I’ve found that success in fighting poverty over the years often is defined differently on the right and the left. On the left, it’s often measured simply as the number of people saved from pain of poverty by receiving public assistance while the right defines it in terms of financial independence. Here’s an example of the latter view from Economist Lee Ohanian (excerpt):
A four person-household is in poverty today, according to federal poverty guidelines, if they earn less than $23,550 per year, but the consumer spending of this same household is around $45,000 per year.
Based on these estimates, you might be tempted to say that the War on Poverty has been won, as very few Americans today face the same economic circumstances that were facing the Southern sharecroppers visited by President Johnson 50 years ago.
The reason the War on Poverty has not been won is because too many Americans are not able to economically succeed without permanent and substantial government assistance.
And an important reason that they are not able to succeed is because of government policies, ranging from assistance programs that penalize work and marriage, to an American education system that leaves too many of our children unprepared to compete in today’s economy.
The War on Poverty will not be won until work is rewarded and the poorest Americans acquire the skills necessary to compete in an economy that is so different from the economy of 50 years ago.
When President Johnson launched the War on Poverty, those who completed high school — and even those who did not — could compete for high-paying jobs.
This is because there were many opportunities for workers at this skill level, and because U.S. education was relatively strong.
Today, workers face much different job opportunities in a world in which we increasingly compete with workers from other countries, and in which technological change is no longer the rising tide that raises the fortunes of all workers.
Those who are highly trained, with 4 or more years of college, have benefited enormously from the remarkable advances in information processing and communications technologies that have raised the productivity and salaries of highly skilled workers. But these new technologies are not helping low-skilled workers. In fact, new technologies are providing some of the same services that low-skilled labor can provide, but at much lower costs. And the opportunities that are available for our least-skilled workers are impacted by the fact that some of these jobs can be off shored to low-wage labor in other countries.
This means that relatively few low-skilled workers can compete for high paying jobs. Moreover, many of our policies substantially penalize taking jobs.
This is because most government assistance programs are means-tested, so that assistance declines as income rises, which in turn implicitly taxes work at a very high rate for the poorest Americans.
The Congressional Budget Office estimates that a single parent with one child would effectively keep only $8000 if they were to take a job paying $30,000 per year compared to earning no income.
And much of this $8,000 would likely be used towards paying for child care.
The Commonwealth of Pennsylvania has calculated that a single parent with two children is better off earning $5,000 per year than earning $30,000 per year.
These examples show how our assistance policies are punishing work — not rewarding work — with the income earned by poor households being effectively taxed at rates that can exceed 100 percent.
By punishing work, assistance policies create chronic use of government assistance by poor households because there is little incentive to leave government assistance.
We can win the War on Poverty by changing policies so that we don’t depress the incentive to take jobs by the poorest households.