Why We Can't End Poverty In America: It's The Ignorance


Tim Worstall, Contributor 

The reason we can’t end poverty in America is not because the country isn’t rich enough to do that: it is rather because of the ignorance of those who would end poverty in America. Peter Edelman has an Op/Ed in the New York Times which shows this to horrific effect. And what’s really worrying is that Edelman is supposedly one of the experts on how we ought to reduce poverty. 
One point that has to be made about poverty right at the start: to all intents and purposes America, like all other industrialised nations, has abolished poverty. What we have traditionally called poverty that is. Proper destitution, people dying of starvation in the streets from the lack of the wherewithal to purchase food. Absent drug or mental problems this simply does not happen any more. The reason being that we’ve all had those industrial revolutions and the societies are rich enough that we make sure such doesn’t happen. Sure, different places have different ways of doing it, some more governmental and tax based than others, but that basic job of feeding the starving, clothing the naked and sheltering the homeless does get done.

That isn’t what people mean by poverty in such advanced nations though. The idea is much closer to Adam Smith’s point about a linen shirt. Such may not be a necessity: but if you live in a society where not being able to afford one means you are regarded as poor then not being able to afford one makes you poor in that society.

So the US, or UK, Swedish, South Korean or Japanese definitions of poverty are not to do with being able to eat: they’re to do with what each society thinks you need to have in order not to be poor.

Which brings us to how the US measures that: through the poverty level. This is, roughly speaking, three times the household budget of the early 1960s for a cheap yet nutritious diet for that household. Upgraded for inflation since then. Maybe that’s a good measure and maybe it isn’t (just about everywhere else uses a percentage of median income but so what? That’s more a measure of inequality than poverty) but that is what it is.

At which point we should get very alarmed by the opening of Edelman’s Op/Ed:

“RONALD REAGAN famously said, “We fought a war on poverty and poverty won.” With 46 million Americans — 15 percent of the population — now counted as poor, it’s tempting to think he may have been right.

Look a little deeper and the temptation grows. The lowest percentage in poverty since we started counting was 11.1 percent in 1973. The rate climbed as high as 15.2 percent in 1983. In 2000, after a spurt of prosperity, it went back down to 11.3 percent, and yet 15 million more people are poor today.”

This just isn’t the way is is supposed to work. It’s a basic observation that wages tend to rise faster than inflation: no, not every year, but over time, the decades, we most certainly expect to see this happening. Further, we can see that the US government has been spending ever more on poverty alleviation of these decades. Yet poverty is rising, not falling. This must be a catastrophe which cries out for concerted attention, no?

Well, no actually, it isn’t. For Professor Edelman then goes on to show that he hasn’t got a clue what he’s talking about in the very next paragraph.

“At the same time, we have done a lot that works. From Social Security to food stamps to the earned-income tax credit and on and on, we have enacted programs that now keep 40 million people out of poverty.”

No, no and thrice no. I’m sorry but this is the sort of mistake that disqualifies one from commenting upon poverty in America. For it is absolutely true that food stamps and the EITC alleviate poverty: of course they do, giving poor people money and food alleviates poverty, how could it not? But it does not reduce poverty by a fraction of a percentage point: it doesn’t reduce poverty by one single person.

Which is where we have to get grubby in the detail of how the US counts the incomes that mount up to that poverty level, that three times the 1960s food budget. Included in the incomes used to calculate who is poor and who is not are cash incomes into the household. So, anything earned by going to work, any money from investments (yes, I know, silly, for poor don’t have investments. But if you don’t do this then you’re counting a retired billionaire living off his dividends as poor. Hello George Soros!) and any money that the government just gives you, like say traditional welfare. Social security gets included here.

What is not included is anything that the government gives you either through the tax system or in kind. So that knocks out the EITC: we know this alleviates poverty but it does not reduce the number in poverty. The same with SNAP or food stamps: these are in kind. So maybe you’re getting $5,000 a year (a little over $400 a month is entirely possible based upon family size) in free food through the program. But this is not counted as your income, does not take you above the poverty line because it is not counted as your income. Which is how we can continually expand the EITC and SNAP (and Section 8 housing vouchers, Medicaid and on and on as they are all treated the same way) without ever reducing the number of poor people in America.

And that’s what’s wrong with Peter Edelman’s thesis about poverty in the USA. He doesn’t actually understand how it is measured. And as I never tire of pointing out if you misdiagnose the problem then you will never, unless through pure blind luck, manage to produce a viable solution.

Another way of looking at this is that the New York Times Op/Ed page is where distinguished professors go to flaunt their ignorance. Given that there are many things I’m ignorant of perhaps I should give it a go? Say, a piece insisting that the Laffer Curve shows that all tax cuts all the time increase tax revenues.

Hmm, no, that won’t work, not even the NYT would fall for something that silly. Anyone got the WSJ phone number?

Source: FORBES
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