Category Archives: political economy

Why Does America Have Poor People?

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I’ll start with an old parable.  One man makes $1,000/day, and another makes $10/day.  The “high income” man then opens a factory and hires the “low income” man, and two or three others, at $100/day.  The high income man, with his factory, now makes $2,000/day.  The income disparity difference certainly has increased, markedly, from the original $990/day to $1,900/day.

But has the disparity increased, really?  The high income man, from his factory and hirings has gone from making 100 times the low income man’s earnings to only 20 times that man’s earnings.  And while the high income man’s earnings have doubled, the low income man’s earnings have gone up 10 times.

This brings me to the subject of my post.

We have poor people exactly because the US is the quintessential country where poor people have the opportunity to better themselves, and to do so a very great deal.  They come here from other countries to take advantage of just such opportunities as the parable illustrates, and other opportunities—to be the one who starts the factory, employs others, and both prospers and gives their employees increased prosperity in return for their work.  The same opportunities exist for those who start out as poor US citizens, also.  It’s economic upward mobility that lets people stop being poor and start being middle class, to continue and join the rich, and to set the conditions for their children to do the same and more.

But there’s another reason we have poor people in this country, also.  Despite having spent $20 trillion on poverty programs (I hesitate to call them poverty fighting programs) over the last 50 years, we still have the same per centage of poor people in our population as we had at the start of LBJ’s War on Poverty: 15% of Americans are classed as living in poverty.

Our anti-poverty programs—or at least our programs intended to be anti-poverty—do not encourage people to get off welfare and get a job or get a better job.  Quite the opposite, these programs engender dependence on government in these people.  Here’s how.

As recently as 2005, for instance, poor families spent about two times their income:

A four person-household is in poverty today, according to federal poverty guidelines, if they earn less than $23,550 per year, but the consumer spending of this same household is around $45,000 per year.

They do this not by being able to borrow the difference but because government welfare payments of a variety of sorts, from “assistance” transfers to (refundable) tax credits, make up the difference.  However, because the payments and credits are keyed to household income and not to efforts to work or improve their training and/or education or otherwise to become more self-sufficient and independent, a family whose wage earner(s) get better jobs that increase their income to $40,000 per year—a 70% increase in income—will lose those welfare payments and credits, and will see a net income drop of $5,000 per year to those $40,000—an 11% decrease in actual family income/spending power.

America’s poor aren’t lazy (indeed, the only ones who say so are political hacks trying to make political points by accusing others of saying so); they’re making entirely rational economic decisions, and maximizing (as they see it) their household income.  They’re staying dependent on government rather than coming to rely on their own devices, and opportunities, by logical choice.

And that’s the dead end of our welfare programs.  As structured, these poverty programs do nothing to help our poor, but they do keep our poor poor—and short circuit their opportunity for economic upward mobility.

Filibusters and the Senate

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Senate Majority Leader Harry Reid (D, NV) blew up the Senate filibuster with his manufactured claim of Republican obstructionism and with his Senate rules-breaking move to eliminate it (for now only regarding Presidential nominees) with a (Democrat only) majority vote.

Yet Republican-led (note that: not the Republican satrapy, as Reid views his Senate to be for Democrats) House passed 200 jobs- and economy-related bills in 2013 and some dozen that were passed with 250 or more votes—i.e., with considerable Democrat (that would be bipartisan, for those Progressives following along at home) voting support.

The Democrat-ruled Senate?  An immigration bill and a farm bill.  A budget, but only under the embarrassment of having Senators’ pay withheld if they didn’t pass one.  Under real pressure, a sequester bill (that originated with President Barack Obama) and a natural disaster relief bill.

Indeed, of the 70-ish bills Obama signed last year, 56 originated in the House, and all of 16 came from Reid’s fiefdom.

The rest of those 200 House-passed bills?  Reid wouldn’t even let them come to a vote.  There are, for instance, 40 explicitly jobs-related bills that Reid refuses to allow the Senate even to discuss.  Of the Senate-originated bills, Reid wouldn’t let the minority party even offer amendments.  Under Senate rules, there are only so many amendments allowed to be proposed for a bill.  Reid routinely, and universally, “filled the tree” with his own or those of his trusted lieutenants, Senator Chuck Schumer (D, NY) and Senator Dick Durbin (D, IL).

There is the filibuster.

Emergency Unemployment Insurance Extension

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The existence of unemployment insurance payments means, especially for the low-skilled, that the change in income for taking a job ranges from slightly negative to slightly positive.  This is what underlies much of the argument against unemployment insurance payments of any duration.

That’s only background to the present situation, though.  There are two more, and more important, considerations surrounding the present push by President Barack Obama and Senate Majority Leader Harry Reid (D, NV) to extend emergency unemployment insurance payments.

One is these Democrats’ refusal to allow job training requirements to be attached to any such emergency unemployment insurance payment extension.  This criterion would cull those who are just using the payments to live on.  See the work requirement attachments and their results during/after the Clinton years.  Seethe work requirement attached to TANF when it replaced AFDC.  But the work training requirement has an additional direct benefit.  The training will help these low-skilled workers get better jobs, not just return, of necessity, to the same type of job.

One is these Democrats’ refusal to pay for this extension with spending cuts anywhere else, but only with continued borrowing: this is an emergency, and “we’ve never paid for emergencies.”  Actually, we do pay for emergencies, if only by borrowing against our children’s and their children’s futures.  Which we’ve already done, to the tune of $17+ trillion.  And this sort of unending wealth redistribution is exactly the sort of thing against which Madison warned us in the 3rd Congress.

Which brings up a third consideration.  This “emergency” has been going on for five years.  The demand to extend emergency unemployment insurance payments in this emergency situation is a clear admission that the economic policies of Obama and his Senate cronies are a dismal failure, even if none of them have the integrity or courage to say so out loud.

Plainly, this is just crassly naked vote pandering and an attempt to distract honest Americans from the disaster of Obamacare and Obama’s failed economic and jobs policies.  And from his failed, retreat-oriented foreign “policies.”

It’s also insulting to honest Americans.

Tax Breaks, Taxes, and Congress

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Fox News niggles at the story.  Here’s a short list of tax breaks that are at risk of not being renewed (due to Democrats’ intransigence concerning cutting Federal spending, these tax “breaks” do increase the deficit), even though usually they are renewed early in the subsequent year:

  • tax credit for research and development: saving an estimated $6.2 billion in 2013
  • exemption that allows banks, insurance companies and other financial firms to shield foreign profits from being taxed by the US: saving an estimated $9.4 billion in 2013
  • break allowing profitable companies to write off large capital expenditures immediately, rather than over time: saving an estimated $34 billion in 2013
  • tax credit for producing renewable energy, including wind and solar, in plants built before the end of 2013: saving an estimated $116 million in 2013
  • provision that allows motorsport race tracks to more quickly write off improvement costs: saving an estimated $46 million in 2013.
  • tax break that allows TV and movie productions to more quickly write off expenses: saving an estimated $266 million in 2013.

And so on, for more than 50 such things.

Of course none of this would matter—and the associated lobbyists would be put out of work and have to find something useful to do, instead—in a régime of a low flat tax on all income of whatever source, with no deductions, exemptions, credits, what-have-you, that everyone pays.  And we’d have fewer market distortions from the social engineering folderol of the current tax policy.

Minimum Wage as Politics

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Democrats looking to make gains in the 2014 gubernatorial elections are using a possible minimum wage increase as a way to win support among voters….

Democrats across the political spectrum have lobbied for a higher minimum wage this year, after Obama got the ball rolling on the issue by calling for an increase in his February budget speech. Since then, union-organized demonstrations in front of profitable mega-chains such as Wal-Mart and McDonald’s have kept it in the public eye.

Senate Democrats have also pushed for a minimum wage increase going into 2014.  Their proposal would raise the minimum wage by 40%.

Of course there’s union involvement.  Aside from the Democrats being union meal tickets, increasing minimum wages protects union jobs—and so union leaders’ jobs—at the expense of the unemployed, those looking for a first job or for high school or college money, those looking for a second income, and the poor, who would gladly take the lower pay but who are priced out of the labor market by increased minimum wage.

We’ve already seen how that works.

Never mind the racist origin of minimum wage laws, instigated by FDR specifically to stem the tide of southern blacks moving north to take jobs at lower pay than white unions (blacks weren’t allowed in those unions, remember) wanted, and so taking jobs at the expense of those white union members.

Never mind that most of those unemployed and underemployed who will be priced out of the next round of hiring by these elevated minimum wages are the already vastly underemployed and underemployed black and Hispanic teenagers, black and Hispanic moms trying to work a family’s second job.  Regardless of current intent, the disparate impact of minimum wage laws is clear.  Where’s Eric Holder when we need him?

Nevertheless, Danny Kanner, Democratic Governors Association Communications Director had this to say:

The defining issue in every single one of these races is who is fighting for the middle class.

Yeah.  Never mind any of those poor, who’d like to get a job and work their way into the middle class.  Typical Progressive, playing politics, and with that play, ignoring the least among us.