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.
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.
It is well understood that income inequality is increasing in the U.S. for a number of reasons: economic globalization, the rapid development of new technology and the slow recovery from the Great Recession of 2007 – 2009. The New York Times’ economics journalist, Eduardo Porter, discusses the social effects of this ominous trend in the article “Income Inequality Is Costing the U.S. on Social Issues.” For example:
The U.S. has the highest teenage birthrate in the developed world – seven times the rate in France, for example.
More than one out of four U.S. children lives with one parent, the largest percentage by far amongst industrialized nations.
More than a fifth of U.S. kids live in poverty, sixth from the bottom among the OECD.
Among adults, seven out of every 1000 are in prison, five times the rate for other rich democracies and three times the U.S. rate from four decades ago.
In 1980 the infant mortality rate in the U.S. was about the same as in Germany. Today it is almost twice the rate as for German babies.
American babies born to white, college educated, married women survive as often as those born to advantaged women in Europe. It is the babies born to nonwhite, non-married, non-prosperous women who die so young.
In other words, there is huge social disparity between the well-off and the poor in the U.S. and, furthermore, the resulting social breakdown is getting worse. Why has this been happening?
Conservatives say that it is the fault of a growing welfare state which has sapped Americans’ industriousness and sense of self-responsibility. Liberals say that welfare programs arn’t extensive enough to withstand the strict demands of globalization and technological development.
Mr. Porter concludes that, “the challenge America faces is not simply a matter of equity. The bloated incarceration rates, rock-bottom life expectancy, unraveling families and stagnant college graduation rates amount to an existential threat to the nation’s future.”
I tend to agree. Is our democratic political process capable of responding in a satisfactory manner? I will return to this theme often in the coming months!
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.
The New York Times recently compiled a map rating each of the 3,135 counties in the U.S. according to the following six factors: educational attainment, median household income, unemployment rate, disability rate, life expectancy and obesity. As can be seen (below) the whole state of Nebraska (motto: the Good Life) comes out very well in this rating scheme. On the other hand, Omaha has the highest black child poverty rate in the country at 59.4% (Omaha World Herald (4/15/2007)). Partly for this reason the Nebraska Legislature established the Learning Community of Douglas and Sarpy Counties in 2008 whose purpose is to close the academic achievement gap between middle class and low-income students in the Omaha metro area.
Just a few days ago the Learning Community Coordinating Council approved an early childhood education plan developed by the Superintendents of the 11 Omaha area school districts to help children in poverty in the metro area. It will cost about $2.5 million per year and will fund 29.5 full-time equivalent positions. The plan will be managed by the newly established Buffett Early Childhood Institute in Omaha. The increase in the property tax throughout the two county area to support this program will amount to $5 per year for the owner of a $100,000 house.
It is quite appropriate for an overall wealthy community like Omaha in a very well off state like Nebraska to pitch in, in this way, to help out its less fortunate residents. It represents an example of how state and local governments can and should step in and take more responsibility for addressing their own problems without help from the federal government which is broke and needs to cut back on what it does.
If the Early Childhood Education plan lives up to its high expectations (as I believe it will), it is likely to receive much national attention and will become a model for other parts of the country. Nebraskans should be proud of supporting such a forward looking initiative!
It is generally agreed that income inequality in the U.S. is bad and getting worse. Before we can address it effectively, we have to understand what is causing it. In this regard the Wall Street Journal had an article recently, “Ignoring an Inequality Culprit: Single-Parent Families”, by two scholars, Robert Maranto and Michael Crouch, from the Department of Education Reform at the University of Arkansas. Mr. Maranto and Mr. Crouch call attention to what they call “the strongest statistical correlate of inequality in the United States: the rise of single parent families during the past half century. … In 1960, more than 76% of African-Americans and nearly 97% of whites were born to married couples. Today the percentage is 30% for blacks and 70% for whites. … This trend, coupled with high divorce rates, means that roughly 25% of American children now live in single-parent homes, twice the percentage in Europe (12%). Roughly a third of American children live apart from their fathers.” In addition, “more than 20% of children in single-parent families live in poverty long-term, compared with 2% of those raised in two parent families.” It is estimated “that 41% of the economic inequality created between 1976-2000 was the result of changed family structure.”
The authors wonder why there is not more public attention given to this depressing state of affairs and conclude that
Intellectual and cultural elites lean to the left and it is primarily social conservatives who promote traditional family structure.
Family breakup has hit minority communities the hardest. Therefore public discussion can be characterized as being racist.
This is a very hard problem to solve. Marriage and childrearing involve highly personal choices which cannot be dictated by society.
In this regard, my March 11, 2014 post “A balanced and Sensible Antipoverty Program”, emphasizes the need to at least remove marriage penalties from government welfare policy.
As the authors conclude, “The first step is to acknowledge the problem.”
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 than even approaches which focus on training and education.
Robust work supports for those who are working at low wages. The Earned Income Tax Credit accomplishes this and should be extended to childless adults.
Business growth and investment. Policies that raise the cost of doing business and deter growth do little to create what the poor need most: jobs.
Foster married, two-parent families. We need to mitigate marriage penalties in public assistance programs and we need to be honest about the consequences for children of single parenthood.
Mr. Doar points out that 10.2 million American’s are unemployed at the present time, 3.6 million have been jobless for more than 27 weeks, 7.3 million are involuntarily working part-time and 837,000 workers are so discouraged that they have stopped looking for work. Labor force participation has dropped from over 66% in 2007 to 63% today while the poverty rate has risen from 12.5% to 15%. Raising the minimum wage will not help the job prospects of most poor Americans. Only 11.3% of individuals who would benefit from raising the minimum wage are living below the poverty line. The Congressional Budget Office estimates that raising the minimum wage to $10.10 per hour would lead to 500,000 people losing their jobs. CBO also estimates that the Affordable Care Act will reduce full-time employment by 2.3 million by 2021. Given the strong anti-correlation (see the above chart) between labor participation and poverty, this means that the poverty rate may go higher yet.
The conclusion to draw from this excellent poverty synopsis (with lots of references) is that there are intelligent and effective ways to fight poverty and also much poorer ways to try to do it. Good intentions are not enough!