Thursday, June 14, 2007

Cutting poverty in half. . .



37,000,000

Just looking at the number is staggering. That's the number of Americans who live at or below the poverty line, a benchmark that is artificially low and out-dated. Millions more struggle to make ends meet each month.

We don't like to admit it, and we seldom speak in these terms, but poverty is extremely costly, and not because we are over-funding programs designed to lift people out of it's grip. Lost productivity, declining public health, increases in criminal activity and broken neighborhoods combine to run up our national poverty tab.

Childhood poverty alone (brace yourself!) costs us $500,000,000,000--that's $500 billion annually or about 4% of our entire GDP.

Instead of making progress against poverty as a nation, the fact is that over the past six years five million Americans have fallen into poverty.

Today, as you read my post, 1 of 8 Americans lives in poverty!

The U. S. ranks 24th out of 25 developed nations when counting the number of persons who live on 50% of national median income. What does this say about us as a people?

One thing is clear: economic inequality is growing among us.

In 2005, the wealthiest 1% of our population received 19% of the nation's total income, the highest percentage since 1929. The poorest 20% of our population received only 3.4% of the nation's income.

We must do better than this.

Here's the really sobering fact: we could if we decided to.

Last year the Center for American Progress convened a "Task Force on Poverty." The group ended its analysis by calling for a national goal of cutting poverty in half over the next 10 years. Setting forth a bold 12-step plan, the task force created an economic model for actually reducing poverty by 50% between now and 2016-2017.

Here are the recommended 12 steps that would produce such a stimulating outcome for our national economy:

1. Index the minimum wage to half the average national hourly wage.

2. Expand Earned Income Tax Credit and Child Credit benefits.

3. Encourage the health of unions by enacting the Employee Free Choice Act that would allow employees to organize more easily.

4. Guarantee child care assistance to low-income families and promote early education for all children.

5. Add 2 million new housing vouchers for use by families desiring to live in neighborhoods where poverty is not concentrated in an unhealthy and defeating manner.

6. Connect disadvantaged youth to school and work.

7. Simplify and expand Pell Grants and make higher education accessible to everyone.

8. Help former prisoners find stable employment and re-enter

9. Provide Unemployment Insurance benefits to low-wage workers who are excluded by the formulas and process of the current system.

10. Improve, modernize, increase efficiencies and coordinate public benefits so that people in need can access what is needed for people who find themselves between jobs and for the disabled among us.

11. Reduce the high cost of simply being poor, and increase access to legitimate, equitable financial services.

12. Incentivize saving for education, homeownership and retirement.

The task force estimates the annual cost for these recommendations would be approximately $90 billion a year. For sure, a significant investment in our nation's future and present health and well being. But, only 0.8% of the nation's GDP--less than a 1/4 of what the present existence of poverty currently costs us!

In 2008, tax cuts for families with incomes over $200,000 will cost the nation $100 billion.

The Urban Institute estimates that by implementing just 4 of the recommendations (minimum wage, Earned Income Tax Credit, child credit and child care services) poverty could be driven down by 26%, over halfway to the goal!

Such progress would mean over 9,000,000 fewer people living in poverty and a national poverty rate of 9.1%--the lowest in our history. Child poverty would dip by 41% and the number of people living in extreme poverty, or about 1/2 of the federal poverty level, would drop by 2,000,000 Americans.

The poverty gap among the races would narrow significantly. White poverty would drop to 7%. African American poverty would fall from 21.4% to 15.6% and Hispanic poverty would fall from 21.4% to 12.9%.

Public will is what is needed.

Lots of people won't believe it is possible, but it is. Our history proves it.

In the 1960s, U. S. public policy managed to almost eliminate poverty among our elderly citizens, thanks to the creation of programs such as Medicare. Other ingenious initiatives combined to drive poverty down by almost 19%.

At that time another war intervened to distract our national attention and truncate efforts to further reduce the impact of poverty among our people.

No program will be perfect, but the choice between perfection or nothing, is not a legitimate way to frame the challenge.

We can do better work than we are today. And, I'd say, we must.

[Read the full report, "From Poverty to Prosperity: A National Strategy to Cut Poverty in Half," April 2007, http://www.americanprogress.org/issues/domestic.]

25 comments:

Anonymous said...

$90 Billion dollars ... less than we have been willing to spend annually on a protracted war with uncertain causes and an uncertain end ... and with fairly tangible results. Sounds pretty reasonable to me.

chris said...

When you speak of the Center for American Progress I trust you are holding your nose. It's an ULTRA leftist organization funded in part by George Soros. George is a man with unlimited cash who envisions a libertine society that soaks the rich, except for him, and forms no judgements on personal behavior. He is an atheist with a one world philosophy. The organization is truly frightening. Hillary Clinton is also involved in it. It was started as a counter to the Heritage Foundation and is bent on transforming America into a truly secular-progressive society. One should RUN away from it as fast as possible.

Larry James said...

Chris, any organization that puts forth a clear, reasonable, cost effective plan for assisting in lifting men, women and children out of poverty should at least be given a hearing. If that is "secular" as a mission endeavor, then possibly we need to revisit the meaning of that term. My faith, yes, my reading of the Bible, drives me to be excited about what they propose here.

I believe many of us are growing weary of the knee-jerk rhetoric that encourages us to dismiss without fair hearings, that doesn't bring about any change, but only polarizes the nation and further marginalizes the poor.

Look at the proposal. What do you have against it specifically?

Charles said...

Chris, since your response is similar to most posters' response to the Heritage Foundation, let's compare the organizations. What does the Heritage Foundation suggest doing differently to reduce poverty? Since the current mix of tax cuts and program cuts has increased policy, I'm sure it has an idea on what could reduce it.

Thanks for your input!
Charles

IBreakCellPhones said...

Does suggestion #1 mathematically converge? I don't know enough math to do it off the top of my head, but if we assume a normal distribution of income, probably one with a fairly large standard deviation, does bumping the minimum wage as you suggest move the median so that the minimum needs to be bumped up, which moves the median... You see what I mean?

Larry James said...

I am no mathematician, Ibreakcellphones! But it certainly seems that it would bump the median initially in a greater way than in future iterations of the formula; though we'd need to know the gross numbers among the minimum wage eaners to determine the impact, I suppose. Good question, though. I feel it is an example of a rising tide lifting all ships and it depends on people working. There may be some better, more stable bench mark to tie such a "lifting scheme."

IBreakCellPhones said...
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IBreakCellPhones said...
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IBreakCellPhones said...

Hey, Larry. Thanks for getting back to me. Another thing that I worry about when you have a formula like that is that prices may rise to accommodate and even outstrip the increase in wages. IE, in a bakery where 1000 employees were making $12 an hour, if the minimum wage goes up to $15 an hour, at full time, ignoring other incremental expenses like social security and medicare taxes, that is $120,000 per week that has to come from somewhere. How much will bread prices rise to make that money? Will the increase in bread prices (and other prices) completely eat up that raise?

Larry James said...

Ibreakcellphones, given what we believe about capitalism, competition would serve as a partial buffer to what you describe, at least it seems to me. Remember too, this is just one part of the plan. Other factors form a package that would add strength to the working poor and their economic viability.

SeriousSummer said...

Larry & IBreakCellPhones:

You are confusing mean and median. If you raise the minimum wage to half the median income, then (by definition) it's still below the median--the point at which half the workers would be above the number and half below. So no change in median income.

It would change the mean income (average of all wages).

Larry James said...

I understand that, and maybe I am looking at it wrong, but if you index to median and the median rises because all are making more, then you would need to adjust the minimum wage against that periodically. There may be, likely is, a better index--like to congressional wages or to a % of executive increases, etc. The point is to shift away from an arbitary number that currently, even with the new adjustment, does not keep up with inflation.

Stoned-Campbell Disciple said...

I am always grateful for your perspective Larry. We probably could save some of that 600 billion dollar Pentagon budget ...

I wrote on the tragic death of Edith Isabel Rodriguez ... a face that goes with injustice in this land.

Thanks for keeping me in the real world.

Shalom,
Bobby Valentine

chris said...

I don't know the answer to poverty but I do know that between 1965 and 1994 welfare spending cost 5.4 Trillion in 1993 dollars. It cost 70% more than the total price tag for defeating both Germany and Japan in WWll after adjusting for inflation. Many believe welfare has destroyed millions of families and cost a high portion of our national wealth in the process. It just didn't work.

SeriousSummer said...

Larry,

The median is the number where half are above, and half below. It doesn't matter how much below and how much above. So if you have 1000 people, and 499 earn more than $1 million per year and one earns $50,000, and 499 earn below $5 per year and one more earns $50,000, then the median is $50,000.

If you raise the minimum wage to half the median, then all the 499 people that earned $5 per year now earn $25,000 per year. But the median is still $50,000. No change.

If you raise someone to half the median, they are still below the median. It doesn't change the number above and below. (Half of 50% is 25%, still below 50%, just not as far below. It doesn't change the total number above or below the median, so the median doesn't change.)

A minimum wage based on a percentage of the median (as long as it wasn't over 100% of the median) could never change the median itself.

Larry James said...
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Larry James said...
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Larry James said...

Thanks, John for the clarifying illustration. The median obviously only changes due to shifts in the overall income of a community, either up or down, across a community, thus the reason for indexing to median at a rate of 50%.

Justin said...

Larry,

Let me first say that if I come off as condescending, it is definitely not my intention.

I, as one interested in economics, take issue with your idea that tax cuts have robbed the treasury. If you live in a free society, cutting taxes encourages growth in the economy because it frees up more money for investment and it also discourages people from using costly means to avoid paying taxes (such as overseas bank accounts and other tax loopholes). There was actually news today (Thursday) that the deficit is shrinking due to increased revenue to the federal government, and if one looks at history, they will see that cutting taxes ended up bringing in more revenue to the government, not less. JFK cut the top marginal rates down from 90% and Reagan cut them again from 70 some odd %, both cuts led to increased revenue to the fed. Despite what liberal economists might say, income and investment in this country is not static... changes in tax rates either encourage or discourage investment and production, which in turn affect revenue to the government.

A Pepperdine professor of economics actually came up with something called the "laffer curve" which anyone here can look up online, which shows the basic idea that I'm putting forth here. When you have a free society, you have the same income to the government at 0% income tax that you do at 100%... you have no income. In between there is a bell curve. At some level there is a maximum income to the government, but we don't quite know where that is. Starting at 100% tax rate, as you cut the taxes, income to the government increases until you reach the point where the incentive to produce is outweighed by the small percentage of taxes being levied. You can only find that level by cutting taxes until your revenue stablizes.

I have issues with some of the other suggestions that the CFAP, such as pell grants and other scholarships which increase the price of tuition due to increased demand for services as well as the minimum wage (but we've gone over that one before).

I have to go to bed though. Would love to see your response tomorrow to my long comment. ;)

Larry James said...

Justin, I suppose the argument will always be over where that magic point on the curve actually is. I also believe that when low-income folks begin to make more income it also fuels the economy.

I was surprised regarding your Pell grant comment. Increasing demand drives prices up in education. So, that means a certain "class" in the US just doesn't get higher education? This is the same reason why health care in the US is in such a shambles--we regard it as a commodity rather than a public good/investment.

Justin said...

But if the government makes it easier to go to college by giving away money to people, more and more people go to college and then college becomes less and less important as getting a post grad degree. There was a time when just graduating high school could qualify you for a decent job, because it wasn't even required to finish, then the government made high school a requirement and paid for some to go to college, then all the sudden you have to have a college degree. If the vast majority of americans end up going to college because there is no longer any prohibition on getting in, like finances or grades, you'll have to have a masters in something to get a good job. There isn't something magical at college that makes you more qualified to do a job, its showing that you went above and beyond what is required that businesses want to see. Once college becomes so commonplace that its nearly mandatory, it will no longer provide that same element for companies.

And as for low income people making more money helping the economy, I can understand how one would think that works, but because that income has to come from somewhere and according to the plan of the CFAP, it will be legally required of companies that they pay people a certain wage, these companies are not going to take cuts in their salary in order to pay for higher wages. Business models set out what wages to pay people based on the income of the company and what it cost to get the people in certain jobs that they want there. Getting a good CEO, they determine is a certain rate, and they aren't going to cut his salary because of a new labor law... they will increase the price of the goods. Just like they do when any other tax is levied on them. They don't pay taxes because its part of the cost of production... its built in to the price of the goods we buy. And it will always be that way.

So, that being said, when you up the minimum wage in order to put more money in the poor peoples pockets, the price of goods everywhere are going to rise which devalues the raise that they just got. Not to mention it gets people fired by small businesses who cant afford the pay hike.

And when government spending increases (whether its for a war or entitlements) and we go into debt, we print money. Since we aren't on a gold standard anymore, that causes devaluation of currency. One of the main reasons gas is so "expensive" right now is not because it cost anymore to produce, but because our dollars is worth a third of what it once was.

Larry James said...

Ah, the terrible limitations of our system when the free market trumps human capacity and its unlimited potential!

Last week I heard a very interesting presentation by a former Under Secretary of Education, a Republican. She described our current world economy and asked the question, "How will America fare in such a place where other nations offer a much more educated and inexpensive workforce? Her basic answer was that the US would need to focus on innovation. She also said this begs for more education for as many of us as we can manage who want it. There is no future in your argument, Justin.

Justin said...

I personally think that more americans should homeschool. Homeschool kids, while some do have social issues, are some of the most intelligent after graduating high school in our country. We must fix our education system before we can begin to bring more help to colleges. Right now, colleges are having to teach tons of kids to do things they should have learned in high school. Money is not the problem there, either. Its an education system that doesn't have an ounce of competition and that all but forces poor minorities into failing public schools, which, much like housing projects breed poverty, inner city schools because of discipline issues, make it nearly impossible for smart kids to do well, because they are surrounded by so much bad influence. I will agree with you there that the system perpetuates poverty. We must change it.

What if we got away from government school systems and did a private education system, with vouchers given to parents to choose their child's school rather than them being assigned to one?

We do need to be more educated to continue being an economic powerhouse. But in order to do that, I think we need to fix it from the ground up, which would likely mean overhauling the current system to be more efficient and motivated by profit rather than power and control.

Larry James said...

Justin, trust me on this one, you and I don't need to start arguing about private schools! Let me just leave it at "thanks" and "I love you, man!"

Justin said...

That's fine with me. I just like discussing things with you (and others as long as I don't get pigeonholed as a republican or a racist) because it helps me more understand what I believe and what others believe.