I’m thinking about the causes of poverty for an upcoming debate and in that context I often reflect on this chart.
The American debate on the causes of poverty places significant weight on the behavior of the poor, behavior that’s juiced up—in a bad way—by safety net programs. For example, the argument goes, anti-poverty programs that provide cash or nutritional (near-cash) benefits to poor peeps leads them to work less and thus leads to higher poverty rates than would otherwise prevail.
I deal with the work disincentive claim in great detail here—not much to it (as usual, pure supply-side explanations don’t explain much). Relatedly, there’s the set of cultural critiques associated with Charles Murray, e.g., the poor aren’t industrious enough, they lack the middle-class aspirations, and so on.
I think the international evidence is instructive in this regard.
The figure shows pre-transfer and post-transfer poverty rates among OECD countries (mostly the advanced economies). The former (pre-transfer) are the market-driven poverty rates, before the tax and transfer systems kick in.
Though there is variation across countries on the pre-transfer, or market poverty rates, they’re fairly close, and their average, excluding the US, happens to be the same as ours. After the tax and transfer system kicks in, however, the US has the highest poverty rate of all the countries in the sample. Our post-transfer poverty rate is 1.7 times that of the non-US average (17.1%/9.8%).
Now, there are as many different models for dealing with poverty and as many different cultural and religious proclivities as there are countries. But they all generate roughly similar shares of market poverty.
That suggests that what determines poverty differences across countries may not have much to do with the poor themselves or the disincentive effects of the safety net. And what determines the post-tax and transfer rates are of course, the taxes and transfers.
Obviously, poverty is a complex and multifaceted phenomenon. And no question, people engage in behaviors that contribute to their poverty. But simplistic explanations that largely implicate the poor themselves are woefully incomplete.
More to come on this topic.
Source: OECD, *Poverty thresholds: 50% of median income.