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Updating Best Intentions

09/03/2022

Do you think poor people are poor because they are lazy?  If so, what percentage?  What percentage are just plain stupid?  What percentage are emotional refugees?

As a former Texan, I enjoy reading former Senator Phil Gramm (R – TX) whenever I can, and he had a recent opinion piece in The Wall Street Journal, along with John Early of the American Enterprise Institute.

It takes issue with the oft-spoken progressive position that the income gap between rich and poor is unhealthy and unsustainable.  (Indeed, it is a problem and a threat to our domestic stability.)  However, Gramm and Early also make an interesting point that, even if we need less overall income disparity in America, we do need more income disparity in the bottom half of Americans.

They start by dividing Americans into 20% groups (quintiles) from richest to poorest, emphasizing there is only a small gap in income between the bottom three quintiles, which is 60% of all Americans.  Transfer payments, like welfare, Social Security, unemployment compensation, veterans’ benefits, etc. have increased 269% for the bottom or poorest quintile since the War on Poverty in late 1960’s.  Essentially, taxpayers closed that income gap.

In the bottom quintile, 36% are employed, earning an average of $6,941 but enjoying an income of $48,806 after transfer payments and taxes.  In the second quintile, 85% are employed, earning $31,811 but enjoying a grossed-up income of $50,492.  That means workers in the second quintile enjoy a mere 3.5% advantage over the “slackers” at the bottom.  The grossed-up income of the middle quintile is only 26% more than the bottom quintile.

Gramm begs the question of what motivation is there for the very poor to get a job and move up to the “middle class” or third quintile . . . if they are only going to enjoy a 26% increase?  Should we increase transfer payments to the third quintile or decrease those payments to the “bottom class” or first quintile?

My suspicion is that society/government watches some floor, like the poverty level, and have over the years clustered “transfer” programs around that level, camouflaging whatever income gaps might otherwise exist among the bottom 60% of society.  I further suspect my former Senator believes those transfer programs – designed to help the poor – has instead become the problem – hurting the poor – by making them lazy and indifferent to improving themselves.  The Labor Force Participation Rate (LFPR) has dropped in the bottom/poorest quintile has dropped from 68% when the War on Poverty began to only 36% in 2017.  The overall LFPR today is 62.4% for all Americans.

We are a generous nation but certainly not the most generous nation.  Many other nations have a more generous social safety net than America.  Unfortunately, Gramm doesn’t discuss ways to make our social safety net more rational.  The traditional mindset of whether we transfer more – or less – to the poor produces only political talking points but not helpful public policy.  If we temporarily stopped complaining about “welfare queens” and drug-addicts long enough, we might see ways to make it easier to work, e.g., childcare, free sterilization, GED testing, a freeze on other transfers, etc.

So, what would you suggest, and how would you implement it?

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