Friday, December 19, 2014

Too much poverty, or too much aid?

In a report released earlier this month, the Census Bureau finds that "Almost two-thirds (65 percent) of children [in 2011] lived in households that participated in at least one or more of the following government aid programs: Temporary Assistance for Needy Families (TANF); the Supplemental Nutrition Assistance Program (SNAP); the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC); Medicaid; and the National School Lunch Program."

Question: does this mean we have too much poverty in the U.S., or does it mean we have too much government aid?

The following charts might help to answer that question:

In 1970, the population of the U.S. was just over 200 million. Today it is approaching 320 million. When the food stamp program (SNAP) started in 1970, it covered about 1.5% of the population. Today it covers about 14.5% of the population—a ginormous increase by any standard. An increase of this magnitude could only be driven by a reduction in eligibility standards, because we are all richer today than ever before.

In 1951, government transfer payments amounted to only 5% of disposable income. Today, transfer payments total a staggering $2.6 trillion, and make up almost 20% of disposable income. The U.S. government is trying very hard—too hard—to address a supposed problem of "inequality" by massively redistributing income from the upper classes to the middle and lower classes. The problem is not that the poor have gotten poorer, it's that the poor haven't gotten richer to the same extent as the rich. Supposedly.

As Mark Perry notes in a post today, the average American has never had it so good—we enjoy an unbelievable level of prosperity. In inflation-adjusted dollars, for the price of a single color TV entertainment system in 1964, a family today "could furnish their entire kitchen with 5 brand-new appliances (refrigerator, gas stove and oven, washer, dryer, and freezer) and buy 7 state-of-the-art electronic items for their home (a Toshiba Satellite 14″ laptop computer, a Garmin 5 Inch GPS, a Canon EOS Rebel T5 DSLR Camera, a Sony 1,000 Watt, 5.1-Channel 3D Smart Blu-Ray Home Theater System, a Sharp 50 inch LED HDTV, an Apple iPod Touch 32GB MP3 Player, and an Apple iPhone 6)." That's why people who use food stamps can also sport smartphones.

The chart above corroborates Mark's findings. Real household net worth today is over $80 trillion, up over 400%—more than $66 trillion—from what it was in 1964. Living standards, as defined by how much you can buy with a given amount of work, have risen by an extraordinary amount over the years. Yet the government is handing out more money to more people than ever before.

The huge increase in income redistribution is almost entirely driven by a political agenda that refuses to recognize that the average person today is better off than kings were yesterday, and instead focuses on the "problem" that some of the rich have gotten more richer than everyone else has gotten richer. 

If there is a real problem today, it is the redistribution of wealth. It has grown to such an extent that two-thirds of our children are being taught to believe that they can only enjoy a modern standard of living with the help of government handouts. A few generations ago, America was proud to teach its children that anyone could become rich if he or she were willing to study and work hard. Today's children are being taught to believe that they are entitled to be rich, no matter how little or how hard they work. That is a prescription for decline and servitude and ultimately, great social unrest.

The answer to the question is obvious: we suffer from too much aid, not too much poverty.


Benjamin Cole said...

I always say, cut welfare outlays by half; and then cut warfare outlays by half too.

David Stockman has pointed out we spend double now that we did at the height of the Cold War---except now we have no military foes of any note.

Terrorists (heinous creeps) have no armies, navies or air forces---that's why they are terrorists, and pose no military treat to the U.S.

The American Conservative website has called the U.S. foreign-military posture one of continual "threat inflation." That is, federal agencies continuously magnify foreign threats, so that we will pay taxes into their coffers.

Cato Institute has called for cutting defense outlays in half. That would save about $500 billion a year--a burden taken off the backs of productive employees and employers. That could allow the total elimination of corporate income axes I advocate, and even more cuts in other taxes.

Jeez, I expect we could get federal outlays down to 15% of GDP, with some serious re-thinking our of welfare and warfare states.

Sad to see that due to PC-ism, most people utterly reject cuts in federal spending either in warfare or welfare, depending on their sacred cows.

steve said...

total agreement with both Scott and Ben-of course it will never happen...

Grechster said...

Again I find myself in full agreement with Ben. (In this particular case, I'm also in agreement with Steve.) One thing to add: It probably is no coincidence that fair-minded people know that both the welfare and warfare budgets are shot through with fraud and waste. said...

Jim Rogers, in one of his investment biker books, told of (on his trip through sub-Saharan Africa) of the deleterious effects of donated by well meaning charity givers, clothing, crimping home-grown clothing industry workers, because they were getting undercut by free product.

File under: Law of Unintended Consequences

Frozen in the North said...

Totally agree the "Average American" has really got the jackpot. Problem is the median American -- he got screwed.

Because of social breakdown nearly 1 in 3 child born in the US does so in poverty. My guess is that if Average America didn't make such a fuss on abortion the number would be smaller.

Average America has decided that it doesn't want abortion -- well then Average America should pay for the consequences!

That's simple! Everything else is total BS

Steve Fulton said...

Scott, the nanny state has really gone haywire. My 26yr old son still receives almost $1000/month in social security disability benefits from when he was diagnosed with schizophrenia 3yrs ago (which turned out to be drug induced from a decade or so of heroin/meth etc.). He still gets this even though he hasn't used drugs in 18months and is now in college taking engineering courses and has a 3.9 GPA.