Poverty

Few Americans can name the decade when poverty in the under-65 population bottomed out. That wd be the 70s. The 70s arent remembered as being an especially good decade for the US economy: the oil crisis, a double-dip recession, inflation, price controls. Not a good time. But Americans were less likely to be poor during this decade than any other, before or since.

What was special about the 70s was AFDC and Food Stamps peaked in their combined generosity. AFDC (now TANF) has only seen benefits erode for the past 35 years.

The closest that poverty in the under-65 population came to 70s levels was at the end of the Clinton boom, when unemployment sank to 4%. But not even that was enough. Among 18-65s, poverty during the 70s never exceeded 9.3% – it has only ever been higher. Among children, poverty in the 70s was in the range of 14-17%. Ever since it’s generally been over 20% – though at the end of the Clinton boom it got under 17% for 3 years (2000-02).

To understand the effectiveness of fighting poverty with government programs (as opposed to relying on market outcomes) it helps to look at poverty in the over-65 population. While under-65 poverty has risen enormously since the 70s, among the elderly, poverty has dropped steadily: from 25% to 9%, close to its lowest level ever. The difference is social security, whose benefits have been maintained (unlike AFDC/TANF/Food Stamps/SNAP). There’s a working paper at the NBER showing that Social Security reduces elderly poverty by 17 percentage points. In other words, but for Social Security, poverty among the elderly would also have increased since the 1970s, as it has for everyone else.

And there you have it: the radically different experience of the under- and over-65 populations show convincingly that government programs can be an excellent tool for reducing poverty.

Looking outside the US, one only finds more evidence of the effectiveness of government programs. For 2010, OECD (which uses different poverty measures than the US) has US poverty at 17% – higher than every other OECD country except Mexico, Israel, Turkey and Chile. US poverty rates are double that of most of Europe – even poverty in Spain and Greece is lower than in the US! Remarkably, poverty is lower in many European countries with median incomes half that of what they are in the US. (Estonia, Portugal and Poland, e.g.). Slovakia and the Czech Rep. are the most extreme cases: median income and poverty are both approximately 1/3 of US levels. Not coincidentally, most of Europe spends 50-100% more than the US (as a function of GDP) on social welfare.

Addressing poverty – particularly child poverty – isnt primarily about social justice or humanitarianism. People deprived of a modicum of material resources tend to be less healthy and productive. Poverty correlates with practically every social ill you can name: crime, drug abuse, alcoholism, teen pregnancy. And the US suffers especially from low social mobility: Compared to children in other countries, poor American children are more likely to remain poor all their lives.

Because we all benefit from being part of an informed, productive polity, we should all be willing to pay more in taxes, with a reasonable expectation that we will all come out ahead in the bargain, as incomes rise for all, social ills abate, and democracy improves.

Refs:

AFDC benefits over time:

http://aspe.hhs.gov/hsp/indicators04/apa-tanf.htm

http://aspe.hhs.gov/daltcp/reports/1995/rn13.htm

NBER paper on social security and elderly poverty:

http://www.nber.org/papers/w10466

Poverty data:

http://www.census.gov/hhes/www/poverty/data/historical/hstpov2.xls

http://www.census.gov/hhes/www/poverty/data/historical/hstpov3.xls

http://stats.oecd.org/Index.aspx?DataSetCode=IDD

worth reading:

http://www.cbpp.org/cms/?fa=view&id=3997

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