Maintaining Optimism in the Face of Reality. Occasional observations on the state of the world, society, business and politics. Usually anchored by facts, always augmented by opinion.

Thoughts about Poverty and Welfare  | e-mail post

Tyler Cowen at Marginal Revolution today is encouraging us to read a post from Asymmetrical Information about the impact of welfare and the future of poverty. The AI post largely comes to the idea that that a good long-term way to raise people out of poverty is to eliminate the role of welfare in making bad short-term decisions, such as having children out of wedlock (or lets just say before one is in a position to support the child themselves). From AI:
Part of the answer, I hope, is that by ceasing to enable those bad short-term decisions, the culture changes to focus more on the long term. Girls stop having babies at fifteen, and start demanding committment at 25--and they demand, too, that the boys stop selling drugs, because a husband in prison is one who can't provide for his family, and the government won't replace him any more. I doubt that's the whole answer, but I hope it's a big part of it.

I think withdrawing the cash may not be enough, because this generation, and part of the next one, lacks the tools to really support themselves, and the social network to fill in the gaps. Something that conservatives, and especially libertarians, have been slow to grapple with is that the more productive our society gets, the greater the possibility that some peoples' labour simply isn't productive enough to support them at a minimum level. Can we really tell former welfare mothers to go bunk ten to a room the way my Irish ancestors did? We're a pretty rich country. Are we comfortable telling people to live as if they're nineteenth century peasants, if their cognitive gifts, or education, won't stretch to more?

What we know is that this is going to be a long, painful process, and that part of the process is going to involve some people, including innocent children, getting hurt. The end state seems to be worth it--I see hopeful signs, like the continuing decline in out-of-wedlock and teenage births, and slight uptick in marriage, that change is already underway. But conservatives shouldn't let the end state blind them to the suffering here-and-now, and we should look as hard as we can for ways to mitigate it.
AI hits on a key point, which is that some innocents will necessarily be harmed. In addition to the children, the challenge in reducing the social safety net is that it protects those who are morally blameless for their situation, but who may be genuinely victims of circumstance. It becomes a challenging process to protect those individuals while not creating the moral hazard for those who may voluntarily make bad short-term decisions.

Cowen at MR actually drills into the second paragraph cited above: the possibility that some people's productive labor will not be enough to support them adequately. This has always been part of my concern about population growth in a society that needs progressively fewer labor inputs to produce progressively larger amounts of economic output. When you consider the growth of the service economy, this has done a great deal to soak up excess, but economically unncessary, labor. Starbucks, for example, doesn't fill a true social need, but thankfully it exists, more thankfully for the labor pool than for the coffee drinkers.

Getting back to Cowen's point, he wonders:
whether increasing wealth will ever eliminate the case (sound or not) for, say, welfare payments or the public funding of education. Won't the U.S. at some point, however near or distant, become rich enough so that government won't have to...fill in the rest of the sentence yourself...? Or does growing wealth jack up land prices so much that subsistence becomes increasingly harder to achieve? I'm not talking about a relative status effect here, or changing expectations as to what is a decent life (though those factors play a role too).
Cowen goes on to hypothesize that it may be necessary to segment the rich and the poor in society into separare economic tracks.

However, I would like to contribute one item of discussion on this matter, which is his mention of the relative status effect and changing expectations of a decent life. Not to sound rather scrooge-like, but it is a fact that being poor in America is not a bad situation. In fact, compared to the model of the supposedly more egalitarian (or even socialist) Europe, the American poor are in fact quite better off, according to research from Timbro, the free-market Swedish thinktank (talk about feeling like a stranger in a strange land). Their very interesting research piece, "EU versus USA" [PDF], highlights this fact.

I discount their comments about the number of people living below the poverty line in the U.S. having dropped dramatically over the past 45 years only because many would argue that one reason for that is the fact that the poverty line has not been adjusted appropriately, and it is not material to my point. What is, in fact, most interesting is the research they cite indicating the material prosperity of the poor in the U.S.:

Material Wealth Indicator% of poor households
Home ownership45.9
2 or more cars30.2
Air conditioning76.6
Washing machine64.7
Drying cabinet/tumbler drier55.6
Garbage disposal29.7
Colour TV97.3
2 or more colour TV sets55.3
Cable or satellite TV62.6
Wide screen TV26.3
Video or DV78.0
2 or more video and DVD players25.3
Telephone answering machine35.3
Mobile phone26.6
Internet access18.0

Bear in mind, earlier in their paper you can see overall European ownership of such things, where you will learn that, for example, poor Americans have a 20% higher rate of ownership of clothes dryers than the general population of Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweeden, Switzerland or the U.K. The gap for the microwave is nearly twice that, and the poor in the U.S. are certainly better off in the area of true luxury goods like DVD players.

In fact, the table following the one above shows that the American poor even have more per-person living space than the general European population.

My point is that one thing we need to bear in mind is that being poor in the United States is, in a more global perspective (of just developed economies), not so terribly bad, and one must wonder if this as well acts as a disincentive to rise from poverty. If a person here in the United States has more space and more of many material possessions than the average Joe (or Jacques) in Europe, might it not create some additional level of complacency that makes it even more difficult to find the motivation to rise from the impoverished class? Is being poor in the U.S. simply a satisfactory state for many individuals? And if so, what does that imply about the genuine social responsibility to help raise them from that level?

No real conclusions here, but it is something I think we should all be thinking about as well.

e-mail post | Link Cosmos | [Permalink]  |  | Thursday, November 18, 2004
about 15 years ago i had a memorable conversation with an african american taxi driver.
he was saying that many blacks felt that Welfrare and other social programs were intentionally designed by democrats to undermine blacks sense of being and make them dependent on the government and the democratic party.
i've thought about the dependence part and pretty much agree that this is indeed gutting the soul out of the black community but i dismissed the intentional part and wrote it off as unintended consequences
many of the things coming from the democratic party this year really makes me wonder now whether there is credence to the hidden intent of such social programs
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