Paul Ryan's Poverty Report -- A Disappointment

Earlier this week the House Budget Committee, chaired by Congressman Paul Ryan of Wisconsin, came out with a report titled The War on Poverty: 50 Years Later.  The Report has generated a lot of commentary, on both left and right, most of it -- from both sides -- unfavorable.  I'll join the commenters from the right in giving a less than rave review.  There is much useful information in here, but overall a shortage of vision. 

But let's start with the useful information.  More than anything else, this Report is an attempt to catalog every federal anti-poverty program, what it does, how much it costs, and whether it works.  The count of programs is 92, and the count of annual federal spending is $799 billion.  Just looking at the vastness of the federal anti-poverty effort, together with the overlap, inconsistency, and multiple bureaucracies stepping on each others' toes, is something of an eye-opener.   The $799 billion of spending will not surprise readers of this blog.  In the Report, we slog through the programs one by one for almost 200 pages.  The discussion of each program includes a section called "Evidence" where, often, scholarly publications that have studied the program are cited.  Generally, the "evidence" of success or failure is either lacking completely or is cited to the effect that this program does not accomplish much.

Despite the large effort to compile this Report, there is good reason to think that it is not comprehensive.  For example, a section on Education and Job Training programs, starting at page 21 of the Report, identifies 24 such programs, at an annual cost of $94.4 billion in 2012.  Well, that's a start, but actually GAO identified 47 federal job training programs in 2011, which is why VP Biden was just designated in February to head a task force to rationalize the mess.

But the biggest problem with this Report is that its format is such as to make it a fairly easy target for left-wing critics, while at the same time missing the obvious points to which those critics have no answer.  Academics who study anti-poverty programs are virtually uniform in their political support of the programs, and thus trying to cite their work as evidence against the programs is fraught with problems.  Unsurprisingly, many of the academics whose work is cited as evidence of the ineffectiveness of these programs have spoken up to say that their work has been used inappropriately.  A publication called the Fiscal Times for a March 4 article contacted several academics whose work was cited, and all of those quoted criticized the Ryan Report for misusing their work.  (Of course, FT may have omitted citing others whose views were favorable to Ryan.)  Meanwhile other critics have piled on.  Official Manhattan Contrarian Worst Economics Writer Paul Krugman called the Ryan Report a "con job."

Ryan's committee should have saved the huge effort of compiling these data and stuck to the obvious.  The obvious is that "poverty," by official federal definition, is a monetary problem.  "Poverty" means less than about $6000 of "income" (varying somewhat by family size) for a person for a year.  And the population defined to be in "poverty" already has about half the income it would need to get across the thresholds.  By the official definition, approximately 45 million people in the United States are deemed to be "in poverty."  Do a little math and you reach the obvious conclusion that, by the official definition, "poverty" can be completely cured in the United States by the expenditure of about $150 billion per year.  And yet we are spending more than five times that, some $799 billion per year, only to have 45 million people still in "poverty."

I don't know that it would end the debate over "poverty," but that debate would certainly be fundamentally transformed by the simple device of converting about $150 billion per year out of the $799 billion into cash grants that are in a form that is allowed to count in the measure of "poverty."  Given the vast level of spending, there is absolutely no excuse for not spending the first dollars in a way to eliminate "poverty" as we have officially defined it.

Meanwhile, the Ryan Report continues substantially to buy in to the idea that everyone deemed to be "in poverty" by federal statistics must be somehow going through some real deprivation.  Only if you get all the way to the appendices at about page 200 do you find out that "consumption and income are not strongly correlated. . . .  [and] families in the bottom 20 percent often consume far more than their income."  But they make no attempt to draw out what this means -- namely that there are large numbers of clearly non-poor people included in the official "poverty" statistics, such as advanced-degree students with student loans and fellowships, 20-something slackers supported by their parents, and early retirees consuming savings.  When is someone going to look at those things to determine how distorted these official numbers are?  That would have been a far more valuable exercise than what Ryan's committee has produced.

How Is Raising The Minimum Wage Going To Help This Guy?

On Monday nights I have a somewhat longer subway ride home than other nights, and on an express train that goes several minutes between stops.  And thus last night I found myself one of the recipients of an unusually long request for money from a young man with a sad life story. 

Now, granted that you can't take everything that these guys say at face value.  Still, some things you can tell by observation.  For example, he was in his twenties, and he was not taking good care of himself.  The initial pitch was pretty standard fare ("I'm homeless and hungry and really need your help.")  But that pitch didn't garner a single contribution from what was a fairly full car.  So after going the length of the car and back with his cup, and with plenty of time to the next stop, he proceeded with a monologue about his life's travails -- how his mother had abandoned him at a young age, how he had been abused for years in the City's foster care system, how he had then been mistreated in the shelter system, and finally, how we had no idea how hard it was for him to get out here every night and work the subways to try to get some scratch.  

Of course, that last pitch didn't really support the immediate aim of getting contributions -- Even if somebody gave him a relatively large contribution, it would only mean that maybe he could take tomorrow off; it wouldn't mean that he could stop working the subways.  To achieve that, he would need a job.  And here's the problem:  This is a guy who, in his current state, is very, very difficult to employ.  I can say with high confidence that in the huge Manhattan business community of major employers -- banks, financial institutions, law firms, accounting firms, publishers, advertising agencies, and on and on -- there is no job for this guy.  Even McDonald's would be an extremely tough sell.  He needs a bottom-of-entry-level job where you learn that you have to show up and look presentable to get paid.  Maybe a bodega; maybe a delivery service; maybe laborer at a construction site.   His hope is that some small, struggling business that can't hire anybody better will take a big risk on him.

"Taking a risk" is really the key concept.  It's not about some abstract concept of marginal productivity exceeding his wage.  As an employer, this guy could very easily cost you money.  He is highly likely to have a history of drug use.  He could fail to show up on the day you have no one else; or he could steal from you; or he could fake an injury.  This guy needs to find someone willing to take those very real risks.  And that means being given the right to sell his labor cheaply enough to induce someone to do it.

This is exactly the guy who needs a way to find an exit out of his current poverty trap.  He needs to get started now in order to have any hope of moving up over time.  Now, how is raising the minimum wage going to help him?  It's just a fantasy to think that guys like this are suddenly going to make $10 or more per hour because the government has decreed that to be the wage that must be paid.   Such a decree will only keep this guy from ever getting on the first rung of the ladder.  The last thing that an owner of a bodega or a delivery service is going to risk is a Department of Labor investigation over minimum wage violations.  Just an investigation would quickly put such a business under.  The higher you raise the minimum wage, the more certain you make it that this guy is condemned to continuing his life of begging on the subways or the equivalent.  Drug dealing, anyone?

Meanwhile, the guy is getting plenty of other "help" from our City's many well-intentioned "helpers."  He admitted in the monologue to having received foster care and homeless shelter services.  Of course, those things came with "abuse" (he didn't say whether physical, psychological, sexual, or other; maybe all of the above).  And since he did not appear emaciated and was clearly together enough to ask for what he can have for the asking, it's hard to imagine that he does not receive food stamps and Medicaid.  Although he didn't put it in these words, the real takeaway of his monologue was that all those things just add up to a trap that leaves him abused and with begging on the subways as his best option to get any money to actually spend.

Of course, we are in the process of doubling down on the suite of policies that got this guy into his spot. 

Tax Reform And The State/Local Income Tax Deduction

Despite their constant focus on "inequality," do you ever notice that you don't see Democrats talking much about income tax reform?  There's a simple reason for that.  All income tax reforms are a variation on the same theme, which is some combination of lower marginal rates and fewer "loopholes."   In the current tax regime the "loopholes" turn out mainly to benefit the rich constituencies of the Democratic Party.   Best to keep quiet about that. 

The broad definition of a "loophole" is a deduction you don't like.  If by "loophole" you mean something that's obviously abusive (as opposed to a legitimate disagreement over policy), they actually got rid of the most expensive and abusive of those over the course of the last 30 years, particularly what we used to call "abusive tax shelters."  Today, there are buried in the tax code plenty of special giveaways to one company or industry or another, but no one of them has big money associated with it.  If you're looking for big money, you have to look at the big money deductions.  And the big money deductions primarily go to the members of the top 1% who live in the big blue states and support the Democratic Party.

The big two here are the deduction for mortgage interest and the deduction for state and local taxes.   The mortgage interest deduction costs the Treasury some $70 billion per year, according to data from the Joint Committee on Taxation for 2013 cited here.  The state/local tax deduction (both income and property) costs the Treasury even more, $77 billion per year, per JCT data cited here.  The benefits of both are highly concentrated among the wealthiest taxpayers, but the benefits of the state/local tax deduction are further heavily concentrated in the high income tax states.  In other words, any mention of the state/local tax deduction is a mortal threat to California, New York, New Jersey, Connecticut and Illinois.

I think this is a rather obvious issue, yet it's amazing how little attention it gets.  Then again, our incumbent media do have an agenda.  Back in November 2012 I wrote a couple of articles on the subject, here and here, in the context of the presidential campaign.  Romney was talking at the time about tax reform, including elimination of deductions, although he never was specific about which deductions.  But you don't have to look far before you realize that the state/local tax deduction would be first on the chopping block.  Then, when the election was over, the issue died.

Now along comes Dave Camp, Chairman of the House Ways and Means Committee, with his own big new tax reform proposal.   There's lots to it, and I can't discuss everything.  But perhaps the single biggest item is total elimination of the state/local income tax deduction.

Now, living here in Manhattan and paying rather large state and local taxes myself, I do have a self-interest in this.  But I must admit that this is rather a perfect issue for the Republicans.  The concentration of the benefits of this deduction in a few big blue states and on a few of the highest income taxpayers in those states is really quite remarkable.  According to an August 2013 article from the Committee for a Responsible Federal Budget, citing CBO data, 30% of the benefits of this deduction go to the top 1% of taxpayers, and 49% to the top 5%.  Among states, California taxpayers gets 17.2% of the benefits  (with 11.9% of the population), New York gets 13.3% of the benefits (with 6.2% of the population), and, at the other end, Texas gets 4% of the benefits (8% of the population) and Florida gets 2.9% of the benefits (6% of the population).

So are Democrats engaged in protection of their very highest-earning taxpayers (and contributors) in the very bluest of states when they protect this deduction?  Absolutely.  Moreover, the deduction can fairly be viewed as a big wealth transfer from the likes of Texas and Florida to California and New York.  I can't see why it's not fair to point that out.

Meanwhile, the very valuable Mercatus Institute is out with a recent (January 14) study called "State Fiscal Condition: Ranking the 50 States."  It's a fairly complicated methodology that combines four different measures.  But when you get to the bottom line the funny thing is, the high tax big blue states all come out at the very bottom in "fiscal condition."  (45 - New York; 46 - California; 47 - Massachusetts; 48 - Illinois; 49 - Connecticut; 50 - New Jersey).  Wouldn't you think that with their far higher taxes (plus the big boost from the Feds hidden in the deductibility of those taxes at the federal level) they would have far better ability to pay the bills?  But it turns out that they just spend the money as fast and faster than they take it in, mostly on favored union constituencies.  In the current political environment in New York, the public employee unions own the place.  And that's not going to change without a big kick in the pants from outside.  Elimination of the state/local tax deduction anyone?

At The New York Times, Still Shilling For Castro

It's beyond belief, but the front page of the print edition of the Sunday Review section of today's New York Times has yet another story glossing over the horror of the Castro repression in Cuba.  The article, titled "The Cuban Evolution," was written by one Damien Cave.   The sub-headline is "The island nation is slowly starting to catch up with the rest of the world."

Literally everybody with a pulse in the world today knows about the extent of the repression in Cuba, and that tourists are shown a fake patina that is not representative of the actual lives of the people.  Yet somehow the New York Times has yet again found someone without a pulse to report an upbeat story on how good things are there.  Or is it just another example of intentional deception of the readership?  Well, you decide.

As background, a serious reporter named Michael Totten has just in the past few weeks gone on a tour of Cuba and sent back a couple of dispatches, The Lost World Part I, (January 20) and The Lost World Part II (January 27).  If you actually want to understand a little of what is going on in Cuba today, read these and keep away from the fraudulent New York Times.  Totten reports what you would expect from the unremitting totalitarianism:  the people constantly spied on by agents of the state, intentional enforced poverty, persecution of anyone who attempts to get ahead even slightly.  Here's just one short excerpt out of many:

The government imposes a Maximum Wage of twenty dollars a month. These people have been crushed into poverty and are kept there by force. The restaurant is strictly for foreigners from nations with minimum wages rather than maximum wages.  . . .   Beef is reserved for the elite and those who get tips from tourists or remittances from abroad. A Cuban who kills a cow is supposedly in big trouble. “You’ll be charged with murder,” one person told me. I’m not sure what that means, exactly, and the closest I can come to verifying it is an article in The Economist published in 2008. “In a place that before 1959 boasted as many cattle as people, meat is such a scarce luxury that it is a crime to kill and eat a cow.”

Well, now let's send the ultra gullible (or is it stupid?  or both?) Mr. Cave into Havana and see what he comes up with.  Mr. Cave goes to a bar called Sangri-LA in a Potemkin Village tourist area of Havana and asks the guy sitting next to him "for his take on Cuba's changes."  The guy responds "I'm not saying a word."   Later Cave talks to a "well-known 90-year-old artist" in the Miramar area who says that "her entire block had changed in the last year or two. . . .  It's all so unstable."  To Cave, that "certainly helped explain why no one at Sangri-LA would talk to me."  Really, is it possible to be this willfully stupid?  Oh, by the way, the artist "asked that I not use her name."  Has it occurred to this guy that when people in Cuba say things to New York Times reporters that reflect badly on the regime they end up imprisoned or killed?

Walking down the beach, Cave runs into a twenty-something guy talking on an iPhone 3S, cost $120.  Cave quotes the guy as saying, "Before, we were in this technological bubble, but it's getting better."  Does Cave have any comprehension of what it means that this guy has a $120 phone in a place where the maximum wage is $20 per month?  Also, does Cave really think that what this guy says can be taken at face value? 

And then, undoubtedly after consulting the New York Times stylebook for what must be said on a trip to Cuba, Mr. Cave utters this howler:  "[T]he inequality was nowhere near what could be found in pre-Castro Cuba or the United States."  Where did he get the statistics to back up that one?  Forbes Magazine several years ago estimated Fidel Castro's personal wealth at $900 million, and that's in a country with a $20 per month maximum wage.  That makes inequality in the U.S. look rather paltry by comparison.  Comment, Mr. Cave?  By the way, Castro's response to the Forbes calculation of his wealth was that his wealth is zero because he really owns nothing and it all belongs to the people.  So none of the palaces count!

Of course, there is a way to have a kind of income equality among the non-elite, and that is to prevent by force anyone from getting ahead even a little.  Thus Totten reports on ubiquitous police checkpoints where people are searched to see if they have forbidden items of food, such as beef or lobster:

Police officers pull over cars and search the trunk for meat, lobsters, and shrimp. They also search passenger bags on city busses in Havana. Dissident blogger Yoani Sanchez wrote about it sarcastically in her book, Havana Real. “Buses are stopped in the middle of the street and bags inspected to see if we are carrying some cheese, a lobster, or some dangerous shrimp hidden among our personal belongings.”  If they find a side of beef in the trunk, so I’m told, you’ll go to prison for five years if you tell the police where you got it and ten years if you don’t.

Looks like Cave didn't notice that aspect of Cuban life.  Overall, another big embarrassment for the New York Times, but at this point they really are beyond embarrassment.

What Is The Goal In The Gentrification Wars?

As if on cue from my article on February 19, the anti-gentrification warriors have sprung forth with a major offensive.  But what exactly is their goal?

Forgive me for thinking that the big problems in America today are "poverty" and "income inequality."  Where did I get that idea?  Maybe from Bill de Blasio (November 5, 2013: "That [income] inequality . . . is the defining challenge of our time."); or maybe it was from Barack Obama (December 4, 2013:  "[A] dangerous and growing inequality . . . is the defining challenge of our time.").  I could quote many other left-wing activists to the same effect; in fact, many use the exact same words.

And now we have the horror of real estate investors and white would-be homeowners going through Fort Greene, Brooklyn and offering $1 million and up for homes owned by mostly African Americans who bought these houses often decades ago for under $100,000.   The New York Times describes what's going on in an article from February 26 by Vivian Yee:

All of David Crouch’s longtime neighbors on stately Adelphi Street in Fort Greene, Brooklyn, have the same story: the phone calls or the mailings or the knock on the door, week after week, with the same coaxing question and the same shimmering offer.  How would you feel about selling your home?  What if we paid you more than $1 million for it? . . . . The real estate agents and developers who come knocking at Mr. Crouch’s four-story brick house have already won over most of his neighbors — most, like Mr. Crouch, the children and grandchildren of people who bought their houses for $60,000 or $70,000 when Fort Greene was crumbling and unwanted, except by black buyers. Now the holdouts on the block are him, his next-door neighbor and two across the street. Everyone else is a newcomer, and mostly white.

Hmmm.  A substantial number of newly-minted African American millionaires, making their money by smart and well-timed investment in a private market and without need for government assistance or subsidy.  How about that as a way to reduce income inequality?  Well, famed film director Spike Lee, himself a native of Fort Greene, reacted on February 25 in a speech at Pratt Institute (itself just a few blocks from Fort Greene Park).  In the speech, Lee launched for several minutes into what many have fairly described as a "rant" against gentrification and gentrifiers.  Here is an excerpt:  

Then comes the m . . .f. . .ckin’ Christopher Columbus Syndrome. You can’t discover this! We been here. You just can’t come and bogart. There were brothers playing m. . . f . . . ckin’ African drums in Mount Morris Park for 40 years and now they can’t do it anymore because the new inhabitants said the drums are loud. My father’s a great jazz musician. He bought a house in nineteen-m . . .f . . . kin’-sixty-eight, and the m . . . f . . . ckin’ people moved in last year and called the cops on my father. He’s not — he doesn’t even play electric bass! It’s acoustic! We bought the m . . . f . . . ckin’ house in nineteen-sixty-m . . . f . . . ckin’-eight and now you call the cops? In 2013? Get the f . . . k outta here!  Nah. You can’t do that. You can’t just come in the neighborhood and start bogarting and say, like you’re m . . . f . . . ckin’ Columbus and kill off the Native Americans. Or what they do in Brazil, what they did to the indigenous people. You have to come with respect. There’s a code. There’s people.

Ms. Yee of the Times, who describes the rant, says that Mr Lee "blasted a dictionary's worth of unprintable words."  Actually no, unless Mr. Lee's dictionary consists of only one word repeated over and over -- seven times in just the one paragraph quoted above.

The gist of the rant is well captured in the pithy phrase "Get the f . . . k outta here!"  How dare you offer an economic transaction that will turn an African American into a millionaire!  Meanwhile, of course, Mr. Lee thinks it's perfectly OK for himself to get rich by economic transactions, including specifically buying and selling real estate.  At this very moment, his Upper East Side Manhattan townhouse is on the market for $32 million. 

Oh, and the Daily News points out here on February 27 that in the 60s (when Mr. Lee's parents and other African Americans bought into Fort Greene at low prices) "[t]he area surrounding the park was largely Italian."  So should the African Americans have been allowed to buy then, or no?

Further to the gentrification wars, check out the news from Portland, Oregon.  There the trendy grocery store chain Trader Joe's planned to lease a new store in a strip mall to be built on a vacant lot in a predominantly African American neighborhood.  But then, according to the Pittsburgh Courrier here, the Portland African American Leadership Forum came out in opposition on the ground that the store would "displace residents and perpetuate income inequality" because it would "increase the desirability of the neighborhood for non-oppressed populations."  A letter from the group to city officials said that it would "remain opposed to any development in north-northeast Portland that does not primarily benefit the Black community."  Trader Joe's then withdrew the proposal for the store.

I think these people don't even realize that income and wealth are the result of economic exchange.  How are low income people, including many African Americans, expected to raise their incomes if they are not allowed to participate in economic exchange like everyone else?

How Worried Should We Be About Russia?

Let's face it, the world is an awful place, filled with awful countries.  I tend not to write much on the foreign policy front because there's not much more than that to write.

The unbelievably good news is that the more awful a country is, the faster and more thoroughly it fails in our modern world.  In fact, there's almost a perfect correlation between the awfulness of a country's government and the failure of its economy.  At the bottom, think North Korea, Cuba, Iran, Venezuela.  And at the other end, think Singapore, Switzerland, and even the United States (for now).  There's a very simple reason for this:  Economic success comes from investment and exchange.  The more a government asserts arbitrary control over the people, the less investment and the less exchange, and voila! -- failure!

There are always countries out there to worry about, and I'm certainly not advocating an end to diligence toward the threats of the world.  Recently at the top of the list of countries seeking to act as threatening as possible is Russia.    Here is an article today from John Hinderaker of Powerline on some recent behavior coming out of Vladimir Putin's regime.  Hinderaker chronicles antics including sponsoring armed insurrection in the Russian-speaking parts of Ukraine, openly looking for new military bases around the world to expand its military reach, and even sending a military intelligence ship full of eavesdropping equipment to dock in Havana, Cuba.  Most remarkable is the account of the invasion today of the parliament building in Crimea (part of the Russian-speaking portion of Ukraine) by what appears to be an armed Russian paramilitary force:

“More than 120 armed men entered the Crimean Supreme Council and the Crimean government. These professionally trained people are armed. They brought weapons – automatic weapons, grenade launchers, and machine guns,” Kunitsyn said….

Granted, Russia has some serious military capabilities, including a lot of nukes.  But when you get right down to it, they have an overwhelming problem, namely a limited crony-capitalist economy that doesn't look to be going anywhere soon.   If you invest money there, nobody trusts the government not to steal it; so investment is way below where it should be.   An article here at Ria Novosti Business quotes Putin in October 2013 as bragging that foreign direct investment in Russia had reached $55 billion for the first half of 2013.  Oh, but wait:  The same article cites figures for "capital flight" from Russia, peaking at $133.7 billion in 2008 and still continuing $80.5 billion in 2011 and at $56.8 billion in 2012.  Seems like, by the time you take everything into account, they're losing ground.

Economic "growth"?  They eked out 1.3% in 2013 according to Bloomberg here.  That represented the fourth consecutive year of economic "deceleration," according to the article.  It quotes Economy Minister Alexei Ulyukayev on January 29 as admitting that Russia "is struggling amid meager growth in investment." 

And then there's the small problem of population.  According to LifeNews.com, "Russia Suffers From Devastating Underpopulation."  The population peaked at almost 149 million in 1991 at the fall of the Soviet Union, and has since fallen to under 144 million.  The total fertility rate at 1.7 is better than much of Europe and Asia, but not enough to maintain population.

You need population and economic production to support military spending.  According to a Wikipedia list of military spending by country for 2013, Russia spent $90.7 billion, which was 4.4% of its GDP.  The U.S. spent $682 billion, also 4.4% of GDP, but 7 1/2 times what Russia spent because the economy is 7 1/2 times larger.

I can easily see why Russia's immediate neighbors, like Ukraine, have reason to be concerned.  For that matter, Russia can well cause some trouble in nearby places like Iran and even Syria.  But I don't see how they become an increasing player on the world power stage unless they can do something about their population and their economy.   To achieve those kinds of goals, Putin's power games and bullying are a serious negative.