Posts Tagged ‘Poverty’

Because of my disdain for the two statists that were nominated by the Republicans and Democrats, I’m trying to ignore the election. But every so often, something gets said or written that cries out for analysis.

Today is one of those days. Hillary Clinton has an editorial in the New York Times entitled “My Plan for Helping America’s Poor” and it is so filled with errors and mistakes that it requires a full fisking (i.e., a “point-by-point debunking of lies and/or idiocies”).

We’ll start with her very first sentence.

The true measure of any society is how we take care of our children.

I realize she (or the staffers who actually wrote the column) were probably trying to launch the piece with a fuzzy, feel-good line, but let’s think about what’s implied by “how we take care of our children.” It echoes one of the messages in her vapid 1996 book, It Takes a Village, in that it implies that child rearing somehow is a collective responsibility.

Hardly. This is one of those areas where social conservatives and libertarians are fully in sync. Children are raised by parents, as part of families.

To be fair, Hillary’s column then immediately refers to poor children who go to bed hungry, so presumably she is referring to the thorny challenge of how best to respond when parents (or, in these cases, there’s almost always just a mother involved) don’t do a good job of providing for kids.

…no child should ever have to grow up in poverty.

A laudable sentiment, for sure, but it’s important at this point to ask what is meant by “poverty.” If we’re talking about wretched material deprivation, what’s known as “absolute poverty,” then we have good news. Virtually nobody in the United States is in that tragic category (indeed, one of great success stories in recent decades is that fewer and fewer people around the world endure this status).

But if we’re talking about the left’s new definition of poverty (promoted by the statists at the OECD), which is measured relative to a nation’s median level of income, then you can have “poverty” even if nobody is poor.

For the sake of argument, though, let’s assume we’re using the conventional definition of poverty. Let’s look at how Mrs. Clinton intends to address this issue.

She starts by sharing some good news.

…we’re making progress, thanks to the hard work of the American people and President Obama. The global poverty rate has been cut in half in recent decades.

So far, so good. This is a cheerful development, though it has nothing to do with the American people or President Obama. Global poverty has fallen because nations such as China and India have abandoned collectivist autarky and joined the global economy.

And what about poverty in the United States?

In the United States, a new report from the Census Bureau found that there were 3.5 million fewer people living in poverty in 2015 than just a year before. Median incomes rose by 5.2 percent, the fastest growth on record. Households at all income levels saw gains, with the largest going to those struggling the most.

This is accurate, but a grossly selective use of statistics.

If Obama gets credit for the good numbers of 2015, then shouldn’t he be blamed for the bad numbers between 2009-2014? Shouldn’t it matter that there are still more people in poverty in 2015 than there were in 2008? And is it really good news that it’s taken Obama so long to finally get median income above the 2008 level, particularly when you see how fast income grew during the Reagan boom?

We then get a sentence in Hillary’s column that actually debunks her message.

Nearly 40 percent of Americans between the ages of 25 and 60 will experience a year in poverty at some point.

I don’t know if her specific numbers are accurate, but it is true that that there is a lot of mobility in the United States and that poverty doesn’t have to be a way of life.

Hillary then embraces economic growth as the best way of fighting poverty, which is clearly a true statement based on hundreds of years of evidence and experience.

…one of my top priorities will be increasing economic growth.

But then she goes off the rails by asserting that you get growth by spending (oops, I mean “investing”) lots of other people’s money.

I will…make a historic investment in good-paying jobs — jobs in infrastructure and manufacturing, technology and innovation, small businesses and clean energy.

Great, more Solyndras and cronyism.

And fewer jobs for low-skilled workers, if she gets here way, along with less opportunity for women (even according to the New York Times).

And we need to…rais[e] the minimum wage and finally guarantee… equal pay for women.

The comment about equal pay sounds noble, though I strongly suspect it is based on dodgy data and that she really favors the very dangerous idea of “comparable worth” legislation, which would lead to bureaucrats deciding the value of jobs.

Then Hillary embraces a big expansion of the worst government department.

…we also need a national commitment to create more affordable housing.

And she echoes Donald Trump’s idea of more subsidies and intervention in family life.

We need to expand access to high-quality child care and guarantee paid leave.

And, last but not least, she wants to throw good money after bad into the failed Head Start program.

…we will work to double investments in Early Head Start and make preschool available to every 4-year-old.

Wow, what a list. Now perhaps you’ll understand why I felt the need to provide a translation of her big economic speech last month.

The moral of the story, based on loads of evidence, is that making America more like Europe is not a way to help reduce poverty.

P.S. The only other time I’ve felt the need to fisk an entire article occurred in 2012 when I responded to a direct attack to my defense of low-tax jurisdictions.

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Over the years, I’ve shared some clever images, jokes, and cartoons to expose the flawed mindset of those who hope to achieve coerced equality of outcomes with redistribution and high tax rates.

The size of a pizza vs the share of a slice.

The modern version of the Little Red Hen.

Washington’s Byzantine welfare state.

Chuck Asay’s overburdened tractor.

A left-wing nursery rhyme.

The Wizard-of-Id parody.

Two pictures showing how the welfare state begins and ends.

A socialist classroom experiment (including a video version).

The economics of redistribution in one image.

As you can see, this is a common-sense issue. When you give people money on the condition that they don’t earn much money, you create a perverse incentive for them to be unproductive.

Especially since, when people work more and earn more, they get hit by a combination of fewer handouts and more taxes. The net result is very high implicit marginal tax rates, in some cases rising above 100 percent.

Needless to say, it’s very foolish to have a welfare state that puts people in this untenable situation where the welfare state becomes a form of economic quicksand.

And it’s also foolish to punish the people who are pulling the wagon with high tax rates and pervasive double taxation of income that is saved and invested.

Russell Jaffe, one of our Cato interns, helpfully cranked out a clever little image showing how redistribution is bad for both those who receive and those who pay.

No wonder the welfare state and War on Poverty have been bad news for both taxpayers and poor people.

And the problem is getting worse, not better.

Let’s begin to wrap up. I shared a Thomas Sowell quote at the beginning to today’s column.

Now let’s read some of his analysis.

He aptly and succinctly summarized why redistribution is a no-win proposition (h/t: Mark Perry).

The history of the 20th century is full of examples of countries that set out to redistribute wealth and ended up redistributing poverty. …It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth — and that future wealth is less likely to be produced when people see that it is going to be confiscated. …Those who are targeted for confiscation can see the handwriting on the wall, and act accordingly. …We have all heard the old saying that giving a man a fish feeds him only for a day, while teaching him to fish feeds him for a lifetime. Redistributionists give him a fish and leave him dependent on the government for more fish in the future.

So what’s the bottom line?

The simple (and correct) answer is to dismantle the welfare state. State and local governments should be in charge of “means-tested” programs, ideally with much less overall redistribution (a goal even some Scandinavian nations are trying to achieve).

In effect, the goal should be to replicate the success of the Clinton-era welfare reform, but extending the principle to all redistribution programs (Medicaid, food stamps, EITC, etc).

P.S. Some honest leftists admit that the welfare state cripples independence and self reliance.

P.P.S. For those who like comparisons, you can peruse which states provide the biggest handouts and also which nations have the most dependency.

P.P.P.S. To end on a sour note, our tax dollars are being used by the Paris-based OECD to produce junk research that argues more tax-financed redistribution somehow is good for growth.

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The welfare state is bad news. It’s bad for taxpayers and it’s bad for recipients.

It’s also bad for the economy since prosperity is in part a function of the quantity of labor that is productively employed. As such, government programs that lure people into dependency obviously reduce national economic output.

We can get a sense of how the nation is being hurt by reviewing some of the scholarly literature.

Writing for the Cato Journal, Lowell Gallaway and Daniel Garrett explore the relationship between redistribution spending and poverty reduction.

They start by pointing out that more welfare spending used to be associated with reductions in poverty. But when President Johnson launched his so-called War on Poverty and dramatically increased the level of redistribution, the link between welfare spending and poverty reduction substantially weakened.

…the real per capita cost in the United States of federal public aid rose 70 percent in the 11 years between 1953—the first year the federal government reported an official poverty rate—and Johnson’s 1964 remarks. In the 11 years that followed, however, that same real per capita cost increased by an astonishing 434 percent—that is, more than six times faster than in 1953–64. …in 1953–64, every 10 percentage point increase in public aid was associated with a 1 percentage point drop in the official poverty rate. Compare that with the experience of the 11 years following the outbreak of hostilities in the War on Poverty. During that interval, every 1 percentage point fall in the poverty rate was accompanied by a 50 percentage point increase in real public aid. …the relationship between public aid and the poverty rate is subject to the principle of diminishing returns.

Not just a diminishing return. There’s a point at which more redistribution actually leads to an increase in poverty.

Just like there’s a point at which higher tax rates lead to less revenue. And the authors recognize this link.

This is a Laffer Curve type relationship, which is to say that while public aid initially decreases poverty, there eventually comes a point at which additional increases in public aid increase poverty. …the effectiveness of additional real public aid expenditures, as a policy instrument designed to reduce the poverty rate, had been exhausted by the mid-1970s. Indeed, any additional public aid beyond the mid-1970s levels would result in an increase, not a decrease, in the poverty rate.

Gallaway and Garrett crunch the numbers.

…to calculate the impact of public aid expenditures on the incidence of poverty in the United States. The greatest poverty-reducing effect occurs at $1,291 of per capita expenditures on public aid, which produces a 6.07 percentage point reduction in the overall poverty rate. However, as the level of real per capita public aid rises beyond $1,291, the poverty reducing effect is eroded. …at $2,407 of per capita public aid, all of the initial reductions in the poverty rate have disappeared. …By 2010, real per capita aid stood at $2,697—a level that produces a 2.52 percentage point increase in the poverty rate. Thus, the impact of per capita public aid in 2010 being $1,406 greater than the optimal, poverty-reducing level was to increase the poverty rate by 8.59 percentage points, according to our analysis.

Here’s the relevant table from their article.

Unfortunately, they didn’t create a hypothetical curve to show these numbers, so we don’t have the welfare/poverty version of the Laffer Curve.

But they do estimate the negative human impact of excessive redistribution spending.

Since the official poverty rate in 2010 was 15.1 percent, this implies that in the absence of that extra $1,406 of per capita public aid, the official poverty rate in 2010 would have been 6.5 percent. …Taking dynamic factors into consideration would probably lower the figure to less than 6 percent. This implies that the actual poverty rate in 2010 was more than two and-one-half times higher than it could have been were it not for the excessive use of public aid income transfers as an instrument of policy. In other words, it may be argued that public aid overreach was responsible for approximately 30 million extra people living in poverty in 2010.

And children are among the biggest victims.

…one in every eight American children is living below the poverty line because public aid payments exceed the level that would minimize the poverty rate.

Ugh, this is terrible news. Children raised in government-dependent households are significantly more likely to suffer adverse life outcomes, in large part because of very poor social capital.

Last but not least, the authors also speculate that excessive redistribution may be one of the reasons why the distribution of income has shifted.

…up to the mid- 1970s, government cash income transfers (public aid) were increasing the incomes of those in the bottom quintile of the income distribution by more than work-disincentive effects were reducing them. The result was a reduction in the official poverty rate. …However, as the volume of public aid payments continued to increase, the work-disincentive effect more than offset the income enhancements generated by the flow of public aid. As this happened, the poverty rate began to drift upward and the percentage share of all income received by those in the bottom quintile of the income distribution began what would turn out to be a long and steady decline.

By the way, I don’t think that there’s a “correct” or “proper” level of income distribution. That should be a function of what people contribute to economic output. I’m concerned instead with boosting growth so everyone has a chance to rise.

Which is why it is especially tragic that redistribution spending is trapping less-fortunate people in long-term government dependency by undermining their incentives to earn income.

The bottom line is that it’s time to reduce – and ideally eliminate – the Washington welfare state.

Though that involves a major challenge since the real beneficiaries of the current system are the “poverty pimps” in Washington.

P.S. This Wizard-of-Id parody contains a lot of insight about labor supply and government-distorted incentives. As does this Chuck Asay cartoon and this Robert Gorrell cartoon.

P.P.S. If you want to see sloppy and biased analysis (paid for with your tax dollars), take a look at efforts to rationalize that redistribution is good for growth from the International Monetary Fund and Organization for Economic Cooperation and Development.

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Whenever I pontificate about the health of the American economy, I feel like Goldilocks. Instead of arguing that the economic porridge is too hot or too cold, or that the economic bed is too hard or too soft, I conclude that we’re stuck in the middle.

We generally outperform Europe’s high-tax welfare states, but we usually lag behind the small-government tiger economies of Asia.

But while Goldilocks always liked the middle option, I obviously think we should be more like Hong Kong and Singapore.

With this bit a background, let’s look at some supposedly really bad news that actually is modestly good news.

The folks at the Pew Research Center just issued a major report on income trends over the past 40-plus years. Based on their headline, you would think it’s filled with horrible news. Sort of like saying the economic porridge is way too cold.

So is it true that the middle class is “losing ground” and “falling behind”?

Michael Fletcher, writing for the Washington Post, seems to accept that spin. He opened his column by portraying the report’s findings as a sign of dystopian inequality.

After more than four decades of economic realignment and creeping inequality, the U.S. middle class is no longer the nation’s majority.

Yet even he was forced to acknowledge that this supposed “tipping point” is primarily the result of more households earning more money.

The nation has arrived at this tipping point in part because more Americans are moving up the income ladder. In 1971, just 14 percent of Americans were in the upper income tier, which Pew defined as more than double the nation’s median income. Now, 21 percent of American households are in that upper earning category — at least $126,000 a year for a three-person household.

Though he does his best to find a dark lining to this silver cloud, using loaded language to imply that those with modest incomes are disadvantaged because income is being “captured” by the rich.

…at the same time, many Americans are falling behind…. In 1971, a quarter of American households fell into the bottom earning tier, which Pew defined as less than two-thirds of the nation’s median income. By 2015, 29 percent of American households fell into that category. …The decline of the middle class has been accompanied by growing inequality, as a growing share of the nation’s income has been captured by those at the top.

But the Pew Report confirmed that the economy is not a fixed pie. Yes, the rich have become richer, but even Mr. Fletcher concedes that their income gains are not at the expense of the less fortunate. This is because the rest of us are becoming richer as well.

…Americans of all income levels have grown more prosperous, Pew found. Middle class families have seen their income grow by 34 percent in inflation-adjusted dollars since 1970, while lower-income Americans have experienced income growth of 28 percent.

He also reports that African-Americans have enjoyed above-average income growth.

…black Americans have made more economic gains than others in recent decades. Between 1971 and 2015, for example, the share of black Americans in the upper income tier more than doubled to 12 percent.

Here’s a chart from the Pew report. Note that these numbers are not based on changes in actual income, but instead measure how each group is faring relative to other slices of the population.

Maybe I’m just a naive Pollyanna, but the numbers in the Pew Report, even as characterized by the Washington Post, don’t seem like a damning indictment of American society.

Indeed, they sort of validate my view that things are getting better over time, albeit not as quickly as they would be improving if we followed the right recipe and had smaller government and less intervention.

In other words, we may not have hot, Hong Kong-style porridge, but it’s at least room temperature.

But Scott Winship of the Manhattan Institute is the real expert on these issues, so I was happy to see that he wrote an article on the Pew study for National Review.

Here are some of his key observations, starting with the essential insight that it’s much better to focus on income trends rather than income distribution.

Pew’s definition of “middle income” isn’t anchored to any fixed standard of living. In fact, it represents a rising standard of living over time. Imagine that the incomes of the poor, middle, and rich all increase by 50 percent over time. The Pew measure would indicate that the share of adults who are “middle income” would be no higher than it was initially. It is not obvious why we should care that the middle class, in this example, is no larger over time.

Amen. This is the same point I make when criticizing dishonest poverty analysis.

We should care about whether living standards for ordinary people are increasing, not whether rich people are getting richer.

Scott then looks at those income trends and finds good news.

…between 1969 and 2007, the household income of the median adult rose by 52 percent. …the 25th percentile (the income of the person poorer than 75 percent of adults) rose by 40 percent from 1969 to 2007. …While middle-income adults, by Pew’s definition, have shrunk by 11 percentage points as a share of the population since 1970, 7 points of that decline is due to more Americans’ being in the upper-income group. …Using the Pew measure of household income, the middle fifth grew richer by 53 percent from 1969 to 2007. My preferred measures showed a rise between 54 percent and 64 percent, depending on whether one adjusts for declining household size. …poor and middle-class Americans are both substantially better off than 45 years ago.

Now let’s shift to what really matters.

The left very much wants to focus on the distribution of income as part of their “inequality” campaign.

If they can convince people that the economy is a fixed pie, and combine that falsehood with rhetoric about higher incomes earned by the rich, that bolsters their case for ostensibly saving the middle class with soak-the-rich tax policies and greater levels of redistribution.

And that probably explains why the folks at Pew (along with certain journalists) decided to imply that the glass is 90 percent empty when it’s actually 60 percent full.

Winship hits the nail on the head in his conclusion.

A policy agenda designed with a crumbling middle class in mind is not only inappropriate, but it could actually hurt the living standards of the middle class in the process.

He’s exactly right.

Nations such as Greece and France have pursued the policies favored by American leftists and the net result – at best – is anemic growth and stagnant living standards.

To conclude, here’s a video that I saw on Ted Frank’s Twitter feed. I couldn’t figure out how to embed it, but was able to download it and put it on YouTube.

You’ll notice a big jump over time in the amount of households earning above $200,000 per year. Call me crazy, but I want there to be more rich people, so this is a good development.

But if you play close attention, the other big takeaway from this data (and the one that merits some celebration) is that more and more people are earning higher and higher levels of income over time. And remember, these are inflation-adjusted dollars.

So let’s be happy that ordinary people in America are climbing the economic ladder. But let’s recommit ourselves to fight harder for pro-growth policies such as tax reform and entitlement reform so their ascent up the ladder will be faster.

P.S. Here are some examples of how statist policies increase inequality.

P.P.S. The comparative data on income trends and inequality in the United States and Scandinavia is worth perusing.

P.P.P.S. And I never get tired of sharing this Margaret Thatcher video because she succinctly explains that many leftists would rather hurt the rich than help the poor.

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In conversations with statists, I’ve learned that many of them actually believe the economy is a fixed pie. This misconception leads them to think that rich people get rich only by somehow making others poor.

In this simplistic worldview, a bigger slice for one person means less for everyone else.

In reality, though, their fixation on the distribution of income leads them to support policies that hinder growth.

And here’s the ironic part. When you have statist policies such as high taxes and lots of redistribution, the economy weakens and the result is a stagnant pie.

In other words, the zero-sum society they fear only occurs when their policies are in effect!

To improve their understanding (and hopefully to make my leftist friends more amenable to good policy ideas), I oftentimes share two incontestable facts based on very hard data.

1. Per-capita economic output has increased in the world (and in the United States), which obviously means that the vast majority of people are far better off than their ancestors.

2. There are many real-world examples of how nations with sensible public policy enjoy very strong growth, leading to huge increases in living standards in relatively short periods of time.

I think this is all the evidence one needs to conclude that free markets and small government are the right recipe for a just and prosperous society.

But lots of statists are still reluctant to change their minds, even if you get them to admit that it’s possible to make the economic pie bigger.

I suspect in many cases their resistance is because (at least subconsciously) they resent the rich more than they want to help the poor. That’s certainly the conclusion that Margaret Thatcher reached after her years in public life.

So, in hopes of dealing with this mindset, let’s augment the two points listed above.

3. There is considerable income mobility in the United States, which means today’s rich and today’s poor won’t necessarily be tomorrow’s rich and tomorrow’s poor.

Let’s look at some evidence for this assertion.

And we’ll start with businesses. Here’s what Mark Perry of the American Enterprise Institute found when he investigated changes in the Fortune 500.

Comparing the 1955 Fortune 500 companies to the 2015 Fortune 500, there are only 61 companies that appear in both lists… In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 60 years later in 2015… The fact that nearly 9 of every ten Fortune 500 companies in 1955 are gone, merged, or contracted demonstrates that there’s been a lot of market disruption, churning, and Schumpeterian creative destruction… The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy.

Here’s the list of the companies that have managed to stay at the top over the past six decades.

Now let’s shift from companies to people.

The most famous ranking of personal wealth is put together by Forbes.

Is this a closed club, with the same people dominating the list year after year?

Well, there’s considerable turnover in the short run, as noted by Professor Don Boudreaux.

…21 of the still-living 100 richest Americans of only five years ago are no longer in that group today.  That’s a greater than 20 percent turnover in a mere half-decade.

There’s a lot of turnover – more than 50 percent – in the medium run, as revealed by Mark Sperry.

Of the 400 people in the 2001 Forbes list of the wealthiest Americans, 230 were not in the 1989 list.

And there’s almost wholesale turnover in the long run, as discovered by Will McBride of the Tax Foundation.

Of the original Forbes 400 from the first edition in 1982, only 35 remain on the list. …Of those on the 1987 Forbes 400 list, only 73 remain there in 2013.

In other words, it’s not easy to stay at the top. New entrepreneurs and investors constantly take the place of those who don’t manage to grow their wealth.

So far, we’ve focused on the biggest companies and the richest people.

But what about ordinary people? Is there also churning for the rest of us?

The answer is yes.

Here are some remarkable findings from a New York Times column by Professor Mark Rank of Washington University.

I looked at 44 years of longitudinal data regarding individuals from ages 25 to 60 to see what percentage of the American population would experience these different levels of affluence during their lives. The results were striking. It turns out that 12 percent of the population will find themselves in the top 1 percent of the income distribution for at least one year. What’s more, 39 percent of Americans will spend a year in the top 5 percent of the income distribution, 56 percent will find themselves in the top 10 percent, and a whopping 73 percent will spend a year in the top 20 percent of the income distribution. …This is just as true at the bottom of the income distribution scale, where 54 percent of Americans will experience poverty or near poverty at least once between the ages of 25 and 60…this information casts serious doubt on the notion of a rigid class structure in the United States based upon income.

A thoroughly footnoted study from the National Center for Policy Analysis has more evidence.

…83 percent of adults born into the lowest income bracket exceed their parents’ income as adults. About 40 percent of people in the lowest fifth of income earners in 1986 moved to a higher income bracket by 1996, and roughly half of the people in the lowest income quintile in 1996 moved to a higher income bracket by 2005. …In both the 1970s and 1980s, 8 percent of children born in the bottom fifth of the income distribution rose to the top fifth. About 20 percent of children born in the middle fifth of the income distribution later rose to the top fifth.

And here’s some of Ronald Bailey’s analysis, which I cited last year.

Those worried about rising income inequality also often make the mistake of assuming that each income quintile contains the same households. They don’t. …In 2009, two economists from the Office of Tax Analysis in the U.S. Treasury compared income mobility in two periods, 1987 to 1996 and 1996 to 2005. The results, published in the National Tax Journal, revealed that “over half of taxpayers moved to a different income quintile and that roughly half of taxpayers who began in the bottom income quintile moved up to a higher income group by the end of each period.” …The Treasury researchers updated their analysis of income mobility trends in a May 2013 study for the American Economic Review, finding that about 75 percent of taxpayers between 35 and 40 years of age in the second, middle and fourth income quintiles in 1987 had moved to a different quintile by 2007.

Last but not least, let’s look at some of Scott Winship’s recent work.

…for today’s forty-somethings who grew up in the middle fifth around 1970…19 percent ended up in the top fifth, 23 percent in the middle fifth, and 14 percent in the bottom fifth… Among those raised in the bottom fifth, 43 percent remain there as adults. …30 percent made it to the top three-fifths… Mobility among today’s adults raised in the top fifth displays the mirror image: 40 percent remain at the top, 37 percent fall to the bottom three-fifths.

The bottom line is that there is considerable income mobility in the United States.

To be sure, different people can look at these numbers and decide that there needs to be even more churning.

My view, for what it’s worth, is that the correct distribution of income is whatever naturally results from voluntary exchange in an unfettered market economy.

I’m far more concerned with another economic variable. Indeed, it’s so important that we’ll close by adding to the three points above.

4. For those who genuinely care about the living standards of the less fortunate, the only factor that really matters in the long run is economic growth.

This is why, like Sisyphus pushing the rock up a hill, I keep trying to convince my leftist friends that growth is the best way to help the poor. I routinely share new evidence and provide real-world data in hopes that they will realize that good results are more important than good intentions.

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Three years ago, I shared a chart about the fiscal burden of the welfare state, calling it the picture that says a thousand word.

It’s astounding, after all, that taxpayers spend so much money on means-tested programs and get such miserable results.

Indeed, if we took all the money spent on various welfare programs and added it up, it would amount to $60,000 for every poor household.

Yet the handouts for poor people generally (but not always) are way below that level, so where does all the money go?

Well, this eye-popping flowchart (click to enlarge) from the House Ways & Means Committee is one way of answering that question. As you can see, there are dozens of programs spread across several agencies and departments.

In other words, a huge chunk of anti-poverty spending gets absorbed by a bloated, jumbled, and overlapping bureaucracy (and this doesn’t even count the various bureaucracies in each state that also administer all these welfare programs).

This is akin to a spider web of dependency. No wonder people get trapped in poverty.

Fortunately, we have a very simple solution to this mess. Just get the federal government out of the business of redistributing income. We already got very good results by reforming one welfare program in the 1990s. So let’s build on that success.

P.S. Leftists generally will oppose good reforms, both because of their ideological belief in redistribution and also because overpaid bureaucrats (who would have to find honest work if we had real change) are a major part of their coalition. But there are some honest statists who admit the current system hurts poor people.

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Some issues never seem to get resolved. One would think, for instance, that leftists would be more cautious about pushing for a bigger welfare state given the fiscal crisis in Europe.

But we have folks like Bernie Sanders openly arguing we should be more like nations such as Denmark and Sweden.

To give some credit to the Vermont Senator, he’s at least smart enough to pick Scandinavian nations that compensate for the damaging impact of high taxes and excessive spending by being very market-oriented in all other respects.

Though I suspect he’d be horrified to know that he’s basically endorsing a laissez-faire approach to policies such as trade and regulation.

But let’s set aside the quirky candidacy of Bernie Sanders and focus on whether the United States, as a general rule, should be more like Europe.

To be sure, this is a very imprecise way to look at the issue since “Europe” includes very market-oriented countries such as Switzerland and the United Kingdom (both of which rank above the United States for overall economic freedom) as well as very statist nations such as Italy, France, and Greece.

But if you take the average of European nations, there’s no question that the continent would be further to the left than America on the statism spectrum.

So we should be able to learn some lessons by making general comparisons.

Let’s go to the other side of the world to get some insight on this issue. Oliver Hartwich is an economist with the New Zealand Initiative, and he looks at the negative consequences of the welfare state in his new publication, Why Europe Failed. He starts by sharing the grim data on how the burden of government spending has increased.

Government spending as a percentage of GDP increased dramatically across Europe all through the 20th century (Table 1). …Since the immediate post-World War II and reconstruction era, government spending has increased to unprecedented levels. The most extreme case is France where the state now accounts for well over half of the economy. …These spending rises have not been driven by the core areas of government spending of law and order, defence and certain public goods. …these European countries spent almost 30% of GDP on welfare alone, which is more than the total of government spending before World War II.

And here’s the Table he referenced.

Very similar to the data I shared back in 2013 for the simple reason that we’re both citing the superb work of Vito Tanzi.

Oliver adds some analysis, noting that Europe’s voters have sold themselves into dependency.

Bread and circuses – or panem et circenses in the Latin original – were the means of bribing the masses in ancient Rome. Modern Europe is witnessing a similar phenomenon. …Unfortunately, it is often overlooked that government can only bribe the people with their own money. …Buying European citizens’ loyalty for their mixed economy welfare states has effectively enslaved them.

He then shares lessons for New Zealand, but they’re also lessons for the United States.

…we have to make sure we do not repeat Europe’s mistakes. …be watchful of the rise of the welfare state. In Europe, the welfare state was a means of buying political power. Of course, the bribed electorate always paid for its own bribes. However, the arrangement worked for as long as new spending commitments could be financed through higher taxes, more debt, or indeed a combination of both. As government spending has now reached around 50% of GDP, and as the debt load stands at worrying levels, the European welfare state model has reached its limits. … we have the luxury of being three or four decades behind Europe’s demography curve. But this does not have to mean that we will be experiencing Europe’s problems 30 or 40 years later. It should mean that we have 30 or 40 years of finding ways to prevent a European replay by finding different answers to the challenges facing Europe today.

Here’s a short video of Hartwich discussing his work and its implications.

Now let’s look at another source of information. And we’ll actually deal with an argument being peddled by Bernie Sanders.

In an article for the Mises Institute, Ryan McMaken looks at the assertion that the United States has the highest poverty rate in the developed world.

Bernie Sanders claimed that the United States has the highest rate of childhood poverty. …UNICEF…is probably the source of Sanders’s factoid… Sanders probably doesn’t even know what he means by “major country”.

Though maybe the OECD is the source of Senator Sanders’ data. After all, as Ryan explains, some organizations are completely dishonest in that their supposed poverty data actually measures income distribution rather than poverty.

We get much more insight, though, once we have a look at what UNICEF means by “poverty rate.” In this case, UNICEF (and many other organizations) measure the poverty rate as a percentage of the national median household income. …The problem here, of course, is that…the median income in the US is much higher than the median income in much of Europe. So, even someone who earns under 60% of the median income in the US will, in many cases, have higher income than someone who earns the median income in, say, Portugal.

McMaken then crunches the data to see what actually happens if you compare the poverty level of income in the United States to overall income in other industrialized nations.

So what’s the bottom line from this data?

The answer is that it’s better to be a “poor” person in the United States than an average person in many European nations.

…a person at 60% of median  income in the US still has a larger income than the median household in Chile, Czech Rep., Greece, Hungary, Portugal, and several others. And the poverty income in the US is very close to matching the median income in Italy, Japan, Spain, and the UK.

In other words, Bernie Sanders is wrong, UNICEF is wrong, and the OECD is wrong.

Poverty in the United States is not high.

Indeed, experts who have looked at actual measures of deprivation have concluded that the real poverty rate in the United States is relatively low. Even when compared with the more market-oriented countries in Northern Europe.

Last but not least, let’s look at one more Europe-America comparison, just in case the aforementioned data wasn’t sufficiently compelling. Check out this map showing how many young adults still live with their parents (h/t: Paul Kirby).

As pointed out above, Europe is not monolithic. The Northern European economies lean more toward free markets than the Southern European economies, so this map presumably captures some of that difference (though I imagine culture plays a role as well).

But for purposes of today’s analysis, our message is more basic. Simply stated, the United States should not be more like Europe. Instead, we should seek to be more like Hong Kong and Singapore.

Assuming, of course, that the goal is to have policies that promote prosperity.

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