You Can't Force Equality, But We Can Do More For the Poor

As I tried to make clear in a recent piece on inequality and poverty, the argument for making incomes more equal in general is not supported by a compelling economic argument. Reducing poverty, however, does make good economic sense. Poverty imposes huge costs on the people who are poor, and it's also hard on the rest of us when the poor resort to crime and other socially destructive behaviors.

The root sources of poverty and the tools needed to help people escape poverty are, despite our 50 year War on Poverty and $18 trillion in spending, not very well understood. At the broadest level, our free enterprise system can be thought of as a driving force behind an unequal income distribution and some of the poverty we observe: Mark Zuckerberg and Lebron James make far more than most of us because their services are in far greater demand and there are few people quite like them in the world; as such, both are well paid and quite deserving of the fruits of the labor.

The returns to people like Zuckerberg, James, and the most talented people in America appear, if anything, to be on the rise. As my friend and former professor, Tyler Cowen, puts it in his excellent new book (by the same title), "Average is over." Rapid advances in technology have been creating greater inequality and a society where about 10 percent of people--high skilled, highly educated persons--are in high demand, while much of America experiences decline and stagnant incomes thanks to technology and machinery making it easier and easier to displace labor with capital.

That skilled, highly educated individuals and entrepreneurs are being rewarded more than ever before in the marketplace is, in itself, no fault of their own and not cause for "spreading the wealth around." But, whether or not the opportunity to break into the elite 10 percent of the population--what we can think of as upward mobility--has declined is an open question.

To the extent upward mobility is no longer a realistic part of the American dream, a number of bad consequences could result. The most undesirable consequence, perhaps, is the waste and lost hope for the millions of people who have no real chance of breaking into the upper echelon of society. They stand to fall farther behind thanks to a failing educational system, relatively worse health and lifestyles, broken families, bankruptcy, and a constant concern about the next paycheck.

So, what should be done? Many conservatives suggest tough love to the poor and scaling back the welfare state so the poor get off their couches and start working. But, this incentive based argument (i.e., if you take away the "carrots" of being poor, people will stop being poor) is premised on pretty shaky foundations: Many poor people have an entire host of problems confronting them. Taking away their welfare through policy may just encourage more destructive, risk-taking behavior.

Thus, the easy and obvious solution--grounded in arguments about the poor responding rationally to incentives--may not be the right solution if poverty is driven in large part by deep cultural factors and mental models most of us in social science don't fully understand. Many of our standard policy solutions, therefore, run the risk of backfiring.

That said, there are reforms we could implement now that sure seem like improvements over the status quo. Here are a few:

(1) The more we shift away from government production to vouchers to straight cash transfers, the better off the poor will be. Food stamps were a vast improvement over government cheese. Letting the poor own their own housing or allowing for more vouchers in housing would, likewise, be better than public housing. And, as I said during a Medicaid chat yesterday, block grants to the poor would be better for about 90 percent of the uninsured adults being considered for coverage under a Medicaid expansion.

(2) As counterintuitive as it may seem, the poor and the less educated in America are the ones who stand to gain the most from immigration. Therefore, policies supportive of immigration not only stand to benefit consumers, businesses, and the immigrants themselves...they stand to greatly improve the lives of the poor.

(3) My colleague, Dan Smith, will soon be releasing a study on the harm being done by overly strict occupational licenses in Alabama. Many licenses for unskilled occupations are in place to simply protect insiders; reducing and eliminating occupational barriers inhibiting advancement gives the poor a better chances to find work.

(4) Adjust welfare benefits so marriage shifts from being something we are punishing to either being neutral or a benefit for the poor.

(5) Fix our schools through a voucher system, weaker tenure system for teachers, privatization of many services, and merit-based pay.

The issue of American poverty is deep and complicated; there are no overnight panaceas; and I'm not the first to develop the reform ideas above. But, in this post I have tried to set the table for some potential ways to help the poor, and in my next few entries (beginning with a piece on the need for more cash transfers later this week), I will flesh out each of the points above in far greater detail.

The poor deserve more when it comes to the policies we offer them, and doing more for the poor is within our reach--both conceptually and in the realm of actual policy.