War On Poverty over, Washington D.C. wins

On January 8th, 1964, President Lyndon B. Johnson declared the beginning of an “unconditional war on poverty in America.”

No one would argue that the War on Poverty has been successful at its goal of eliminating poverty in the U.S., despite the $22 trillion dollars spent in the effort.

What is an “NNBR” program?

Every year in the USA, federal and state governments spend a lot of money on a lot of different things.

Some money is spent in ways that really cannot be called “anti-poverty,” things like the Coast Guard, interstate highways and NASA.

Other money is spent on programs that are designed to help people due to people having insufficient financial resources.

Let’s coin a term: NNBR. This stands for “Not Needed By Rich,” and so we can apply this term to any government program that is not needed by people who are pretty well off.

Medicare and Medicaid? People who can afford health care and insurance don’t need it, so it qualifies as an “NNBR” program. Social Security? Will that extra $2000 per month make a difference to Bill Gates? Or even someone who’s saved $10 million bucks over their lifetime? Nope, an extra $2K won’t make an impact, but for many retirees, Social Security might be their only income. So Social Security qualifies as an NNBR program.

Most people, including me, believe that one essential element of an advanced society should be an “economic safety net” so that if a person or family falls on hard times and cannot afford basic necessities like food, clothing, shelter or medical care, they should have access to money or resources so that they can get what they need to survive, rather than the alternative of starving, freezing from lack of shelter, or dying from a treatable illness.

What happened to people before government assistance programs?

In centuries past, it was customary to “tithe” a tenth of one’s income to the local neighborhood church. Then, if a local family needed help, the church and congregation would pitch in and help them get back on their feet, help rebuild their house that burnt down, or help harvest their grain that the family couldn’t because of an accident or illness.

Was there anything wrong with this system? Well, for one thing, it relies on an honest pastor to control the money. But what if a greedy pastor kept most of the funds and only distributed a tiny bit to the poor? Or gave a lot of the money to his well-off friends and not much to those who truly needed it?

It seems to me this might not work out well for the greedy pastor, since the village would certainly notice the pastor living large and either demand he distribute more of the church’s income to the needy, or, since the tithing was voluntarily up to each person anyway, the people could just start tithing to a different church with an honest pastor and the greedy pastor would get nothing and starve.

I don’t think any greedy, dishonest pastor would have much of a chance against an entire angry village!

Uh oh.

But what if it wasn’t the church and pastor collecting the funds? What if it was the village mayor who was greedy? And what if the mayor ruled the village with force, with a group of big, strong, heavily armed men on horseback at his command, that demanded way more from each family than was needed, then the mayor kept much of the money, and gave most of the rest to wealthy friends?

And what if this mayor was so smart, and devious, he figured out a way to head off a potential rebellion if anyone in the village ever truly realized what was happening: He would continually trickle a tiny sum out to the poor, just barely enough to keep them alive, and when a villager would come forward to raise his voice against the mayor, accusing him of greed and corruption, all the mayor had to do is hold up a picture of a poor, starving child and accuse the villager of not caring about poor children.

He did such a great acting job at this, even faking a tear at the poor child’s plight, that it tugged at the heartstrings of the people in the village, and they immediately shouted down the villager who protested.

Then the mayor realized, it was certainly in his interest to have as many poor as possible! Because, as long as he could keep them all barely alive, they would become ever more dependent on the dole and continue to keep voting the mayor in, election after election, our of fear that without the benevolent mayor, they would not be able to make ends meet on their own.

People kept voting for new mayors, but each one learned from the one before, and just kept doing the exact same thing.

And as the mayor and his friends got richer and richer, and greedier and greedier, they built a larger police force so that the people, as they got poorer and poorer, and awareness of their scheme grew, they did not have a chance of standing up to the corrupt regime.

I don’t think any community, no matter how angry, would have a chance against such a mayor and his well-armed police force!

I think we can all agree this would be a horrible, horrible village to live in!

Agreed?

Is the U.S. a horrible village?

Currently the U.S. Federal government spends about $668 billion each year on 100-odd programs for low-income Americans, from Medicaid to things like the Supplemental Nutrition Assistance Program, Earned Income Tax Credit, Section 8 Housing Choice Vouchers, Food Stamp Program, Social Services Block Grant Title XX, Low Income Home Energy Assistance and tons of others. Each of these programs are run by thousands of government employees working in large, expensive buildings. States spend another $280 billion on programs for low-income people and families.

In addition, we spend $725 billion on Social Security, about half of which goes to those who don’t need it, but half does go to those where it makes up a significant portion of their income. I think we can all agree that those well-off and rich people who have saved millions of dollars for retirement don’t need another $2,600 per month from Social Security, so I’m using the entire $725 billion figure.

(And please don’t tell me Social Security is a retirement program where you pay in, then get out what you paid in. This is how the program is marketed, but it’s a total myth. Social Security consists of two parts: a (regressive) tax on working people’s individual income that funds all government programs, like the military and the court system, and secondly, a government assistance program for all retirees and some other groups, such as widows, orphans and the disabled.)

Then we have $480 billion spent on Medicare, another program not restricted to the poor, but again, I think we can all agree the rich can afford their own health insurance, right? Or, even if they can’t, is it really fair to ask poorer people to foot the bill for rich people’s medical insurance? That’s a regressive economic system, where the poor support the rich. That’s not what we want, is it? Of course not. So I’m figuring the entire $480 billion.

There’s plenty more, but let’s leave it at this.

The bottom line.

So if you add those numbers up, you get $2.153 trillion dollars that U.S. federal and state governments are spending each year to try to ensure people get the essentials of life: food, clothing, shelter and medical care.

In the U.S., there are 16 million households living below the poverty line.

Now, divide the first number by the second and you have $134,562 being spent on behalf of each poor household per year.

Hmmm. Care to check my math?

In fact, that $134K figure is misleading, since government benefits are usually not taxed. You’d actually have to make well over $200K a year in income to actually end up with $134K in cash after all federal, state and local taxes are paid. So $134K in tax-free government benefits should buy you the equivalent lifestyle of a household income of about $212,000/year.

Except, wait, we forgot about government administrative expenses, all those government employees in the big buildings figuring out who should get how much of whose money. For most charities, administrative expenses are around 12%, so if that were true for the government, each poor household would be getting benefits equivalent of a household with a gross (before-tax) income of about $186,000.

I know households with incomes of about $186,000 and I know how they live. Three shiny new cars, huge swimming pools, housecleaning service, a boat at the marina, a membership at the local golf club, expensive wine cellar, often hard to tell them from multimillionaires.

An unscientific survey.

So, armed only with my math equation, I went driving a few miles from my house in South Central LA, one of the more impoverished areas of the U.S., and judging from my visual survey, none of those households looked like they had a $186,000 dollar per year lifestyle.

Some of the households had working people, but I would guess most of those had some kind of supplemental government assistance. And other households probably did not have an employed person, so their income was probably 100% government benefits. I haven’t been able to ascertain the average amount of benefits that actually trickle down to each U.S. household under the poverty line, but from my experience and perception I seriously doubt it’s more than $12 or $15K average.

Anyone want to wipe out poverty tomorrow?.

Obviously, if you eliminated all 127 federal government anti-poverty programs, along with all state and local anti-poverty programs, and replaced them with a single agency that simply wrote a $134,562 check to each poor household every year, then all U.S. poverty would be wiped out tomorrow, taxes would not have to be raised a penny, and government expenditures would remain exactly the same.

Fine, but let’s be a little more reasonable.

Of course, we don’t need to give poor households $134,000 to eradicate poverty overnight. The median before-tax household income in the U.S. is $52,000. After taxes, that’s take-home pay of around $37,000, depending on the state. And, some people in poor households work, so in those cases we would just need to make up the difference between their take-home pay and $37,000 to make the household middle income earners.

And don’t try to tell me that a couple making $104,000 between them (pretax), needs government assistance to get by. Yes, even if they have kids. Because it’s completely absurd to say middle and upper income earners need money from poorer people to get by. That makes no sense whatsoever.

So instead of $2.153 trillion dollars, and even after figuring 12% administrative costs, we could spend around $500 billion a year, and wipe out all U.S. poverty overnight.

And not only would this instantly make every poor household middle class, this plan would also cut a trillion and a half dollars from the Federal budget each year.

This is the idea behind Milton Friedman’s “negative income tax”, an idea that gained some traction in the 60’s but not much since- to wipe out poverty by simply sending poor people whatever money they need so they are no longer poor.

Yet after spending trillions and trillions, the U.S. poverty rate today is the same as when LBJ declared the War on Poverty almost a half century ago, and rising fast.

So wait a minute, where’d the $122,000 go?

Let’s get back to the reality of the situation. If poor families only receive around $15K in benefits per household, where is the other $122,000 going? The part of all this anti-poverty spending that is not trickling down to those who need it?

I saw an article recently that gives us a clue: According to the U.S. Bureau of Economic Analysis (BEA), part of the Department of Commerce, in 2010, the federal government paid an average of $126,141 per employee in federal worker compensation, including wages and benefits.

Holy crap! So there’s part of the mystery solved: Washington takes your tax dollars and pays millions of educated, well-off bureaucrats an average of $126,000 per year salary + benefits to do such a horrible job at eliminating poverty that after 50 years, it’s higher than ever.

But think about it: just like the village mayor, it’s to the advantage of all these bureaucracies that poverty increase.

Why?

Think about it: If you work at a company, let’s just say a furniture company, or a computer company, what are your goals? You want to grow the company, hire more employees, get more customers, get promoted, make more money, be more needed and important.

What you obviously don’t want is to have to downsize, have less customers, lay workers off, get demoted, make less money, and get laid off yourself!

Growing the market

It’s no different if you run, or work in, a governmental organization. You want to push for more and more money each year. You want more program recipients, this gives you the justification to get more money, you want more employees, you want more job security, you want a raise, you want to move up, be more important and powerful. It’s only natural.

Now, let’s say the poverty rate in the U.S. fell to half. Could you really continue to justify your former budget? Of course not, so you’d have to lay off staff and downsize. You yourself might eventually get demoted or even laid off if the need for your skills decreased enough. How sad!

It’s in your best interest that poverty is not wiped out, since your department, your job, and your career would be wiped out as well!

Then you might have to get a real job, where you were actually responsible for doing quality work, and you could get fired if you didn’t do good enough. That’s the last thing you would want if you were a $126,000/year paper-pushing federal bureaucrat.

If your career is working in, or managing low income programs, then the more low income people there are, the more your skills are needed, the more money you get, the more you get promoted, the more job security you have, the more important and powerful you are, the better you can provide for your family.

The other self-serving advantage of these programs is that, by burning through 1.5 trillion dollars with nothing to show for it, you deprive the private economy of desperately needed capital to create jobs and opportunity for the poor and middle class alike, thereby leading to much higher unemployment, lower wages and higher dependence on government assistance.

The ultimate job security.

Speaking of job security, the government employee’s union is nothing short of amazing. The facts are that a government employee is more likely to die than be fired for bad job performance.

But there are a lot of other factors perpetuating poverty in the U.S. than millions of grossly overpaid, incompetent bureaucrats.

Hold on, why are there any poor people in the U.S. anyway?

Why are there any poor people at all in the richest country in the world? Why doesn’t every household make enough money for, if not 3 shiny cars, at least one, and plenty of the basic necessities?

To identify the causes of poverty, all you need to do is put on your detective or scientist hat, and ask yourself, if you were evil and put together a devious plan to keep poor people poor, what evil strategy would you come up with?

If you were a true evil genius, your plan would probably be something like this.

So we’ve learned a few things:

  1. We are in a ridiculous situation, where poverty is worse than ever and $134,000 is being spent per poor household on government programs that in many cases don’t even provide the bare essentials. Obviously the government is the worst possible option for redistributing wealth, since they redistribute most of it to themselves and very little trickles down those those in need.
  2. In the political money redistribution game, the people who make out like bandits are the bureaucrats, the politically well-connected and advantaged, while the poor get screwed.
  3. The myth that the government redistributes income downward is false. The actions of the government generally work to transfer wealth upward, from poorer to richer.
  4. Poverty can only be solved by eliminating the government policies which cause and perpetuate it.

On a solution:

Now, it’s one thing to clearly see the forces which create and perpetuate poverty. But let’s embark on one last thought experiment:

Let’s say you eliminated all government assistance programs. Every single one. And slashed taxes to a 100 year low of 5% of GDP, as well as eliminating most regulations that stop companies from hiring. Of course, the resulting boom in jobs would be stupendous. Every company would be desperate to find employees, with each job seeker finding 5, 10 or 20 companies bidding ever higher wages and benefits so their competition would lose out. Unemployment would be wiped out overnight in the “rising tide that lifts all boats”.

You see, the only reason a person is poor is because he or she doesn’t have a decent paying job!

But there would be some left out of this boom in prosperity. The elderly, orphans, those too sick or disabled to work. How should we care for those people?

Let’s say that we let charities take care of those who need it. We know they’re efficient, distributing 88% of donations directly to recipients. The rich have always given by far the most to charities in dollar terms, so this is definitely a “progressive” system.

But is it fair? What if one person was more generous than the person next door? Why should one person give more and another less, just based on their generosity and not their income?

While this is a good point, the only pragmatic question is, is this charity-only system any less fair than the one we have now, where “donations” are taken by force and distributed mostly to the wealthy and well-off? If not, then, if a charity-only plan isn’t perfect, at least it is clearly far superior to what we’re doing now.

But there is a simple solution that addresses this: simply enact a dollar-for-dollar tax credit on donations to approved charities up to a certain percentage of taxes. That puts Washington in competition with very efficient organizations.

When will we be strong enough and brave enough to stand up for the disadvantaged and downtrodden, and demand the dismantling of the 127 absurdly malfunctioning, cripplingly expensive self-serving government bureaucracies and policies that perpetuate and increase poverty in the U.S.?

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