Inequality, Poverty, and Why We’re Definitely Not Broke

March 1st, 2012 at 4:22 pm

I participated in a debate this morning on the role of government in poverty reduction.  A couple of “curious” points came up from the conservative side which I keep hearing lately and which make little sense to me.

First, on inequality, Michael Tanner from the Cato Institute couldn’t understand why I kept going on about inequality.  It doesn’t have anything to do with poverty (Scott Winship of the Brookings Institution made a similar argument in a Senate hearing a few weeks back).  Tanner argued that if everyone’s income doubled, poverty would go down but inequality wouldn’t change, so inequality must not matter.

Um…ok…but that’s a total non-sequitur.  What’s been happening for most—not all—of the past 30 years is the pattern of real income growth you see here, from a recent CRS study.  Sure, if everyone’s income grew at the overall average of the first bar–20%–we’d have less poverty and less inequality.  But in the real world, average income grew 20%, fell 6% at the low end, and was up 60% for the top 1%.

Source: CRS, link above.

That’s how you get results like the ones shown here where the change in poverty over the past few decades is decomposed into the roles of growth, education, race, family structure, and inequality, the latter of which is the single largest factor.

In fact, for a few years in the latter 1990s, inequality between the middle and low end of the income scale actually compressed—the very top still pulled ahead, based on large gains in capital income.  But low wages actually rose at the rate of productivity growth for a few years there, something that hasn’t happened since.  And what happened to poverty rates in those years?  They fell quite steeply.

This isn’t rocket science.  If growth reaches the bottom, there’s less poverty.  If inequality diverts growth from the bottom, poverty goes up.

The other mishap in the discussion was the claim that we really can’t do anything to help the poor because we’re broke.

No, we’re not.  It is implausible to argue that the US economy will somehow stop growing.  No one knows how fast, but CBO has GDP growing about a third over the next decade (2012-2022), and that translates into per capita growth of about 22% (see EPI’s take on this here).

We may well be unwilling to raise the revenue we need to fight poverty, invest in poor kids, fix up our infrastructure, push back on climate change, and ensure secure retirements for our elderly.  But it won’t be because we’re broke.

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8 comments in reply to "Inequality, Poverty, and Why We’re Definitely Not Broke"

  1. Diane Wright says:

    This has been going on since Reagan’s first term – and why I switched parties.



  2. Michael says:

    When conservatives say that the US is bankrupt, they mean morally.


  3. pjr says:

    A bar of 10.4 percent growth in that chart would mean 1 percent growth per year, which would be inexcusably low by any standard. Only the top has been experiencing growth over the past three-plus decades that matches or exceeds gdp/cap growth, which itself hasn’t been impressive.


  4. Fred Donaldson says:

    The public good is confused with what’s “good for government” in a deliberate manner by many pundits and experts. Good public schools, public health, public childcare, public parks and libraries and public arts are wonderful virtues of a moral and fair society.

    To brand these goals as “government-controlled” masks the desire by some to spend nothing on anything that does not obviously benefit them.

    The very rich really don’t need public most things, as they can aford private schools, childcare, and even buy their own parks, libraries and in some cases, islands. Yes, they may need highways and an army to protect their goodies from foreign invaders, but they also can hire their own goons for personal or business use, and there is even a move to “privatize” our highways.

    With that attitude, why would they favor any taxes from their pockets to help government do its job? Pure greed is a pure ideology, and we must rigidly regulate our tax system properly to insure the public good and reduce the gross inequality today in the pursuit of life and happiness.


    • Michael says:

      Simply put, most conservatives disagree with you as to what constitutes a “moral” society — and fairness is among the things they despise.


  5. perplexed says:

    “It doesn’t have anything to do with poverty (Scott Winship of the Brookings Institution made a similar argument in a Senate hearing a few weeks back).  Tanner argued that if everyone’s income doubled, poverty would go down but inequality wouldn’t change, so inequality must not matter.”

    But what about the submerged part of the iceberg? This myopic focus on income inequality completely ignores the wealth inequality it produces, along with the effects of that wealth inequality on accelerating the process. While the lower income groups find it increasingly harder to save without a steep decline in their standard of living, those at the top see dramatic declines in their marginal propensities to consume and their share of the nation’s wealth accelerates. 2/3 of that wealth is now in the hands of 5% of the population, a statistic that should scare the daylight out anyone who has seen how oligarchies operate. This small group now decides how most of the wealth is invested; and they are wealthy enough now to insulate themselves from the effects of not investing in public resources that largely benefit the “lower classes.” By investing in lobbyists and politicians to control the government, and investing in monopolies provided by the government to keep prices high, they extract an ever increasing share of national income; not to consume, but to continue the wealth concentration process. Doing away with estate taxes guarantees the wealth of this “class” in perpetuity. The class war is over; its been won hands down by the 5%. We have a wealth Gini in excess of .84 and increasing. 50% of the country has 0 or negative net worth.

    -”The other mishap in the discussion was the claim that we really can’t do anything to help the poor because we’re broke.”

    The last statistics I saw showed that “we” had a net worth in excess of $57 trillion, 2/3 concentrated in the top 5% who largely insulate themselves from the problems caused by lack of public investment. Our government “appears” broke because that’s the way they want it to appear, and they have the power to make it happen.

    -”No one knows how fast, but CBO has GDP growing about a third over the next decade (2012-2022), and that translates into per capita growth of about 22%…”

    On average, every person in the country has one breast and one testicle. Averages, including “per capita” statistics can be very misleading things.


  6. Progressive Libertarian says:

    If everyone’s income doubled, poverty would go down? Like much of Cato/Libertarian economics, a “bit” simplistic. Like the poverty level wouldn’t also double. Doubling everyone’s income might have an impact on the costs of goods which might have something to do with the definition of poverty.


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