Every country has a least 20% income bracket. But in the U.S. almost all of that quintile live in poverty … and that is not statistically inevitable. (More)

Paul Ryan’s Poverty Bait-and-Switch, Part III: Asking the Right Questions (Non-Cynical Saturday)

This week Morning Feature examines the House Budget Committee’s draft proposal to reform the social safety net. Thursday we looked at the proposal and its goals as described by Chairman Ryan. Yesterday we saw that he’s promising more than his plan can possibly deliver. Today we conclude with a more progressive approach to poverty and opportunity.

“Why are they poor?”

Every country has a least 20% income bracket. Unless everyone in a country has exactly the same income, a least 20% is statistically inevitable. But it’s not statistically inevitable that all or even most of the least 20% income bracket must be poor. Fewer than half of the 34 OECD nations have poverty rates of 10% or higher. The U.S. has the fourth-highest poverty rate in the OECD – at 17.4% by their measure – despite having the second-highest median household income.

Yet most Americans discuss poverty in terms of individual behavior, as sociologist Allan Johnson explained:

Imagine for a moment that income is distributed according to the results of a footrace. All of the income in the United States for each year is put into a giant pool and we hold a race to determine who gets what. The fastest fifth of the population gets 48 percent of the income to divide up, the next fastest fifth splits 23 percent, the next fastest fifth gets 15 percent, the next fifth 10 percent, and the slowest fifth divides 4 percent. The result would be an unequal distribution of income, with each person in the fastest fifth getting nine times as much money as each person in the slowest fifth, which is what the actual distribution of income in the United States looks like.

If we look at the slowest fifth of the population and ask, “Why are they poor?” An obvious answer is, “They didn’t run as fast as everyone else, and if they ran faster, they’d do better.” This prompts us to ask why some people run faster than others, and to consider all kinds of answers from genetics to nutrition to motivation to having time to work out to being able to afford a personal trainer.

“Family conditions and patterns of behavior and achievement”

Chairman Ryan begins with the same analysis in the House Budget Committee’s ‘discussion draft’ on poverty and opportunity:

Even so, poverty is too high, unemployment is too high, labor-force participation is too low, and wage growth is too slow. So how do we increase opportunity and upward mobility? No family can get ahead without a strong economy. But there are many factors that affect upward mobility. On the personal level, growing up in a two-earner household, completing formal education, and developing a habit and a store of savings are all significantly associated with higher rates of upward mobility.

In addition, the Brookings Institution has shown that a combination of family conditions and patterns of behavior and achievement is the key to joining to the middle class.

And at the neighborhood level, recent research has shown that areas with more two-parent households, a higher level of civic engagement, and fewer high-school dropouts enjoy higher average rates of upward mobility. Conversely, people who live in more geographically isolated areas, which often suffer from high levels of concentrated poverty and crime, are more likely to experience lower rates of upward mobility – even those who are not poor or do not engage in such activities themselves may be at increased risk of downward mobility.

Chairman Ryan discusses mobility in terms of income quintiles. He then goes on to (inaccurately) assess Great Society-era programs, declares they have failed, and concludes:

And our true measure of success is the number of people who don’t need government assistance. A minimum definition of success for our low-income programs – indeed, success for all of our programs – should be all able-bodied Americans earning enough money to place them above the poverty line and on a sustainable trajectory towards advancing their career.

“They see a bad marriage or divorce as a greater threat to their well-being than being single”

Yet consider again those OECD statistics, and Dr. Johnson’s footrace metaphor. If Chairman Ryan’s “true measure of success” is indeed “all able-bodied Americans earning enough money to place them above the poverty line” why does he begin by exploring “family conditions and patterns of behavior?”

Chairman Ryan’s analysis implicitly asks why some Americans finish in the last 20% of the footrace. But as we saw above, that’s the wrong question. One-fifth of Americans will finish in that last 20%, as a statistical certainty. The relevant question is why most of them live in poverty … in the richest nation on earth.

Many conservatives claim marriage is the key to escaping poverty, and blame poverty on feminism. But as the New York Times’ Stephanie Coontz explains, they have cause-and-effect reversed:

Low-income women consistently tell researchers that the main reason they hesitate to marry – even if they are in love, even if they have moved in with a man to share expenses, and even if they have a child – is that they see a bad marriage or divorce as a greater threat to their well-being than being single.

Their fears are justified. Chronic economic stress is associated with an increased incidence of depression, domestic violence, alcohol or drug abuse and infidelity, all of which raise the risk of divorce. If a woman’s marriage breaks up or her husband squanders their resources, she may end up worse off than if she had remained single and focused on improving her own earning power.

“Get people out of entry level jobs into better jobs”

Why do the last 20% of finishers in the American footrace live in poverty? The answer isn’t about how fast they run or why they don’t run faster. The answer, quite simply, is how we divide the prize money. For example, Chairman Ryan’s plan offers a small bump in the Earned Income Tax Credit, but he opposes raising the minimum wage:

I think it’s inflationary. I think it actually is counterproductive in many ways. You end up costing job from people who are the bottom rung of the economic ladder. Look, I wish we could just pass a law saying everybody should make more money without any adverse consequences. The problem is you’re costing jobs from those who are just trying to get entry level jobs. The goal ought to be is to get people out of entry level jobs into better jobs, better paying jobs. That’s better education and a growing economy. Those are some of the things he talked about and I don’t think raising minimum wage – and history is very clear about this – doesn’t actually accomplish those goals.

Think again about Dr. Johnson’s footrace. A 2012 Bureau of Labor Statistics study found that 7% of working Americans live in poverty. Chairman Ryan says they should learn to run faster. But he misses the point that 7% of U.S. jobs pay poverty-level wages. Even if the workers now in those jobs ‘learn to run faster,’ someone else will have to take those jobs … at poverty-level wages. And most of the new jobs created since 2009 pay low wages.

“That’s a gamble I’m willing to take”

Apart from a higher minimum wage, one obvious solution is a Basic Income Guarantee – or Universal Basic Income – as we’ve discussed before. Conservative columnist Pascal-Emmanuel Gobry dismisses the idea with claims of science, but Vox’s Matthew Yglesias explains why Gobry gets the science wrong:

The studies found that the policy was beneficial to those getting the money, but tended to modestly reduce the number of hours they worked, and the amount they earned. The latter is a potential cost worth weighing against the policy’s benefits. But to Gobry, it’s definitive proof the plan is defective. “Millions of people who could work won’t, just listing away in socially destructive idleness (with the consequences of this lost productivity reverberating throughout the society in lower growth and, probably, lower employment, in a UBI-enabled vicious cycle),” Gobry concludes.

Gobry is right that the negative income tax experiments are the best test we have of this policy to date. But “best” does not equal perfect. My concern is that Gobry reads the experiments to be saying more than they are in fact saying, given both flaws and limitations in their methodologies and other conclusions they came to that Gobry failed to mention.

Yglesias explains that most of the reported decline in work disappeared when other researchers looked at official records like income tax filings. That is, participants under-reported their hours and income in the study questionnaires. And the rest of the decline was a function of slightly longer unemployment – the participants were more willing to quit a job they didn’t like, and wait longer to find one they did – or working less while they finished high school or college.

Yglesias also calculated that a BIG program would increase federal poverty spending from 21.1% of GDP all the way up to … 22.6%. He concludes:

So here’s my takeaway: a negative income tax or basic income of sufficient size would, by definition, eliminate poverty. We still don’t know if there’d be much of a cost in terms of people working and earning less. If there is, the effect is almost certainly small enough that a negative income tax can offset the lost earnings and remain affordable. The worst case scenario is that we eliminate poverty but see a modest decline in employment. The best case scenario is we eliminate poverty at even lower cost and don’t see much of an effect on employment. That’s a gamble I’m willing to take.

One-fifth of Americans will always be the slowest 20% in Dr. Johnson’s footrace. That’s simple statistics. But they don’t have to live in poverty. Rather than telling them to run faster – which only bumps someone else back into the slowest 20% – we can rearrange the prizes. Poverty is not inevitable. It exists as a policy choice. And in the richest nation on earth … we can make better choices.

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Happy Saturday!