Poverty and Government Policy Part One: Observations

This is the first segment of a two-part installment by Dr. Visser, examining the tension between government policy and the realities of poverty.

Since we serve a God who repeatedly identifies with the poor and downtrodden, Christians cannot help but be concerned about poverty and the fact that it persists in the face of massive increases in wealth and income. Jesus knew “the poor would always be with us,” but likely only because he knows us better than we know ourselves. But this still leaves us with the question of how poverty-alleviation efforts can best be structured and the role government should play.

Traditionally, one role of government has been to define poverty. Unfortunately, over my lifetime, poverty has been defined as an amount of income needed to purchase a “basket of necessities.” But this ignores the importance of savings, without which nearly any problem, like a medical setback or a car breakdown, can become a major life disruption. It also ignores human nature, since one can have income but not use it effectively for either self or family. One can have income but lack self-awareness, literacy, listening skills, motivation, respect, humility, honesty, trustworthiness, perseverance, self-control, or a host of other spiritual and moral imperatives for both stewardship and success. And as David Meyers’ research makes clear, income and happiness have at best a tenuous relationship – a mix of meaning, control, health, optimism, supportive relationships, or disciplined renewal (sleep, exercise, reflection) does more for happiness than income.

Unfortunately, even if one has income, needed character traits, and some of Meyers’s indicators, he or she might still be plagued by an unhealthy home or neighborhood, or ineffective government. One can be given income but be trapped in an area with little job creation or lacking the infrastructure to get to work or school efficiently. Taxes might not incentivize, and may even penalize, important things like work, savings, home ownership or charity for people in lower tax brackets or those trying to move from welfare to work. Zoning laws or “redevelopment” can result in a shortage of adequate housing. Inattention to the rule of law can result in crime-related setbacks, blight associated with illegal drugs, or a host of other problems.

Perhaps most importantly, the idea that poverty can be addressed by redistributing income ignores the complexity of how wealth is created and distributed in a modern market economy. Many people do not realize that the West won the post-WWII cold war, primarily because our economy was far less strangled by bureaucracy than those of centrally-planned countries. When I first traveled to the Soviet Union in 1991, I was greeted by massive shortages of bread, toilet paper, cars and apartments even as there were massive surpluses of vodka, car parts and military weapons. And the products that were available often weren’t selling because they were overpriced or, at best, equivalent in quality to what I had grown up with forty years earlier.

These problems mostly stemmed from a coupling of the Soviet government’s admirable desire to help people with the belief that it was more capable than it actually was. With good intentions, it throttled the economy with endless regulations, registrations and permissions, price controls, capital requirements, barriers to credit-extension, worker protections, dispute resolution steps and financial redistributions. It overestimated its capability by believing it could centrally plan an economy with millions of moving parts and millions of different kinds of people with differing circumstances. It set prices that could not possibly properly reflect either supply or demand, guaranteeing shortages and surpluses. People were forced to buy what they could get, not what they wanted, wasting massive amounts of time trying to barter in black markets for what they needed. Wanting to fulfill the priorities of the people, it was only able to carry out the priorities of the bureaucrats. Craving equity, government-set wages assured that productive people were underpaid, unproductive people overpaid, and successful communities and organizations were penalized by higher tax levels or lower subsidies. Desiring to reduce poverty for all, the government perpetuated a system that guaranteed poverty for all.

Thankfully, in the U.S., we realized early on that managing the production of goods and services from the top would be a mistake. So, for us, the problem is not that there is “too little to go around.” I have witnessed massive increases in standards of living throughout my lifetime, mostly due to the freedom to pursue education, innovation, specialization, energy, technology, and global trade. This has allowed us to multiply productivity and wealth by hundreds or thousands of percent while both creating and reacting to an almost mind-numbing pace of change. And wherever in the world governments have succeeded in carving out a level playing field, resource availability for poverty-alleviation efforts has greatly expanded. But even in the U.S., we have not fully realized that top-down efforts at distributing wealth (i.e. alleviating poverty and reducing income inequality) are as ineffective as they are when producing wealth.

Because of this, many people continue to see poverty alleviation as primarily the federal government’s responsibility. This is reflected in the sheer number (and breadth) of the programs that exist. Programs as diverse as Social Security, Supplemental Security Income (SSI), Medicare, Medicaid, WIC/SNAP (Food stamps), TANF (Temporary Assistance for Needy Families), Tax Credits, Head Start, unemployment insurance, agricultural subsidies, and rent assistance/controls have been partially or wholly justified by the need to alleviate poverty.

But even though these programs have been tweaked over time to better accommodate human nature and the challenges posed by the ever-changing forces of a dynamic market economy, poverty persists. For example, the poverty rate was 11% when I graduated from college 50+ years ago and, unfortunately, was recently publicized to still be 11.3%. Part of this poverty persistence involves the continued use of the simplistic income-focused measure of poverty mentioned earlier. But we need to be open to the possibility that it reflects the inherent limitations of centralized and static solutions to problem-solving in a dynamic and complex global market economy.

For example, it is not uncommon for the majority of federal funds earmarked for poverty alleviation to be spent on bureaucracy rather than reaching the needy, resulting in waste, fraud, poverty rates, and income inequality all remaining unacceptably high in the U.S. And even where continuing attempts to manage poverty from the top have reduced income inequality to a degree, in places like Europe, these gains have been accompanied by a significant loss of economic vitality that does not bode well for either the rich or poor over time.

These experiences teach us that there are many additional practical difficulties to poverty alleviation (beyond the inability to manage millions of moving parts, radically different people, and an accelerating pace of change already discussed). In today’s complex global market economy, government planners and lawmakers must track thousands of developments (compared to perhaps dozens when our country was young), so when they pass legislation aimed at alleviating a problem like poverty they cannot help but move on to the next problem despite the inevitable unintended consequences. Notice, for example, how when Social Security was introduced, there were 42 workers per beneficiary, down to 2.8 today. Or how in 1950 the number of future taxpayers born to a typical mother was 3.6, now down to 1.6. Other unintended consequences involve Social Security inadvertently lowering savings rates, redistributing income from the working young (in the expensive family formation stage) to the old (many with substantial savings), and from the unhealthy (who tend to die young) to the healthy (who tend to live long). Despite these things, the system gets little more than occasional tweaks.

Government attempts to house the poor serve as another current example of the impact of top-down one-size-fits-all policies: Despite good intentions, government tenement housing, land-use restrictions, permission requirements, zoning, mortgage guarantees, manipulation of interest rates, and micromanagement of down payments and bank-lending/risk-taking decisions not only contributed to the most recent housing crisis but ended up reducing home ownership rates and affordability for the poor.

But perhaps most importantly, centralized financing of poverty alleviation changes the very nature of human activity. It is hard to feel optimistic, free or empowered when a slow responding state is the only place to turn when facing a crisis. And centralized efforts necessarily bring in larger numbers of people with something to gain or lose, so the stakes become higher, which also increases the stickiness and divisiveness of programs. Programs cannot help but create winners and losers (and attempts to game the system) with their funding criteria, limits and eligibility-cutoff points. And the federal taxes funding these programs can gradually transform an entire citizenry from being local problem-solvers to pseudo-beggars trying to “get their fair share of taxes back.” Finally, since government workers are no different than the rest of us, with desires for meaningful work, security and control, they are going to be naturally inclined to expand their programs. If not convinced that poverty could be dealt with more effectively in other ways, or aware of the costs that regulations/paperwork aimed at eliminating fraud and waste also impose on law-abiders, it becomes admirable to promote program expansion and the job protection that accompanies this.

It is my conviction that these experiences should prompt us to put governments’ poverty alleviation efforts under a microscope as we look for a better path forward. In part two, we will explore what this path forward could look like if informed by some of the principals espoused by Abraham Kuyper.