Poverty
is back in the news, for several reasons. The first is the 50th
anniversary of President Lyndon Johnson’s 1964 “War on Poverty” speech.
In addition, Republican congressman and 2012 vice-presidential candidate
Paul Ryan has
.
In 2012 the Romney-Ryan ticket suffered from Mitt Romney’s dismissive
comments about the “47 percent” and conservative caricatures of the poor
as welfare-dependent moochers and “takers.” Ryan’s attempt at a version
of what George W. Bush called “compassionate conservatism” appears to
be an effort at rebranding the right as something other than an alliance
of Have-Lots and Have-Somes against Have-Nots.
Public debate
about poverty typically focuses on the causes of poverty, rather than
the cures. The causes of poverty are many and various. You may be poor
because you are the child of poor parents; or because you grew up in an
economically distressed urban or rural region; or because you were
bankrupted by unexpected medical bills; or because you lost all your
money gambling on imaginary real estate in “Second Life” (this actually
occurred, in a case of which I know). Because poverty has multiple
causes, policies must be equally numerous, if the goal is to avert or
prevent poverty in the future.
But it’s not necessary to avert or
prevent poverty in the future in order to cure the poverty that already
exists in the present, for whatever reason. Let me illustrate this point
with an example. The treatment of victims of gunshot wounds in the
emergency room may be identical — even though one gunshot wound was
caused by a shooting in the course of a robbery, another by a failed
suicide attempt and a third by reckless play with a firearm. Doctors and
nurses can treat the victims of the gunshot wounds now, while leaving
others to propose better policing, better suicide-prevention counseling
and better firearm safety training in the future.
Fortunately,
drastically reducing existing poverty in the U.S. is not a difficult
intellectual problem, even though it is a difficult political problem.
With sufficient political will, we could slash existing poverty in the
U.S. very quickly, while simultaneously trying to prevent as much
poverty as possible in the future. Some public policy problems, like
averting global warming or regulating shadow banking, are incredibly
complex. By comparison, antipoverty policy is simple.
We
know exactly what we need to do to radically reduce poverty in America.
We know that it could be done, and we know how to do it,
.
Among developed nations, the U.S. is an outlier in having a high proportion of its population living in poverty.
Among the 34 member nations of the Organization for Economic Cooperation and Development (OECD),
in 2010 on average 11.1 percent of the population suffer from “relative
income poverty.” In the U.S. , however, the number is 17.4 percent.
Among developed countries, only Chile (18%), Turkey (19.3%), Mexico
(20.4%) and Israel (20.9%) have more of their people living in poverty,
according to the OECD.
The low-poverty nations tend to be
Scandinavian countries like Sweden (9.1%), Norway (7.5%), Finland (7.3%)
and Denmark (6.0%). Some on the right argue that it is wrong to compare
small, relatively homogeneous countries with a giant, pluralistic,
continental society like the U.S. Others argue that the English-speaking
countries as a whole are willing to tolerate more poverty and
inequality than the Nordic social democracies.
The numbers don’t
support these arguments. Among the most populous Western states are
France (7.9%) and Germany (8.8%), both of which have around half as many
people in poverty as the U.S., notwithstanding their own growing
immigrant populations. And while all English-speaking countries tend to
be less statist than continental European societies, all of the other
anglophone nations have considerably less poverty than the U.S.,
including Australia (14.4%) and Canada (11.9 %). Indeed, three
English-speaking countries — Ireland (9.0%), the UK (10.0 %) and New
Zealand (10.3%) — have fewer citizens in poverty than the OECD average
in 2010 of 11.1%.
How do other countries do it? They don’t
necessarily have fewer poor people to begin with. According to an OECD
study, with respect to “pre-tax, pre-transfer” poverty, the U.S., at 13,
ranked in the middle of 26 high-income nations. When it comes to
“post-tax, post-transfer” poverty, however, the U.S. was nearly the
worst, second only to Israel.
The difference is entirely
the result of government social spending on the poor —
mostly in the form of transfer payments, like public pensions,
unemployment insurance, child subsidies and/or wage subsidies. Many
other developed democracies start out with lots of poor people, just
like the U.S. But the countries with big welfare states remove most of
them from poverty. The American welfare state does lower the poverty
rate — but not enough. The American welfare state is way too small to be
effective in doing its job of lowering poverty.
We know, then,
how to slash poverty in the U.S. It’s very easy. All we have to do is
expand the American welfare state, not necessarily to Swedish levels,
but at least to Canadian or British levels. If we restrain public and
private health cost inflation, by adopting medical price controls
(“all-payer regulation”) of the kind used in most other democracies to
prevent price-gouging by pharma companies, hospitals and doctors, we can
pretty much end poverty in America very quickly.
A progressive
fantasy? Well, not exactly. Yes, most American progressives would
embrace much higher social spending. At the same time, many on the
American left would prefer to pay for it with steeply progressive income
taxes.
But the countries with really generous welfare states and
social insurance systems, like those of Scandinavia, do not pay for them
chiefly or solely with “soak-the-rich” income taxation. Progressive
income taxes are part of the mix — but as Peter Lindert has pointed out,
broad, relatively regressive taxes that fall on the middle class and
working class, such as payroll taxes and the value-added tax (VAT), a
consumption tax,
are necessary to fund governments that take a bigger bite out of a nation’s GDP without inducing capital flight — or even capitalist flight.
Ironically,
it is American conservatives rather than American progressives who
favor a national consumption tax (even as some on the right oppose a
value-added tax, which is by far the most efficient and familiar way to
tax consumption). “Grand bargains” are usually bad ideas, but here’s a
good one: We could slash poverty in the U.S. by means of “progressive”
levels of social spending, funded in part by a “conservative” national
consumption tax.
As an intellectual exercise, then, radically
reducing poverty in America is extremely simple and non-controversial,
at least among experts (genuine, scholarly experts, not paid
propagandists at conservative and libertarian think tanks). All we have
to do to radically reduce poverty from all causes in the U.S. in the
near future is to increase government spending, raise taxes and increase
regulation (all-payer medical price regulation).
Merely to state
it like that is to suggest the political difficulty of translating this
simple and straightforward policy agenda into reality. Between anti-tax
Tea Party fanatics and cowardly Democrats terrified of being called
“tax-and-spend liberals,” there is no chance of substantial reductions
of American poverty in the near future. But this intellectual exercise
is still worthwhile, for two reasons.
First, it allows us to
understand that most of the people who talk about poverty in the U.S.
are not actually talking about reducing poverty
right now. They
are focused on preventing poverty in 20 or 40 or 60 years, by means of
preschool programs, or family therapy, or regional economic development,
or whatever. Those are all fine and good. But because the experts and
politicians and pundits talk almost exclusively about
averting future poverty, rather than
reducing
present-day poverty, most Americans do not realize that present-day
poverty, whatever its cause, really could be quickly reduced — if there
were the political will to do so and to pay the necessary taxes.
This
intellectual exercise is useful for another reason. It allows us to
distinguish those who are serious about reducing poverty in America from
charlatans. It is impossible to substantially reduce poverty in the
U.S. without spending a lot more money on the poor and perhaps the
middle class and paying for that spending with much higher taxes. Anyone
who claims otherwise is, by definition, a fraud. Conservatives who
claim that they know how to reduce poverty without raising spending and
taxes are either ignoramuses or conscious con artists. And so are timid
centrist Democrats who sound progressive, but whose actual proposals for
addressing poverty are nothing more than teeny-weeny itty-bitty tweaks
to the Earned Income Tax Credit (EITC) or the child tax credit.
This
is not rocket science. The U.S. can reduce its post-tax/post-transfer
poverty rate from 17.4 % at least to the OECD average of 11.1%, if not
the Danish level of 6.0%. But doing so will cost money. Lots and lots of
money.
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