What Would a Real War on Poverty Look Like?

Interesting article from the Federalist last weekend.

http://thefederalist.com/2014/05/23/wha ... look-like/

The basic thesis is that the current war on poverty is a failure and a new approach is needed.

1. Make the Poor Work

1a. Don't raise the minimum wage

Actually I somewhat agree with this. Before raising the minimum wage would work, we have to stop outsourcing jobs.

1b. Increasing number of people on disability

It's a serious problem. Not just those who are outright faking it but those who are semi-disabled.

On the subject of the outright fraud which seems to be increasing exponentially. We have to do a serious crackdown on this one. Number one on the hit list is the crooked lawyers and doctors who make this possible. Some of these guys do nothing but fake disability claims.

The problem of the semi-disabled is harder to address. They can work some types of jobs but they take lots of time off for doctors, take lots of sick days (legitimate), perhaps require extra accommodation etc. In theory the American with Disability Act protects them. In reality the ADA protects lawyers suing about the slope of wheelchair ramps while doing little to help people. Especially people who have less obvious disabilities such as autoimmune disorders. When times are good, businesses will accommodate. When times aren't, well the semi-disability hurts their productivity so excuses will be made to add them to the layoff list. They're in a tight spot, disabled enough to make an negative impact on their work but not disabled enough to legitimately qualify for disability. With the poor employment situation dragging on and on, it's becoming more and more common for their doctors to exaggerate so that they can qualify for disability. The only thing that I can see to fix this issue is to fix the job market and bring back the good times again so that businesses will hire them again.

1c. The problem with the difference between benefits and working

"If you get a job and slowly become self-reliant when you could have been collecting government benefits, then in effect, you don’t get paid your hourly wage. You get paid the difference between your hourly wage and what you would get if you sat at home and did nothing. For those on the bottom rung of the ladder, that difference often isn’t very much"

It's hard to find a solution for this one and the article's authors don't have one either.

The cut people off and get rid of their benefits solution works well in good economic times. But we don't have good economic times. The idea that they would get jobs if forced to by desperation doesn't work when there are no jobs for them to get.

A more scaled tapering off of benefits might work in theory. But in reality we'd then have to cope with a flood of semi-poor people desiring access to partial benefits to which they are newly eligible. The whole point is to get people off the welfare rolls not add a whole new class of people to them.

2. The unaffordability of college education these days.

Again the problem is stated with no solution. There are solutions to this problem, but they probably require their own thread.

3. Marriage

Very true. It's a lot easier for two to work together than for 1 to make it on their own. Particularly if children are involved. The marriage deficit among the poor is a combination of cultural factors and marriage disincentives of the welfare programs. It's going to be harder to fix than to create. The culture problem is a combination of local culture (poor areas of the country tend to be dominated by unmarried mothers) and larger cultural pressures perpetuated by the elites, Hollywood and others. Easy to identify the problem very hard to fix. And fixing the welfare programs winds up with the same issues as tapering off benefits.

4. Savings

Fiscal responsibility and fiscal knowledge should be taught in every high school in the country. Unfortunately we have way too many young adults who have no understanding of money whatsoever and since fiscal knowledge is not routinely taught most teenagers learn it from their parents. That works great for those who have fiscally responsible parents but for those who don't. Well currently they have to pick it up on their own, if at all. And one way to get poor fast is to have no emergency fund for the inevitable personal downturns. And once poor, it is hard to get unpoor.

5. Homeownership

Great summary of the advantages of homeownership to becoming not poor. I especially like the thoughts on sweat equity of fixer-uppers.

"For those who have no capital but plenty of their own labor, one of the best investments they can make is to build “sweat equity” in their homes by working on do-it-yourself improvements. It’s a point that tends to elude urban, white-collar finance geeks."

6. Entrepreneurship

Complex issues here and a whole thread on its own.

Personally the very first thing I would do in a real war on poverty is a stop loss on the middle class.

1. It does no good to successfully make people unpoor if you are just going to replace them with newly poor former members of the middle class!

2. The middle class is the major source of funding for charities such as Habitat for Humanity etc which help make people unpoor. Less middle class, less funding.

3. Trickle down economics doesn't seem to work well from the 0.1% down to the lower class. But it does from the middle class to the lower class. When the middle class is healthy they generate lots of economic activity that trickles down. They hire the monthly cleaning lady, they eat at restaurants, use daycares etc.

Lowering the minimum wage will only raise profits and top level bonuses, nothing else.

Trickle down economics is a complete failure. The cup will never overflow because the rich can always buy a bigger cup.

Similar with charity. In general the rich tend to donate to things that benifit the rich, the middle class to things that help the poor.
Actually that's the problem. The rich tend to only care about the rich, the lower classes about everybody and the rich run things.

Lowering the minimum wage will only raise profits and top level bonuses, nothing else.

It's basically an order of addition problem. If you raise the minimum wage you put what's left of the American textile industry out of business, send the rest of customer support to India etc etc. But if you fix the laws regarding outsourcing and crack down on employers using underpaid illegal immigrants FIRST and fix the economy so what's left of the middle class can afford to pay a bit more for a hamburger, then you can increase the minimum wage a little without damaging employment.

Trickle down economics is a complete failure. The cup will never overflow because the rich can always buy a bigger cup.

True from the rich to the poor. But it actually does work from the middle class to the poor. Get a strong vibrant middle class back (and quit outsourcing those jobs to China!) and that's the best anti-poverty program made.

Similar with charity. In general the rich tend to donate to things that benifit the rich, the middle class to things that help the poor.
Actually that's the problem. The rich tend to only care about the rich, the lower classes about everybody and the rich run things.

Generally true with some exceptions (for example Bill Gates is spending his money trying to cure Malaria), which is another reason why the first step of any antipoverty program should be to stop the loss of the middle class.

biochem wrote:

Lowering the minimum wage will only raise profits and top level bonuses, nothing else.

It's basically an order of addition problem. If you raise the minimum wage you put what's left of the American textile industry out of business, send the rest of customer support to India etc etc. But if you fix the laws regarding outsourcing and crack down on employers using underpaid illegal immigrants FIRST and fix the economy so what's left of the middle class can afford to pay a bit more for a hamburger, then you can increase the minimum wage a little without damaging employment.

I would add that technology would soon arrive to muck up one's calculation. Increase fast food workers to $15.00/hour and companies will capitalize their labor by investing in automated systems to do everything in the fast food restaurant. A worker paid $15.00 an hour but who manages an automated system of burger flippers and potato fryers that produces what 3-4 workers used to is much more efficient for the restaurant.

The expense of the machines are amortized over several years and the operational leverage reduces variable costs which allows the restaurant to reduce prices to increase sales. The idea is to take small profits on huge volume. Walmart makes 6% operating profit and net income of 4% on $476 billion in sales and 2 million employees. Apple on the other hand makes 29% and 22% respectively and manufacture overseas. Apple has 80,300 employees.

That breaks out to Walmart employing 1 worker for every $238,000 in revenue while Apple employs 1 worker for every $2,117,000. Sure Apple pays more per full time employee but also take much more in profit. Their outsourcing allows them to make much more revenue per employee than Walmart.

McDonalds earns 32% and 20% respectively and employees 1 worker every $63,000 in revenue. McDonalds has 440,000 employees and generates $28 billion in revenue. Operating expense runs about 61% and labor runs about 20%. Increasing line workers wages from an average of $8.00 to $15.00 an hour increases labor expense from 5.6 million to 10.5 million. This wipes out almost all their profit. If they increase prices their sales revenue will fall as less people can afford to buy their food. McDonalnds is much better off investing in automated systems than risk being forced to increase costs.

I see this process happening now.

We need to keep in mind that you can't directly eat dollars.
If a future government was to appropriate half of the financial assets of the top 0.1% and then give it equally to the poor, all that would do would be to make rent on the existing housing go up as well as food prices, as there is a finite supply at present of both.

If the same was done by steps in that a fund was set up to educate the poor in both work and life skills, then employ some of them at decent wages building homes and productive factories, then eventually a dent would be made in generational poverty. Takes time and political will, and the top 0.1% would ensure it didn't happen by changing the government anyway.

You would never eliminate poverty totally, as some people just can't be helped. Even Christ said the poor will always be with us. Many people win big lotteries and are broke again in a few years.

All this is true, Daryl. One thing that you didn't mention was capital. If conditions do not favor investing in hiring people, all the willing and able workers won't persuade those with funds to invest. Right now regulations are not encouraging investment in hiring.

Daryl wrote:We need to keep in mind that you can't directly eat dollars.
If a future government was to appropriate half of the financial assets of the top 0.1% and then give it equally to the poor, all that would do would be to make rent on the existing housing go up as well as food prices, as there is a finite supply at present of both.

If the same was done by steps in that a fund was set up to educate the poor in both work and life skills, then employ some of them at decent wages building homes and productive factories, then eventually a dent would be made in generational poverty. Takes time and political will, and the top 0.1% would ensure it didn't happen by changing the government anyway.

You would never eliminate poverty totally, as some people just can't be helped. Even Christ said the poor will always be with us. Many people win big lotteries and are broke again in a few years.

All of the gradiose ideas about a war on poverty ignore certain realities.

Poverty is relative. Almost all of the poorest people in developed countries enjoy living standards that are superior to all but the wealthiest citizens of third world countries. The poor of today live better than the middle-class of the 1950s

A certain fraction of the population is unmotivated and uneducable. Everyone understands and accepts that certain people who are developmentally disabled will never be able to learn job skills that would enable them to live above the arbitrary poverty line. People whose intellectual capability is somewhere in in the left portion of the IQ bell curve are equally incapable of earning an "adequate" living in a modern, technological society. No amount of public subsidy for education will change that.

The best that any government can hope to do is implement policies that enable the economy to grow sufficiently that there is demand for unskilled labor to perform tasks that are not vital. Governments can also protect their less skilled citizens from competition by restricting foreign trade (but this has risks) and restricting immigration. The wealthiest 0.1% love immigration reform because the increased workforce reduces wages.

PeterZ wrote:All this is true, Daryl. One thing that you didn't mention was capital. If conditions do not favor investing in hiring people, all the willing and able workers won't persuade those with funds to invest. Right now regulations are not encouraging investment in hiring.

Daryl wrote:We need to keep in mind that you can't directly eat dollars.
If a future government was to appropriate half of the financial assets of the top 0.1% and then give it equally to the poor, all that would do would be to make rent on the existing housing go up as well as food prices, as there is a finite supply at present of both.

If the same was done by steps in that a fund was set up to educate the poor in both work and life skills, then employ some of them at decent wages building homes and productive factories, then eventually a dent would be made in generational poverty. Takes time and political will, and the top 0.1% would ensure it didn't happen by changing the government anyway.

You would never eliminate poverty totally, as some people just can't be helped. Even Christ said the poor will always be with us. Many people win big lotteries and are broke again in a few years.

All of the gradiose ideas about a war on poverty ignore certain realities.

Poverty is relative. Almost all of the poorest people in developed countries enjoy living standards that are superior to all but the wealthiest citizens of third world countries. The poor of today live better than the middle-class of the 1950s .

It's not just absolute standard of living. The liberals are right income inequality is a serious problem. I don't agree with their solutions but I do agree with them that it is a problem. But it's not just pure income inequality, it is also the perception that the income inequality in the result of unfairness.

It's not just that they are on the bottom of the economic ladder but that the many of poor feel that they are being unfairly prevented from improving their personal economic situation. There is some justification for this: their kids are stuck in lousy underperforming schools etc. But unfortunately there is also a lot of politics at play. Unscrupulous politicians playing on this anger to get votes.

And then there is the increasingly widespread perception among the poor and (even more damagingly) among the middle class that those in the top 0.1% got there by unfair means: sweetheart deals, crony capitalism, legal but dishonest wall street dealings, legal but dishonest dealings in the mortgage market, CEOs who lay off 1000s and get bonuses for it, CEOs who drive companies into the ground but leave with very golden parachutes, crony deals where the rich help each other get richer at the expense of everyone else etc. While there is some resentment (there is always some no matter what) there's not nearly as much resentment when it's felt that the wealth has been fairly earned: superstar athletes, a hit movie, a best selling book, a new invention, founding a company that employs 1000s etc.

A certain fraction of the population is unmotivated and uneducable.

There are a lot of different reasons that people are poor. We've all met a few people who fall into this subgroup. It does make it more difficult for one-size-fits-all government programs.

Everyone understands and accepts that certain people who are developmentally disabled will never be able to learn job skills that would enable them to live above the arbitrary poverty line.

Our responsibility as a society. We as a group do an OK job funding group homes, the Salvation Army and other groups which employ the developmentally disabled, etc. But only an OK job. We could do a lot better. However, we could also do a lot worse. The middle class funds most of these types of programs. As the middle class shrinks so does the funding. This is yet another reason to stop the loss of the middle class.

People whose intellectual capability is somewhere in in the left portion of the IQ bell curve are equally incapable of earning an "adequate" living in a modern, technological society. No amount of public subsidy for education will change that.

I know people in this group and our knowledge based economy is extremely hard on them. In some ways they are in a worse place than the developmentally disabled. They aren't disabled enough to qualify for help from the government or private charities. But because they are what we used to call "slow", they struggle (a lot).

The best that any government can hope to do is implement policies that enable the economy to grow sufficiently that there is demand for unskilled labor to perform tasks that are not vital.

Would be nice....

Governments can also protect their less skilled citizens from competition by restricting foreign trade (but this has risks) and restricting immigration. The wealthiest 0.1% love immigration reform because the increased workforce reduces wages.

It's not just lower level jobs anymore. Now it's the STEM jobs. Those used to be the best bet for economic success for members of the middle class. Not any more.

http://www.businessinsider.com/the-real ... ear-2013-5

http://pipeline.corante.com/archives/20 ... detail.php

http://www.nationalreview.com/article/3 ... n-camarota

Since I believe to effectively fight poverty we have to save the middle class...

To save the middle class

1. STOP OUTSOURCING MIDDLE CLASS JOBS!!

Address the international business laws and regulations which make it so easy to export jobs overseas to low wage markets. Especially the higher paying jobs. This is a lot easier said than done and extreme care must be taken not to cause unintended consequences.

2. Fair taxation

The current tax system is a byzantine mess. It costs people huge amounts of wasted time and $ for tax software, accountants etc. It's rigged so that friends of politicians get loopholes while the middle class pays and pays and pays.

2a. Flat tax with a floor. For example a 17% tax rate with a $20000/person floor (I.e all earnings of all types over the $20000 are taxed at 17%). Start with NO deductions/exemptions. Any deductions/exemptions (charity etc) must be added back INDIVIDUALLY by congress in separate bills.

2b. Capital gains taxed at the regular tax rates.

3. Housing affordability

The middle class can't afford to buy (or in some markets even rent) housing in a significant number of major cities. It's a supply and demand issue. Low supply High demand. And it's driving housing prices though the roof! Zoning laws need to be relaxed to allow increased housing to be built, height restrictions for example. But the relaxation of these requirements should take place slowly in order not to shock the housing markets. Zoning permits which meet all requirements should be approved in a timely fashion, not delayed for years unless the applicant donates to the mayor's campaign.

4. Address the crony capitalist imbalance between small business and big business

4a Increase small business loans availability

EVERYONE who wants one and QUALIFIES should be able to get one. Note that the qualifies part of the previous sentence is crucial otherwise we will get housing bubble part 2 the small business edition.

4b. The compliance burden caused by overregulation

It would take years but go through each and every government department and remove regulations that are ineffective and/or outdated. In some cases junk the entire regulatory mess and start over with simple, easy to follow regulations. Pay particular attention to regulations which give big business an advantage over small business. For example the new regulations enacted after the mortgage crisis were written in such a way as to make the compliance burden very difficult for the small banks to achieve in a competitive fashion. And indeed they are selling out to the big banks in increasing numbers. So the small banks which didn't do much to cause the crisis are being penalized, while the big banks who were heavily involved get rewarded by reduced competition.

4c. Trust bust

To big to fail is to big to exist. And don't just look at the financial sector, we have oversized corporations in every sector. And once they get to that size, they cease being entrepreneurial and transform into crony capitalists getting their new friends in Washington (and in governments around the world) to pass all kinds of regulations that stifle the competition. Address this internationally as well since newly smaller corporations may have a more difficult time competing with their larger rivals headquartered in other countries (which is the main excuse given as to why we can't trust bust). The US is a big economy with lots of clout, structure international business regulations to discourage international to big to fail companies.

While we're at it we need to trust bust some of the unions as well. The big unions are as bad as big business (or worse since they are supposed to be on the side of the worker so there is an element of betrayal here.) While there is some element of strength through numbers, there is a point at which unions get to big to be in touch with the needs of their average worker.

And well we're at it. How about local monopolies, like the taxi medallion monopolies (go uber!), the beer/wine restaurant license monopoly (there is a social interest in limiting the number of full fledged bars but the vast majority of beer/wine restaurant licensees cause very little difficulties) etc etc.

5. Address affordability of higher education

Important but deserves a thread of its own.

6. Get very serious about enforcing immigration rules on employers

Especially since employing illegal immigrants often goes hand and hand with wages and hours violations, when those rules aren't enforced it is devastating to those who try to play by the rules. For example two lawn care businesses both paying minimum wage. But employer 1 employes illegal immigrants and does not pay overtime, does not pay workers comp, does not pay payroll tax etc. Employer number 2 employs US citizens but has to pay overtime, workman's comp, payroll tax etc. In busniesses like these where labor is the bulk of the cost, employer number 1 undercuts the prices of employer number 2. Employer number 2 goes out of business and then employer number 1 goes before congress and complains that he must employ illegals because he can't find US citizens to do the work.