Americans are very fortunate indeed to live in such a strong, prosperous and free society. But not all of us share in this good fortune. How can we help the less fortunate among us have a better chance to succeed in life?
Here are several things we can do, in rough order of importance:
Grow the economy faster than the 2.1% growth rate which has prevailed since the end of the Great Recession in June 2009. Faster growth means more new jobs are created and higher wages are paid for existing jobs. Success in life for most people includes earning an adequate income to live comfortably without major wants. Appropriate deregulation and tax reform are the best ways to speed up growth.
Improve basic education so that more people can qualify for rewarding jobs. Right now too many kids from minority and other low-income families are not graduating from high school with the skills they need to succeed in life. Two promising solutions to this problem are more charter schools and expanded early childhood education, both targeted at kids from low-income families.
Alleviate poverty in a productive manner by emphasizing work requirements for most, if not all, welfare programs. Higher work force participation and lower poverty rates are strongly correlated. Work not only provides income but also provides dignity and purpose in life.
Promote two parent families. Two parent families are much less likely to be poor than single parent families and also more likely to be supportive of their children’s education. Federal tax policy should always encourage child raising by two parent families for this reason.
Conclusion. America will become an even stronger country than it already is if more people, especially from low-income and minority families, have the education, work training and personal qualities to make a positive contribution to society.
The American economy is in basically good shape with a low unemployment rate of 4.2% and the likelihood of somewhat faster growth in the near future.
Income inequality and poverty are real problems, see here and here, but there are reasonable and effective ways to address them.
Rapidly accumulating debtis by far our most critical unsolved problem which is all the more frightening because our polarized political system does not seem capable of addressing it.
The Bureau of Labor Statistics has just released its projections of what the U.S. economy will look like in 2026.
The highlights are:
More dominated by the service sector amid the continuing erosion of manufacturing jobs (see two charts below).
More polarized in both earnings and geography (see top and bottom charts).
More tilted towards jobs which require at least a bachelor’s degree (see bottom chart).
The BLS report has several ramifications for public policy as follows:
Improved educational outcomes are needed all along the line: K-12 basic and vocational, training programs for the many skilled jobs going begging and also more low-cost college programs.
More low-skill immigrants, not fewer, are needed to take on the expanding number of low-wage jobs, such as caring for the growing numbers of elderly, which Americans are not willing to do.
Conclusion. These economic trends towards more earnings and geographical polarization could easily make our current political polarization even worse than it already is. This means it is all the more important to make sure that we keep speeding up economic growth, better address income inequality and poverty and get our gargantuan debt problem under control.
My recent posts about the American Idea have argued that our country has a great future before it. We have a strong and prosperous economy and are the world’s leading innovator. Furthermore there are clear cut and effective ways to address the income inequality and poverty which hold back many Americans from fully sharing the benefits of our remarkably successful society.
But there is one huge problem our political system is ignoring which will lead to a major crisis if left unattended much longer.
I am referring, of course, to our gargantuan:
National Debt, now sitting at 77% of GDP (for the public part on which we pay interest), the largest it has been since the end of WWII. It is predicted by the Congressional Budget Office to keep steadily getting worse without major changes in current policy. Right now all of this debt is essentially “free money” because interest rates are so low.
Economic growthis created by tax cuts but only 10-20% of the lost revenue from tax cuts is offset by new growth.
Democrats, on the other hand, don’t take the debt seriously, except when arguing against Republican tax cuts. Debt deniers claim that the risk of government overspending is inflation, not bankruptcy. What they don’t understand is that
Interest rates will return to more normal (and much higher) historical levels eventually and, when this happens, interest payments on the debt will skyrocket by hundreds of billions of dollars every year. This will crowd out all sorts of spending on popular domestic programs. It is likely to lead to a new fiscal crisis, much worse than the Financial Crisis of 2008.
Conclusion. For all of our nation’s great strengths, we are in a very serious fiscal pickle, with no clear cut path of orderly resolution. Realistically our debt problem cannot be wound down without committed Presidential leadership and this is unlikely to happen anytime soon.
With an unemployment rate now down to 4.2% and the average wage rising 3.1% in the past year, the U.S. is finally recovering from the Great Recession which ended in June 2009. My last several posts have described an optimistic scenario for the U.S. economy going forward.
The American idea is thriving. The U.S. is the world’s most competitive large economy. Amazon, Apple, Facebook and Google are in the process of revolutionizing all aspects of life, all over the world. Productivity growth in the digital industries has grown at the annual rate of 2.7%, much faster than for physical industries. Democracy is mostly flourishing around the world.
Ecommerce is one example of a thriving industry. Fulfillment center weekly wages are 31% higher on average than for brick and mortar retail in the same area. Total ecommerce related jobs have increased much faster in the last two years than have traditional retail jobs been lost.
Income inequalitycan be addressed effectively by speeding up economic growth (with tax and regulatory reform), improving educational (especially with early childhood) opportunities and with better training programs for the unemployed and underemployed to qualify them for the millions of skilled jobs going begging for lack of qualified applicants.
One additional feature needed is “A balanced and sensible anti-poverty program,” to help many of the down and out get back on their feet.
The way to accomplish this is with:
Work requirements as a condition of public assistance. The work first approach has been shown to have better outcomes with regard to attachment to the labor force (see above chart) than even approaches which focus on training and education.
Conclusion. The U.S. economy is basically sound. We lead the world in many industries and especially in digital technology. There are lots of good jobs going begging for lack of qualified applicants. The best anti-poverty program is job training.
In today’s fractious political climate, it is at least widely recognized that skilled blue-collar workers are often suffering from stagnant income growth and/or job loss. Unfortunately, the political parties often disagree on how to address this major problem. There are several different perspectives from which to view the overall situation:
Slow economic growth, averaging only 2% per year since the end of the Great Recession in June 2009. From 1950 – 2000 the economy grew at over 3% per year and produced a prosperous American middle class. Now, with strong headwinds from globalization and constantly improving technology, we badly need faster overall economic growth to provide more and better paying middle class jobs.
Income inequality. There is increasing income inequality in the U.S. even though the top 25% or so are doing very well. But raising taxes on the wealthy could slow down economic growth by discouraging new investment. In addition, redistribution of tax revenue to lower income Americans will not give them much of a boost.
Income insecurity. This is a huge problem for the many blue-collar workers who are struggling to make ends meet. There are a number of specific government actions which could alleviate this enormous societal problem.
Economic justice. Poverty in the U.S. is widely distributed geographically, with almost as much in rural and small town areas as in big cities. This could provide an opportunity for Republicans and Democrats to work together to address a very challenging problem.
Conclusion. Our country has very serious economic and fiscal problems which are not being addressed because of severe partisan infighting in Congress. But slow economic growth, income insecurity and poverty affect a wide variety of people with different political outlooks. It’s inexcusable to allow partisan bickering to get in the way of finding workable solutions.
Over and over for the past several years I have been saying on this blog that our country’s two biggest problems are:
Slow Economic Growth, averaging just 2% since the end of the Great Recession in June 2012. Such slow growth has led to wage stagnation and job loss for many millions of blue-collar workers.
Massive debt accumulation, now amounting to 77% of GDP (for our public debt on which we pay interest), the worst it has been since right after the end of WWII. And the Congressional Budget Office predicts that it will continue to get steadily worse without changes in current policy.
Unfortunately, political gridlock in Washington ever since the beginning of the 112th Congress in January 2011 (when the Tea Party took control of the House) has prevented making progress on either of these two problems. That could perhaps change in the near future with the election of President Trump, at least with respect to faster growth.
But Mr. Trump’s election does not change a fundamental reality. Many progressives think that 2% growth is the “new normal” or, what’s worse, that any economic growth at all will simply require more fossil fuel use and therefore lead to even faster global warming. Furthermore, while many progressives have little interest in economic growth, they do care very much about economic justice. They think that the top 1% take home too much income and that, in addition, there is far too much poverty in America.
In today’s Omaha World Herald there is an article about the Human Resources Subcommittee of the House Ways and Means Committee chaired by Rep. Adrian Smith (R, NE). This subcommittee has jurisdiction over temporary assistance for needy families, food stamps, low-income energy assistance, and unemployment benefits. It turns out that there is rural and small town poverty almost as much as in urban and suburban areas (see chart).
Conclusion. Poverty exists all over our country and so should be of concern to both Republican and Democratic members of Congress. Perhaps if the two sides can work together on this major issue, they can work together on other important issues as well. More later!
This is a big week in the U.S. Pope Francis is coming here and the UN will convene a conference in NYC to endorse international development goals for the next 15 years. As I explained in a recent post, “The Dung of the Devil,” the Pope should pay more attention to the recent accomplishments of free enterprise in decreasing the amount of poverty and economic inequality around the world.
In an article just a few days ago in the Wall Street Journal, Bjorn Lomborg, the Director of the Copenhagen Consensus Center, explains that the U.N. is likely to endorse 169 targets for global investment for the next 15 years. Mr. Lomborg demonstrates with cost-benefit analysis that focusing on just 19 of these goals would accomplish far more than adopting everything on the U.N.’s much longer list. Here are a few of Mr. Lomborg’s items:
Completing the World Trade Organization’s Doha agreement would return $2000 for every dollar spent to retrain and compensate displaced workers.
The elimination of fossil fuel subsidies would be worth $15 for every dollar spent in direct support of the very poor who are unable to afford higher fuel prices. By contrast, trying to drastically increase the production of renewable energy would return less than a dollar for every dollar spent because renewable forms of energy remain so expensive.
Tripling access to preschool in sub-Saharan Africa would have benefits worth more than $30 for every dollar spent because of improved future earnings. On the other hand, efforts to improve exams and teacher accountability are much harder to achieve and the benefits would only amount to $5 for every dollar spent.
Other actions: boosting agricultural yields, cutting indoor air pollution with clean cook stoves, increasing access to family planning, fighting malaria and combatting malnutrition are other examples where investment would lead to big dollar returns.
Conclusion: Free enterprise economics has done much in recent years to eliminate poverty and inequality around the world. Additional public and private investment, focusing on just a relatively few major goals, can accomplish even more.
Income inequality in the U.S. is getting worse and one reason is that the middle class is being “hollowed out” by a lack of sufficient job opportunities. The result is more people at the bottom end of the income scale. Not surprisingly, it turns out that many of these low-wage workers are receiving public assistance, as documented by the UC Berkeley Labor Center, and the New York Times. The authors point out that if these workers received higher wages, they would not require as much public support which, in turn, would save money for the taxpayers. This is a true but not a practical means for helping the poor. Employees are paid what they’re worth based on the law of supply and demand. Companies will pay as much as they have to in order to find and retain well qualified workers. Furthermore, a minimum wage which is too high will simply lead to a higher rate of unemployment.
There is really only one good way to raise the overall wage level, especially at the bottom end of the scale. It is to speed up economic growth, thereby lowering the unemployment rate and creating more demand for workers.
This is exactly what has happened in Omaha NE where I live. The official unemployment rate is 3.2% and there is a labor shortage. A new minimum wage ($8/hour now, $9/hour next January) was approved by the voters last November. But low-skill entry level jobs are paying $10/hour or more because of the scarcity of workers.
There are plenty of opportunities to succeed in Omaha. Support yourself with a low-wage job and go to Metropolitan Community College to learn a high-skill, high-wage trade. Most people are capable of following this route to a better life!
Americans are a generous and kind-hearted people. We are more than willing to go to bat for the less fortunate among us. The question is how to do it effectively. A post six months ago, “A balanced and Sensible Anti-Poverty Program,” laid out four principles for an effective anti-poverty program from Robert Doar of the American Enterprise Institute. They are:
work requirements for welfare recipients
work incentives such as the Earned Income Tax Credit
fostering married, two-parent families
business growth and investment to create more jobs
There is currently much interest in , and public support for, raising the minimum wage at both the state and national levels. This is viewed by the general public as an effective way of addressing poverty. However a new report from Mr. Doar makes clear that simply holding a real job, even with low pay, is what makes the biggest difference as to whether or not someone is able to rise above poverty. Even though the overall poverty rate in the U.S. is about 14%, the poverty rate for fulltime workers is only 3% and even for part-time workers it is just 7% (see the above chart). Furthermore, as detailed in the second above chart, the total income (including selected benefits) of a low-income earner, at $8/hour, with two dependent children, and working fulltime, is $30,204, well above the poverty line.
Conclusion: yes, poor people need public assistance but it is equally important to work with them to find and hold a job, regardless of hourly wage. Not only will this meet their basic material needs, it will also put them on track to become self-supporting, productive citizens.
As racial tensions begin to ease in Ferguson MO, it is natural to inquire about the root causes of this turmoil and how to avoid future recurrences. Of course, police brutality and public distrust were the triggering events and need to be thoroughly investigated by the proper authorities. But the problem goes deeper than this. The above chart from Think Progress demonstrates the very high unemployment rate among black teenagers. Is it surprising that idle teenagers get into trouble?
Omaha NE, where I live, is not immune to these problems. In 2011 Nebraska had the worst black homicide rate in the nation at 34.4 per 100,000 population, just ahead of Missouri with a rate of 33.4. Black unemployment in Omaha is estimated to be 20% compared with Omaha’s overall unemployment rate of 3.8%.
The problem goes still deeper yet. To be employable, black youths need to become educated, i.e. to stay in school and remain on track to graduate. This, in turn, means that they need to succeed in school from the very beginning, for example, by being proficient in reading at the end of third grade.
My last post, “Responsibility Goes Along With the “Good Life,” describes steps that are now getting under way in Omaha to turn around this whole vicious downward spiral of destructive black teenage behavior. The Buffett Early Childhood Institute has put together a long range plan to work with children in poverty from birth to age eight to make sure that they are prepared to succeed in school. It is funded by an annual property tax levy of $5 per $100,000 of assessed valuation throughout the two county metropolitan Omaha area. With such a local funding source, the program will inevitably receive much public attention.
Nebraska is aware that not all of its residents share in the “Good Life” and is making a conscious effort to find its own solution for a very serious national problem.