Why Not Just Give Poor People Money?

July 14, 2014

Not long ago, a Chinese millionaire decided to invite some homeless people for a fancy free meal, with $300 checks as a post-dessert treat. The operators of the shelter he contacted agreed to supply the guests, but only if he donated the money to the shelter instead.

Some of the guests might use their cash gifts to buy alcohol and drugs, the executive director reportedly said.

The story provoked some sputtering and muttering, as you might imagine. It also gave rise to a New York Times op-ed that teed up an idea that’s been around for awhile. Why not just give the poor cash?

This, in fact, has been done, to a limited extent, in some developing countries. Professor Christopher Blattman, who wrote the op-ed, provides examples, including some trial programs he and colleagues had assessed.

For the most part, recipients used the money to improve their lives. Some extremely poor women who were given $150, plus a few days of business skills training nearly doubled their earnings, invested in some “durable assets” and, on average, tripled their savings.

Even homeless men and drug users in Liberian slums bought themselves some clothes and “ate and lived better.”

In most of the trials, people worked more after they got the grants, though the trials apparently didn’t impose work requirements, as our major cash assistance program does — and SNAP (the food stamp program) for people like at least some of the Liberian slum-dwellers.

Would handing out cash, with no strings attached, work here — and on a large scale? We don’t know. The U.S. projects Blattman mentions required families to set goals and report on progress, make efforts to “build up their human capital,” etc.

What we do know is that private donors, public officials and nonprofits like the New York City shelter are likely to take a dim view of addressing poverty in the simplest, most direct way, i.e., by giving poor people money.

Even one of the projects that linked cash to goal-setting and the like encountered “mistrust from donors and other nonprofits who held hard to the view that poor people can’t make good decisions,” Blattman says.

This is a commonly held view, I think. In some cases, it’s a form of blaming. People are poor because they made bad decisions — didn’t finish high school (or go on to college), had children before they were married, etc.

And how many stories have we read of the extravagant and/or unhealthful things people buy with their food stamps? How many proposals to keep them from using their benefits this way?

We see something of the same view in widely-reported experiments designed to show that poor people make bad decisions through no fault of their own, but because their brains are overloaded with worries about not having enough money. Note the assumption here.

Awhile ago, blogger Matt Bruenig figured that we could cut poverty in half by giving every American about $3,000 a year, which we could each use however we chose.

This was perhaps more a thought-provoker than a serious proposal — a way, as he said, of showing that the obstacle to “dramatic poverty reduction” is politics, not the inherent complexity of devising effective solutions. Nor the cost.

Yet he’s not enthusiastic about simply giving everyone who’s poor enough money to lift them over the poverty line. This, he says, “would probably cause intolerable numbers of people to drop out of the labor market.”

Reihan Salam at the National Review objects to “unconditional income support” — and for somewhat similar reasons. “[I]t might help the most motivated poor people with the strongest social networks to raise their earnings potential,” he says. But it would harm the rest because they wouldn’t engage in gainful employment.

The biggest worry for him, it seems, isn’t what this would do to our economy, but rather that the poor would miss out on the personal benefits work provides.

Brink Lindsey, a “bleeding heart” libertarian whom Salam cites, elaborates on this point at length. “Joblessness,” he says, “means not only lack of income, but also lack of status, lack of identity, and lack of direction. It is the path … to anomie and despair.”

I suppose, in our society, this is generally true, though we can all think of exceptions — just as we can all think of jobs that, if anything, impair one’s sense of personal identity.

What’s interesting to me is that both Salam and Lindsey assume that poor people will make a decision that’s bad for them. They’ll forgo personal fulfillment and chose “anomie and despair” instead.

I doubt that giving no-strings cash to poor people is the solution to poverty. Among other things, it’s unimaginable that we’d give them enough. But, as Blattman says, “why not try” and see what happens?

 


Millions of People Living Always on the Margin

June 12, 2014

Nearly 50 years ago, Molly Orshansky, who invented our official poverty measure, noted that when the number of people below the applicable poverty threshold rose, the number just above dropped. And then the reverse happened.

“This reciprocal trend,” she wrote, “suggests that there may be a sizable group in the population living always on the margin — wavering between dire poverty and a level only slightly higher but never really free from the threat of deprivation.”

A recent report from the Census Bureau confirms this insight. Or so it seems.

What we know for sure is that, in 2011-12, virtually the same number of people who were near-poor at the beginning fell into poverty as rose above the Bureau’s near-poverty cut-off, i.e., 125% of the applicable poverty threshold.

Fewer than either remained in the near-poverty group for even this brief period. So many people are indeed on the margin — 14.7 million in 2012. And if past is prologue, almost as many will plunge (or plunge back) into dire poverty as will gain more than brief freedom from the threat of deprivation.

This is only one of the interesting things the report tells us. The other big eye-opener, for me, is that the near-poverty rate doesn’t behave like the poverty rate.

The latter is always considerably higher — 15%, as compared in 4.7% in 2012. But the poverty rate swings up and down as recessions set in and end. The near-poverty rate barely registers the downturns and upturns in our economy.

Here’s another difference. The poverty rate for seniors, according to the official measure, is much lower than the rate for children — 9.1%, as compared to 21.8% in 2012. But the near-poverty rates were statistically the same.

In other ways, the near-poverty rates resemble differences in poverty rates among groups the Census Bureau reports on, but only in a very general way.

For example, in 2012, the near-poverty rate for blacks was higher than the rate for whites — 6.3%, as compared to 4.5%. But the poverty rate gap was more than twice as great — 27.2%, as compared to 12.7%.

Similarly, the near-poverty rate for single-mother families was higher than the rate for married couples — 7.3%, as compared to 2.8%. But again the gap was far wider for their respective poverty rates — 30.9%, as compared to 6.3%.

What this means, of course, is that fewer blacks and single mothers were living on the margin because more were officially poor, which is very poor indeed.

This is also the case for working-age people not in the labor force, including those with severe disabilities. The poverty rate for those neither working nor actively looking for work was 28.4%, while their near-poverty rate was 6.7%.

These are only a few examples of comparative rates, based on the latest published Census figures. The near-poverty rate report also compares rates for 2012 with those for 1966, when Orshansky published her paper.

Overall, the near-poverty rate dropped, though only by 1.6%. And it dropped enough to be statistically significant for virtually every group the report breaks out.

The exceptions related to changes in our labor market. Specifically, the near-poverty rate for adults over 25 with less than a high school diploma or the equivalent was 1.8% higher in 2012.

Rates were also higher for adults in this age group at every education level below a four-year college degree or more. For those with the degree(s), the very low near-poverty rate was effectively the same — 1.2%.

And what about our safety net? Census can’t backtrack to 1966, but it does provide figures for the number of near-poor people who benefited from six major programs — or types of programs — in 1981.

We see significant changes in the number and percent of near-poor people served between the baseline year and 2012 for only four. And only one of them represents a decrease.

In 2012, 9.9% fewer near-poor people received public assistance, i.e., cash benefits from the Temporary Assistance for Needy Families program* and/or one of the dwindling state general assistance programs.

Near-poor participation in SNAP (the food stamp program) increased by the same percent. But the increase for the Earned Income Tax Credit was larger — 12.5%. And it’s the only safety net program Census reports on that benefited more near-poor than poor people.

The program with the greatest reach of all was the free and reduced-price part of the school lunch program. In 2012, it served 84.6% of near-poor children and a barely higher 88.5% of children in poverty. For the near-poor, this represents a 16.6% increase over 1981.

By and large, I think these changes, as well as the raw participation figures tend to confirm studies indicating that safety net spending has shifted toward people who, for one reason or another, are viewed as deserving — adults who work and those who can’t be expected to.

More conclusively, the report confirms the fragile hold on even a modicum of income security that Professor Mark Rank, among others, has sought to demonstrate — and that Orshansky flagged so long ago.

* TANF hadn’t replaced welfare as we knew it in 1981. So the comparison is to its predecessor.


Congressman Paul Ryan Previews His Anti-Poverty Agenda

January 21, 2014

Congressman Paul Ryan wants to rebrand himself as a big thinker on poverty issues — and show a skeptical American public that the Republican party truly cares about low-income people.

He’s promised a comprehensive anti-poverty agenda to replace the efforts launched with President Johnson’s War on Poverty, to which he gives “a failing grade.”

He’s been visiting projects in inner-city neighborhoods, accompanied by Robert Woodson, the conservative founder and president of the Center for Neighborhood Enterprise. He’s been talking with experts at like-minded think tanks.

The agenda is yet to come. But we got something of a preview last week when he spoke at the Brookings Institution’s Social Mobility Summit.

Ryan said he “could already hear howls of protest from certain corners.” So I’ll refrain, as best I can, and try to summarize what seem to be major planks of the framework for his agenda-in-process.

Poverty is not just deprivation, but “a form of isolation.” This is Ryan’s major take on poverty in America. He goes at it from various angles — all linked to adverse government impacts.

On the one hand, “taxes take people out of the workforce” because employers would hire more people if their taxes were lower and people would “work that extra hour.” These people, one notes, are in the workforce.

On the other hand, government programs are partly responsible for cutting poor people off from education, work and family. Here Ryan is borrowing from Brookings research that’s become a well-worn conservative recipe for avoiding poverty — finish high school, get a full-time job, marry, then (and only then) have children.

But while the recipe comes close to blaming poor people for irresponsible choices, Ryan blames the federal government. It’s “walling them up in a massive quarantine,” he says.

Government anti-poverty programs create a “poverty trap.” We have a “hodgepodge” of programs created to solve different problems at different times, Ryan observes.

And they create disincentives to earning more, he says, because they result in “high marginal tax rates” — economist-speak for what a household loses in benefits, as well as the higher taxes it pays when its income increases.

The result of income cut-offs for benefits is also sometimes referred to as the “cliff effect” — a problem that’s getting attention from experts across the political spectrum.

Some government programs mitigate the cliff effect. The Earned Income Tax Credit, for example, phases out rather than abruptly ending. Ryan likes this. The health insurance subsidies provided by the Affordable Care Act also phase out. Well, we know what Ryan thinks of the ACA.

Whether, as he says, the high marginal tax rates discourage work is a more complex issue than he acknowledges.

Economist Eugene Steuerle, whom he cites, told interested House subcommittees that studies have produced “mixed and ambiguous” results, but that he believes the extra income often outweighs the tax effect. Indeed, “some people may work more to generate the same net income.”

A better poverty plan would reflect two principles — simplicity and standards. Simplicity means “consolidation,” i.e., block-granting of some sort.

Ryan is intrigued by the UK’s new Universal Credit, which will replace six benefits for low-income working-age people with a single monthly cash payment and also smooth out the cliff. It’s going through “a rough patch,” he acknowledges, apparently referring to technical rollout problems.

It’s also already subject to what the Guardian calls “stealth cuts,” i.e., a three-year freeze on the amount recipients can earn before their credit starts phasing out. But it’s unfair, at this point, to say that’s why Ryan’s interested.

On the other hand, we’ve got his proposed block grants for SNAP and Medicaid, which make it hard to believe that his evolving plans “have nothing to do with a line on a spreadsheet,” as he claims.

Standards refer to work requirements, which Ryan apparently believes lead to work — “the shortest route back into society.” Also, I think, to time limits, since federal assistance should be an “onramp — a quick drive back into the hustle and bustle of life.” Note the isolation theme again.

The model Ryan likes — wouldn’t you know it? — is the Temporary Assistance for Needy Families program.

As Republicans often do, he cites results — not wholly attributable to TANF — from the late 1990s. Caseloads shrank as more welfare mothers entered the workforce. The child poverty rate declined.

But single-mother employment rates have since dropped. And single mothers who were working in 2011 earned, on average, a bit over $400 a week. The child poverty rate is higher than it was in 2000.

The most significant lasting outcome of welfare “reform” is the caseload cut — from 68% of poor families with children when it was enacted to 27% in 2010.

Only local communities can solve the problem. This isn’t a new message. I remarked on it when the House Budget Committee, which Ryan chairs, issued its latest annual plan.

Ryan made the implications clearer, however. Government, he said, has “crowded out civil society.” It’s told people that poverty isn’t their problem — and by implication, we’ve believed it.

This is a curious view of what goes on in communities today. We have scads of faith-based and other nonprofits that provide food, shelter, clothing, training, health care and more to people in need.

They depend in part on donations — in both time and money — from people who quite clearly believe that poverty is their problem. The organizations are also, in some cases, the way that government anti-poverty funds are translated into services.

And they’re the source of new solutions. The Housing First model for addressing chronic homelessness is an example — though not, one I think, that conforms to Ryan’s standards.

Ryan says that the only way to solve the problem of poverty is “face to face.” If this means that he will not only meet with, but learn from the people who’d be affected by his plan-in-the-making, then it may be a whole lot different from what he previewed last week.

I’ll reserve further howls till we see it.


New Reports Provide Different Perspectives on Poverty

January 13, 2014

One thing you can say about last week’s War on Poverty anniversary. It sure produced a lot of grist for my mill. I’m having trouble wrapping my mind around it all.

So for now I’ll focus on two very different perspectives provided by new reports. Both speak in different ways to unfinished business. And both indicate needs to modify our strategies because conditions have changed and experience has illuminated our difficulties, as President Johnson foresaw when he proposed the War.

One, from the Census Bureau, tells us that poverty is a common experience and a usually temporary, though sometimes recurrent one. These findings are generally similar to research I wrote about earlier, but based on more current data.

The other report, from the Urban Institute, tells us that some portion of the population is not only persistently poor, but likely to cycle in and out of deep poverty — or to remain there.

Episodic Poverty

The Census Bureau carved out two three-year periods from its Survey of Income and Program Participation, which collects data from the same sample of individuals every four months for at least two and a half years.

Not surprisingly, poverty figures were higher for the second period — January 2009-December 2011. But the basic picture is the same as for the first, which ended shortly after the recession set in.

During the more recent period, 31.6% of the population lived below the applicable poverty threshold for at least two months — more than double the official annual rate. But only 3.5% was in poverty for the entire three years.

By 2011, 5.4% of people who hadn’t been officially poor in 2009 were. At the same time, 36.5% of those who’d been poor in 2009 no longer were.

The median length of time for any single spell of poverty was slightly over six and a half months. Only 15.2% of spells lasted more than two years.

We see a high degree of economic insecurity — and not only in the very large percent of Americans who suffered at least one spell of poverty within a relatively short period of time.

Nearly half of those who recovered sufficiently to rise above the applicable poverty threshold — 6.2 million people — still had family incomes below 150% of it. For a three-person family, this was less, on average, than about $26,875 in 2011.

An additional 11.9 million who didn’t fall into poverty dropped from 150% of the threshold to somewhere closer to it. So even within this relatively short period, some 18.1 million people were on the verge of poverty.

Deep and Persistent Poverty

“Deep poverty” here means having a household income below half the applicable poverty threshold — less than $9,249 a year for a single parent with two children in 2012. Well over 20.3 million people in the U.S. were that poor last year — about 6.6% of the population.

Urban Institute researchers have found that some portion of them are stuck in poverty — and worse. Many are “hovering around the deep poverty threshold, without ever earning enough to escape poverty altogether.”

Theirs is a “chronic state,” an Institute account of the research says. And it can persist from generation to generation. How many are bemired there the report doesn’t say — and perhaps couldn’t.

The main thrust is that deep, persistent poverty is rooted in a complex of serious personal challenges, e.g., drug and/or alcohol addiction, severe mental or physical disabilities, chronic illness.

Because of or in addition to these, persistently poor people have other “co-occurring challenges,” e.g., homelessness, functional illiteracy, a criminal record.

Our safety net programs aren’t designed for them, the researchers say. Many, in fact, are conditioned on work — the Earned Income Tax Credit, for example, and Temporary Assistance for Needy Families. SNAP (the food stamp program) has work requirements also, though only for able-bodied adults without dependents.

The report itself is addressed to foundations, which could contribute to solutions in various ways. But it points to the need for policy changes that run counter to the vision underlying virtually all plans for what to do about poverty in America.

Because it involves accepting the fact that “deeply poor adults may never be self-sufficient” or even able to work steadily. In some cases, perhaps not at all — and for reasons that don’t qualify them for disability benefits.

Policymakers may, however, take to the other piece of the Institute’s agenda — early and intensive interventions to break the cycle.

About 3% of children — and an alarming 15% of those who are black — spend more than half their childhoods in deep poverty. We have lots of research documenting the long-term damages of childhood poverty. They’re presumably more common and/or severe in cases of deep childhood poverty.

We also have studies indicating that some programs can do a lot to mitigate them — not only programs that address basic needs like good nutrition and health care, but early childhood education and home visiting programs.

The Urban Institute also mentions several small-scale holistic initiatives that may provide models for “blunting the effects” of chronic poverty. “We can sure make things better for the kids,” one of the researchers says.

But meanwhile, we’ve got a system based on expectations that may be wholly unrealistic for the parents instead of a commitment to provide whatever services and supports they need — and for however long they need them.


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