“Inequality Is A Drag”: There’s No Evidence That Making The Rich Richer Enriches The Nation
For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.
Liberals have generally viewed this as a trade-off worth making, arguing that it’s worth accepting some price in the form of lower G.D.P. to help fellow citizens in need. Conservatives, on the other hand, have advocated trickle-down economics, insisting that the best policy is to cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.
But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.
You might be tempted to dismiss this notion as wishful thinking, a sort of liberal equivalent of the right-wing fantasy that cutting taxes on the rich actually increases revenue. In fact, however, there is solid evidence, coming from places like the International Monetary Fund, that high inequality is a drag on growth, and that redistribution can be good for the economy.
Earlier this week, the new view about inequality and growth got a boost from Standard & Poor’s, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. The agency was summarizing other people’s work, not doing research of its own, and you don’t need to take its judgment as gospel (remember its ludicrous downgrade of United States debt). What S.& P.’s imprimatur shows, however, is just how mainstream the new view of inequality has become. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.
Specifically, if you look systematically at the international evidence on inequality, redistribution, and growth — which is what researchers at the I.M.F. did — you find that lower levels of inequality are associated with faster, not slower, growth. Furthermore, income redistribution at the levels typical of advanced countries (with the United States doing much less than average) is “robustly associated with higher and more durable growth.” That is, there’s no evidence that making the rich richer enriches the nation as a whole, but there’s strong evidence of benefits from making the poor less poor.
But how is that possible? Doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.
Think about it. Do talented children in low-income American families have the same chance to make use of their talent — to get the right education, to pursue the right career path — as those born higher up the ladder? Of course not. Moreover, this isn’t just unfair, it’s expensive. Extreme inequality means a waste of human resources.
And government programs that reduce inequality can make the nation as a whole richer, by reducing that waste.
Consider, for example, what we know about food stamps, perennially targeted by conservatives who claim that they reduce the incentive to work. The historical evidence does indeed suggest that making food stamps available somewhat reduces work effort, especially by single mothers. But it also suggests that Americans who had access to food stamps when they were children grew up to be healthier and more productive than those who didn’t, which means that they made a bigger economic contribution. The purpose of the food stamp program was to reduce misery, but it’s a good guess that the program was also good for American economic growth.
The same thing, I’d argue, will end up being true of Obamacare. Subsidized insurance will induce some people to reduce the number of hours they work, but it will also mean higher productivity from Americans who are finally getting the health care they need, not to mention making better use of their skills because they can change jobs without the fear of losing coverage. Over all, health reform will probably make us richer as well as more secure.
Will the new view of inequality change our political debate? It should. Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 7, 2014
“Paul Ryan’s Stale Ideas On Poverty”: Retreaded Idea’s Surrounded With The Language Of Innovation
Paul Ryan is counting on this: Because he says he wants to preserve a safety net, speaks with concern about poor people and put out a 73-page report, many will elide over the details of the proposals he made last week in his major anti-poverty speech.
The Wisconsin Republican congressman is certainly aware that one of the biggest political difficulties he and his conservative colleagues face is that many voters suspect them of having far more compassion for a wealthy person paying taxes than for a poor or middle-income person looking for a job.
So Ryan gave a well-crafted address at the American Enterprise Institute in which the centerpiece sounded brand spanking new: the “Opportunity Grant.” The problem is that this “pilot program” amounts to little more than the stale conservative idea of wrapping federal programs into a block grant and shipping them off to the states. The good news is that Ryan only proposes “experiments” involving “a select number of states,” so he would not begin eliminating programs wholesale. Thank God for small favors.
Ryan surrounds his retread idea with the language of innovation. “The idea would be, let states try different ways of providing aid and then to test the results — in short, more flexibility in exchange for more accountability,” he declared. “My thinking basically is, get rid of these bureaucratic formulas.”
Who can possibly like those “bureaucratic formulas”? The phrase is another disguise. Among the programs Ryan would block grant are food stamps (now known as the Supplemental Nutrition Assistance Program or SNAP). Food stamps are one of our most valuable initiatives because people are automatically eligible for them when they lose a job or their income drops sharply. Studies have amply documented how important food stamps are to the well-being of children.
For the economy and for the disadvantaged, curtailing SNAP would be devastating. While providing nutrition help to families in desperate need, food stamps also offer an immediate economic stimulus at moments when the economy is losing purchasing power. Economists call such programs “automatic stabilizers.”
Ryan’s block grant would not be nearly as responsive to economic changes. If Congress would have to step in, its reaction would be slow. And the history of Ryan’s own budgets shows that increasing spending for poor people is not exactly a priority on his side of politics.
Food stamps aren’t the only programs that get wrapped into the grant. Housing vouchers go there, too, which could lead to more homelessness. So does money for child care. Ryan says there would be rules barring states from using funding from his Opportunity Grant for purposes other than helping the needy. But it’s not clear from his outline how he’d stop states from using their new flexibility to move spending away from the needy indirectly by substituting block grant money for existing expenditures.
Ryan might reply: You just don’t trust the states! And my answer would be: You’re absolutely right, there are some states I don’t trust to stand up for their poor people. I’d point specifically to the 24 states that are depriving roughly 5 million Americans of health insurance because they refuse to participate in the Medicaid expansion under the Affordable Care Act.
In his speech and report, Ryan movingly described two hypothetical Americans, “Andrea” and “Steven,” and how much they could benefit from intense counseling by a case worker. There may well be something to this, but it’s expensive. How much would states have to cut basic assistance to the poor to hire additional case workers?
And by the way, one of the programs Ryan would eliminate to pay for an undoubtedly positive part of his plan — a roughly $500-a-year increase in the Earned Income Tax Credit (EITC) for childless workers — is the Social Services Block Grant, which helps pay for the kinds of interventions he wants for Andrea and Steven.
There is such a hunger for something other than partisanship that the temptation is to praise the new Ryan for being better than the old Ryan and to leave it at that. It’s good that he moved on the EITC and also that he embraced sentencing reform. I also like his suggestion that we re-examine occupational licensing rules.
But forgive me if I see his overall proposal as a nicely presented abdication of federal responsibility for the poor. “Experimenting” with people’s food-stamp money is not something we should sign onto.
By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, July 27, 2014
“The Big Problem With Paul Ryan’s New Poverty Plan”: Accountability Is Only Required Of Poor People
Today, Rep. Paul Ryan is unveiling his latest idea to change the federal government’s poverty programs. For someone who is constantly saying how concerned he is about poverty, Ryan’s previous budgets have relied an awful lot on slashing benefits to poor people. But this time, he promises that his proposal doesn’t cut benefits, but merely reorganizes them. Some parts of the proposal might be worthwhile. But it’s hard to avoid the conclusion that it’s still driven by the longstanding conservative desire to limit the help we give to the poor.
The centerpiece of the proposal is a consolidation of multiple separate programs into a single block grant that would be given to states; they could decide how to dispense the money, and the federal government’s job would essentially be reduced to oversight. States would choose whether or not to participate.
This sounds reasonable until you start to think about how it would play out. In practice, it’s likely that the states most eager to sign on would be precisely those that aren’t too happy about the ways the federal government provides benefits now. The devil would be in the details; what if a state decided to take its entire block grant and devote it to giving lectures to poor people on why they should get married? There could be a lot of needs going unmet while states implement their ideologically-driven visions of how poverty ought to be addressed.
Ryan’s plan assumes that the same Republican states that rejected the federal government’s offer to insure poor citizens through the expansion of Medicaid — in other words, who would rather see poor people go uninsured than get coverage from the government — are now going to be spectacularly committed and creative in working to help those same poor citizens through their time of need. Color me skeptical.
Ryan insists his plan would hold funding for these programs constant, not cut them. But it’s more complicated than that. Conservatives have long advocated block-granting of poverty programs, always with the justification that states will better deliver assistance to poor Americans if they aren’t hamstrung by requirements from Washington. But there’s little evidence that block granting accomplishes anything other than making it easier for these programs to be cut in future years or simply whittled away by inflation. As Jared Bernstein points out, Temporary Assistance to Needy Families, which we used to call “welfare,” was block-granted in 1996 and has since then seen its value slashed by 30 percent in inflation-adjusted terms.
One of the real dangers of Ryan’s approach is that it would render the programs unable to deal with economic downturns unless Congress stepped in and supplied more money, which would be unlikely as long as Republicans control at least one house. So for instance, right now the food stamp program is an entitlement; if you meet eligibility standards you’re entitled to food stamps. The program can never run out of money in a given year. When the Great Recession hit, millions of Americans found themselves newly out of work and thus eligible for food stamps.
But under Ryan’s program, food stamps would be part of a block grant whose total amount is fixed. If and when another recession hit, states would be flooded with people who needed assistance, but they’d have the same limited sum of money they got at the beginning of the year. So they’d either have to turn people away or find a way to rob Peter to pay Paul, taking money out of other poverty programs to meet the increased need for food.
(There’s a brief discussion of inserting a provision into the plan to account for this kind of eventuality, but it seems neither particularly well thought-out nor nearly adequate to address what could be a major need.)
Ryan’s plan would also require “accountability” from those receiving assistance, in the form of time-limited benefits and work requirements (how you satisfy those requirements when people can’t find work is its own sad story). This too is a hallmark of the Republican approach to poverty programs, in which poor people have to jump through hoops to demonstrate their moral worth to get benefits. “Accountability” is something that is required of poor people, and only poor people. Farmers who get government subsidies don’t have to be “accountable.” Nor do government contractors who waste huge amounts of taxpayer money. Only the poor are forced to pee in a cup or account for their time or endure a hundred other petty humiliations, so we can be sure that if they get any government assistance they have proven themselves to be morally upstanding enough to deserve help.
That isn’t to say there’s nothing worthwhile in Ryan’s proposal. As he writes in a USA Today op-ed, “Right now, you have to go to a bunch of different offices to enroll in a bunch of different programs, often with different paperwork requirements and eligibility standards. Under the Opportunity Grant, you could go to one office and work with one person.” As anyone who has tried to apply for assistance knows, the paperwork requirements seem designed to hold down enrollment by making it as difficult as possible to apply. Streamlining that process would be terrific.
While this plan isn’t going to become law (at least not any time soon), it does serve a political purpose of showing that Republicans are thinking about poverty, and Ryan isn’t the only one in his party trying to revive “compassionate conservatism.” We can give him credit for addressing the issue. If only there was more reason to believe his ideas would do much to help Americans who are struggling.
By: Paul Waldman, Contributing Editor, The American Prospect; Published at The Plum Line, The Washington Post, July 24, 2014
“Paul Ryan’s Glossy New Poverty Plan”: Not Much Doubt What The Effect On Poor People Will Be
Every year or so Paul Ryan comes up with a glossy new plan to deal with poverty or spending on social programs. The plans never go anywhere, but they’re not really intended to: They’re designed to make the Republican Party (and Mr. Ryan himself) appear more thoughtful than it actually is on these subjects.
The one he released today is somewhat better than previous efforts, in that it doesn’t propose massive cuts in overall spending (unlike his House budgets), and would even increase the Earned Income Tax Credit, one of the government’s most successful anti-poverty programs. Democrats have also embraced a larger credit, although unlike Mr. Ryan, they would pay for it by raising taxes on the rich rather than slashing federal nutrition programs that Mr. Ryan thinks are a waste of money.
But the lack of seriousness in the plan is demonstrated by its supposedly big idea: It would combine 11 of the most important federal poverty programs into something called an “opportunity grant” that would be given to the states to spend as they see fit. The eliminated programs would include food stamps, what remains of the welfare system (known as Temporary Assistance to Needy Families), Section 8 housing vouchers, and low-income heating assistance, among others.
This technique should sound familiar. Members of Mr. Ryan’s party have spent years promoting the idea that states can do things better than Washington. As Rick Santorum repeated endlessly in 2012, “Cap it, cut it, freeze it, and block-grant it to the states.” Mr. Ryan’s running mate that year, Mitt Romney, would have turned all of Medicaid into a block grant system dumped onto the steps of 50 state capitols.
Putting programs like food stamps into a block grant means they could not be expanded on a national basis during economic emergencies, when unemployment or poverty soars. If a state were to have a budget crisis, perhaps due to tax cuts, social spending would be the first to go.
The broader problem is the sharp division between the states, which exposes the gap between Mr. Ryan’s attempt at high-mindedness and the petty grievances of the Republican majority. The proponents of these consolidation ideas know that while blue states would shoulder their responsibilities and protect their poorest residents, many red states would not. If Washington were not in the anti-poverty business, Republicans would have an opportunity to reduce spending on social programs in about half the country.
The attitude of red states toward social spending has been made brutally clear by their reaction to the Affordable Care Act. In 36 states, lawmakers refused to set up health care exchanges, putting the insurance subsidies for poor people at risk if a recent court decision is upheld. And only 27 states, including the District of Columbia, have agreed to expand their Medicaid programs. The effect on lowering the number of uninsured people in states with expanded programs is clear, but lawmakers elsewhere don’t care.
In Florida, the Republicans who rule the state have not created exchanges or expanded Medicaid, and have offered nothing to the 760,000 state residents with no insurance. The state has even banned volunteers who were helping poor people sign up for the federal exchange. The president of the Florida Senate, Don Gaetz, summed up the prevailing attitude perfectly this week: “As long as I serve in the Senate, I will never support the state of Florida serving as the instrument by which individuals and businesses are forced into a federal mandate to purchase a health insurance product they may not want.”
Mr. Ryan would never say so, but the real effect of his plan is to turn over a series of highly successful federal poverty programs into the hands of Don Gaetz and other anti-government ideologues. There’s not much doubt what the effect on poor people would be.
By: David Firestone, Taking Note, The Editorial Page Editors Blog; The New York Times, July 24, 2014
“It Makes No Sense”: Why Do People Vote Against Their Own Best Interests?
This question has stymied political strategists and pundits for a long time. As an expert in the women’s market, I too am baffled by the way people, especially women, vote against those who share their ideals and values in lieu of voting for those who don’t.
I have frequently been asked and often pondered the question: “Why would a woman vote Republican when they clearly have a war on women?” I wish I had a great answer for this. Perhaps they have always voted Republican, and thus continue down this path. Perhaps they are wealthy and the tax breaks the Republicans fight for, that primarily benefit the rich, is the most important reason. Perhaps they believe the falsehoods and phony rhetoric of the Republican Party. Whatever the reason, I find it truly disturbing.
Both women and men should vote for elected officials whose actions show that they have the best interests of the citizens and country in mind, but for some reason, they don’t.
While I acknowledge that many Republican women are pro-life, offering choice, rather than a one-size-fits-all approach, just makes good sense. I’m not advocating abortion; I am saying that I should have the choice to decide what is best for me and my family.
Equally troubling is why Republican women support a party who barely passed the Violence Against Women Act, who don’t support legislation to guarantee that a women receives equal pay for equal work, and who think women’s bosses should have the right to determine her health care and reproductive decisions.
As Republican governors refuse to accept billions of dollars in free federal money to expand Medicaid, hundreds of thousands of people are going without medical care and are dying needlessly. As the GOP continues to cut billions from food stamps, many women and children are going hungry.
Men are also hurt by the policies of the Republican Party. Many men support the party because they are pro-gun, but Republicans also vote to keep the minimum wage at poverty levels and are against extending unemployment benefits. These policies hurt the working class.
Republicans want to reduce government spending and control, but I wonder if the populace realizes that many solidly red states that they live in receive a huge percentage of their income from the federal government? In actuality, the amount many red states pay in federal taxes is small compared to the amount they receive back from the government.
Do they think about how the government spends this money building the roads they drive on daily, or providing funds for the fire department that comes to their home if there is an emergency? When a natural disaster strikes them, do they accept F.E.M.A’s help? These and many more necessities are government-funded programs.
To cut spending on these and other projects as the Republicans suggest, would greatly impact both the men and women in these states in a very destructive way. It reminds me of the old saying, “cutting off your nose to spite your face.” It makes no sense.
In reality, the Republicans don’t want to cut spending, just redistribute it from the poor and middle class to the wealthy. The Republican budget once again gives massive tax breaks to the wealthiest Americans, while it cuts programs and safety nets that help many of the people who vote Republican. I don’t understand why people vote against their own best interests, especially when it hurts their family, the economy and the principles on which America was founded.
I respect the two-party system and believe it is healthy for a democracy to have differences that exist in many areas of fiscal and social governance. But the right-wing fringe has hijacked the sanity of the Republican Party, and the GOP needs to get back on track. Gerrymandering, suppressing the vote, allowing unrestricted funds and unlimited terms have led to undemocratic practices which will destroy America if voters don’t stand up and fight for what is right.
Citizens, whether Republicans, Democrats or Independents, all have much to gain by voting for politicians who are interested in the good of the country: working together, listening to each other, and compromising. If they continue to choose representatives who do not support our fragile Democratic Process, citizens will soon have more reasons to fear Washington D.C. than foreign terrorists.
By: Gerry Meyers, CEO, President and Co-founder of Advisory Link;The Huffington Post Blog, April 21, 2014
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