How to win the war on poverty? Redistribute

The official poverty rate in the U.S. has barely budged in 45 years. But that official measure doesn’t look at consumption, it looks at income, and as a result it ignores the Robin Hood effect of government anti-poverty programs. This isn’t a new criticism, but new research takes it aboard and finds that the programs begun during the Great Society have had a profound effect. Measured by consumption, we are winning the war on poverty.


Brookings:

Poverty has fallen by 12.5 percentage points over the past 40 years, in spite of the fact that official government statics show the opposite with a rise in the number of poor, according to a new paper presented … at the Fall 2012 Conference on the Brookings Papers on Economic Activity.

Matt Yglesias:

Research released this week by Bruce D. Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame indicates that the official measure is giving us an extremely misleading view. In fact, poverty fell substantially over the past several decades before rising a bit during the Great Recession.

Neither liberals nor conservatives have been eager to embrace this idea—the former to bolster support for new programs and the latter to dismiss the efficacy of what’s already been done. But as Meyer pointed out in a talk at the Brookings Institution on Thursday, the way the government measures poverty actually by definition excludes the possibility that public programs are lifting families out of poverty. The truth, when examined correctly, is that we’ve hit upon a very effective means of waging war on poverty—give money to poor people—and we could make even more progress by doing even more of it.

Derek Thompson:

In the forty years between 1970 and 2010, real GDP per person doubled, the U.S. spent trillions of dollars on anti-poverty measures, but the poverty rate increased by two percentage points. Just yesterday the Census reported 46.2 million people living in poverty in 2011.

When Meyer and Sullivan looked at poorer families’ consumption rather than income, accounted for changes in the tax code that benefit the poor, and included “noncash benefits” such as food stamps and government-provided medical care, they found poverty fell 12.5 percentage points between 1972 and 2010.

The graph below tells the story. … Poverty rates have declined steadily, and dramatically, since the 1960s.

View image

What’s the story? Tax cuts for the low-income combined with tax credits for parents (such as the child tax credit) and working poor (like the Earned Income Tax Credit) accounted for much of the collapse in poverty, the authors find. Increases in Social Security also helped poverty rates fall under 10 percent by the new measure. For all the attention we give to taxes falling on the top 1% since the Reagan administration, it is equally true that effective tax rates on the bottom quintile have been halved in that time.

As the Brookings press release reveals there’s more to be learned when you disaggregate the numbers:

Meyer and Sullivan find that who is consumption poor is very different from who is income poor, with the consumption poor being noticeably worse off. Their research shows that the consumption poor are less educated, less likely to own a home, much more likely to live in married parent families, and much less likely to be a single individual or elderly than the income poor. In addition, married parent families with children have fared less well, while seniors have done better than income data indicate. As a result, they advocate that policymakers should focus more on families with children in future anti-poverty efforts.

This conclusion is echoed in another recent study of poverty looking at the1996 welfare reform and its effect on the poorest of the poor.

Yglesias gets the last word:

One of my big complaints with contemporary progressive politics in the United States is an unfortunate tendency to try to use public services as a roundabout mechanism of income redistribution. Hence the fiasco of Amtrak’s money-losing food services line. My view is that the government should try to provide public service in a cost-effective way rather than viewing public service agencies as a jobs program. Then if you want to do redistribution—which I certainly think we should want to do—just do the redistribution. Give people money working toward a guaranteed basic income. Or give people wage subsidies. Or do a mix of the two. There’s a common viewpoint out there which holds that even if this makes sense in theory it’s just clearly impossible in practice. The politics, I’m told, will never work. So it’s important to understand in this regard that the politics do work. Income taxes on the poor were cut, then through the EITC and Making Work Pay Tax Credit made effectively negative for some low-income families. Social Security’s disability benefits have come to play an important role. Medicaid is much more generous in 2012 than it was in 1982. And you only have to go back in time to 2010 to find Congress enacting, through the Affordable Care Act, what amounts to a large transfer program for people in the bottom third of the income distribution specifically targeting their health insurance needs.

Thoughts? I come away wondering if when you put it all together the Great Society has failed because it has failed to be transformative: just as many people are unable to earn a good income and support themselves. Is that an indictment of an education system that leave many young people without the skills they need , or a failure of our society to help families in a chronic dysfunction trap, or is it an economic system that does not produce enough good jobs? And isn’t it plausible that redistribution itself could lay the foundation for recipients to climb up the ladder into a greater earning capacity; why isn’t it?

Category : The Lead

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10 Comments
  1. Paul Martin

    There is one thing I find missing from discussions like this. The economy is going through a fundamental transformation which is rarely discussed in political or policy debates. The market for unskilled jobs has been disappearing for decades. The U.S. standard of living can only be sustained by an educated workforce. In the mean time, we are cutting funds for education, and we have made no progress in paying teachers properly for their contribution to the economy.

    We need to be enabling the next generation, especially those currently in poverty, to thrive in the economy of the future. In some cases, it isn’t at all clear how to do this. There are children growing up in homes where there isn’t a single book in the house, or where the opportunities of education are not recognized. I would love to see a national debate about how best to navigate the changing economy, and its challenges to our educational system. Instead, I see a country with its head in the sand, denying the problem.

  2. Ridiculous conclusion.

    Giving things to poor people does not make them less poor. It makes them more dependent.

    Now- you might think that’s okay or good or Christian, or you might think its terrible and anti-American and socialist. I’m trying to make a partisan point here. (I’m a liberal.)

    But the fact of the matter is: Poor people living on welfare may (or may not) be better off because of it. But they are not less poor.

  3. Jim Naughton

    Adam, I guess this “angry young cocksure guy telling the world the truth” thing you insist on doing is okay when you are speaking about something you have some first hand knowledge about–though it is wearying even then–but you aren’t in a position to dismiss either John, who is a professor of economics, or Matt Yglesias, whose one of the most respected pundits on this issue with a flip little “Ridiculous conclusion.” Beyond that, your comment shows that you did not actually understand what they are saying. If you could experiment with another tone of voice, I’d appreciate it.

  4. John B. Chilton

    @Paul, I agree with your points to a great degree except I’d say the economy HAS gone through a fundamental transformation (and that predates the great recession). They are some of the ideas I hinted at in my final paragraph.

    Yet the income poverty rate hasn’t moved for decades and that predates the kinds of jobs transformation. Which bring us back to why. Our education system has been failing some kids for forever. As a society we’ve failed to find a way for dysfunctional families to get out of that trap (how do we create families where there are books in the house?). Perhaps as the papers I cited say we’re not devoting enough support to the families with children or the families most in need.

    And yes, @Adam, without saying “that’s ridiculous”, can make the point that perhaps the design of welfare creates dependency and creates the wrong incentives.

    What cannot be denied is that we have created a welfare system that changes the standard of living of recipients so much that they are not living in the kind of poverty the Great Society was attacking with the War on Poverty.

  5. Chris H.

    @ Paul, considering the number of educated people layed off in the Great Recession, and the number of college grads who can’t find work, I’m not sure education in general is the only problem. Getting companies to hire and hire here, even though it costs more, would help. It would also cause inflation. If you pay workers $80 a day vs $5 a day, the item they make will cost more.

    As for John Chilton’s question of redistribution helping raise people into greater earning capacity, that would most likely be achieved by requiring those on aid programs to earn their aid by getting education,volunteering, gaining skills etc. Not a popular prospect among many liberals. And what of the working poor not eligible for that aid? Then they resent those who get it.

    I know people who have quit their jobs and gone on welfare because they earned the same amount and didn’t have to do anything.(I work at Walmart, I know people who teach how to milk the system.)

    In order to break the cycle I think there has to be an overhaul of education(that’ll be fun, just look at Chicago) AND requirements for those who get aid AND incentives for companies to produce here. I think the guy in the article is right, neither party’s gonna touch this one.

  6. Chris H.

    Sorry, I should have signed that, Chris Harwood

  7. My issue is not with a conclusion that poor people’s lives are better because of welfare or other government programs.

    Honestly, I do not know. A strong part of me feels that it is society’s duty to provide these services, and I have (in fact) seen first hand how helpful they can be in people’s lives.

    Another part of me is distressed at the whole notion of government subsidy, and I have also seen (first hand) the destructive power of our welfare state.

    I do not know whether these things are good policy or bad policy, whether they should be continued or not, or whether, on the whole, people are better off with or without them.

    My problem is with the weird semantic flip that is made here: that poor people are less poor, that there is, in fact, less poverty. It makes it possible for pro-welfare people to declare they have figured out how to solve the problem, that indeed the problem is being solved, and that (therefore) we should either continue with how things are or simply do more of it.

    The notion that increased spending power (because of government benefits) equates with more wealth (the opposite of less poverty) is absurd, and does not help with the real need: figuring out how in the world to make less people dependent on handouts, and more able to live dignified lives of independence.

  8. (Also, in my first comment above, I was trying to type: I’m NOT trying to make a partisan point here.

    Makes a difference)

  9. John B. Chilton

    @Adam @ 12:39PM – Good thoughts.

    I wanted to respond to “My problem is with the weird semantic flip that is made here: that poor people are less poor, that there is, in fact, less poverty.” I like it.

    I agree with what I think are your sentiments. Let’s classify the poor into two groups. One who can only be lifted out of poverty by income redistribution, and another group whose earning capacity could be lifted. How big are those two groups? I don’t know. I do feel (not know) that income redistribution is also appropriate for that group because I believe that for the vast majority they’ve not been with the privileges most of us have, or they’ve one bad decision in their life for which they should be bailed out, or some tragedy has befallen them.

    I do believe we should (and the evidence is we have) lifted most of both groups out of a poverty standard of living.

    The question is, why hasn’t that been enough to move the second group out of income poverty. You have given some plausible answers. And I gave a few.

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