Member Perspectives: The Economics of Poverty

The strength of the American Solidarity Party will always be our passionate defense of our four principles of respect for life, social justice, environmental stewardship, and a more peaceful world. However, it can also come from how we respectfully argue our positions on other issues that challenge our communities. Here, ASP member Sarah Field offers some thoughts on the economics of poverty.

By Sarah Field

Why is poverty so widespread in a country as wealthy as the USA? Why don’t the poor just get better jobs? Have government programs encouraged laziness? Do we need better incentives to get people off the public dole? Or are people trapped in a system they are powerless to escape?

I’m not an economist or an expert, but I’ve been following the topic for a few years now, and I’ve come to a few conclusions. Hear me out, and then let me know what you think!

People Don’t Stay Poor Because It’s Easy

Every now and then, a well-meaning friend will post a meme or an article describing the dangers of government supporting the poor. Poor people are social parasites, getting free food, free housing, free college, and free healthcare, all at the expense of their hardworking, more responsible counterparts! It’s not uncommon for someone to chime in with some corroborating anecdote. I know someone like that—living off the government and begging for handouts, but I notice she’s got a cell phone, eats good food, wears nice clothes, drives a nice car, and keeps having kids. These people clearly don’t know what it really means to be poor [insert comparison made to a developing nation or the Great Depression], and certainly don’t know how to practice frugality. At the very least, if they had any self-control whatsoever, they wouldn’t have all those kids! But this is what we get when the government offers handouts to anyone who doesn’t have the gumption to make it on their own. It’s just too good a deal for these freeloaders to pass up!

A whole framework of blame is difficult to take apart piece by piece. But a few thoughts are important to keep in mind:

  • The government doesn’t just give free money to anyone who doesn’t want to work. While the rules vary from state to state, generally speaking, getting assistance is contingent on things like being functionally broke (say, no more than about $2,000 in assets), having a net income at or below the current poverty level for the size of your household, and having a job, actively seeking employment, being a caregiver (in certain situations), or being disabled. And you can’t just say you fit the qualifications; you have to be able to prove it. In some states, you must also pass a drug test in order to qualify.
  • Disability is particularly difficult to qualify for. Conventional wisdom says that getting approved for benefits typically requires the assistance of a lawyer, who of course gets a cut for his or her services. There are plenty of conditions which could hinder you from getting a good job, but are not considered severe enough for you to qualify for disability benefits.
  • Higher education is often a requirement to get a better job. But going to college on the government dime comes with high expectations. If your grades, attendance, or class completion rates are not up to standards, you could very easily end up with a nasty debt and nothing to show for it. Scraping by with barely passing grades won’t cut it; you have to be a good student, which is hardly the image depicted in these memes.
  • Cell phones and cars may be luxury items in certain places and circumstances, but try getting a job without some mode of transportation or contact number before you judge others for having them. Also, loan companies don’t want to help you buy an older, less expensive car, and may charge higher interest rates or outright refuse the loan. Understandably, they want to make sure the vehicle has a decent chance of outliving the loan. In short, the line between luxury and necessity is not always where it seems to be at first glance.
  • Perhaps frugality is a lost art. But the occasional special meal or nice second-hand outfit is not terribly expensive compared to non-negotiables like housing, utilities, and transportation. You may not even be allowed to keep your kids if you don’t maintain a certain basic standard of living determined by the government.
  • Speaking of kids, they are a natural part of life, one of the most basic elements of being human—dare I say, a part of God’s expressed plan for mankind. The idea that they are a luxury item is a relatively new one, promoted by Planned Parenthood and other organizations that may or may not draw a line between preventing pregnancy and providing abortions, between assisting those in need and promoting eugenics. Do we really want to be part of a movement that either despises life at its most vulnerable or discourages the poor from something as basic as a normal marriage?

In reality, nobody lives a life of ease at the expense of the government. People get government assistance because they need it in order to survive. They may be surviving at a higher standard of living than their counterparts in Uganda or Haiti, but they could still be precariously close to going bankrupt, living on the streets, suffering from a preventable (and potentially contagious) disease, losing their kids, or being unable to pay a fine, which could result in jail time.

Poverty Hurts Everyone—Not Just the Poor

A common theme among anti-poverty memes is the role of government. Typically, the assumption seems to be that the less we help the poor, the better—unless you’re a politician running for election. If only the government would stop encouraging these behaviors with so many support programs, we wouldn’t have this problem! If you want to get rid of animal pests, you quit feeding them. How hard is that to figure out? But of course, we are stuck with this horrible blight on our economy because all these freeloaders keep voting for the politicians who support them, and politicians only care about getting votes.

Aside from the dubious claims that the poor vote only for politicians who promise handouts, what these memes don’t take into account is the fact that poverty hurts everyone. Think about this: What happens when the poor go bankrupt? Lose their homes? Catch communicable diseases? What happens when they end up in jail? Or when their kids end up in foster care? What happens to the next generation when they grow up without stable homes and families? Every one of these “personal” crises ultimately costs society as a whole.

Therefore, to suggest that the only reason the government supports assistance programs is in order to get votes is to ignore real problems that affect everyone. Programs that keep the poor more or less afloat are cheaper, in the long run, than programs to rescue them from circumstances far more dire.

But they could at least work hard like everybody else and get a better job! Of course they can’t expect to start out as managers. But that’s how the system works. You save your money, work your way up the ladder, and eventually you have a healthy middle-class income. Unemployment rates aren’t even all that high right now. Surely there is no excuse for anyone to live in chronic poverty. We’re just giving people the wrong incentives!

I’ll address these concerns in the next two sections.

Means-Based Welfare Discourages Incremental Improvements

Suppose you are a currently making $2,000 per month before taxes. In addition to your income from whatever job(s) you have, you get $200 per month in food stamps, and your family healthcare needs are covered by Medicaid. Now, suppose you get a better job or a nice raise and start making $2,500 per month. You go home rejoicing that, finally, things are looking up! Unfortunately, this pushes you right over the limit for assistance. Gone are the food stamps, and you have to go to another form of health insurance, with a regular monthly payment and a hefty deductible. Your tax rate also goes up, so you bring home less of what you make. Oh, and maybe your new position requires new clothes (employees often have to pay for their own uniforms), more expensive transportation, or some other up-front investment on your part. All of a sudden, the extra money has completely evaporated! You were actually more financially stable before you got the better job.

Though these numbers are hypothetical, they illustrate what many people in the grip of poverty face. All too often, an incremental improvement in income is going to hurt them, rather than help them. (And this can even be a problem when a child in the household gets his or her first job.)

But suppose you anticipate this and start scrimping and pinching pennies so as to have a rainy-day fund before you take the plunge. Or maybe you just want to save up for a car so as to avoid exorbitant financing rates. Smart move, right? Well, you have to be careful about doing this, too. If you have too much in your bank account at the next evaluation, you could lose your welfare benefits on that basis as well!

Long story short, you may not like being on government assistance, but you have to do what you can to survive. There’s simply no point in quixotically refusing assistance, only to end up on the streets or going bankrupt.

The Poor Do Not Control Poverty Rates

It’s true that the unemployment rate is not what it was ten years ago. But having a job and not needing assistance are two very different things. Indeed, a good portion of the jobs currently available pay barely enough to support a single adult, let alone a family. Let’s take a look at some statistics to get an idea of just how many jobs do not provide a living wage.

Take the $15 per hour threshold that many suggest should be the new minimum wage. One source reports that 42.4% of American workers make less than this level per hour. Even at forty hours per week (with no days off), that’s equivalent to an annual income of less than $31,500 before taxes. At thirty-five hours per week (still considered full-time work) the worker gets less than $27,500 per year. For a couple with three kids, an annual income of $27,500 is below the federal poverty threshold. Further, of the 42.4% making less than $15 per hour, only about 12.4% make significantly more than minimum wage. There aren’t too many folks who can survive on $7.25 per hour without assistance. Even with two incomes, it’s going to be tough.

In recent years, more than 15% of American workers have been employed part-time, meaning they work fewer than thirty-five hours per week. Since many job-related benefits are tied to being a full-time worker, part-time workers are less likely to get paid sick time, let alone health insurance through their employer. While working more than one part-time job seems like it ought to be doable, many such jobs require a level of flexibility that is difficult to achieve while holding another job. And you still don’t get benefits or overtime by virtue of working two or more part-time jobs.

In light of the above, we see that a huge chunk of the population can only rise above the poverty threshold by either working ridiculously long hours, or having two incomes, or both. If they have children, this means farming their kids out to daycare, which in turn means they have to earn more money just to break even. There are other options, of course. If the parents work opposite shifts, they can watch their own kids, although they may get very little time to build a healthy relationship with each other. And if they live near family or other willing helpers, or qualify for some kind of assistance, the costs can be lowered, but that doesn’t solve the “social parasite” stigma.

Microeconomics tells us that any one of these people could work extra hard, maybe get a degree or develop some new skill, and eventually get a better job. But macroeconomics tells us that, for a better job to open up, someone else must die, retire, get fired, or quit. As a general rule, for any person who goes up the ladder, someone else must go down.

Of course, there are ways this can be shifted: through businesses creating more jobs, or making lousy jobs into better jobs, and so forth. Better matching of training to available good jobs would also be legitimately helpful, if only we could better predict the future! Some people can even break out of the cycle by successfully creating their own businesses—but that generally requires some kind of starting capital, and success rates are notoriously low. In short, the average person in poverty hasn’t the slightest control over real shifts in the number of available good jobs.

Simply giving the poor better “incentives” to get off the government dole is not going to solve this problem.

So, What Can We Do to Get People out of Poverty?

First, let’s stop treating poverty like a moral failure. Most of the poor are working very hard to provide essential services for society. They answer telephones and provide food service and hospitality. They are cashiers, nurse aides, and janitors. Some of them work in local government, keeping your taxes low, and some serve in our military. Don’t want to pay more for these services? Then have the grace not to complain when the government subsidizes these (and many other) industries in the form of welfare!

But we must do more than merely acknowledge that we need these people and that we benefit from their hardship. We must do more than accept that our present economy relies on working beggars. Justice demands that we ensure people get a fair day’s pay for a fair day’s work.

Again, I’m not an economic expert, but there are political actions that could help. Let’s take a look at a few of them.

One popular option is to raise the minimum wage. This should greatly increase the self-sufficiency of the poor, reducing the amount the government must spend on welfare assistance. But it could put a considerable burden on businesses and institutions that can’t actually afford to pay higher wages—which could lead to fewer total jobs as owners and managers either take drastic measures to stay afloat or go under. And it eliminates lower-paying options, even for basic entry-level positions that may be ideal for those who are just learning the ropes and don’t need to support themselves yet, let alone a family. Ultimately, many fear that raising the minimum wage will hasten a higher cost of living for everyone, as higher costs of production eventually get passed on to consumers. It’s only a matter of time until $15 per hour in the dollars of the future is no better than $8 per hour in today’s dollars. Perhaps one way to mitigate some of these concerns would be to generally raise minimum wage but permit companies to have a certain percentage of designated entry-level positions or employees at any given time. This would allow for some jobs to still pay lower wages, but in fewer numbers.

Another option might be for the government to incentivize smaller ratios between the highest and lowest paying jobs within a company. In this system, CEOs would make less, while line workers would make more. But how much real difference would it make? Would companies struggle to find talent for top positions? Would they find loopholes in the form of more disparate benefits? Are CEOs really the problem, or is it shareholders?

Perhaps the government could subsidize certain types of industries with tax breaks and credits for paying higher wages so that workers could receive fair compensation without overburdening companies, raising prices, or bearing the brunt of the stigma of “living off of handouts.” Of course, that assumes, perhaps naively, that such subsidies would in fact be passed along to workers. It also leaves open the question of who would decide which industries would be subsidized, and on what basis.

​Another option that has been gaining momentum is a universal basic income (UBI) or a citizen’s dividend. This is an amount the government would simply pay to everybody, regardless of need. In theory, if the amount were set high enough, it could replace other assistance programs, cutting out much of the overhead needed to determine who is or isn’t eligible for them, and mitigating concerns about lost benefits linked to pay increases. It would allow businesses to continue to pay people what they can afford, while giving individuals more choices in what kind of job to work (or whether to have one parent stay home with the children in lieu of sending them to daycare). Hopefully, it would help to alleviate animosity from those who don’t get assistance towards those who do. But for those whose greatest concern is that government assistance promotes lazy habits, it is anathema. There are also concerns about how it would be funded. And finally, it is unclear what other unintended consequences could result.

We could also tweak our means-based system to be phased out more gradually. In particular, why would we encourage middle-class workers to save upwards of $10,000 for a rainy day (let alone for retirement) but kick people off Medicaid and food stamps for having a fraction of that amount? It’s almost as if the goal is to keep people as vulnerable as possible so they have to keep coming back for more help. Low asset ceilings are especially risky for people with frequent, chronic, or life-threatening health problems, among whom universal affordable health care would be extremely helpful—for maintaining not only health, but also financial stability.

Conclusion

We may not have all the answers yet. But we must recognize that no government program makes it easy to be poor. We must acknowledge that poverty is as harmful for society collectively as it is for poor people individually. We must stop blaming the poor for a lack of sufficient jobs, and we must stop penalizing them for planning ahead and getting better jobs. Most importantly of all, we must get serious about ensuring that all people who are willing to work can support themselves and their families.


An older version of this article was previously published at https://www.imagodeipolitics.org/2018/03/02/some-thoughts-on-the-economics-of-poverty/.

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