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POVERTY -- What the Right Gets Right, the Left Gets Wrong, and We All Ignore

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The Faces of Poverty
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My friends think I'm a raving, left-wing, fire-breathing, socialist liberal. I recently took a poll among my most conservative friends and relatives, asking for their thoughts on economic inequality. Only a few were willing to respond, for various reasons both stated and unstated. The most direct refusal to share thoughts was, "I'm a conservative so let's just leave it at that." Others seemed to confuse economic inequality and poverty. But enough valid responses were received to move the needle of my own personal opinion just a tick -- especially about poverty. Let me share that with you.

What the Right Gets Right

Poverty isn't as bad as you think. The statistics published by the federal government ignore something very important -- public assistance. When you learn that the poorest 1/5 of households earns $16,109 [1] annually, for example, that doesn't include unemployment compensation, health insurance benefits, food stamps, or welfare. So if public assistance hasn't eradicated poverty, it certainly makes it more comfortable -- or at least more survivable.

Safety-net programs can make people lazy. Unemployed people are just like you and me. They unconsciously weigh the costs and benefits of their decisions and usually act rationally. Costs and benefits can be in the form of money, risk, time, or effort -- in any combination. Today's welfare and unemployment benefits, combined with lots of free time, can motivate some people to temper the passion of their search for work. This is an even bigger factor if the available jobs pay so little that it won't get you out of poverty. Trading poverty-level benefits and lots of free time for a poverty-level paycheck and a harried schedule just doesn't make sense.

Anybody can succeed if they try. People can lift themselves out of poverty, and there are plenty of examples to prove it. Perhaps stated more accurately, some people in any social, physical, or economic circumstance can succeed. Self-reliance and ambition serve all kinds of people well, and those who have harnessed these qualities to accumulate wealth are the strongest advocates of public policies that rely on this very principle. But a look at the bigger picture suggests that self-reliance can be suppressed by poor health, inferior educational opportunities, limited physical mobility, and widespread unemployment -- the very factors that often dominate poor communities.

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What the Left Gets Wrong

We'll cure poverty by paying poor people. Since the days of Roosevelt's New Deal, poverty has declined. Nearly all of this long-term decline results from one program -- the Social Security retirement benefit. In the early 1930s, the most heart-wrenching poverty was among our elders. Today, extreme poverty among the aged has declined to historic levels [2]. But the face of poverty has changed, remaining stubbornly among other groups. Today, single mothers, unskilled workers, and the chronically unemployed might be saved from starvation by public assistance, but the underlying poverty in which they are mired remains largely untouched.

Everybody ought to have a job. Wrong -- working is for chumps. And that's an attitude that is shared by some of us all the way up and down the socioeconomic scale. Rich people who do not have jobs are called capital investors; poor people who do not have jobs are called deadbeat parasites. Some folks really shouldn't be working -- children, for example. Child labor was restricted long ago. Also, single mothers of young children might better spend their time in nurturing activities. And really old people shouldn't have to work if they don't want to. Besides -- as a practical matter, there just aren't enough jobs to go around anyway!

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A living wage fixes everything. Taken in the aggregate, higher wages can lead to greater unemployment. The Congressional Budget Office estimates [3] that an increase in the minimum wage from $7.25 to $10.10 would lead to 500,000 fewer jobs. Although they may have ignored second- and third-order consequences like spending multipliers and aggregate demand, the CBO's conclusions can't be entirely dismissed. The operative principle, after all, is the law of supply and demand -- when the price of a commodity increases, usage declines. So while a living wage fixes poverty in one place, it may pop up someplace else.

What We All Ignore

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Years ago I made a decision to commit to a life of business management. Kids do the dumbest things! After thirty five years as a small business consultant, CFO, and university educator specializing in quantitative business and economic (more...)
 

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