How to win the war on poverty? Redistribute

The official poverty rate in the U.S. has barely budged in 45 years. But that official measure doesn’t look at consumption, it looks at income, and as a result it ignores the Robin Hood effect of government anti-poverty programs. This isn’t a new criticism, but new research takes it aboard and finds that the programs begun during the Great Society have had a profound effect. Measured by consumption, we are winning the war on poverty.


Poverty has fallen by 12.5 percentage points over the past 40 years, in spite of the fact that official government statics show the opposite with a rise in the number of poor, according to a new paper presented … at the Fall 2012 Conference on the Brookings Papers on Economic Activity.

Matt Yglesias:

Research released this week by Bruce D. Meyer of the University of Chicago and James X. Sullivan of the University of Notre Dame indicates that the official measure is giving us an extremely misleading view. In fact, poverty fell substantially over the past several decades before rising a bit during the Great Recession.

Neither liberals nor conservatives have been eager to embrace this idea—the former to bolster support for new programs and the latter to dismiss the efficacy of what’s already been done. But as Meyer pointed out in a talk at the Brookings Institution on Thursday, the way the government measures poverty actually by definition excludes the possibility that public programs are lifting families out of poverty. The truth, when examined correctly, is that we’ve hit upon a very effective means of waging war on poverty—give money to poor people—and we could make even more progress by doing even more of it.

Derek Thompson:

In the forty years between 1970 and 2010, real GDP per person doubled, the U.S. spent trillions of dollars on anti-poverty measures, but the poverty rate increased by two percentage points. Just yesterday the Census reported 46.2 million people living in poverty in 2011.

When Meyer and Sullivan looked at poorer families’ consumption rather than income, accounted for changes in the tax code that benefit the poor, and included “noncash benefits” such as food stamps and government-provided medical care, they found poverty fell 12.5 percentage points between 1972 and 2010.

The graph below tells the story. … Poverty rates have declined steadily, and dramatically, since the 1960s.

View image

What’s the story? Tax cuts for the low-income combined with tax credits for parents (such as the child tax credit) and working poor (like the Earned Income Tax Credit) accounted for much of the collapse in poverty, the authors find. Increases in Social Security also helped poverty rates fall under 10 percent by the new measure. For all the attention we give to taxes falling on the top 1% since the Reagan administration, it is equally true that effective tax rates on the bottom quintile have been halved in that time.

As the Brookings press release reveals there’s more to be learned when you disaggregate the numbers:

Meyer and Sullivan find that who is consumption poor is very different from who is income poor, with the consumption poor being noticeably worse off. Their research shows that the consumption poor are less educated, less likely to own a home, much more likely to live in married parent families, and much less likely to be a single individual or elderly than the income poor. In addition, married parent families with children have fared less well, while seniors have done better than income data indicate. As a result, they advocate that policymakers should focus more on families with children in future anti-poverty efforts.

This conclusion is echoed in another recent study of poverty looking at the1996 welfare reform and its effect on the poorest of the poor.

Yglesias gets the last word:

One of my big complaints with contemporary progressive politics in the United States is an unfortunate tendency to try to use public services as a roundabout mechanism of income redistribution. Hence the fiasco of Amtrak’s money-losing food services line. My view is that the government should try to provide public service in a cost-effective way rather than viewing public service agencies as a jobs program. Then if you want to do redistribution—which I certainly think we should want to do—just do the redistribution. Give people money working toward a guaranteed basic income. Or give people wage subsidies. Or do a mix of the two. There’s a common viewpoint out there which holds that even if this makes sense in theory it’s just clearly impossible in practice. The politics, I’m told, will never work. So it’s important to understand in this regard that the politics do work. Income taxes on the poor were cut, then through the EITC and Making Work Pay Tax Credit made effectively negative for some low-income families. Social Security’s disability benefits have come to play an important role. Medicaid is much more generous in 2012 than it was in 1982. And you only have to go back in time to 2010 to find Congress enacting, through the Affordable Care Act, what amounts to a large transfer program for people in the bottom third of the income distribution specifically targeting their health insurance needs.

Thoughts? I come away wondering if when you put it all together the Great Society has failed because it has failed to be transformative: just as many people are unable to earn a good income and support themselves. Is that an indictment of an education system that leave many young people without the skills they need , or a failure of our society to help families in a chronic dysfunction trap, or is it an economic system that does not produce enough good jobs? And isn’t it plausible that redistribution itself could lay the foundation for recipients to climb up the ladder into a greater earning capacity; why isn’t it?

Past Posts