No Subject Generates More Ignorance Than Poverty

Back in the 90s when welfare reform got enacted, a chorus of cries went up from the Left, loudly proclaiming that the heartless cutbacks would throw millions of innocent children into poverty and starvation.  Even New York Senator Daniel Patrick Moynihan, justly famous prior to that time for educating people on the destructive effects of welfare dependency, joined the chorus.  In early 1996 Moynihan took to the floor of Congress to deliver a famous speech opposing the welfare reform then about to be passed.  Here are some excerpts (from a March 1996 article in First Things):

Welfare reform proposals in Congress, especially provisions to put time limits on the reception of benefits, “will produce a surge in the number of homeless children such that the current problem of ‘the homeless’ will seem inconsequential,” declares Moynihan. Then comes the most stark and chilling statement of his counsel of despair: “I believe our present social welfare system is all but overwhelmed. . . . Hundreds of thousands of these children live in households that are held together primarily by the fact of welfare assistance. Take that away and the children are blown to the winds. [An] Administration analysis concludes that the welfare conference agreement [between House and Senate] will force 1.5 million children into poverty."       

Then the welfare reform became law, and to literally everyone's surprise, child poverty went down.  And not by a little.  A study by Heritage in 2003 found that the poverty rate for black children went down from 41.5% in 1995 to about 30% in 2000.  Here is their chart:

I will admit that I too was surprised at the time, but that's because this was before I started getting into the numbers and understanding how this works.  Then I studied up a little and learned how it works, and I had the aha! moment.  You can have it too.  Here's how it works:

The government "antipoverty" programs are specifically and intentionally designed to make absolutely sure that nobody who takes the handouts ever escapes from poverty.  Far and away most of the government handouts are either post-tax or in-kind rather than cash (examples: food stamps, public housing, Medicaid, EITC, clothing and energy assistance).  The official definition of "poverty" excludes all post-tax and in-kind benefits.  Then there are benefits distributed in cash, notably TANF and SSI.  These things count in the definition of "poverty," but the level of the handouts is very specifically and precisely set to be sure that it is always just below any applicable poverty thresholds.

Now why would the government intentionally design "anti-poverty" programs to keep the level of measured "poverty" up?  Do you think that it doesn't make any sense?  If so, then you understand nothing about how bureaucracies work.  In fact it makes perfect sense.  If the number of people in "poverty" actually shrank, then the public's willingness to support huge anti-poverty spending would shrink, and the bureaucracies would be threatened.  From the bureaucracy's perspective, it is absolutely essential that the number of people counted as being in poverty be kept high.

Meanwhile, simply working full time for the year, even at a minimum wage job, is sufficient to raise most people out of poverty (depending somewhat on family size and number of workers in the family).  When people get cut off from welfare, many go to work, and by doing so they exit the ranks of those counted as poor.  So actually, as soon as you understand how things are counted, it would be completely obvious that the 1996 welfare reform was going to lower poverty.  Similarly today, reductions in the number of participants in "anti-poverty" handout programs would absolutely lower measured poverty, and dramatically.  On the flip side, expanding handout programs will dramatically increase measured poverty.  Anybody who understands the first thing about this subject knows that.

And then we come to this editorial yesterday from Bloomberg News, titled "How to Cut Poverty Rates Right Now."  And, you guessed it, the proposed way to cut poverty rates "right now" is to increase participation in the handout programs.  What???

Why aren't America's public-assistance programs helping more people out of poverty? One important answer is that too many people who could benefit don't sign up. Just 32 percent of those eligible for welfare enroll, along with 64 percent for Supplemental Security Income. And nonusers are often the people who need help the most.              

It's almost beyond belief.  They think that the idea of public assistance programs is to "help people out of poverty"?  Nobody but nobody gets out of measured poverty by taking America's public assistance programs.  And they don't know that TANF and SSI levels are almost always insufficient to raise the recipients out of poverty -- while at the same time trapping those unfortunates on the easy elixir of handouts?  Could they be any more uninformed?  Yes!  Try this on the EITC:

[In a recent study]  three small changes -- repetition, simplification and disclosure of potential benefits -- persuaded 31 percent more eligible tax filers to claim the earned income tax credit. If the same changes were made nationwide, they could provide tax credits for millions more needy families.      

Wow -- they don't know that the EITC is deemed "post-tax" and does not count at all in the measure of poverty!  In fact, as things are counted, you could multiply the amount disbursed by the EITC by one million and not raise a single person out of poverty.  It doesn't count!  And these are people claiming to know what they are talking about and to make public policy prescriptions to the government!

In the many comments to the Bloomberg editorial, there is much back and forth on whether it is a good idea for a society to push citizens into taking handouts that they had previously done without even though entitled to take them.  That is a very reasonable issue to raise.  But there is literally no recognition or awareness that the government handout programs are intentionally designed to keep their participants in measured poverty.  Somehow, that most critical of facts just slips beneath everyone's notice.

So I'll close with this important quote from the 2013 book The Problem Of Political Authority, by Michael Huemer (page 220):

The general lesson is that if some part of government fails in its function, it will most likely be given greater funding and power.  Of course, the purpose of this is not to reward failure; the thinking would be that more money and power will enable the agency to solve the problem.  But the effect is that government grows when social problems grow, and thus it is not in the government’s interests to solve society’s problems.            

Hat tip, Don Boudreaux, Café Hayek