Understanding Shocks To Welfare Systems

Massachusetts Institute of Technology

In an unhappy coincidence, the Covid-19 pandemic and Angie Jo's doctoral studies in political science both began in 2019. Paradoxically, this global catastrophe helped define her primary research thrust.

As countries reacted with unprecedented fiscal measures to protect their citizens from economic collapse, Jo MCP '19 discerned striking patterns among these interventions: Nations typically seen as the least generous on social welfare were suddenly deploying the most dramatic emergency responses.

"I wanted to understand why countries like the U.S., which famously offer minimal state support, suddenly mobilize an enormous emergency response to a crisis - only to let it vanish after the crisis passes," says Jo.

Driven by this interest, Jo launched into a comparative exploration of welfare states that forms the backbone of her doctoral research. Her work examines how different types of welfare regimes respond to collective crises, and whether these responses lead to lasting institutional reforms or merely temporary patches.

A mismatch in investments

Jo's research focuses on a particular subset of advanced industrialized democracies - countries like the United States, United Kingdom, Canada, and Australia - that political economists classify as "liberal welfare regimes." These nations stand in contrast to the "social democratic welfare regimes" exemplified by Scandinavian countries.

"In everyday times, citizens in countries like Denmark or Sweden are already well-protected by a deep and comprehensive welfare state," Jo explains. "When something like Covid hits, these countries were largely able to use the social policy tools and administrative infrastructure they already had, such as subsidized childcare and short-time work schemes that prevent mass layoffs."

Liberal welfare regimes, however, exhibit a different pattern. During normal periods, "government assistance is viewed by many as the last resort," Jo observes. "It's means-tested and minimal, and the responsibility to manage risk is put on the individual."

Yet when Covid struck, these same governments "spent historically unprecedented amounts on emergency aid to citizens, including stimulus checks, expanded unemployment insurance, child tax credits, grants, and debt forbearance that might normally have faced backlash from many Americans as government 'handouts.'"

This stark contrast - minimal investment in social safety nets during normal times followed by massive crisis spending - lies at the heart of Jo's inquiry. "What struck me was the mismatch: The U.S. invests so little in social welfare at baseline, but when crisis hits, it can suddenly unleash massive aid - just not in ways that stick. So what happens when the next crisis comes?"

From architecture to political economy

Jo took a winding path to studying welfare states in crisis. Born in South Korea, she moved with her family to California at age 3 as her parents sought an American education for their children. After moving back to Korea for high school, she attended Harvard University, where she initially focused on art and architecture.

"I thought I'd be an artist," Jo recalls, "but I always had many interests, and I was very aware of different countries and different political systems, because we were moving around a lot."

While studying architecture at Harvard, Jo's academic focus pivoted.

"I realized that most of the decisions around how things get built, whether it's a building or a city or infrastructure, are made by the government or by powerful private actors," she explains. "The architect is the artist's hand that is commissioned to execute, but the decisions behind it, I realized, were what interested me more."

After a year working in macroeconomics research at a hedge fund, Jo found herself drawn to questions in political economy. "While I didn't find the zero-sum game of finance compelling, I really wanted to understand the interactions between markets and governments that lay behind the trades," she says.

Jo decided to pursue a master's degree in city planning at MIT, where she studied the political economy of master-planning new cities as a form of industrial policy in China and South Korea, before transitioning to the political science PhD program. Her research focus shifted dramatically when the Covid-19 pandemic struck.

"It was the first time I realized, wow, these wealthy Western democracies have serious problems, too," Jo says. "They are not dealing well with this pandemic and the structural inequalities and the deep tensions that have always been part of some of these societies, but are being tested even further by the enormity of this shock."

Graduate student spotlight: PhD candidate Angie Jo

Video: MIT SHASS

The costs of crisis response

One of Jo's key insights challenges conventional wisdom about fiscal conservatism. The assumption that keeping government small saves money in the long run may be fundamentally flawed when considering crisis response.

"What I'm exploring in my research is the irony that the less you invest in a capable, effective and well-resourced government, the more that backfires when a crisis inevitably hits and you have to patch up the holes," Jo argues. "You're not saving money; you're deferring the cost."

This inefficiency becomes particularly apparent when examining how different countries deployed aid during Covid. Countries like Denmark, with robust data systems connecting health records, employment information, and family data, could target assistance with precision. The United States, by contrast, relied on blunter instruments.

"If your system isn't built to deliver aid in normal times, it won't suddenly work well under pressure," Jo explains. "The U.S. had to invent entire programs from scratch overnight - and many were clumsy, inefficient, or regressive."

There is also a political aspect to this constraint. "Not only do liberal welfare countries lack the infrastructure to address crises, they are often governed by powerful constituencies that do not want to build it - they deliberately choose to enact temporary benefits that are precisely designed to fade," Jo argues. "This perpetuates a cycle where short-term compensations are employed from crisis to crisis, constraining the permanent expansion of the welfare state."

Missed opportunities

Jo's dissertation also examines whether crises provide opportunities for institutional reform. Her second paper focuses on the 2008 financial crisis in the United States, and the Hardest Hit Fund, a program that allocated federal money to state housing finance agencies to prevent foreclosures.

"I ask why, with hundreds of millions in federal aid and few strings attached, state agencies ultimately helped so few underwater homeowners shed unmanageable debt burdens," Jo says. "The money and the mandate were there - the transformative capacity wasn't."

Some states used the funds to pursue ambitious policy interventions, such as restructuring mortgage debt to permanently reduce homeowners' principal and interest burdens. However, most opted for temporary solutions like helping borrowers make up missed payments, while preserving their original contract. Partisan politics, financial interests, and status quo bias are most likely responsible for these varying state strategies, Jo believes.

She sees this as "another case of the choice that governments have between throwing money at the problem as a temporary Band-Aid solution, or using a crisis as an opportunity to pursue more ambitious, deeper reforms that help people more sustainably in the long run."

The significance of crisis response research

For Jo, understanding how welfare states respond to crises is not just an academic exercise, but a matter of profound human consequence.

"When there's an event like the financial crisis or Covid, the scale of suffering and the welfare gap that emerges is devastating," Jo emphasizes. "I believe political science should be actively studying these rare episodes, rather than disregarding them as once-in-a-century anomalies."

Her research carries implications for how we think about welfare state design and crisis preparedness. As Jo notes, the most vulnerable members of society - "people who are unbanked, undocumented, people who have low or no tax liability because they don't make enough, immigrants or those who don't speak English or don't have access to the internet or are unhoused" - are often invisible to relief systems.

As Jo prepares for her career in academia, she is motivated to apply her political science training to address such failures. "We're going to have more crises, whether pandemics, AI, climate disasters, or financial shocks," Jo warns. "Finding better ways to cover those people is essential, and is not something that our current welfare state - or our politics - are designed to handle."

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