Opponents of Governor Pataki and Mayor Giuliani's proposed welfare and Medicaid cuts predictably complain that the cuts will visit much hardship on New York's poor and vulnerable. But they also make another, more curious argument. They claim that such cuts are ill-advised because every dollar that the city or state spends on welfare and Medicaid brings with it a matching dollar from the federal government—unlike expenditures on services such as police or schools. In other words, by cutting welfare and Medicaid, the city and the state are about to throw away billions in federal aid.

This argument is profoundly wrongheaded, but it goes a long way toward explaining why New York got so deeply invested in these programs in the first place. Decades ago, when Washington offered these categorical aid programs on a "buy one, get one free" basis, leaders in both city hall and Albany eagerly bought up the whole store, thinking they were getting a terrific deal. Bargain-hunting in Washington's half-price social-policy market, successive city and state administrations signed on to the most comprehensive array of welfare and Medicaid benefits available and made the largest possible number of New Yorkers eligible for them.

Even at half price, this has turned out to be no bargain. With New York's investment in these programs more expensive than any other state's, the mayor and the governor find they have no alternative but to slash their costliest budgetary sectors. New York's leaders have long fooled themselves into thinking they were getting a good deal; now they find they've merely stuck themselves with a ruinous bill.


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