No Free Lunch to “Lift the Poor”

May 19th, 2014 at 2:05 pm

As I point out over at the Upshot, there’s a conservative meme I keep hearing, post-Piketty: Sure, let’s help those at the bottom.  But let’s not hurt those at the top.

As you see, I don’t think it can be done, but a few more points here to flesh out some of my own themes a bit.

First, some e.g.’s of the meme in action:

David Brooks: “…the historically proven way to reduce inequality is lifting people from the bottom with human capital reform, not pushing down the top.”

Greg Mankiw: “The question is how do we help people at the bottom, rather than thwart people at the t.”

Veronique de Rugy: “…why not try to increase access to capital for more people, especially for those in the bottom, rather than try to hammer the ones at the top?”

Marty Feldstein: “To reduce that persistent poverty we need stronger economic growth and a different approach to education and training, not the confiscatory taxes on income and wealth that Mr. Piketty recommends.”

Pushing down, thwarting, hammering, confiscating…it all sounds awfully harsh.

I suspect that the writers cited above as well as others will take issue with that claim of no free lunch—that actions to lift the poor require more revenue.  Here is my pre-emptive typology of such a view, and to be clear, there’s merit to some of these ideas:

Rising Tiders: If we just achieve more macroeconomic growth, we can lift the rowboats without sinking the yachts.  But that, of course, ignores the precise problem we’re facing: economic inequality, wherein growth eludes the poor and even the middle class.  See the recent numbers re growth and distribution I cite in the piece.  I’ve been a huge and unceasing advocate for stronger overall growth policies but in terms of lifting the poor, like I said: necessary but insufficient.  Also, there’s a lot of rising tiders who’ve advocated austere fiscal measures in recent years, which is antithetical to growth in demand constrained economies.

Free Lunchers: Simply unleashing the entrepreneurial spirit of the poor (de Rugy advocates “getting rid of occupational-licensing laws”), freeing them the clutches of unions and minimum wage laws, firing bad teachers, adding more charter schools will lift the bottom at no cost to the top.  The evidence actually suggests that less union power and lower minimum wages would hurt low-income, working families.  On the other hand, significantly improving public education is of course essential.  Reviewing the evidence on charters is beyond my scope here, but the idea that we can significantly improve the quality of publicly-funded education for free is surely wrong.

Behaviorists: If the poor would make better decisions in terms of staying in school and not becoming young, single parents, they’d be less likely to be poor.  No disagreement there, but while we’ve made real progress in reducing the number of teen births, social policy has proven to be ineffective when it comes to incentivizing marriage.  More importantly, unless more economic growth reaches the bottom, better family structure choices just mean more struggling two-parent families instead of struggling one-parent families.

Shufflers: We already spend $1 trillion a year on the poor; if we divided that up per poor person, we could lift them much higher without lifting a finger.

The idea that we could just reshuffle the deck on poverty spending and get a lot more poverty reduction sounds great…except that it’s totally wrong.

About half of that cool trillion consists of payments to hospitals, nursing homes, and other health providers through Medicaid, CHIP, and such.  And many of the beneficiaries, e.g., those in long-term nursing care, are not counted among the poor.  Medicaid accounts for about 40% of spending for end-of-life care, and many of those recipients were formerly middle class.

The big number also counts the value of benefits that go to non-poor (as well as poor) households, like the EITC, CHIP, and Pell grants.  In other words, we don’t spend anything like a trillion bucks a year on subsidies and cash transfers that raise the living standards of poor people.

To be clear, there’s no question that many of our programs that actually do target the poor lift millions of them out of poverty, but the implication of the quotes above, and I agree with them, is that we need to do more.  I list three areas in the Upshot post, including increased income/work supports, educational investments, and direct job creation.

We should of course keep working on bending the health care cost curve to reduce public (and private) health expenditures.  But that doesn’t mean we’ll spend less; it means the rate of growth will slow.

As I say in the piece, it would be nice if we could find the resources to further lift the poor under a plate at the free lunch counter.  But I don’t think they’re there.

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10 comments in reply to "No Free Lunch to “Lift the Poor”"

  1. Sandwichman says:

    Jared,

    I can’t recommend highly enough Dorning Rasbotham’s 1780 pamphlet, “Thoughts on the Use of Machines in the Cotton Manufacture. Squire Rasbotham styled himself “a friend to the poor.” Rasbotham’s argument begins with the affirmation that there is not so great a difference between the real interests of the rich and the poor and ends with the admonition that this would be a prosperous time for the poor, if only they weren’t so inclined to carry their money to the alehouse. Rasbotham’s rhapsody could serve as a template for all the modern conservative song and dance routines about “helping the poor.”

    When he wasn’t delivering tough love sermons, Rasbotham busied himself as a magistrate, sentencing recalcitrant workers to prison for violations of the oppressive terms of the Master/Servant Law.


  2. Robert buttons says:

    When the poor spend a much higher percentage of their incomes on necessary consumption (food, gas and clothing), the poor would be helped if those things were cheaper. So why are we not trying to create deflation instead of inflation?


  3. Per Kurowski says:

    Tax the 1 percent with no other changes, and all you will get is the 1 percent of the 1 percent becoming even wealthier

    http://perkurowski.blogspot.com/2014/04/avoid-merchants-of-poverty.html


  4. Smith says:

    Lets deal with Brooks, Mankiw, de Rugy, and Feldstein (these are the same links from the blog post above)

    http://www.nytimes.com/2014/04/25/opinion/brooks-the-piketty-phenomenon.html
    In the 11th paragraph Brooks writes:
    “Piketty wouldn’t raise taxes on income, which thriving professionals have a lot of; he would tax investment capital, which they don’t have enough of.”
    Actually no. A central tenet of Piketty is to raise marginal rates on income (80% at $1,000,000, 50% at $200,000). Politically one should always couch this in terms of restoring rates, to Eisenhower era. Not only did Brooks seemingly neglect to read the book, but he and his research assistants appear woefully unprepared or apprised of what Piketty advocates.

    http://onpoint.wbur.org/2014/04/29/piketty-mankiw-inequality-america-middle-class
    In the third excerpt, Mankiw’s is saying:
    ”The question is how do we help people at the bottom, rather than thwart people at the top. I would much rather see, rather than policies that taxed capital if people accumulate too much, I’d rather see policies that encourage people at the bottom to accumulate capital. For example, things like automatic enrollment in 401K plans so that the typical worker out there when they get a job can put some of that away and they can become capitalists as well.”
    It seems like since the poor can’t get by without government assistance, and their income declines, lets encourage them to save money. With scarce resources, it’s probably a good idea to put money in the stock market rather than better housing, food, a car, or reducing debt payments anyway. Plus the example of everyone below the 1% with stagnant wages and increasing inequality already shows how effective this is.

    http://www.nationalreview.com/corner/376494/whats-wrong-pikettys-answer-inequality-veronique-de-rugy
    Second paragraph de Rugy states:
    “But if everyone recognizes that people who own wealth are in a better position than those who don’t, and that this advantage is cumulative over time, why not try to increase access to capital for more people, especially for those in the bottom, rather than try to hammer the ones at the top?”
    This is similar to the Mankiw, except the wording better shows how ridiculous the position is. It says wealthy people are wealthy so just have everyone else act like they are wealthy too. This is hardly a rational strategy. The same goes for middle class whose income is stagnant or declining. It is because of the wealth, the wealthy have capital to invest and not the other way around. Though there is a feedback loop, you start with the capital which originates with excess income (even for inherited wealth). Which is why Piketty does not ignore income. The critics do because wealth tax is novel for the U.S. and to quote myself “That will get their attention.”

    DeLong and de short of it. Here is Brads take on Feldstein.
    http://equitablegrowth.org/2014/05/17/think-time-marty-feldstein-stop-writing-things-wall-street-journal-op-ed-page/
    Lest we miss any of Marty’s brilliant insights behind the WSJ paywall, here is an accessible reprint from NBER:
    http://www.nber.org/feldstein/wsj05152014.html
    From the sixth paragraph:
    “The tax data therefore signaled an increase in measured income inequality even though there was no change in real inequality.”
    So it turns out a major component of Feldstein’s critique is that inequality was really much worse before 1980 and 1986, but Piketty’s data doesn’t reflect this. I don’t get this, but this begs the question that should be addressed to all like defenders of the status quo, “Ok maybe your right, so tell us then, when DID you start beating paying your fair share of taxes?”

    The idea behind confiscatory rates is that only by stopping excessive income with tax rates can a market outcome that spreads distribution more equitably begin to occur. It removes the powerful incentive for the wealthy to overindulge and reward themselves leaving nothing left for anyone else. Only the government is powerful enough to do this. It is a market outcome in the sense that maximum levels of compensation are not mandated. Having the money not taken by someone else is a prerequisite for the 99% in conjunction other policies that promote greater equality to stop the slide backwards and share future gains of a vibrant economy.


  5. jeff says:

    We all know that David Brooks has no idea what he means by “human capital reform”, but we must nod our head thoughtfully.

    It is pure sloganeering.


  6. Brett says:

    As I point out over at the Upshot, there’s a conservative meme I keep hearing, post-Piketty: Sure, let’s help those at the bottom. But let’s not hurt those at the top.

    Considering it’s either people at the top or people in the top 1% who are saying this (Brooks, Mankiw, and Feldstein certainly are), I’d just take it as the rationalization of self-interest in avoiding higher taxes. Which is . . . okay, since poor and middle class people are certainly looking out for their own self-interests as well. But there are a lot more of the poor and middle-class who can be helped at comparatively trivial cost to the rich in terms of their lifestyles and livelihoods.


  7. Benedict@Large says:

    Come on, Jared. Congress is authorized by the Constitution to create money for whatever purpose and in any amount at any time. If we want to help the poor with government-funded programs, we simply do not need to raise taxes to do so. And as for people who claim this would cause inflation, I would remind them that the Quantity Theory of Money is a special case which presumes ZERO unemployment, a situation that simply has never existed. In other words, “printing money = inflation” may be a nice right wing talking point, but in this world, it’s crap.

    Look, I’m all for raising taxes on the rich. I’d put them all the way back up to 90%, in fact. But if we on the left are going to wait around for the rich to let us raise taxes on them in order to fund liberal programs, both we and the poor will be waiting until the end of time. Either we on the left get used to the idea of printing money for our programs (something the bankers are not shy about), or we might as well kiss our social safety net and the American economy good-bye.


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