Creative Destruction

August 30, 2006

Disagreeing With Dignan: The Politics Of Poverty And Welfare

Filed under: Economics — Ampersand @ 4:39 pm

Via Religious Left Online, I ran into Dignan’s post on “The Politics of Poverty.” Dignan criticizes both the right and left approaches to fighting poverty (although the solution he settles on is fairly right-wing), but in this post I’m gonig to concentrate on his critique of income transfer programs (also know as welfare).

1.) Is The Government Inefficient?

Dignan writes:

As it relates to poverty reduction, government fills the role of the middleman. And no middleman in all of history has created more friction and additional cost than the federal government. Non-profit charities are often rated by their ability to direct the highest percentage possible of donated funds to those in need. The higher the administrative costs are, the less money goes to those the charity intends to help.

If the federal government was rated in the same manner, it would fail tremendously. A tremendous portion of money raised (i.e. taxes) for those in need (i.e. welfare recipients) actually goes to pay the salaries of government employees, retirement accounts, an unreal amount of office space, etc. If the US federal government actually were a non-profit charity, it would be on the cover of Time magazine for defrauding its donors.

Dignan should take a look at the federal Earned Income Transfer Credit (EITC), the largest cash grant for poor families in the US. The EITC spends less than 1% of its budget on administrative costs ((Internal Revenue Service, “Earned Income Tax Credit (EITC) Program Effectiveness and Program Management FY 2002 – FY 2003” (pdf link) )) , a ratio that I doubt any private anti-poverty charity can match. (The EITC is probably even cheaper to run than it appears, since state EITC programs save money by “piggybacking” on the Federal program’s administration; if the impact of state programs could be included, the EITC’s adminstrative costs to benefits paid out ratio might be less than half a percent.)

Of course, the EITC has an exceptionally low administration-to-outlay ratio, but the percent of their budgets most federal income transfer programs spend on administration – 9% to 13% ((Internal Revenue Service, “Earned Income Tax Credit (EITC) Program Effectiveness and Program Management FY 2002 – FY 2003” (pdf link) )) – is excellent by the standards of nonprofit charities. Here’s the advice Daniel Borochoff (President of the American Institute of Philanthropy) gives people considering giving to private charities:

Ask how much of your donation goes for general administration and fund-raising expenses and how much is left for the program services you want to support. AIP’s Charity Rating Guide recommends that in most cases 60% or more of your charitable donation should go to program services. Less than 40% should be spent on general administration and fund-raising costs.

Dignan’s belief that private charities are far more efficient than government transfer programs has no basis in truth. In terms of bang for the buck, income transfer programs are as good as private charities, and in some cases – such as the EITC – ten or twenty or fifty times better than private charities.

2) Are Income Transfer Programs “Coercion, Not Charity”

Dignan writes:

…Government aid is not charity. It doesn’t even have the ability to be charity.

By its very nature, government is coercive. That it, it has the power of the sword to command people to action. Almost everything the government does comes with the implication that if one goes against the government, they will be forcibly made to do as the government requires. It doesn’t make sense for the Religious Left to speak of helping the poor by the country giving more. It is too easy to be generous with other people’s money.

Dignan’s reasoning is atrocious. Even if the government is coercive, how does it logically follow that “it doesn’t make sense… to speak of helping the poor” through the government spending more on income transfer programs? There’s no logical reason to suppose that coercive money will have less of a poverty-reduction effect than non-coercive money would.

Dignan’s logical incoherance aside, I take issue with his discussion of coercion. Dignan ignores the difference between the coercion of a dictatorship and the so-called “coercion” of a representative democracy. In a dictatorship, it’s true that no one has any choice. But unless Dignan sees no difference between democracy and dictatorship, he must realize that US taxpayers do have a choice – a choice at the voting booth. ((As I’ve argued in the past, there’s more to freedom than the freedom to vote; a free vote is only meaningful in the context of other civil rights, such as free speech, the freedom to walk the streets, and so on. I stand by that, but I’m not going to discuss it in detail in this post because it would be too much of a digression.)) We choose to elect legislators who choose to spend a certain amount on income transfer programs. And in states with ballot measure elections, we can sometimes vote directly for specific taxes and programs. ((Dignan is inconsistent to object to coercion only when the government does it. What about God? Dignan says that Christians are commanded to help the poor. But isn’t a commandment from God – which always carries the implicit threat “do it or you’ll burn in hell” – at least as coercive as anything the IRS has to offer? Plus, I don’t get to vote for a different God if I don’t like this God’s policies, which makes God immeasurably more coercive than government.))

Dignan’s argument, because it dishonestly pretends that electoral choice does not exist, is too inaccurate to have any merit.

3) Is Helping The Poor Really About Helping The Rich Feel Good?

Dignan asks:

But isn’t it fruitless to try to end poverty since Jesus said that we would always have poor among us?

This made me think that there is more to this than is on the surface. Why would Jesus ask people to do something that he knew they would fail at?

Maybe Jesus thinks that it’s self-evidently worthwhile to help those poor people we can help, even if that’s less than 100%. It’s quite possible to answer Dignan’s question while remaining focused on trying to improve the lives of people in need. Unfortunately, Dignan goes in another direction, saying that the purpose of charity is to help the rich feel good:

Ask anyone who has spent time working in a soup kitchen or building a house for the homeless and they will tell you how good it made them feel. I don’t think that we should be motivated by the promise of feeling good about ourselves, but I don’t think there is any denying that great good does come from helping those in need. There also tends to be a relationship between how close we get to those in need and how we feel about our works of charity. Spending time with an inner-city fatherless child can have a tremendous impact upon our lives in addition to the positive impact on the child’s life. However, in those cases where we simply give money to a charity (still a laudable action), the impact upon us and those in need is lessoned.

So how much are we missing when we delegate charity to the government? How easy does it then become to avoid the poor and avoid getting messy with other people’s lives? How easy do it become for the poor to resent those better off in society that they have little interaction with? How easy does it become for some to foment class warfare?

* Dignan says “I don’t think that we should be motivated by the promise of feeling good about ourselves,” but a paragraph later he says “how much are we missing when we delegate charity to the government?” So despite his disclaimer, Dignan uses the supposed lack of benefits to the wealthy as a reason to oppose welfare programs. But that’s nonsense – income transfer programs should be supported based on how much they help the poor, not based on how little they do to help Dignan.

* Dignan’s argument is an obviously false dichotomy. We can support income transfer programs and we can participate in programs that provide direct services or mentoring to poor people. An argument that implies we must choose one or the other is dishonest.

4) What Actually Works

In his post, Dignan fails to ask the most important question: Can income transfer programs actually reduce poverty in the real world?

The answer is, yes they can. Look at this table ((United Nations Children’s Fund (Unicef), “A League Table of Child Poverty In Rich Nations.” (pdf link.) )) , comparing child poverty rates of various countries, before and after income transfer programs take effect.

Percentage of children below poverty line, before and after tax and transfers, by country.

If we ignore the effects of income transfer programs, child poverty in the US is comparable to that of many other wealthy nations – and less common than it is in some countries. But because other countries have much more generous income transfer programs, the child poverty problem in the US ends up being worse than the child poverty problem in any other rich country.

Some right-wingers claim that such international comparisons are unfair, because the poor in the US are richer than the poor in other countries. ((It’s also been claimed that such international comparisons are unfair because the US child poverty problem is linked to single parenthood. However, as figure 35 of this web page shows, income transfer programs in other countries are also better at helping single-parent families out of poverty. )) This is not true. When measured by purchasing power, the poor in other wealthy countries are generally better off than the poor in the U.S. According to international poverty scholar Timothy Smeeding ((Smeeding, Timothy, 2004. “Public Policy and Economic Inequality: The United States in Comparative Perspective” (pdf link.) )) :

…The real incomes of Germans at the 10th percentile are on average 2 percentage points higher than the real incomes of Americans at the 10th percentile. Low-income Canadians are even better off, with incomes 6 percentage points higher than low-income Americans. Only in Great Britain (whose GDP per person is less than 70 percent of that in the United States in Table A.1) were the living standards of low-income house holds measurably lower than in the United States (35 vs. 39 percent). Overall, lower-income Americans are no better off and often worse off than the low-income persons in other nations….

These real income measures are admittedly crude. They should be seen as measures of net spendable income rather than of total consumption, which would also include goods and services such as health care, education and child care that are provided at different prices and under different financing schemes in different nations. To the extent that low-income citizens elsewhere need to spend less out of pocket for such goods as these than do low-income Americans, the latter are at an even greater real income disadvantage.

If Dignan is really concerned with the poor, his primary question should stop being “is government in some academic sense coercive?,” or “what good does helping the poor do for non-poor people like me?” His primary question should instead be “what has been proved to work?”

By that standard, income transfer programs are an essential part of any serious poverty-reduction agenda. And that’s the choice – serious poverty reduction versus “free market” solutions that have never worked in the real world – that all voters, Christians and non-Christians, face in the voting booth. At the next election, I hope that Dignan decides to vote for what’s been proven to reduce poverty, rather than voting against helping the poor.

12 Comments »

  1. Is it the income trqansfer programs of those countries that reduced poverty, or is it the fact that they do not have large black and Latin American populations like the US does.

    Oops! Sorry – can’t ask racist questions like that – whether or not it’s true, it’s not polite to talk about.

    Dignan ignores the difference between the coercion of a dictatorship and the so-called “coercion” of a representative democracy.

    So gang rape is not as bad as one-on-one rape, as long as the victim gets a vote?

    It seems to me that the big reason why leftist feminists are so against the idea of looking at sex as a commodity (and why they see it as part of a “rape culture”) is because the sense of “entitlement to sex” that they so resent would then ever so neatly parallel their sense of entitlement to other people’s money.

    Comment by Glaivester — August 30, 2006 @ 8:17 pm | Reply

  2. Oops! Sorry – can’t ask racist questions like that – whether or not it’s true, it’s not polite to talk about.

    Well, one way of looking at this is from identity politics/interest group angle — a homogenous culture shares common interests and thus can work for genuine common good instead of various interest groups simply lobbying for their own share from the big tax cake.

    Comment by Tuomas — August 30, 2006 @ 8:42 pm | Reply

  3. Btw, I’m the probably not the best person to point this out, but making pre-emptive defenses against accusations of racism is somewhat insulting and not conductive of good debate.

    Comment by Tuomas — August 30, 2006 @ 8:45 pm | Reply

  4. Is it the income trqansfer programs of those countries that reduced poverty, or is it the fact that they do not have large black and Latin American populations like the US does.

    So you’re saying that two countries, France and the USA, started out with approximately equal levels of child poverty (before tax and transfer programs take effect).

    Then, France transfers a lot of resources to poor French families. The US transfers less resources per capita to poor US families. The additional money brings a lot of French families above the poverty line, and a few American families above the poverty line.

    Yet somehow you think it’s reasonable to ask if the problem might be blacks and hispanics. How on earth does the money being transferred know the color of the people it’s being given to?

    Here’s my question to you: What possible mechanism could cause money transferred to black hands to be worth less than money transferred to white hands, when it comes to something as straightforward as measuring whether or not one has “X” number of dollars (where “X” equals the poverty line)?

    Comment by Ampersand — August 30, 2006 @ 11:29 pm | Reply

  5. Amp, what he’s saying is that if you have a subgroup with a higher incidence of the problem (child poverty in this case), and that subgroup is not equally distributed among the nations being measured, then you can’t draw conclusions about the efficacy of programs that mitigate the problem without making corrections for the higher starting level of the problem.

    In other words, if you want to know what effect transfer programs have, then you need to equalize the conditions of the groups you are comparing. Comparing white middle class Parisians to white middle class New Yorkers is going to give you a fair estimate, but if you compare a population that’s 95% bourgeoisie white and 5% desperately poor immigrant blacks to another population that’s 80% bourgeoisie white, 12% varying but mostly poor native blacks, 8% varying but mostly poor immigrant Hispanics, you’ll have no idea what you’re measuring. Are the French better at transferring income, or are they better at starting out with fewer people in poverty?

    Comment by Robert — August 31, 2006 @ 1:46 am | Reply

  6. Are the French better at transferring income, or are they better at starting out with fewer people in poverty?

    As the huge chart in the middle of my post shows, before the effects of transfer programs the French have a higher rate of child poverty than we have here in the US. It is therefore impossible that their lower rates of child poverty, post-transfers, are due to “starting out with fewer [children] in poverty.”

    Comment by Ampersand — August 31, 2006 @ 5:38 am | Reply

  7. Sorry. The graph takes up less than 80% of the screen and, while the graphic is bright purple, it isn’t flashing. That’s the minimum visual stimulation I apparently require in order to absorb data.

    In other words: never mind.

    Comment by Robert — August 31, 2006 @ 11:53 am | Reply

  8. I don’t understand the concerns that commentors have raised. But I have different concerns.

    As the basis for his remarks, Amp cites the 2000 UNICEF “report card” on child poverty. That report alludes to the effects of poverty: “…families that are so materially poor that normal health and growth are at risk,” “…poverty of expectations and poverty of opportunity…,” “physical, mental, spiritual, moral and social development.” But the report acknowledges the challenges of measuring all the dimensions of poverty, and defers this issue to future reports; the 2000 report would address only “income poverty” – that is, insufficient access to money. For purposes of this report, I understand UNICEF to evaluate the effect of wealth transfer programs largely in terms of (amount of money transferred)/(number of recipients).

    Amp is understandably baffled by suggestions that racial or cultural factors could have any bearing on this strictly mathematical calculation. Amp’s conclusions seem pretty unassailable to me.

    But two different concerns come to mind.

    First, if we’re going to focus on income poverty,

    Is poverty to be defined as an absolute condition – the inability to purchase and consume a fixed minimum package of goods and services? Or is it to be defined as a relative state – the falling behind, by more than a certain degree – from the average income and life-style enjoyed by the rest of society in which one lives?

    This Report Card opts for the latter concept.

    The UNICEF report discusses the differences: Ireland’s economy was booming, increasing the median national income, resulting in more children meeting the definition of “impoverished.” In contrast, the economies of the Eastern Bloc nations collapsed after the fall of the Soviet Union, reducing their median national incomes, and hence reducing the number of kids deemed poor. Yet in absolute terms, the status of poor Irish kids was actually improving and the status of poor Polish kids was declining.

    Economically, the US looks more like Ireland than Poland. In absolute terms, poor kids in the US are in the middle of the pack of industrialized nations. Yes, the circumstances of poor US kids lags further behind the circumstances of median-income US kids than the circumstances of poor Polish kids falls behind the circumstances of median-income Polish kids. Should I care?

    Moreover, the amount of wealth transfers required to boost a kid’s circumstances up to 50% of Poland’s median income will be a fraction of the amount of wealth transfer required to boost a kid up to 50% of the US median income. Thus the US could be the most generous nation on Earth even on a per-poor-kid basis and still might not boost a higher percentage of its kids above its relative poverty line than Poland does. Again, should I care? Are these really the appropriate measures?

    There are pros and cons to each perspective. I’m not entirely sold on the merits of the relative perspective.

    Second, and more fundamentally, can we reduce the idea of poverty to a simple question of access to money? This question is by no means unique to Amp’s posting; it has bedeviled social scientists since the days of Marx, Weber and Durkheim. UNICEF tacitly acknowledges that the answer is no, but implies that measuring access to money is the best proxy we have for measuring poverty. I generally hold this view.

    Yet I sense this question may have special relevance to Dignan’s argument. I understand Dignan to argue in part that money alone will never enable poor kids to transcend “poverty” more broadly defined. (And donating money alone will not save the souls of rich people, or something like that.) Amp ably rebuts Dignan’s concerns by noting that we can transfer wealth AND intervene in other ways as well. Nevertheless, I find it relevant to acknowledge (my understanding of) Dignan’s concerns in evaluating the relevance of the UNICEF report.

    I agree with Amp: let’s find out which programs produce the best results. I’m just not sure that we should measure results in terms of $ transferred/kid. Maybe we should measure results in terms of life expectancy/$ sent, or average SAT score/kid/$ spent, or something like that. The conceptual challenge is in defining what results we want to produce, and how to measure them.

    Comment by nobody.really — August 31, 2006 @ 12:22 pm | Reply

  9. Economically, the US looks more like Ireland than Poland. In absolute terms, poor kids in the US are in the middle of the pack of industrialized nations. Yes, the circumstances of poor US kids lags further behind the circumstances of median-income US kids than the circumstances of poor Polish kids falls behind the circumstances of median-income Polish kids. Should I care?

    Damn it, nobody.really! I was just researching whether the graphs were about national median income, rather than some universal median income.

    Oh well. Go on, please.

    Comment by Tuomas — August 31, 2006 @ 12:28 pm | Reply

  10. Hey, if you’re in a researching mood, figure out how to reconcile 2) UNICEF’s conclusion that, on an absolute basis, poor US kids are in the middle of the pack of industrialized nations with 2) the Timothy Smeeding quote saying US poor kids lag everybody but UK poor kids. (Admittedly, I haven’t read the Smeeding stuff. Maybe he excludes Eastern Europe from his analysis?)

    Comment by nobody.really — August 31, 2006 @ 12:48 pm | Reply

  11. the Timothy Smeeding quote saying US poor kids lag everybody but UK poor kids. (Admittedly, I haven’t read the Smeeding stuff. Maybe he excludes Eastern Europe from his analysis?)

    He does exclude former Eastern bloc countries, and he does specifically state that Russia (that lags the US) should be considered “developing”.

    Comment by Tuomas — August 31, 2006 @ 1:06 pm | Reply

  12. I have difficulty knowing what to believe about comparing the living standards of the poor in the US and in other nations.

    – UNICEF’s “A League Table of Child Poverty In Rich Nations” (2000) reported that the percentage of US kids living below the level of income designated the “poverty line”was 13.9%. This was worse than Luxembourg (1.2%), Norway (3.0%), Denmark (5.1%), Sweden (5.3%), Finland (6.9%), Belgium (7.5%), Canada (9.5%), France (10.7%), the Netherlands (11.1%), or Germany (12.5%), but was better than Australia (16.2%), Ireland (21.4%), the UK (29.1%), Italy (36.1%), Spain (42.8%), the Czech Republic (83.1%), Hungary (90.6%) or Poland (93.1%).

    – To the extent that I understand it, Smeeding’s Figure 2 states that in 2000, the median US household had a (per capita?) income of $24,416, and the poorest 10% of Americans lived on less than 39% of that. This was worse than Canada (45%), Belgium (43%), Germany (41%) and the Netherlands (41%), but was better than Sweden (38%), Finland (38%) and the UK (35%).

    And whatever deficits the US has regarding the poorest 10%, Smeeding acknowledges that median US households have more real income than median households in other industrialized nations. In other words, Americans at the 10th percentile have lower real income than Canadians at the 10th percentile, but allegedly Americans at the 50th percentile have higher real incomes than Canadians at the 50th percentile. Where is the cross-over point?

    Some of the differences in the data may not be statistically significant, so I won’t draw any big conclusions based on the rankings. To the contrary, I can’t see how this data supports any big conclusions at all. At most, I’d conclude that the US is kinda middle of the pack but shows room for improvement.

    Comment by nobody.really — September 2, 2006 @ 2:18 am | Reply


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