Poverty and Anti-Poverty Programs

Eli,

Everyone knows, why we just KNOW it, that Democrats have a monopoly on caring resulting in well-thought out anti-poverty and other safety-net programs. Let's ask Nicholas Kristoff.

THIS is what poverty sometimes looks like in America: parents here in Appalachian hill country pulling their children out of literacy classes. Moms and dads fear that if kids learn to read, they are less likely to qualify for a monthly check for having an intellectual disability.

Many people in hillside mobile homes here are poor and desperate, and a $698 monthly check per child from the Supplemental Security Income program goes a long way — and those checks continue until the child turns 18.

“The kids get taken out of the program because the parents are going to lose the check,” said Billie Oaks, who runs a literacy program here in Breathitt County, a poor part of Kentucky. “It’s heartbreaking.”

This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire.

Some young people here don’t join the military (a traditional escape route for poor, rural Americans) because it’s easier to rely on food stamps and disability payments.

Antipoverty programs also discourage marriage: In a means-tested program like S.S.I., a woman raising a child may receive a bigger check if she refrains from marrying that hard-working guy she likes. Yet marriage is one of the best forces to blunt poverty. In married couple households only one child in 10 grows up in poverty, while almost half do in single-mother households.

Most wrenching of all are the parents who think it’s best if a child stays illiterate, because then the family may be able to claim a disability check each month.

Let's move across the ocean to the innovative solutions France has implemented to combat poverty.

Let’s take an unemployed mother living alone with two children between six and 10 years old. In 2010, there were 284,445 French families in this situation that were on welfare.

This mother will be given the “Active Solidarity Income.” Since she has two children, the amount will be $1,100. If she is renting an apartment with a $650 rent, she will be given the “Housing Customized Aid,” amounting to $620. Then she will receive “Family Allowances,” which amounts to another $160. Finally, let’s add the payment known as “Allowance for the start of the school year,” which is $750 once a year, or $62.50 per month. (She might even benefit from other aids, but these are the most common.) She will be given a total of $1,942.50 per month.

Now imagine that this mother has found work and will be paid the “legal minimum wage,” which amounts to $1,820 gross—or $1,430 after taxes. Since she would be earning $1,430, she will no longer receive the “Active Solidarity income.” Her “Housing Customized Aid” will be lowered to $460, but she will still be given “Family Allowances” and the “Allowance for the start of the school year.” Therefore, her total income will amount to $2,112.50. She will then belong to the 50 percent of French workers earning $1,960 per month.

For this mother of two, working again will bring her family an additional income of only $170. Moreover, this $170 is likely to be lost in the cost of transportation to work, since the cost of gas in France is $7 per gallon. In any case, such a small amount of money is not an incentive to go back to work. Between staying home and working, the choice is simple: welfare is a better deal. 

Well that's France, couldn't happen here, after all the Democrats and their innovative solutions would not allow that kind of distortion to hinder job growth and enslave people in poverty rather than save them from it. Let's ask Randy Lovelace,

At Metal Technologies in Bloomfield, Indiana these are boom times. In the last three years business has doubled for the auto parts supplier -- which sells engine casing compartments, oil pans and other components to larger, tier one suppliers in the auto industry. As auto sales have surged, so has demand for Metal Technologies products.  

Still, the company with 128 employees has 5 to 7 job openings it can't fill. "We get really frustrated when we have a job and we can't get anyone to work it," said Randy Lovelace a production manager at Metal Technologies.

Even more incredible, Lovelace said some applicants have told him they'd rather stay unemployed instead of taking a job starting at $10.00 -to- $12.00 an hour. 

"We have actually had people who we have hired for jobs. We have had them sit in front of us, set to start the next day, and then they call in and say, "I'm not gonna take that job, they just extended unemployment benefits,'" said a frustrated Lovelace. "At that point we've called the state of Indiana and turned 'em in. But yeah, we've had people say, 'I'm not taking that job.'"

It's dangerous to argue from anecdote, I can see you now furiously searching for anecdotes of your own to show incentives don't matter. So let's ask the (non-partisan) Congressional Budget Office:

The UI system reduces the incentive for benefit recipients to accept a job offer because the earnings from that job will be partially offset by the discontinuation of their UI benefits. For example, an unemployed worker who is currently receiving UI benefits and is considering accepting a job that would pay $600 per week (or about $30,000 per year) after taxes would lose those benefits if he or she took the job. If the worker received $300 per week after taxes from UI benefits, then taking the job would increase his or her income by only $300 per week after the loss of those benefits is taken into account. In this example, UI represents a 50 percent effective marginal tax rate on earnings, which reduces the financial benefit of taking a job as long as UI benefits are available. (That tax rate is lower for workers whose benefit amounts are low relative to the earnings they could receive from a new job.) The net effect is that unemployment insurance would be expected to increase the amount of time that recipients remain unemployed.

Indeed, empirical studies have found that UI affects the rate at which recipients accept new jobs. For example, research has shown that many workers find jobs in the weeks immediately before and after their benefits run out. Studies of the duration of unemployment in periods during which states changed the structure of their UI systems—say, by increasing benefit amounts or by allowing more weeks of benefit receipt—reported similar conclusions.

You are indeed correct we need innovative solutions to these issues. Thank God we have a "slim, handsome politician from the Midwest who not that long ago asked us to set aside our differences and work together" to come to the rescue. And our saviors solution? DO MORE OF WHAT ISN'T WORKING. Brilliant! Innovative! Caring!

Who says we are doing more of what isn't working? Why the CBO. From the same report as above:

UI benefits expanded considerably during and after the recent recession. The unemployment rate rose from about 5 percent in 2007 to nearly 10 percent in the latter months of 2009, and the share of unemployed people who had not worked for 26 weeks or more increased substantially. In response, policymakers changed the UI system in several ways: They increased the number of weeks for which workers can receive benefits, increased the amount of benefits, and shifted more of the responsi- bility for funding UI programs to the federal government. As a result, UI benefits peaked at more than $150 billion during 2010 (when the annual unemployment rate peaked at 9.6 percent). Unemployment and benefit payments have both declined since then.

The "in response" part is debatable. Did benefits increase in response to unemployment or did unemployment increase in response to higher benefits? It seems the CBO earlier put the causation as benefits increase unemployment, but backs off in the above paragraph. In any case, a graph (from the same CBO report), besides breaking up the text, shows this increase in benefits visually.

Casey Mulligan in "The Redistribution Recession," points out unemployment insurance (UI) programs weren't the only innovative changes made to (in your view) offset the impact of the recession but in Mulligan's analysis, and by implication the CBO's as well, which created incentives to stay unemployed. Mulligan cites increases in the SNAP (Supplemental Nutrition Assistance Program), aka Food Stamps, in the Farm Bill of 2008 which relaxed asset and net income tests and increased the maximum benefit and the Recovery Act that granted states relief from work requirements and increased the maximum benefit. But wait there's more because the innovative thinkers that create programs that result in an "increase the amount of time that recipients remain unemployed," came up with another way to increase marginal tax rates on the poor. (After all that's why these programs don't work as expected, because it results in marginal tax rates of 50% or more). The compassionate, caring, innovative thinkers decided why not have a program to encourage mortgage modification for low-income earners. Does that create an incentive to remain a low-income earner? I'm guessing your caring, compassionate, innovative colleagues would be shocked by such a suggestion. But Mulligan decided to actually measure the impact and concludes, "Home mortgage modification thereby had the potential to redistribute as many resources as the expansion in unemployment insurance or food stamps."

We are now in the fifth year of "Emergency Benefits and Federal Additional Compensation" for unemployment compensation. Maybe the emergency will end some day. Then again, Mulligan points out Medicaid is set to have an "historic expansion" in 2014 due to the Patient Protection and Affordable Care Act. Medicaid, as we know, "pays health care providers on behalf of low-income individuals and families." The idea this may encourage people to keep their income low is beyond the comprehension of the innovative thinkers. But for a neanderthal like Mulligan,

even though the safety net has already expanded because of recent changes in eligibility rules for the UI and SNAP programs, Medicaid may be the main way for the safety net to further expand in the near future.

Medicaid benefits can dwarf UI and SNAP so if Mulligan and the CBO are correct these new incentives to stay poor will result in more poverty and lower employment.

Poor Paul Ryan, all he has to offer are those tired and worn and stale and hmmm what's the word I'm looking for, the antonym of innovative maybe, "platitudes" that make his party "appear more mainstream." And it must be that Ryan is "mouthing platitudes" in order to create an appearance of caring and compassion because we all know, why we just KNOW that only the Democrats care for the poor and only the Democrats come up with those innovative programs to reduce poverty and unemployment.

I wish we could find something that reduces poverty. But I guess, like Ryan, all I do is mouth platitudes to giver the appearance of being mainstream. Now why would I do such a thing? It must be because I'm a heartless, soulless bastard. What could possibly convince me those platitudes work. Why do I so assiduously avoid innovation solutions. I don't know. Maybe Walter McDougall can help. From "Throes of Democracy" McDougall illustrates the remarkable advances in production and innovation in industrial organizations and uninhibited competition that brought about lower railroad freight rates. "Wherever competition existed the capitalists lost and the customers won." He writes of Andrew Carnegie:

Was Carnegie a ruthless and greedy monopolist? He certainly was ruthless to steelmakers less shrewd and industrious than himself. But largely under his aegis stell production rose from 20,000 tons in1867 to more than 1 million tons by 1879 even as the price dropped from $166 to forty-five dollars per ton. Steel made railroad tracks stronger and cheaper. Steel (plus the hydraulic elevator invented in 1870) made possible skyscrapers that turned genteel Chicagoans and New Yorkers into cliff dwellers. Steel put cheap, superior tools and utensils into everyone's hands. Steel made Carnegie the richest man in America by the time he sold out to J.P. Morgan in 1901 for $480 million and began storing up treasure in heaven by donating 90 percent of his fortune to philanthropy.

Damn that Carnegie! Cheap steel. Better homes and buildings protecting people from fire. Superior tools and utensils into everyone's hands.  Damn him.

McDougall on Rockefeller and Standard Oil:

But his greatest gift was oil: for illumination, lubrication, paints, dyes, and all the products of organic chemistry from fertilizers to aspirin. As early as 1882-decades before the automobile made gasoline the national blood-a superintendent at the Baltimore and Ohio railroad proclaimed that without Rockefeller's petroleum "every wheel would grind to a stop within twenty-four hours."

Damn that Rockefeller! Doesn't he know only innovative government programs can bring illumination, both physical and metaphorical. Doesn't he know innovative ideas like fertilizers that increase crop yields and lower prices are the provenance of the Democrats. Who does he think he is with his platitudes appearing to be mainstream?

McDougall didn't get the message from the future on platitudes:

Who benefited from all these swift development in technology, management, mass production, and labor conditions? Consumers, because the changes all fed a prolonged deflation that made everything cheaper. So even though the Goulds and Carnegies commanded headlines and most people still lived on farms, this was the era when the urban (and incipient suburban) middle class captured the heights of American culture. 

People rising from poverty and crushing work conditions, increasing consumer choices at lower prices. Capturing the heights of American culture. All without a New Deal? All without sincere innovative top-down driven solutions? Impossible!

Bill