A proven way to reduce poverty? Give poor people money
Poverty is such a longstanding, deeply-rooted problem that it’s hard to believe there could be a relatively straightforward way to address it. But here’s one: Give poor people money.
That’s a highly controversial idea here in the United States, where so many social programs are focused on helping people find work, rather than offering them services or sending them checks.
But elsewhere around the world, things work differently. Virtually every developed nation has a lower poverty rate than the US. That’s not because all their citizens have jobs and earn a decent living. It’s because they provide direct assistance to those at risk, in the form of cash, housing subsidies, pensions, and child benefits.
How do other countries fight poverty?
By collecting taxes and distributing the money to people who need it. And it really does seem to work.
One way to see the central role tax-and-transfer programs play is by looking at what would happen if they didn’t exist. In other words, how many people would be living in poverty if they had to survive on their paychecks alone?
It turns out that even in famously egalitarian European nations, lots of people would be left with poverty-level earnings if it weren’t for government support. One in every three people in France and Germany would be living in poverty, one in four in Sweden and Denmark. And by this measure, the United States fits right in, with a poverty rate of 28 percent.
No one, in other words, has been able to tackle poverty by building an economy that works for all involved. Yes, European countries tend to have higher unionization rates, tighter business regulations, and other mechanisms to ensure that workers get a meaningful share of the profit pie. But what the above chart shows is that if people had to rely on salary alone, poverty would be a massive social problem.
Now, look at what happens when you count government programs. Suddenly, the United States becomes an outlier, with a poverty rate 50 percent higher than the UK and Canada, twice as high as Germany, and three times that in Denmark. Tax and transfer programs in the United States just don’t have the same anti-poverty bite.
Doesn’t giving people money reduce their incentive to work?
There are certainly times when welfare programs interfere with work. Take the Affordable Care Act (aka Obamacare), which made it easier for people to get their own insurance coverage. With the act in place, people don’t need to have a job just to get health insurance, and consequently fewer people choose to work.
Yet, most people in poverty don’t really face this trade-off. Matt Bruenig, a poverty researcher at the liberal research center Demos, pored over the numbers and found that the majority are either kids, the elderly, or those with disabilities.
Of the rest, another big chunk are students. And it’s not clear that pushing kids, students, the elderly, and the disabled into the workforce — under penalty of poverty — would be good for them, or for the economy.
But you can’t give kids money, can you?
When it comes to addressing poverty among the elderly, the US takes the direct approach of just sending people money. It’s called Social Security, and it’s the most powerful anti-poverty program that we have, helping millions of seniors each year and driving the elderly poverty rate down from 35 percent, in 1960 to around 10 percent today. (In case you’re wondering, social security is very much an anti-poverty program, not just a forced savings vehicle. For years, most retirees have gotten more than they paid in, though future retirees may not be so lucky.)
Kids in poverty require a whole different approach. You can’t just deposit money in their bank accounts. Often, you have to route it through their parents, which makes things more complicated.
How, for instance, to ensure that the money is used to help kids, and not siphoned off for the pleasure of parents? This is one reason many states — including Massachusetts — place restrictions on how welfare benefits can be used: no spending on alcohol, tobacco, or lottery tickets, for instance.
But a study came out last month suggesting that some of these concerns may be overblown. It looked at poor, Native American families in North Carolina, who started receiving checks after the opening of a casino. The results were clear and positive. Parents drank less and spent more time with their kids — some were able to move to better neighborhoods. The kids, too, saw real benefits, including a large reduction in behavioral problems.
Can education help reduce poverty?
Education gives people valuable skills, which makes them more productive at their jobs. And having lots of productive, highly-skilled workers should help boost the economy and generate more money for everyone, including those at risk of falling into poverty.
Having said that, we’ve done a lot to improve education over the last 50 years. Three times as many adults hold a college degree, today, compared to the mid-1970s. Yet the market poverty rate — leaving out government programs — has actually gone up.
Is it really possible to tame poverty?
Over the last few decades, the United States has been experimenting with new kinds of anti-poverty measures, with an eye on helping people find work. We’ve expanded programs like the earned income tax credit, which go to working families, and changed our welfare system to encourage job-hunting.
These sorts of programs have their benefits — the earned income tax credit helps millions of Americans. Still, most countries take a different approach, and get better results. Judging from the rest of the world — and the effectiveness of Social Security — sometimes the best anti-poverty programs are the ones that provide direct support.