Fighting Poverty in America: What Can We Do Better?

The United States spends some $850 billion per year on poverty programs, yet the official poverty rate has not fallen much, if at all, over the past 40 years. What could we do better?

This slideshow, originally presented at a meeting of the Northport  MI Lions Club on September 23, 2021, argues that with better policy design, we could greatly reduce the poverty rate without spending any more than we do today. The slideshow is suitable for classroom presentation and may be used without further permission.

The slideshow emphasizes three major problems with the design of current poverty policies:

• Spending is fragmented among many separate programs, each designed to help a particular group or meet a particular need.
• Programs have high benefit reduction rates, which severely reduce work incentives, especially for families just crossing the line from poverty into self-sufficiency.
• Many programs have strict work requirements that have the ostensible objective of encourage poor people to help themselves by getting a job. However, in practice, work requirements don't work and often throw families into deeper poverty than before.

I recommend three broad categories of policy change that could improve the performance of antipoverty efforts even in a baseline case where total spending does not increase:

• Consolidate programs and cash out in-kind assistance.
• Expand the kind of wage bonuses embodied in the Earned Income Tax Credit.
• Introduce a permanent child benefit that is paid monthly to all families with children regardless of employment status.

Related reading:

• A social safety net for an age of uncertainty
• New research on the poverty trap
• Why work requirements don't work

Guaranteed Income for the 21st Century Aims to End Poverty As We Know It

In a promising contribution to the debate over poverty policy, the Institute on Race and Political Economy at the New School has released a major welfare reform proposal that it calls a Guaranteed Income for the 21st Century. Details of the proposal (abbreviated GI21 in what follows) are set out in a report written by Naomi Zewde, Kyle Strickland, Kelly Capatosto, Ari Glogower, and Darrick Hamilton. The proposal makes a full-scale assault on America’s social protection gap. It includes several features that the Niskanen Center has long championed, such as an emphasis on cash assistance, broad eligibility, and payment in monthly installments with appropriate provisions for the unbanked. Although the proposal is not budget-neutral, its estimated cost of $876 billion per year is considerably less than that of several other proposals for a universal basic income.

All proposed reforms of the social safety net face a set of tradeoffs among the goals of income security, affordability, and work incentives. This commentary will examine how GI21 deals with those tradeoffs, beginning with the areas where it is strongest and then turning to aspects of the plan that could benefit from some further thought.

Is the Phillips Curve Back?

Anyone who has been following the U.S. monthly economic data lately has noticed that the rate of inflation has been rising over the past year as the unemployment rate has fallen. Figure 1 shows the numbers: 

To those old enough to remember, this chart looks ominously like the first inflationary surge of the Kennedy-Johnson years: 

Or even more ominously, Figure 1 looks a bit like this chart from a 1958 article by A. W. Phillips, which later became famous as the “Phillips curve.”

So, are we in for runaway inflation unless we slam on the brakes and send unemployment soaring again? You might think so from the headlines inspired by recent CPI reports, but the answer is “no,” or at least, “no time soon.” 

To see why, we need to understand just what the dreaded Phillips curve is, why falling unemployment brought soaring inflation in the 1960s and 1970s, and why it is far less likely to do so now. That will require a detour into a bit of economic theory, then a review of the history of inflation and unemployment over the past six decades, and then an analysis of the psychological underpinnings of economic behavior. Here we go.

America's Social Protection Gap and What to Do About It

Around the world, liberal democracies take pride in the freedom and prosperity of their citizens. And not just prosperity for the prosperous. They also pursue social protection policies that guarantee a minimum standard of prosperity for even the most disadvantaged. In previous writings, I have focused on quality of government in liberal democracies and on policies that engender social and political trust. This commentary turns to social protection policies, entering an area in which the United States struggles to keep up with the standards set by its liberal-democratic peers. 

The first section discusses just which countries can be counted among that peer group. The second explores three quantitative indicators of social protection and shows the degree to which the United States lags behind. A conclusion argues that a policy of faster and fairer growth could allow the United States to close its social protection gap.

Who are our liberal democratic peers?

My starting point in classifying countries by their degree of liberal democracy, as in earlier work, is the concept of liberal rights practices. In his book, Trust in a Polarized Age, Kevin Vallier defines liberal rights practices as rights that are “recognized in constitutional law, exercised regularly by the people, and embodied in public policy.” That approach makes it possible to treat liberal rights practices not just as values or aspirations, but as observable characteristics of public policy to which it is possible to assign numerical scores. 

Vallier lists five liberal rights practices, namely, democratic constitutionalism, markets and private property rights, freedom of association, electoral democracy, and social protection policies. My approach covers a conceptually similar range of practices, but with modifications to terminology and content as needed to better fit the data. Full definitions and data are presented in an online appendix.

• Quality of governance focuses on government institutions rather than policy outcomes. It includes measures of executive constraints, government integrity, rule of law, and government effectiveness.
• Quality of market institutions covers property rights, contract enforcement, investor protections, and quality of regulation.
• Personal freedoms pertain to policies and institutions that guarantee freedom of association, freedom of speech, freedom from discrimination, and agency, a term that Legatum uses to the ability of people to act in accordance with their own desires, based on indicators such as freedom of movement, women’s rights, and due process in criminal law.
• Procedural democracy is democracy in the narrow sense of regular and fair elections with open participation. Procedural democracy is often associated with personal freedoms and quality government, but those outcomes are not part of the definition of democracy in this sense.
• Social protection policies are government policies that ensure that basic needs are met, including cash support and other policies, both on-budget and off-budget, that mitigate extreme inequality and ensure acceptable minimum levels of food, shelter, medical care, and communications.

In what follows, I refer to the first four of these categories as basic liberal rights practices. Each country is assigned a score, LRP*, which is an equally weighted average of the standardized scores for quality of governance, quality of market institutions, personal freedoms, and procedural democracy. Vallier includes the fifth item, social protection policies, in his definition of liberal rights practices, for reasons discussed below. However, this commentary turns his definition into a question: To what extent is it actually true that governments that are liberal democracies in other respects also have strong social protection policies? 

What Does Vaccination Have To Do with Freedom?

How did getting vaccinated for Covid-19 get mixed up with freedom? I was pondering that as I read a piece in The Hill about Trump’s recent interview on Fox News. “I would recommend it to a lot of people that don't want to get it. And a lot of those people voted for me, frankly,” Trump said, before going on to add, “We have our freedoms, and we have to live by that. And I agree with that also.”

The Hill went on to quote Rep. Andy Biggs (R-Ariz.), chairman of the House Freedom Caucus, as saying “As long as we still live in a free country, then we can make those individual decisions.”

But, while some people insist on their fundamental freedom to refuse vaccination, others answer, “You might have the freedom to get your bad knee replaced or not, but you don’t have the freedom to refuse the Covid vaccine because you don’t have the freedom to infect me.” Seems like there are two completely different ideas of freedom here, no? How does that work?

Part of the problem, I think, is the English language’s inadequate vocabulary of freedom. While I was thinking about this, another item popped up in my inbox – a link to an article from the Russian opposition news outlet Meduza. Written by the philosopher Nikolai Plotnikov, it bore the title “How Russians See ‘Freedom’ Differently.”

Russians, as Plotnikov pointed out, have two words for freedom, volya and svoboda. Having lived several years in Russia myself, I was aware that those two words existed, but I had never thought much about their political implications. Volya, the older of the two words, means roughly “free will.” It calls to mind an unconstrained life on the open steppe, perhaps the image of the folk hero Stenka Razin, leader of a seventeenth century Cossack uprising against the Russian nobility. In Plotnikov’s view, whereas volya is something inherently Russian, svoboda is something Western, a concept of civic freedom. Svoboda, he says, “is inconceivable without respect for others’ freedom.”

In Russian popular usage, volya and svoboda don’t always quite line up with Plotnikov’s somewhat academic version of their meanings. You have, for example, svobodny clothing, meaning comfortable, and volny clothing, meaning a bid indecent. But this isn’t a Russian language lesson. What matters here is the usefulness of Plotnikov’s distinction for understanding the American vaccination debate. When an American like Rep. Biggs asserts his freedom to remain unvaccinated, he is thinking volya. His neighbor who says, “No, you don’t have the freedom to infect me,” is thinking svoboda.

To be sure, English also has two words, but our “freedom” and “liberty” don’t line up like that. As far as I can see, they are synonyms that both mean svoboda. When Americans need to make Plotnikov’s distinction, they either have to use circumlocutions or risk being imperfectly understood.

I’ve seen American libertarians struggle with this problem, hampered by the limits of our language. Orthodox libertarians definitely think in terms of civic freedom, svoboda. Their touchstone is the nonaggression principle – the maxim that it is impermissible to initiate physical harm against another person. Use of force is permissible only in self-defense. To refuse the vaccine and then sneeze in your neighbor’s face is clearly a violation of the nonaggression principle. Yet, others who call themselves libertarians glory in the right to be rude and crude, the right to hate, the right to do whatever they want whatever social standards say. Some of them don’t scruple at embracing Naziism, white supremacy, and other unsavory ideologies that, historically, are anything but nonviolent. Writing for the orthodox libertarian Foundation for Economic Education a few years ago, Jeffrey Tucker struggled for a term and came up with “brutalist libertarianism” – a good try, although it never caught on. Plotnikov makes it clear, though, that Tucker’s brutalist libertarians differ from the orthodox in that they think in terms of volya more than svoboda.

So, next time you are confused when some of your neighbors assert their right to forego vaccination in the name of freedom, while others, also invoking freedom, insist that everyone has a duty to be vaccinated, you can blame it on our English language. Even though, by some counts, English has more words than any other language, it lacks a clear distinction between volya and svoboda. But then, English is a free language in that, unlike French, has no Académie anglaise to tell us what words we can and cannot use. Who knows, maybe volya and svoboda will catch on yet, as have other Russian terms like sputnik and kompromat.

Previously posted at Ordinary Times. Reposted by permission.

The Best Opening for a New Third Party is the Liberal Center

 

Writing for the New York Times, Bret Stephens tells us  why the new party that 62 percent of Americans say we need must be a centrist one, and why it must be liberal. Not “liberal” as used in the United States to describe progressive populism, but liberal in the classical sense of support for democracy, the rule of law, and the Bill of Rights. That, he says, is the neglected territory of American politics. It’s the place he thinks most Americans still are, temperamentally and morally, and might yet return to if given the choice.

He is right about all that. But then he almost spoils it with one churlish phrase: “By ‘liberal,’” he says, “I don’t mean big-state welfarism.” Perhaps that is just a sop to his conservative fans, but to me it suggests a misunderstanding of the type of governments and social policies that underpin the freedom and prosperity of the world’s other liberal democracies.

If you favor liberal democracy, focus on the quality, not the size of government

Stevens yearns for a party anchored in the liberal values of freedom, democracy, and the rule of law. The best book about liberalism that I have read recently is Kevin Vallier’s Trust in a Polarized Age. Vallier is a pragmatist, less interested in ideology than in what he calls liberal rights practices, the actual nuts and bolts that make freedom and democracy work. He identifies five of these: freedom of association, markets and private property rights, democratic constitutionalism, electoral democracy, and social welfare programs. Setting social welfare programs aside for a moment, let’s look at the relationship between the size of government and Vallier’s other four liberal rights practices in countries around the world. 

Carbon Pricing and its Green Critics

Carbon pricing is firmly entrenched as the go-to climate policy for economists, yet many with training in other sciences and social sciences remain skeptical. As one critic puts it, “Of the policy tools in the carbon toolbox, carbon pricing is the tiny flathead screwdriver used to fix glasses.” 

In my view, the skeptics have the wrong analogy. Instead of a tiny screwdriver, I like to think of carbon pricing as the drip irrigation of climate policy. Israeli farmers have shown how drip irrigation, used together with a suite of other policies, such as reusing treated sewage, finding and fixing leaks early, and engineering crops for harsh conditions, can make the desert bloom. Similarly, carbon pricing, although working quietly and largely out of sight, can serve as an integral part of a whole set of measures, such as performance standards, regulatory reform, and green industrial policy, which together can achieve the goal of deep decarbonization.

So why all the skepticism? Here are what I see as the main points at issue between the proponents of carbon pricing and their critics.

Economic and Personal Freedom: Test Driving Cato's Human Freedom Index

December saw the release of the 2020 edition of the Human Freedom Index, published jointly by the Cato Institute and the Fraser Institute. The index is a massive effort that combines an Economic Freedom Index developed by the Fraser Institute with a separate index of personal freedom compiled by Cato. The freedom indexes and the data behind them are a treasure trove for data junkies like me. This commentary takes the data for a test drive by exploring a key finding of the Cato-Fraser report: that economic freedom and personal freedom go hand in hand.

Economic and personal freedom: A first look

The Human Freedom Index comprises 76 individual indicators, divided into 12 groups. Five of the groups cover economic freedom: Size of government; legal system and property rights (LSPR); sound money; freedom of trade; and regulation. The remaining seven groups cover personal freedom, including rule of law; safety and security; freedom of movement; religion; association, assembly, and civil society; expression and information; and identity and relationships. 

Figure 4 in the freedom report is a scatter plot that shows a strong correlation between economic and personal freedom. My version of the chart looks like this:

The points in the diagram cluster around a positively sloping trendline, showing that countries with freer economies, by and large, tend also to enjoy greater personal freedom. Statistically, differences in economic freedom account for just over half of the variance in personal freedom.[1] Sweden has the highest personal freedom score, while Hong Kong has the highest economic freedom score.[2]

The analysis section that follows explores what goes on behind the scenes to produce the striking relationship between economic and personal freedom. In a concluding section, I make several suggestions for strengthening the economic freedom portion of the index. Readers who are willing to take my conclusions at face value without examining the statistical details of how I reach them can skip the analysis section and go directly to the conclusions.

The Case Against Premature Fiscal Austerity

 

A new Congress has convened. Soon the battle of the budget will begin. On one side will be the advocates of stimulus, who think the economy needs help to recover fully from the damage done by the pandemic. On the other side will be the deficit hawks, refreshed after their long slumber during the Trump administration. 

The case for a sharp turn toward fiscal austerity rests in large part on the idea that we are at the edge of a precipice, poised for a plunge into insolvency, default, hyperinflation, and who knows what other disasters. A new book from the Cato Institute, A Fiscal Cliff conveniently gathers the views of fiscal conservatives into a single volume. This commentary reviews some of the most common arguments for fiscal austerity and explains why they don’t hold up. 

Trust and Quality of Government in a Polarized Age

Kevin Vallier’s new book, Trust in a Polarized Age, has a clear message: Trust matters. If we want to combat the increasing political polarization that is bane of our times, we need to tend to the institutions on which trust depends, and which themselves, in turn, depend on trust. 

By trust, Vallier means two things: Social trust, “that trust which each member of a society has that other members of her society will generally follow publicly recognized moral rules,” and political trust, “that trust which each member of a society has that governmental institutions will follow fair procedures and produce positive results.” (p. 6) He sees the two as joined in a virtuous circle through the intermediary of good government: “Since social trust creates good governance and good governance creates political trust, social trust creates political trust by proxy.” And to close the circle, he maintains that institutions of good government, by enforcing trustworthy behavior, create conditions that favor political trust and build general social trust. (p. 214) 

By good governance, Vallier means liberal governance – in the sense of classical liberalism, not the American usage that makes liberalism a synonym for the political left. Yet, Vallier does not defend liberalism as an ideology. He focuses more pragmatically on five key liberal rights practices: freedom of association, markets and private property rights, social welfare programs, democratic constitutionalism, and electoral democracy. (p 277) His message is that if we embed these liberal rights practices in our institutions, trust will follow, polarization will recede, and a world in which politics is not war will become possible.

As someone engaged in empirical research on the quality of government, I found this all intensely interesting. Although Vallier’s book is primarily a work of political philosophy, I could hardly wait to fire up my spreadsheets to investigate the many hypotheses he suggests. Do trust, quality of government, and liberal rights practices really matter? Do they matter everywhere, or only in countries that are already liberal? The answer is that trust and good governance do matter, but the story is not always a simple one. Some of the patterns are quite complex, so the results reported in this commentary should be considered preliminary.