www.fordschool.umich.edu poverty and antipoverty policies before and after the great recession...
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Poverty and Antipoverty Policies Before and After
the Great RecessionSheldon Danziger
H.J. Meyer Distinguished University Professor of Public Policy
August 8, 2012Shepherd Higher Education Consortium
on PovertyClinton School of Public Service
University of Arkansas-Little Rock
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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
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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.
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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.”
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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
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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….
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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
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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
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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
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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
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-15.9 -1.1 -0.6
26.9
36.6
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
Less than high school
High school, no college
Some college or Associates
Bachelors only Advanced
Perc
ent c
hang
e
Source: Census Bureau, Current Population Survey*For full time wage and salary workers, deflated by the PCE deflator
Real Median Weekly Earnings by Educational Attainment*Percent change 1979-2010
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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
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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
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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.
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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
\
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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).
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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.)
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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).
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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
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Enrolled Graduated0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
34%
11%
52%
25%
79%
53%
Likelihood of Young Adults Enrolling in and Graduating from Col-lege by Parental Income
BottomMiddle Top
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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
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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
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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.
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Unemployment Rates by Race and Ethnicity, 1975 - 2010
Source: U.S. Bureau of Labor Statistics Retrieved from www.bls.gov
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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
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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
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ARRA Human Capital Investments
Expanded Head Start/Early Head Start
Child Care Development Block Grant
American Opportunity Tax Credit Pell Grant Expansion
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Economists on the both the right and the left agree that the stimulus workedThe 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
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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%
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Official U.S. Poverty Rate, 1959 - 2010
Source: U.S. Census BureauRetrieved from www.census.gov
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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
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Poverty Rate, All Persons, 1959-2010, with Pro-jections to 2016
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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.”
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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
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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
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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
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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
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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.”
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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