Putting It (Back?) On the Agenda: Poverty

In Budget Politics, Economic Planning, Economics, Full Employment, Inequality, Living Wage, Political Ideology, Politics, Politics of Policy, Poverty, Progressivism, Public Policy, Public Sector, Social Democracy, Social Policy, Social Security, Welfare State on November 15, 2010 at 6:47 pm

Introduction:

Back in what turned out to be the halcyon days of 2007, policy types were actually beginning to talk about cutting the poverty rate in half. Three years later, we’re looking at one of the largest and fastest increases in poverty in a generation. 44 million Americans – one in seven of us – now live in poverty, an increase of four million people just in the last year.

Even if one were to grant that the lenient treatment shown to the banks on TARP, the bonuses, the cramdown bill, credit card regulation, and other progressive defeats over the last two years were part of the cost of rescuing a postindustrial, neoliberal economic system (and I don’t), there is nonetheless a moral obligation for the Obama Administration to do something for those who have been hit hardest, and who have been least able to protect themselves going forward into the second term.

To the extent that it ever was put on the agenda, poverty must come back on the agenda.

Theories of Poverty:

Unfortunately, part of the political work that needs to be done before any attack on poverty can begin will have to be done within the Democratic fold, because our thinking about poverty hasn’t been this muddled, this unsure, this prone to seduction by our own biases about how the world ought to operate. Beginning here is critical – arguably, the War on Poverty was crippled from the outset because the people who designed its programs started from the position that poverty was driven primarily by a “culture of poverty” that created disparities of cultural capital and pathological tendencies among the poor that disadvantaged them in an otherwise functioning national market;by providing anti-discrimination laws and compensatory services, poverty warriors believed they could quickly integrate the poor into the national mainstream. (An alternative view, that the poor were being held back by disparities of political power, and required political empowerment, both for its social/psychological effects and the benefits from an equal share in public benefits, also had credence within the War on Poverty – hence the Community Action Programs)

And yet, much of the same thinking is in vogue today. Only a month ago, the New York Times trumpeted on its front page: “Scholars Return to Culture of Poverty.” Granted, the title belied the reality – that “today, social scientists are rejecting the notion of a monolithic and unchanging culture of poverty. And they attribute destructive attitudes and behavior not to inherent moral character but to sustained racism and isolation” – but it’s still a worrying trend.

Never has an idea been less suited to the times. The culture of four million people does not change in a year, but their incomes have. What happened during the Great Recession was that (almost exactly mirroring a fall in wages) real median income for households fell 4.2%, pulling some families that had been just above the poverty line below it, and about four million people lost their jobs and about ten million people lost full-time year-round employment. Minus the 2 million children who entered poverty, it’s hard to ignore the fact that the number of people who have entered into poverty and the number of people who lost their jobs track so closely. Of the 29 million poor of working age, about 10.6 million of them are currently working, and 19 million are unemployed. Of those 19 million, 5.4 million of them were working just a year ago. These people are in need of jobs, not culture.

The other hot topic in the world of poverty is the Harlem Children’s Zone. A new approach that focuses on high-intensity comprehensive services, including pre-school and K-12 education, free health and dental care, child and day care, social services for parents, and so forth, the HCZ has been widely lauded and has been cited by the Obama administration as the model it would like to follow in anti-poverty policy. Leaving aside the issue of charter schools, which weaves itself throughout the HCZ project, if there is a criticism I have about the HCZ, it’s that, like the 1960s efforts, it places all of its eggs in one basket – namely, college education. Given that 25% of the U.S population attends college (and even then, the proportion of B.A holders is much lower), such a strategy would seem to leave 75% of children out of luck. Moreover, like earlier efforts, it ignores the larger question of labor demand; whether, after the services have been poured into the youth of Harlem to make them as ready for the job market as possible, whether the national economy can produce enough living wage jobs to bring the poverty rate down.

My belief, and the Great Recession has only strengthened this belief, is that poverty is overwhelmingly a matter of unemployment, low wages, and a lack of economic security. Without solving these three things, no matter how empowered they might be, no matter how well-education or comprehensively serviced, the poor will still be poor.

Fighting Poverty on Three Fronts:

If nothing else, this election should tell us that separating domestic policy into an “economic” track and a “social” track and putting poverty on the latter side doesn’t make sense. Both in terms of eliminating the recession-induced increase and the pre-existing levels of recession, we will have to do something about the four million people who lost their jobs and fell into poverty, the 10 million people who are working but cannot earn their way out of poverty, and the 28% of Americans (some 3.3 million households or 60 million people) who live within 150% of poverty and who are at risk of falling into poverty in times of economic insecurity.

As I have already discussed, establishing a jobs insurance program that paid a modest but living wage would radically reduce poverty (for example, a 4-million-strong jobs program could incorporate virtually all of the 5.4 million recently-employed nonworking poor, bringing unemployment down by as much as 23.5%) by reducing the ranks of the unemployed and providing more incomes. However, it’s also the case that such a social insurance system would be important not merely for its immediate effects on the unemployed poor, but because like labor market policies that exist throughout much of Europe it could prevent people from dropping into poverty by becoming unemployed, by keeping them working.

A direct government role in providing jobs for the unemployed is absolutely necessary, because as economic analysts like Paul Krugman have noted, normal economic growth is going to take too long to get us back to pre-recession levels of employment. This is even more the case when we consider that poverty actually rose during the last recovery: from 11.7% in 2001 to 12.7% in 2004, and remaining at 12.5% as late as 2007. If even “good” labor markets in normal times aren’t sufficient to bring down poverty, there is a deeper problem here that requires long-term action to counter.

Providing jobs for the unemployed and thus a generally lower unemployment rate will help on the wage front as well, but more will be needed to counter-act nearly forty years of wage stagnation.

As the chart above suggests, wages have basically been flatlining for most Americans since the early 1980s, with some modest growth in the late 1990s that has since petered out. For most of this period, American households have been able to paper over the problem, first by dramatically increasing the number of women in the workforce (using two incomes to compensate for income decline), and later by going heavily into debt and/or withdrawing equity from their homes to provide an additional source of income.

To that end, I think two things need to happen (in addition to the jobs measures) to give American workers the kind of wind against their backs that they had in the late 1990s that they didn’t in the 2000s. Firstly, I think we need to raise the minimum wage to a national living wage of $10 an hour. As it stands, the current minimum wage of $7.25 an hour is just enough to keep a single person out of poverty, but well below what it takes to keep even a family of two out of poverty. A $10 minimum wage would allow a minimum-wage worker to support a family of two or even three above the poverty line, and a two-income household would be more economically secure at about 175% of the poverty line. (And contrary to what Econ101 types will tell you, no, raising the minimum wage does not reduce employment)

The second thing that should happen is that we should expand our current limited Earned Income Tax Credit into a true “guaranteed annual wage” for all workers. To my mind, this would involve three steps. Firstly, the EITC should be made automatic (i.e, the government should give the tax credit to all workers within 200% of poverty, whether or not the worker knows to apply for it) and be credited monthly against withheld taxes instead of as a lump sum at the end of the year (this allows the EITC to help people meet their monthly expenses, instead of going into debt during the year then paying it back with their rebate checks). Secondly, it should be credited against payroll taxes instead of income taxes, since the payroll tax is both regressive and because 66% of Americans owe more in payroll than income taxes. And thirdly, it should be raised to a flat rate of about $6,000 to $8,000 to provide a genuine floor for all workers, not just families with children, and the additional revenue should be funded through a tax on the banks.

At this point, we should begin to see how all these steps begin to connection – lower unemployment helps people bargain for better wages, better wages in turn should fuel more economic growth and further lower the unemployment rate, and both together should lower the poverty rate. The third step is to beef up our system of social insurance to provide for a genuine system of economic security so that future recessions don’t cause such dramatic spikes in the poverty rate. This means an Unemployment Insurance system that can actually protect people when they lose their jobs, and a broader and better-integrated safety net.

Conclusion:

In trying to put poverty back on the policy agenda for 2012 and beyond, it will be important to stress this point: fighting poverty is no longer a luxury of liberal conscience. The economy will not recover with 15% of its consumer base unable to consume, and economic recovery will not persist if poverty rises despite economic growth.

Bringing poverty to an end and rebuilding our economy are now, as they have always been, not competing objectives, but the same thing.

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  2. [...] on education, but we need to focus on boosting the labor market, and on reducing inequality, and lowering the poverty rate as well to ensure that people can earn a living wage whether they’ve attended college or not. [...]

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