Poverty and Antipoverty Policies Before and After the Great Recession

1. Poverty and Antipoverty Policies Before and After the Great Recession Sheldon Danziger H.J. Meyer Distinguished University Professor of Public Policy August 8, 2012 Shepherd Higher Education Consortium on Poverty Clinton School of Public Service University of Arkansas-Little Rock

2. Overview • Changing views on why people are poor and what government can do to reduce poverty • Historical Trends—from a “Rising Tide Lifts all Boats,” to a “Gilded Age of Rising Inequalities” • Lessons from the Great Recession and the 2009 Stimulus • How to Reduce Poverty and Promote Opportunity in the Next Decade

3. President Johnson Declares War on Poverty, January 8, 1964 • “Americans today enjoy the highest standard of living in the history of mankind. But for nearly a fifth of our fellow citizens, this is a hollow achievement…. • We cannot and need not wait for the gradual growth of the economy to lift this forgotten fifth of our nation above the poverty line. We know what must be done and this nation of abundance can surely afford to do it.

4. Johnson continued: • “Today, as in the past, higher employment and speedier economic growth are the cornerstones of a concerted attack on poverty… But general prosperity and growth leave untouched many of the roots of human poverty.”

5. Perspectives on the Causes of Poverty • Economic Growth is necessary, but not sufficient • Poor are Victims of Circumstance beyond their control • Poor Have Unequal Opportunities • Lack of Income is the Problem

6. President’s Commission on Income Maintenance,1969: • “We have concluded that more often than not the reason for poverty is not some personal failing, but the accident of being born to the wrong parents, or the lack of opportunity to become nonpoor, or some other circumstance over which individuals have no control…. • “Our main recommendation is for the creation of a universal income supplement program financed by the Federal government….

7. The Post-War on Poverty Decade • A golden age of social program growth at the end of a golden age of economic growth. • Optimism about government’s ability to solve complex social problems. • Willingness to spend federal funds to reduce poverty and promote equal opportunity • Willingness to take federal action in face of state government opposition

8. A Rising Tide Lifts All Boats,1947-73 • Rapid Economic Growth, modest recessions • Rapid wage growth for all workers • Spread of employer-provided health insurance and pensions • Minimum wage rises relative to inflation • Rapidly falling poverty • Slowly falling income inequality

9. A Gilded Age of Rising Inequality, 1973-present • Poverty rises above 15% during severe recessions of early 1980s • Poverty falls during recoveries, but not to 1973 level • Less-educated workers no longer benefit from economic growth • Inequality increases rapidly • Effective safety net only for elderly

10. Change in Family Income (inflation-adjusted) at Selected Points in the distribution Source: U.S. Census Bureau (2011). Table F-1. Income Limits for Each Fifth and Top 5 Percent of Families, from Historical Income Tables. Retrieved from: http://www.census.gov/hhes/www/income/data/historical/index.html

14. Causes of Rising Inequality • Skill-biased technological changes • Globalization of markets • Decline in unionization • Erosion of the minimum wage • Declining progressivity of federal income tax • Explosion of Executive Pay and the size of the financial sector

17. CEO Compensation This graph shows the ratio of average CEO direct compensation to average production worker compensation from 1965 – 2009. In 2005, the average CEO in the United States earned 262 times the pay of the average worker, earning more in one workday than an average worker earned in an entire year. Source: Economic Policy Institute

18. Wealth of the Wealthiest 1% Compared to the Wealth of the Median Household, 1962 - 2009 This figure shoes the ratio of the average wealth of the wealthiest 1% compared to the median American household’s wealth. In 1962, the top 1% had 125 times the wealth of the median household. By 2009 the otp 1% had 225 times the median household’s wealth. Source: Allegretto, Sylvia. 2011. “The State of Working America’s Wealth, 2011.” Economic Policy Institute Briefing Paper #292.

19. \ Changing Perspectives on the Causes of Poverty • Poor lack personal responsibility • Poor don’t take advantage of available opportunities • Government programs exacerbate the problem—poverty does not decline when benefits increase due to work and family disincentives • Money alone won’t cure poverty

20. President Reagan’s View • “In 1964, the famous War on Poverty was declared. And a funny thing happened. Poverty, as measured by dependency, stopped shrinking and actually began to grow worse. I guess you could say, “Poverty won the War.” Poverty won, in part, because instead of helping the poor, government programs ruptured the bonds holding poor families together (Radio Address, Feb. 15, 1986).

21. From Federal Responsibility to Personal Responsibility • “Money alone will not cure poverty; internalized values are also needed….The most disturbing element among a fraction of the contemporary poor is an inability to seize opportunity even when it is available and while others around them are seizing it (The New Consensus on Family and Welfare, 1987, Novak et al.)

22. Work as Personal Responsibility • “Poverty reflects social disorder more than deficient opportunity…The chief solution to poverty… is to restore order. Government must provide…pressure to work….Work must become an obligation and not a choice (Lawrence Mead, “Toward a Mandatory Work Policy for Men,” 2007).

23. Why are poverty and inequality higher in the US than in Europe? • Americans are more likely to believe that “anyone who works hard can get ahead.” • Americans are less likely to endorse government’s responsibility to reduce income differences. • Americans prefer a flexible labor market with relatively little government regulation of firms

25. Why do poor children complete less schooling than nonpoor children? • Americans believe that all who are qualified should have an opportunity to attend college. Is there a role for government? • I. Yes--Educational opportunities are limited by circumstances of birth • II. NO--Opportunities are available, but poor children do not study enough and poor parents do not supervise enough

26. The Great Recession • Recession was long—from December 2007 through June 2009 • Recession was deep—about 6% of all jobs were lost • Labor Market Crisis • Financial Crisis • Housing Market Crisis

28. Percent of Workers with a HS Degree or Less Employed in Prior Week, Ages 25 - 54 Source: Current Population Survey (March Supplement) Note: Percentage point change between 1973 and 2010 in parenthesis.

29. Unemployment Rates by Race and Ethnicity, 1975 - 2010 Source: U.S. Bureau of Labor Statistics Retrieved from www.bls.gov

30. The American Reinvestment and Recovery Act, February 2009 • Economically successful, but too small in hindsight • Kept recession from being more severe and poverty from being even higher • Poorly explained by the administration • Misreported by the media • Became a political failure that fed Deficit Mania

31. ARRA Income Support Expansions • Massive expansion of Unemployment Insurance benefits • Increased Food Stamp benefits • New TANF Emergency Jobs Program • New Make Work Pay Tax Credit • Expanded EITC • Expanded Per Child Tax Credit

32. ARRA Human Capital Investments • Expanded Head Start/Early Head Start • Child Care Development Block Grant • American Opportunity Tax Credit • Pell Grant Expansion

33. Economists on the both the right and the left agree that the stimulus worked The combination of increased federal purchases and benefits raised output and income…Stimulus worked in the sense that the recession would have been substantially worse without the stimulus…. Robert Hall. Stanford, Fall 2010, Daedalus …fiscal policy sits idle, paralyzed by extreme partisanship, tarred by a successful public relations campaign against the 2009 stimulus bill and consumed by fears of large budget deficits. Our real deficit problem…lies in the future, not the present. Alan Blinder, Princeton, Oct. 25, 2010, Wall St. Journal

34. Slow Recovery from the Great Recession • ARRA kept recession from being deeper and lasting longer • Safety net spending on low-income families increased dramatically • Yet, 2011 unemployment rate of about 9% and 2010 poverty rate of 15.1%

35. Official U.S. Poverty Rate, 1959 - 2010 Source: U.S. Census Bureau Retrieved from www.census.gov

37. Current Economic Climate • Unemployment remains high—could take 8 more years to replace all jobs lost • Real wage growth for less-educated workers is unlikely • Income & wealth inequalities at highest levels since the 1920s • States are cutting social programs and public sector jobs • Deficit Mania threatens safety net as we know it

39. Ellwood noted the problem in 2000… • “We worry that the early apparent successes in welfare reform hide increases in insecurity….If we are reluctant to leave families with children without some form of safety net and equally reluctant to simply pay welfare benefits without some expectation of work in return, public work programs may need to be an important part of the mix sometime in the future.”

40. Emphasize Mutual Responsibility • Structural labor market changes keep poverty and unemployment high so if poor have responsibility to work they need support • Government can effectively reduce poverty • Modest tax increases won’t destroy the market economy

41. Policy Recommendations – Adults • Make permanent ARRA’s Food Stamp and Unemployment Insurance changes • Establish a subsidized jobs program for long-term unemployed • Expand EITC for childless low-wage workers • Let all Bush tax cuts expire

42. Policy Recommendations - Children • Expand early education programs • Improve implementation of NCLB • Expand supply of teachers in disadvantaged school districts • Expand magnet and charter school options • Make college more affordable

43. Blair’s UK Antipoverty Policies • Reduce poverty not welfare rolls • Modeled after U.S. policies • Provide work for those who can • Provide security for those who can’t • Focus on children

45. Candidate Obama, July 18, 2007 “In this country… no child's destiny should be determined before he takes his first step…. Our government cannot guarantee success and happiness in life, but what we can do as a nation is to ensure that every American who wants to work is prepared to work, able to find a job, and able to stay out of poverty…. What we can do is retire the phrase "working poor" in our time.”

46. Responses to Safety Net’s Critics • Labor market changes, not failure to take available jobs, are primary reason poverty and unemployment remain high • Safety net programs reduce poverty without large distortions in work and family choices • Modest tax increases reduce poverty and inequality without disrupting the market economy