This project investigates the safety net for the poor in the United States prior to the New Deal. During the time period between 1900 and 1930, America's system of poverty relief relied on a patchwork of different agencies and nonprofit organizations. Private nonprofits were the most important provider of relief followed by local governments. These agencies provided temporary housing, old age assistance, inexpensive child care, and reduced price drugs. State governments provided relief as well; however, it was mostly for the poor that needed permanent help. There is a common perception, even among many social scholars, that there was little or no safety net for the poor in America prior to the New Deal. This perception stems from the lack of data collected by the federal government on the subject. Investigators need to collect individual state records to truly tell the story of how the United States developed poverty programs.
Constructing a data set of state, local, and private records will help test many economic theories including the crowding out of private donations by public expenditures. During this time period there was a significant shift in government finance of poor relief. The income tax was legalized in 1913 followed by tax code changes that allowed charitable donations to be tax deductible in 1919. Public money was rarely used for direct donations to the nonprofit sector allowing for an equilibrium that cannot be found today. Historical data will also provide a better understanding of the growth of the public sector.
There is significant variation among states on how they dealt with poverty relief. The scientific charity movement that swept across the United States during the early part of the 20th century attacked government spending as harmful. The movement's literature argued that careful assistance by private institutions was the only way to combat poverty. During this time the government focused on funding hospitals, insane asylums, reform schools, and almshouses. After 1910 states started providing public support to the poor in their homes through mothers' pensions for widows with children and aid to the blind. This is a large shift in the public's perception of how to allocate funds to the poor. After 1920 there was a sudden increase in government expenditures for the poor. However, with this increase in the size of the government came an increase in private expenditures as well.
Documents used to construct this data set come from the scientific charity movement and the State Boards of Charities. Most of these agencies were established in the Northeast during the 1880s followed by adoption from other states during the early 1900s. The IRS will also be used to find financial tax records of private institutions when the state does not publish them in their report. Detailed information about each state will show a breakdown in the types of relief and institutions that provide them.
This time period in America's past is important as Social Security, Medicare, and TANF all start in local forms before they grow into national programs. States differed on their funding levels that continue today. A comparison between America's system and the more government funded universal European system is also possible when researchers take into account private spending.
This project dealt with decision making by nonprofit organizations when faced with changes in government spending. The grant allowed me to collect and analyze data from nonprofit organizations and local governments from 1900-1930. I use data from this time period because of how simply poverty relief was distributed before the federal government‘s involvement from the New Deal in 1933. Measuring how much is spent on poverty relief in a single city is much more difficult today because cities, counties, states, and the federal government all contribute into the relief system. The data from the period allows me to test theories if nonprofit managers change their spending on the poor when the government changes its spending on the poor. The idea is that nonprofit managers are looking for ways to help poor citizens up until a point but not beyond it. Therefore, if a poor family came to a charity it would expect to receive cash in addition to its normal income up until a poverty line. However, as the government becomes more involved in poverty relief and gives cash to the poor, the nonprofit manager changes their calculation. A poor family that received cash from the government in addition to the family’s normal income would garner less cash from individual nonprofits to return to the poverty line. I measure this effect by viewing the amount spent on the yearly change in city government poverty relief spending and the spending by poverty relief nonprofits in the city. I find that charities cut back on their spending only sixteen cents for each additional dollar of spending by the government. Are there other reasons why nonprofit spending is decreasing while government spending is increasing? To find the answer to these questions I looked at how much donations decreased by when government spending increased. My findings are that the decrease in donations does not explain the cutting back of spending. Instead the nonprofit is most likely reducing other avenues of income or saving income for a rainy day.
