I read this and thought of Paula Bennett and John Key immediately (Social Journal Europe)

America’s War On Poverty, America’s War On The Poor

13/01/2014 by David Coates Leave a Comment

David Coates

January 2014 marks the fiftieth anniversary of the State of the Union Address in which Lyndon Johnson launched the War on Poverty. This anniversary is leading to much soul-searching here in the United States.

Partly that soul-searching reflects the high levels of poverty that persist in contemporary America. The US does not define the poverty level as the EU does: as a percentage of median income, and therefore as normally a rising target. It defines it still in money terms, with the poverty level adjusted only for size of family and inflation.

There is much debate here currently about the adequacy of that measure. When the War on Poverty was first launched, the percentage of Americans with incomes lower than the poverty level for their size of family stood at 19%. After a decade of sustained policy, that percentage had fallen to 11.1%. The official poverty rate then stabilized, oscillating between 11% and 15% with each business cycle. As a result of the 2008 financial crisis and resulting recession, it is currently back to a peak of 15%, with almost one American child in five growing up in poverty. At stake in the soul-searching now underway is whether poverty persists in these proportions in modern America because, as Ronald Reagan once famously put it, “in the war on poverty, poverty won;” or whether, on the contrary, the war on poverty failed because his administration (and subsequent administrations) stopped fighting it.

The political conflict around that question is now intense. Advocates of a renewed war on poverty point to the significant impact on poverty levels made by key government programmes. Take those programmes away, they say, and the level of poverty in the United States would be dramatically higher. On the most recent data available to us, the Earned Income Tax Credit reduced child poverty by 5% in 2012 alone. Food and nutrition programmes had much the same effect. Advocates point too to the involuntary nature of most contemporary poverty. The vast majority of Americans who are currently poor are poor in spite of their own best efforts. They are poor because welfare payments are low and limited. They are poor because low-paid employment (of the kind offered by, among others, America’s largest employer – Wal-Mart) still keeps people below the poverty level. Or they are poor because large-scale involuntary unemployment (there are still three unemployed Americans for every available job) is steadily pushing the long-term unemployed out of the American middle class.

The Politics of the War on Poverty

Unfortunately for the poor, however, conservative critics of welfare provision do not see it that way. They either deny that anyone is America (or, from the point of view of Paula Bennett and the Key led National Government, in New Zealand) is genuinely poor – so many of them have televisions and cars after all – or they insist that most of those now in poverty are there because of poor life-style choices or an unwillingness to work. For such critics, the welfare net is not too modest. It is too generous. Any narrowing of the gap between welfare income and low pay removes the pressure on the long-term unemployed actively to seek work. Indeed, so certain are conservative critics of this truth that, in the current US Congress, Republican legislators voted in November to cut food stamps and cannot now be persuaded in sufficient numbers to extend long-term unemployment insurance to the more than one million Americans whose insurance ran out in December. And among the Tea Party base of the Republican opposition to welfare provision, it must be recognized, strands of racism linger. The American poor is still disproportionately African-American and Hispanic, attracting arguments from libertarians about the need to honor the defining American tradition of self-reliance, and arguments from intense nationalists about the need for repatriation and the closing of the border.

But the poor in America now come in many colors including white, and in many ages – both young and old. The social compact between firms and workers that once traded modest wages for guaranteed healthcare and a reliable pension is eroding fast, and though in 2014 Republicans will no doubt still point to “welfare queens” as spongers on the public purse, they too have now to address the poverty issue in all its complexity – not least because many of their potential voters are either in or on the edge of poverty themselves. So many of the men now in poverty in America are keen to find work but cannot, and so many of the women are grandmothers struggling to survive on a modest state pension, or are high school graduates struggling to find work of any kind at all, that their plight is simply too evident and too entrenched to be ignored by even the most strident critics of welfare provision. Whether they like it or not, poverty in America has become a problem for Republicans. For Democrats it needs to become a cause.

The current political gridlock in Washington is leaving more and more Americans vulnerable to poverty. There is an enhanced churning here as well as an enhanced volume: between 2009 and 2011 the incomes of approximately one American in three (31%) fell below the poverty level for a while, remaining there for at least two months. The evidence is clear. Political gridlock and the resulting absence of effective anti-poverty programs in the contemporary United States benefit the rich, but they leave the rest of us with increasing income inequality, vast areas of urban blight and suburban drabness, and diminished access to the American Dream. Lyndon Johnson was right:

the man who is hungry, who cannot find work or educate his children, who is bowed by want, that man is not fully free.

But try telling that to a Republican legislator who is safe in his/her gerrymandered constituency only so long as the Republican Party’s Tea Party base is not enraged by any softness on the poor.

There is a lot at stake in 2014 in America, as the last mid-term elections of the Obama administration approach. We can expect Democrats to press the poverty button heavily as they campaign. Let us hope, for the sake of the American poor, that this time pressing that button works: that at long last the progressive message on wage growth and income distribution gets through to the American electorate on a scale sufficient to return power to more compassionate legislators than those currently controlling the House.

A fuller version, with appropriate footnotes, is at www.davidcoates.net

Inequality and the Left- From Social Europe Journal. A view that resonates in New Zealand.

Inequality And The Left

16/12/2013 by Simon Wren-Lewis 2 Comments

Simon Wren-Lewis

In the debate over inequality and priorities set off by Ezra Klein’s article, Kathleen Geier writes (HT MT) “the policy fixes for economic inequality are fairly clear: in no particular order, they include a higher minimum wage, stronger labor unions, a more progressive tax system, a more generous social welfare state, macroeconomic policies that promote a full employment economy, and much more powerful government regulations, particularly in the banking and finance sector.” And part of me thought, do we really want to go back to the 1970s?
Maybe this is being unfair for two reasons. First, in terms of the strength of unions, or the progressivity of taxes, the 1970s in the UK was rather different from the 1970s in the US. Second, perhaps all we are talking about here is swinging the pendulum back a little way, and not all the way to where it was before Reagan and Thatcher. Yet perhaps my reaction explains why inequality is hardly discussed in public by the mainstream political parties – at least in the UK.
The 1997-2010 Labour government was very active in attempting to reduce poverty (with some success), but was “intensely relaxed about people getting filthy rich as long as they pay their taxes.” This was not a whim but a strategy. It wanted to distance itself from what it called ‘Old Labour’, which was associated in particular with the trade unions.  Policies that were explicitly aimed at greater equality were too close to Old Labour [1], but policies that tackled poverty commanded more widespread support. Another way of saying the same thing was that Thatcherism was defined by its hostility to the unions, and its reduction of the top rates of income tax, rather than its hostility to the welfare state.
I think these points are important if we want to address an apparent paradox.

As this video illustrates (here is the equivalent for the US), growing inequality is not popular. Fairness is up there with liberty as a universally agreed goal, and most people do not regard the current distribution of income as fair. In addition, evidence that inequality is associated with many other ills is becoming stronger by the day. Yet the UK opposition today retains the previous government’s reluctance to campaign on the subject.
This paradox appears all the more perplexing after the financial crisis, for two reasons. First the financial crisis exploded the idea that high pay was always justified in terms of the contribution those being paid were making to society. High paid bankers are one of the most unpopular groups in society right now, and it would be quite easy to argue that these bankers have encouraged other business leaders to pay themselves more than they deserve. Second, while Thatcherism did not attempt to roll back the welfare state, austerity has meant that the political right has chosen to paint poverty as laziness. As a result, reducing poverty is no longer an uncontroversial goal.[2]
What is the answer to this paradox? Why is tackling inequality not seen as a vote winner on the mainstream left? I can think of two possible answers, but I’m not confident about either. One, picking up from the historical experience I discussed above, is that reducing inequality is still connected in many minds with increasing the power of trade unions, and this is a turn-off for voters. A second is that it is not popular opinion that matters directly, but instead the opinion of sections of the media and business community that are not forever bound to the political right. Politicians on the left may believe that they need some support from both sectors if they are to win elections. Policies that reduce poverty, or reduce unemployment, do not directly threaten these groups, while policies that might reduce the incomes of the top 10% do.
This leads me to one last argument, which extends a point made by Paul Krugman. I agree with him that “we know how to fight unemployment — not perfectly, but good old basic macroeconomics has worked very well since 2008…. The causes of soaring inequality, on the other hand, are more mysterious; so are the channels through which we might reverse this trend. We know some things, but there is much more room for new knowledge here than in business cycle macro.” My extension would be as follows. The main reason why governments have failed to deal with unemployment are accidental rather than intrinsic: the best instrument available in a liquidity trap (additional government spending) conflicts with the desire of those on the right to see a smaller state. (Those who oppose all forms of stimulus are still a minority.) In contrast, reversing inequality directly threatens the interests of most of those who wield political influence, so it is much less clear how you overcome this political hurdle to reverse the growth in inequality.
[1] This association is of course encouraged by the political right, which is quick to brand any attempt at redistribution as ‘class war’.
[2] The financial crisis did allow the Labour government to create a new top rate of income tax equal to 50%, but this was justified on the basis that the rich were more able to shoulder the burden of reducing the budget deficit, rather than that they were earning too much in the first place.
This post was first published on Mainly Macro