a bill like this is unprecedented, maybe even illegal.

Mary Ann Hallenborg, a clinical assistant professor of real estate at NYU’s School of Professional Studies, says there’s precedent in New York City for commercial rent control, dating back to a 1945 law that limited commercial rent increases, much as residential rent regulations still work today. Then, as now, small business owners complained of excessive rent hikes and evictions, and the state legislature stepped in to regulate the commercial rental market, though the law was repealed in 1963 once the rent emergency was deemed to have passed.

David Eisenbach, a Columbia historian and 2017 candidate for Public Advocate, believes that the bill, if passed, “will absolutely hold up” to court challenges. “LaGuardia passed commercial rent regulation back in the 1940s because he saw a very similar situation happen,” he says. “There were numerous court challenges, and each time, the courts in the state of New York said that New York City has the powers, under home rule, to address a crisis. And it was a crisis.”

Dubnau would like to see things go even further. She worries that the arbitration component in the bill may be too expensive for small business owners. And she believes “there should also be legislation that makes it illegal for landlords to simply warehouse space. There should be a tax penalty for that.” She’d even love to see a restoration of commercial rent control.

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Hallenborg isn’t so sure that limits on commercial rents are a solution. “I agree that it hurts when your favorite neighborhood restaurant closes its doors because the landlord has hiked the rent,” she says. “But the reality is, in the urban core, property taxes, insurance, and other operating costs have increased dramatically over the last thirty years. And rents have increased commensurately.” She worries that the current draft of the SBJSA defines tenants so broadly that it could cover “big law firms, big pharmaceutical companies, big financial services companies — and I’m sure that they will appreciate everything that the city is doing to keep them in a below-market lease.”

Moreover, she notes that unlike commercial rent control, the SBJSA does not feature mechanisms to assure landlords of a fair return on investment or address landlord hardships, and doesn’t include a sunset clause. Such clauses “would help protect” the proposed new law from legal challenges by landlords, she says; as the law is written, “we could expect many challenges to it on a variety of grounds,” including a failure to provide due process and whether it’s an illegal taking of private property.

For small business advocates, though, the issue is not just the specifics of a new law, but the fact that the city has gone thirty years without even holding a vote on a bill that has strong support both on the council and among small business owners. “I don’t know a neighborhood in New York City where the people aren’t upset and angry about these businesses closing,” says Barrison. “If the people knew that all they had to do was go to their lawmaker and hold their lawmaker responsible if they did not pass a law that stopped this, it would stop. The people just need to know.”

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Trump’s Medicaid Work Rules Are Latest Attempt to Demonize Poor

When Stephen Pimpare learned last week that the Trump administration would begin allowing states to test establishing work requirements for Medicaid, which provides healthcare coverage for roughly one in five Americans, he was frustrated if not surprised.

“The constant strain of American political culture has been to internalize this idea that if you are poor it is a moral failing, rather than circumstances beyond your control,” says Pimpare, a University of New Hampshire professor and author of A People’s History of Poverty in America. As far back as the 1800s, he notes, poorhouses in major American cities including Chicago and New York imposed so-called work tests, where in order to demonstrate their “deservingness,” people would “have to carry rocks from one side of the yard to another and then carry them back again.” Up through the twentieth century — with the Reagan-era image of “welfare queens” sitting around the house collecting checks — and into the twenty-first, Pimpare added, “every argument in favor of work requirements is based on ignorance of the population that uses the program.”

In announcing new federal guidelines last week, Seema Verma, who heads the Centers for Medicare and Medicaid Services, said the goal is to move Medicaid recipients out of the program and into jobs with private insurance benefits. Seventy percent of respondents to a national Kaiser Family Foundation poll last summer said they supported work requirements for Medicaid. But in fact, 60 percent of Medicaid recipients of working age and without a qualifying disability already worked either part- or full-time as of 2016, according to another Kaiser study. Among Medicaid recipients who don’t work, roughly a third are ill or disabled, and another third are caretakers, according to Kaiser.

And New York City’s own experience with work requirements — most prominently for recipients of welfare benefits, as implemented under the Giuliani and Bloomberg administrations — indicates that trying to force the relatively few Medicaid recipients who can work but don’t to enter the workforce, or risk losing benefits, increases the risk of collateral damage for all recipients.

Sanctions for those who can’t provide proof of employment, says Legal Aid Society supervising attorney Kenneth Stephens, “vastly increase the number of families at risk of homelessness, hunger, and the attending consequences of not having even close to enough money to live on. So if you are talking about adding on to that a denial of access to healthcare? Fill in the blanks.”

***

There is some evidence that work requirements can increase employment, at least in the short term. In 2016 the Center on Budget and Policy Priorities reviewed thirteen studies of work requirement programs across the country from the 1990s, after the Clinton administration implemented work requirements for cash and food assistance (and sanctions for noncompliance). A Portland, Oregon, program saw employment of welfare recipients increase 11.2 percent in its first two years, for example.

But those gains dropped off within five years. More importantly, the same report found that the jobs people entered weren’t high-paying enough to lift workers out of poverty.

“I just question whether we’re really tackling the biggest problem we are facing, which is structural issues in the lower-wage labor market,” says Elaine Waxman, a senior fellow in the Income and Benefits Policy Center at the nonpartisan Urban Institute. The fast-growing job markets, she points out, tend to be in industries like home care that are low-paying and don’t come with benefits or collective bargaining rights. “We’d all like a world where people don’t have to rely on a safety net. But we have to be realistic about the world of work we’re facing.”

Ten states, including Arizona, Arkansas, and Maine, have already requested waivers to impose Medicaid work requirements. Governor Matt Bevin of Kentucky announced last Friday that his state will be the first to do so, with a program that “incentivizes personal responsibility.” (He also praised the plan as fiscally responsible, though whether the state will actually save money once administrative costs are factored in is an open question.) In addition to 80-hour-per-month work or “community engagement” requirements (job search, job training, volunteer work, or school), qualified recipients will have to pay monthly premiums of $1 to $15 to the state. Recipients will also risk a multi-month suspension of benefits if they fail to quickly report income changes.

“Much of what worries us about the new plan is simply that it’s highly bureaucratic,” Rich Seckel, director of the Kentucky Equal Justice Center, tells the Voice. In Kentucky, more than half of residents receiving expanded Medicaid are already employed, though most work in jobs with fluctuating hours and incomes that would be difficult to report accurately. As of 2015, the top three industries for working Medicaid recipients in the state were food service, construction, and retail. “How would they even know if a change in their income would make them ineligible?” Seckel wonders.  

“I am self-employed dry stone mason,” one anonymous Kentuckian wrote during an open comment period on that state’s proposal last summer. “My work or lack of work depends greatly on the economy.… Since I am self employed, I have no way of knowing what my monthly income will be, if any.” Fulfilling a short-term work or community service requirement would cut into his job hunting, he added.

Problems arose as well in New York City when Mayor Rudy Giuliani implemented the country’s largest “workfare” program, the Work Experience Program, in 1995. In order to receive cash assistance, New Yorkers without a job were required to work 35 hours per week — as janitors, as maintenance workers for the MTA, and in city parks. They received no pay other than their welfare benefits.

According to Stephens, recipients “would lose some or all of their meager subsistence benefits for something that could be as simple as missing a meeting because their kid was sick, or they went to attend housing court, or any of the numerous things that can happen in an individual’s life.”

Under Giuliani, the number of New Yorkers on welfare fell steeply, from 1.1 million to fewer than 500,000. By early 2010, that number hit 350,000. It has now rebounded slightly to 366,387 as of last November, after Mayor de Blasio restructured the program, replacing labor requirements with certification classes (GED, food handling, a commercial drivers license); college enrollment also qualifies. The Legal Aid Society has also successfully litigated to scale back sanctions.

Bronx resident Margarita Cruz, 49, is a member of the nonprofit Community Voices Heard, which formed in response to what it considered the modern-day slavery of workfare. Cruz participated in WEP as a subway cleaner starting in 2014 when her twin daughters were nine years old. In January 2017, she was finally hired by the MTA, albeit in an entry-level position.

Cruz tells the Voice that under workfare, the HRA initially “wanted the people to take whatever they were offering. And the jobs only last for three or four months and then you have to go back through the system.” During her three years on WEP, she says, “all the time I was trying to not be suspended, because then…I’m going to have problems with the rent and the food and everything.”

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Pimpare, the UNH professor, predicts that efforts to implement work requirements for Medicaid will stall in the courts. Section 1115 waivers, which allow the federal government to approve pilot programs like this one, are required to help states further the goals of Medicaid, and as Pimpare says, “nowhere in the Medicaid statute does it say anything about ‘work’ being a goal.” Advocates in Kentucky are already threatening to sue before that state’s plan goes into effect in July (Bevin has responded with a fresh threat to shut down his state’s Medicaid expansion altogether), and the Southern Poverty Law Center is also planning to challenge the new federal guidelines.

Regardless, Hannah Katch, a senior policy analyst at the Center on Budget and Policy Priorities, warns against assessing these proposals in a vacuum. “I think it’s in the context of a consistent attack on the Medicaid program that we’ve seen over the last year,” she says. “We saw legislation in the House and Senate — that came very close to passing — that would have massively cut and radically restructured the financing of Medicaid. And I don’t think they’re done.”

If Kentucky can set a national example, so too can New York, argues Katie Robbins, director of the Campaign for New York Health, a coalition advocating for a single-payer statewide healthcare system. This April, the state assembly is expected to pass the New York Health Act for the third consecutive year. This would disband private insurance in New York State. Last year the bill came one vote shy of majority support in the Senate without any Republican endorsements. That holdout vote, Simcha Felder of Borough Park, is a Democrat who caucuses with the Republicans. Advocates are already canvassing his neighborhood this year, where a third of residents lived in poverty in 2015.

“His office has not responded positively — it’s very disappointing,” Robbins says of Felder. Still, Washington’s repeat attacks on Medicaid are only fueling the fire.

“I think it’s just another example of the kind of responsibility a state like New York or California has,” she adds. “To set the bar really high for the kind of healthcare program we really need.”