Recession and the Gipper (or, how you do that voodoo that you do so well)

Great Debates
21

Have you or anyone else here actually read much of Laffer’s work on his self-named curve? I actually am an economist (of sorts… my B.A. was in it and it’s what my graduate work is in) and I’ve read SOME of his work from that period as well as some of his articles and interviews in popular media, and I’ve never seen anything that even remotely approaches a formal model based on the L-Curve, although I admit I’ve only read a few of his peer-reviewed journal articles and that was a while ago. As near as I can tell, it never made it past the paper-napkin phase…

But no, I’ve never met an economist that in any way argued there wasn’t SOME stimulative effect… this effect is well understood and usually covered in your standard “Intro to Macro” course. But NO ONE can accurately predict the size of the effect, and whether or not the stimulative effect outweighs the revenue lost to a lower tax rate isn’t even nearly resolved. We DO know that economists like Laffer expected great things from the tax cuts of '81, at least they said as much in public… and of course David Stockman giving overly optimistic forecasts during this period of time certainly helped them out (read “The Education of David Stockman” in The Atlantic Monthly, I think it was the Dec. 1981 issue).

22

Didn’t I just say the same thing? Tax cuts have a stimulative effect, but Laffer was way optimistic in how big it would be, and the curve was a failure from that standpoint.

As for Stockman, I highly recommend reading “The Triumph of Politics”, his autobiography of the years in the Reagan White House. It paints a fascinating portrait of how government works, and how it is so hard to cut spending that even a conservative like Reagan eventually gave in and wound up increasing the size of government. It’s also a case study in how an intelligent, ambitious young man could be completely beaten down by the system. I suspect George Stephanopoulis could write a similar book from the opposite political perspective.

According to Stockman, this is what happened to Reagan’s budgets: First, during the campaign some highly motivated ‘supply siders’ latched on to Reagan. His campaign liked the message - that you can have your cake and eat it too - and because they liked the message so much they bought into the whole package without really understanding it.

After Reagan was elected, as the numbers from the first budget starting coming in it became apparent to Stockman and a few others that something was wrong. Revenue targets weren’t coming close to what they wanted. And Reagan, for all his talk about small government, turned out to be too nice a guy to actually make significant cuts in the budget. So they whittled away at small things here and there, and then essentially cooked the books to justify what they were doing. The CBO pumped out wildly optimistic numbers for growth in order to make President Reagan’s budgets look better.

In a sense, the Supply-Siders fell victim to the very thing they fought against. One of the fundamental tenets of Conservatism is that Washington is a terrible manager of a complex economy. The economy is unpredictable, and attempts to mold and shape it by a central authority are usually doomed to failure. But that’s exactly what these guys tried to do. They thought they could drive the economy from the White House. And that’s not a particularly conservative viewpoint.

23

jshore, Mandelstam: I have started a new thread on morality and the tax code, if you are interested.

24

I just wanted to post briefly on this thread today to thank everyone for some very interesting comments and, especially, to welcome desdinova to this discussion. It will be really nice to have someone with a solid economics background taking part. :slight_smile: I can’t reply today, much as I would like to, as I’ve already maxed out my SDMB daily allotment on the Federal Government/Education thread–a somewhat thankless task. Weird_Al, I’ll wait for you to answer xenophon’s question before visiting your morality thread.

25

Mandelstam: that’s my own pet (and probably crank) theory. I’ve seen pieces of that argument around, and it underlies the whole fear of the breaking of the Social Security piggy bank - by that same cohort.
picmr: I remember reading a Krugman column on this in the New York Times. It was amusing. It was also true: in the early 90’s, when the economy was slowly pulling out of recession, the slowness of the recovery was laid at the doorstep of Clinton, and his tax increase. In the late 90’s, when the economy took off, suddenly this was not because of Clinton, but because of either Greenspan or, more tellingly, Reagan. This despite the fact that Clinton had a lot more to do with how the economy looked in the late 90’s obviously, since he had been in power long enough to start having a real effect.
As you said, success indeed has many fathers. Even if they were impotent at the time of conception.

26

Here is a link to the article that desdinova mentioned re David Stockman. It’s fascinating.

http://www.theatlantic.com/politics/budget/stockman.htm

**OxyMoron **: "[C]an we honestly state that poverty “increased” under Reagan, or under Clinton? The statistics are deceptive since so many fail to account for in-kind redistribution (food stamps, subsidized housing, Medicaid) or for the shadow economy in which many poor people live. This latter is especially significant, since anecdotally we know that there are an astonishing number of people getting paid under the table, with no records in labor, tax, social security or other statistics, and that for obvious reasons these people are more likely to be poor."

But such people have always existed; I think you’d have to show–and not anecdotally either ;)–that the number of people being paid in cash had grown disproportionately.

As to the deceptiveness of the statistics (and this is as much in reply to Sam as to yourself) there seems to be quite a bit consensus that by any measure inequality has become a serious problem. Also, you must surely be aware that programs to help the poor such as food stamps have been cut and cut again since the Reagan years.

This excerpt from the Boston Review is typical of literally dozens of sources out there:

"Over the past two decades, income inequality in the United States has massively increased. This jump owes to the unprecedentedly abysmal earnings experience of low-paid Americans, income stagnation covering about 80 percent of all families, and an increase in upper-end incomes. The rise in inequality-greater than in most other developed countries-has reversed the equalization in income and wealth we experienced between 1945 and 1970. The United States has now cemented its traditional position as the leader in inequality among advanced countries.1
These facts are not in dispute. From the Milliken Institute on the right to the Economic Policy Institute on the left, virtually all analysts agree that something has gone seriously awry with our income distribution. And absent some major national effort to change things, the new inequality is likely to continue (the recently reported 1995 decline in poverty and uptick in wages notwithstanding). The next recession will surely exacerbate it, and the forces contributing to wage losses at the bottom-foreign competition, immigration of low-skilled labor, technological changes, shifts from manufacturing to service industries, declining union density, subcontracting, and so on-are unlikely to reverse themselves anytime soon. "

Source:
http://www-polisci.mit.edu/bostonreview/br21.6/freeman.html

“I will buy, however, that inequality has accelerated since Reagan (and in fact its affect appears to have become even more pronounced during the 1990s). What I will not buy is that this statistic should worry us, particularly since to an as-yet unknowable degree the inequality may have resulted from an overvalued stock market, which distorts not only distribution-of-wealth data but also income data from exercise of compensatory equity distributions.”

This argument would be fine with the difference were only accountable to the added wealth of the stock-owning wealthy. But there is also decline (in real terms) amongst the poor and the lower echelons of the middle class.
"But even laying those concerns aside - let’s assume the worst case scenario. I don’t think we need to care unless we see that a large number of people (not merely those employed in basket-case industries like steel or textiles) are becoming, in absolute, inflation-adjusted, all-economic-transfers included terms, poorer, and are remaining so over a period of several years."
That is exactly what is being said about the bottom 10%.

*“Those are the folks we need to worry about, and I am not persuaded that anything other than a growing economy, relocation grants and (re)training programs will help them.” *

And would you oppose any of that?

  • “High marginal tax rates are, at best, irrelevant to any of the above.” *

Really? Even if the money is used to pay for relocation grants and retraining programs? ;). Not to mention the fact that, as I’ve said here and in other threads, a payroll tax cut would help such people a great deal.

What I don’t understand is how you and Sam both are more ready to quibble about statistics, as though rising inequality is seriously in doubt (which is isn’t), rather than to look at the problem from the other side.

Whether or not some statistics look worse than others, whether or not some entitlements such as food stamps have been left out of some studies, whether or not some people are earning more off the books than in the past, there is little question that inequality has dramatically increased, and that living standards for the poorest have declined.

No one has really addressed the argument I presented above: that, morality, aside, this makes poor economic sense.

27

Is inequality the proper measure, though? If you look back, you’ll see that I agreed right off the top that inequality has increased.

But let me offer a hypothetical question: Let’s say you can pick between two magic pieces of legislation, one of which will raise the average income of the poorest 10% of society by $5000, but the average income of the richest by $50,000.

The other legislation will cause the poorest segment of society to gain $1000 in income, and the richest will also gain $1000.

In the first case, we have more inequity, but a higher standard of living for the poor. In the second, we have less inequity, but a lower standard of living.

Which is the preferable of the two? If inequity is the best measure of social policy, shouldn’t you pick the second one?

28

Sam, the choice you offer is irrelevant since, in effect, it’s a choice between a Reagonomics fantasy and some perceived liberal alternative to it. Precisely what I emphasized above was not inequality itself, but inequality as a function of a real decline in the bottom ten percent. A better analogy for what has happened since 1981 would be to policies that raised the top 20% by 20,000, raised the top 1% by $250,000, left the middle stagnant, and lowered the bottom 10% by $3,000. (These are just figurative numbers: I haven’t tallied the math against Krugman’s figures.) Once again, I feel as though you’re skirting the issue: Reagonomics perpetuates inequality, not only by giving to the rich but by robbing from the poor. The reason being that “trickle down” doesn’t work. Putting morality aside, this kind of policy–I’ve said again and again–doesn’t make economic sense. And I don’t see how you can deny that given the opinions you’ve already articulated. All you can do, it seems, is to waffle about the unreliablity of all statistics in assessing the declining living standards of the poorest. (And I am aware, as I’ve said above, that were some gains for this group prior to the current slowdown.)

29

A good rule of thumb in economics is that when someone tells you the facts are absolutely incontrovertible, start looking for his or her agenda. Because things are rarely that cut-and-dried. That applies to both the right and left, BTW.

See, you’re acting as if the facts are not in dispute. You claim that the actual incomes of the poorest have gone down since 1980. This is not, in fact, easy to determine. You can massage the numbers in lots of ways to make the answer come out the way you want it to.

For example, the myth that incomes have decreased may have come from Robert Reich, who has been spouting this for a while now, and using Census data from 1990 to 1997 to prove his point. And during that time, the mean income of the lowest 5% did in fact decline. But the numbers were available all the way up to 2000. Why didn’t he use them? Because there is a sharp upward spike in 1997, and the poorest 5% of society did quite well in the last three years. Here are the hard numbers, from the U.S. Census Bureau:


Median Income in 1999 dollars:
------------------------------
Year     Males     Females     Bottom 5% of Households
------------------------------------------------------
1999    $30,121    $18,777       $9,940
1998     29,648     18,436        9,427
1997     27,963     17,489        9,209
1996     27,452     17,199        9,127
1995     27,465     17,002        9,128
1994     26,867     16,531        8,726
1993     26,226     16,592        8,546
1992     26,229     16,506        8,654
1991     26,832     16,210        8,884
1990     27,506     15,958        9,171
1989     28,627     16,020        9,433
1988     29,133     15,947        9,159
1987     29,001     15,874        9,044
1986     28,815     15,483        9,035
1985     27,975     14,974        8,976
1984     27,578     14,555        8,989
1983     27,139     14,402        8,763
1982     27,125     14,004        8,719
1981     28,108     13,750        8,942

The table above shows, if anything that median incomes and below have not changed much in 20 years. But a Conservative pundit reading those numbers might argue that the poor started to do better under Reagan (their incomes increasing from 8,942 in his first year to 9,159 in his last), and then started to decline under Clinton. Furthermore, they might claim that the increase under Clinton came only after the Welfare Reform act was passed, which Clinton vetoed twice. In other words, Republicans are good for the poor, and Democrats are bad.

But can that reasonably be extrapolated from these numbers? Nah. There is too much variance, and the changes are small. If you overlaid those incomes over GDP growth, you might be able to draw opposite conclusions. And what about changes in the way the bottom quintile is measured? If the rich made out like bandits, wouldn’t that cause the bottom quintile to be inflated just by moving the measuring stick?

Then you might notice that women made out like bandits, seeing an average income increase almost as great as the richest quintile. Did that come at someone’s expense? If so, whose?

Then you might argue that demographic shifts are to blame. Or that education inequality is to blame. Or that the economy has changed in such a way as to reduce the demand for unskilled labor, thus holding their wages lower.

One thing is clear: The rich certainly gained far more in the last 20 years than did the poor, so there is certainly an increase in inequality. What isn’t clear is whether or not those gains came at the expense of the poor. Perhaps the massive economic gains we’ve seen in the last 20 years are the only thing that has kept the incomes of the poorest quintile from collapsing completely.

If you go to the Census site, the first thing that will strike you is the sheer volume of the data. Income measurements alone span about 20 tables. There are measurements by age, education, marital status, quintile, etc. If you want to sift through it all and extract only the data that makes your political points, you can probably find it.

For example, another measure of how the poor are doing is by using the poverty index. In 1981, 14% of the people were below the poverty line. In 1999, that number has dropped to 11.8%. A conservative could then use those statistics to argue that our economic gains have helped the poor out a lot.

But that’s not even a fair measure, because we’d have to look at things like education, immigration, and a host of other factors before we could point at a political policy and claim that it is responsible.

So my question stands: Is inequality the appropriate measure? If not, what is? If so, why?

30

Sam - My apologies. I was swamped at work and couldn’t post.

Thanks very much for this thought-provoking reply. I can’t respond at length so let me say simply this. You’ve persuading me that you’re views on the difficulty of measuring the impoverishment of the bottom are sincere. For me, they’re not in question because, as I see it, a greater degree of social equality is not only economically sound but also culturally necessary. So I don’t tend to question the figures that I read about with your vigor. Nevertheless, I found your reply interesting and, again, I appreciate that you’ve been debating in good faith. A pleasure arguing with you :wink:

31

I don’t think we’re that far away from each other’s positions, at least in terms of whether or not inequality is a bad thing. At some point, if the gap between the richest and poorest gets too wide, it will stress our social fabric. I suspect where are disagreements are going to be are along the lines of government policy. See, I don’t think you can do much to help out the really poor, other than making sure the economy is vibrant and healthy so opportunities are open to them. Minimum wage laws don’t help, and are actually counterproductive. Taxing the rich tends to slow the economy, which hurts the poor as well. So the only way to lower the inequality gap is to punish the rich.

Remember the luxury tax? It passed because it’s always politically popular to attack the more flagrant exhibitions of wealth. Thus, a surcharge was put on things like yachts, private airplanes, luxury cars, etc.

Did it hurt the rich? Not a bit. They’ve got lots of other things to do with their money. And they did. They simply stopped buying yachts and airplanes. So the yacht companies, aircraft companies, their workers, and the workers in all the industries that support them (boat cleaners, sail seamstresses, aircraft mechanics, etc) took the brunt of the damage. And it didn’t even raise any new government revenue, because the decrease in sales of those items offset the luxury tax. It was basically just a big brake put on selected industries that were politically expedient to attack.

Anyway, there is one BIG hidden factor in the numbers that is rarely discussed, and very important. And that is the mobility of the lower class. It’s okay to have a wide gap between the rich and poor, as long as the bottom end is a revolving door. After all, most of the richest people started out poor at some time in their life. I’m guessing most of us here made minimum wage or close to it at some point in our lives, and I’m sure some still do.

Most of the people in the bottom quintile today are NOT the same people that were in the bottom quintile 20 years ago. And that’s the big difference. In 1980, I was in the absolute bottom of the economic chain. I made less than $8,000 per year. Today I’m in the upper middle class. (and yes, I was a Libertarian then as well). That’s the most common pattern by far for most people. Get out of school, work for minimum wage for a while, eventually get promoted up and out or go to school, gain experience, get more promotions and raises, etc.

When I made $8,000 a year it didn’t bug me very much, because I knew with certainty that it was a temporary condition. If I thought then that it would have been permanent, it would have felt totally different. Upward mobility is the key to preventing societal stress between the rich and poor.

Imagine if young people never got older. Eventually, it would put a stress on society. The old would resent the young’s vigor and health, and the young would resent the older people’s money and power. And it would get worse and worse. But being young is not a permanent state. It’s just a point on a trend line. Everyone gets old. And so it goes with wealth. If everyone started broke, and ended up with millions, then you could claim that the gap between rich and poor would be pretty much irrelevant. If the poor can NEVER move up, then it’s horribly important.

The problem with many government programs is that they may narrow the gap a little, but often at the expense of lowering the mobility of the poorest people. Minimum wage laws make it harder for new workers to enter the work force. Permanent welfare removes incentives for betterment. Government housing created slums, which trapped people in a lifestyle with no role models, poor schools, and no job availability in their areas.

This is not avoidable by having ‘smarter’ government. There is a fundamental economic principle involved. Whenever you subsidize something, you get more of it. Tax something, and you’ll get less of it. I actually think the jump in incomes of the poorest quintile in 1995-2000 was partially a result of welfare reform. After subsidies for being poor were removed, people had more incentive to not be poor.

32

That’s always the way, isn’t it?

Are you familiar with “Myth and Measurement”, the New Jersey study of minimum wage laws? It was performed by a couple of economists named Krueger and Card… if you are familiar with it, I won’t bother hijacking the thread or anything because you probably already know all of the arguments in it as well as all of the (perfectly valid in my opinion) counter-arguments.

Luxury taxes (and especially the specific one on luxury yachts) seem to always be the default example of bad tax schemes…

I would just like to thank you here for making one of the single most important points in the entire issue of income inequality! I’m no expert on this stuff, but what I have read and studied in regards to poverty issues often doesn’t mention this crucial part of the analysis… although there’s a really good book by Katherine Newman (I think she’s a sociologist or some other related social scientist) called “No Shame in My Game” that spends a good deal of time discussing mobility issues.

Now THAT’S a pretty bold claim. Do you have any good peer-reviewed scholarly work I could possibly read that supports this theory? I hear this a lot from libertarian and right-wing think tanks, but I’ve never done much serious study into it, and I’d very much like to (you’ll find out why in a moment…)

**

Right now, government housing is something I could probably say a lot about, as I’m currently studying affordable housing markets (as well as examining subsidized housing) throughout the entire state of Oklahoma for the state legislature and housing finance authority. Of course, federal and state governments have MANY MANY MANY different housing programs, but you’re probably talking about your standard Section 8 complexes run by local public housing authorities. Having visited nearly every such complex in eastern Oklahoma, with the west half still to go, as well as personally speaking with each PHA executive director, I can tell you off hand that public housing can range from some very nice facilities that screen out anyone with a criminal record, with well-staffed job/career counseling centers that try to make these peoples’ stays as short as possible, to some very nasty complexes that are as bad as you describe and much worse. Of course, my sample is only eastern Oklahoma, and the closest thing to an inner-city housing authority is Tulsa’s… nonetheless, these are exactly the issues I’m currently grappling with, and it’s really quite an experience.

Of course, subsidies for being poor were NOT removed, they were simply changed. I’m sure there are plenty of threads in GD discussing this, and plenty of people who are more knowledgable than I about the exact nature of “welfare reform.” But quite frankly, I’m also not at all convinced that there are or ever have been incentives for being poor that in any way outweigh the incentives for being a well-off contributing member of society. Maybe my sample is too small, but of all the people I’ve met that live in government subsidized housing, I’ve yet to meet a single one that would rather live there than work more and either rent a better maintained private apartment or buy a house… I just haven’t. As an example, in Holdenville OK, the majority of people that are in the city labor force (read, not retired) that live in the town’s public housing are employees of either the local prison or the local Tyson Foods plant that are making minimum wage or slightly more, and can only get 20-30 hours of work a week (many work two jobs just to get up to 40). Jobs are tight and the town’s population is only decreasing as these people have to move to OK City or Tulsa to get a full week’s worth of work (as such, there’s a lot of turnover of renters at the housing authority). These people are dirt poor, and they want work, any work. Personally, I simply don’t see people that WANT to live like this. Of course, mobility is really the key issue here (as you mentioned earlier) and the way I see it, public housing should and usually does work as simply a stepping stone into the higher income brackets, and many of the services provided such as “Workforce Oklahoma” only make the process easier for these people, in my estimation so far. Of course, this is all really my own experience and impressions… if you want lots of hard data on public housing, I would suggest poking around http://www.huduser.org. I guess that’s the end of this hi-jack… maybe this would be an interesting topic to discuss in a new thread?

Speaking of hard data and other empirical information, I’m surprised that nowhere in all of this discussion of income equality has anyone brought up gini coefficients or their economic companion, the Lorenz Curve. Gini coefficients are THE tool economists use first to look at income inequality… the they range from zero to one with one equalling perfect inequality (one household has all of the wealth and the rest have nothing at all). Here http://www.census.gov/hhes/income/incineq/p60204/fig2.html is an interesting graph from the census bureau that shows changes in the gini coefficient for men and women in the U.S. since 1967… this was just one of the first items I found in a quick google search, so there’s probably all kinds of other stuff like this at the Census Bureau http://www.census.gov

Of course, gini coefficients and Lorenz Curves (they essentially represent the gini coefficients graphically) are only the very first thing an economist would look at, and there are all manner of caveats that go along with their use. Don’t anyone get the idea that you can just look at a table of coefficients and be able to conclusively prove that income inequality has risen or fallen! Like everything else, this is a topic of heated debate among economists, with everyone convinced that there are better ways of analyzing or measuring it… gini coeffecients are just the generally accepted measure for making a preliminary assessment, and are frequently used in comparative economic systems courses to say things like “generally speaking, income inequality is lower in Sweden than it is in France.”

Finally, I’d just like to thank all of the participants in this thread for keeping this discussion one of the more civil and productive ones I’ve read here in GDs… THIS is the kind of stuff I read this message board for!

33

Yes! I think the fact that the rich have gained so much while the poor and middle class have been fairly stagnant (except for some significant upward movement finally in the latter part of the 90’s as you point out) is the main point that is made. You must remember that during that period from 1981 to 1999, the GDP in the U.S. grew by over 70%. (I backed that number out from federal budget history charts.) Now, some of that is due to an increase in population but certainly the growth in population was a fairly small fraction of that. It is not healthy, I believe, to have a society, already with quite massive inequalities, where the average income is rising rapidly while the median is not.

Well, it might be convenient to believe that if one is wealthy, but it seems dubious at best. Also, if we have “massive economic gains” with very little rise in median income, who is benefitting and is it worth the sacrifices we may have made to max out the gains in GDP relative to gains for the median Joe?

As for the stuff about mobility: Yes, indeed, that is an important issue and one that, despite your implications, has been addressed quite a bit in the literature on income inequality. Yes, it is true that a certain amount of those classified as poor are “poor starving grad students” from well-to-do families who have had good educations and have high earning potential and probably won’t be poor for long. But, I don’t think the studies on mobility support your implied claims that the mobility is all that great or that there isn’t a group of people who seem to be trapped near the bottom. (If I get the chance, I’ll try to dig up some cites on this.)

Your point about government programs sometimes being counterproductive in terms of reducing mobility is certainly worth think about and factoring into the discussion…But, I question whether the issues are nearly so simple as you make them out to be: The issue of minimum wage is complex, but I am not aware of there being hard evidence that minimum wages, at least up to a point, have such a detrimental effect on employment. (Clearly, if you really set the wage very high, you will price some people’s skills out of the market.) I suppose one could claim, for example, that the drop in unemployment that occurred in the years following the last raise in minimum wage would have even been more dramatic had there not been that rise in the minimum wage, but given the historic lows that unemployment fell to it seems rather surprising to argue that it would have been significantly lower if not for the raise. And, it sort of begs the question in an economy where the money supply is often purposely being tightened to prevent “inflationary” pressures due to low unemployment and rising wages.

And, is it really welfare and government housing that created the problems that prevent people from having good schools, positive role models, job availability, and incentives for betterment? I strongly doubt it (and I think the evidence from more leftist countries than the U.S. and Canada could be relevant here). Sam, I am willing to admit that designing effective government programs to help the poor without creating some perverse incentives is not an easy thing, but I think it is quite another thing to start blaming all of these problems on those programs.

As a final point, could you give me a cite to these articles by Reich where he leaves out the data from the last few years without telling the reader that he is doing so? You have made this statement a lot; I tried looking for such articles online and was not successful. I would like to believe that Reich plays pretty honest with the numbers, but I am willing to be convinced otherwise in the face of actual evidence.

34

Jshore: Hmmn… the original article by Reich was in the Los Angeles Times. I was alerted to this by a friend who read about it on kausfiles.com. The original article in the Times seems to have been pulled offline, but the Kausfiles article that referenced it is here: http://www.kausfiles.com/archive/index.04.23.01.html

I followed up on my friend’s comment because this wasn’t the first time I had found hard, factual errors in Reich’s commentary. Stuff that he almost certainly knew was misleading when he wrote it.

And I really wish people would stop claiming that I’m being ‘simplistic’. Of course I am! I covered several major areas of U.S. policy in a couple of paragraphs. Sorry, but this isn’t a doctoral thesis. Suffice to say that I am very diligent about researching my facts as I hope my messages over time have shown, and I do listen to all sides of an issue.

So I agree with you that there are good government programs and bad ones, and that the bad ones can be made somewhat better without being scrapped entirely. But the problems with minimum wage laws and other disincentive aspects of the social safety net are well known. You don’t need cites from me - just do a google search, and you should find plenty. Or go to the University of Chicago web site and see what you can find in the economics department. Some of the factors are relatively easy to see, and are agreed on by both the right and left. For example, Jimmy Carter’s “Habitat for Humanity” has as one of its main criteria that the people who will own the house must put the labor in to help build it, because people that have no interest in their housing have no incentive to take care of it. That’s what happened to the ‘projects’. Build low-quality housing, give it to people, give them no incentive to care for it, and it’ll be destroyed over time.

Clearly, all of these issues are more complex than any message on the Straight Dope can easily cover. Think of these messages as abstracts, which is closer to what they really are. I recognize that there are issues on both sides that may have a bearing on the subject and which haven’t been covered.

I do believe that upward mobility of the poor is a major factor, and it was one of the main goals of the welfare reform act. That’s why so many perpetual programs were made time-limited, and social assistance was tied to education and/or active job searching.

I’ll have to do some more research, but not too long ago I ran across some statistics which indicated that very few people in the bottom quintile stay there for more than 10 years. Most poor people do move up. My mother, for example, had little education, but worked her way up from cashier in a grocery store to assistant manager, then to manager. Eventually she saved enough for a down payment and bought a small home. A few years ago, she sold that home for $75,000 and put a down payment on her own little grocery store, which has a house in the back. She didn’t need to be rich, or educated. She just had to work hard and keep working hard.

35

Sam: “Most poor people do move up. My mother, for example…”

Sam, I hope you won’t think I’m being facetious if I say that I’m truly pleased for your mother. (My father is also a self-made and the son of recent immigrants–and, thanks in part to his support, I’ve had opportunities that few poor people will ever have.)

Your mother aside, it’s simply false to say that most poor people move up. Once again, I will post an excert from Krugman’s essay on inequality, several paragraphs of which are devoted to debunking Dick Armey’s error-ridden attempt to make just that point:

“In reality, moves from the bottom to the top quintile are extremely rare; a typical estimate is that only about 3 percent of families who are in the bottom 20 percent in one year will be in the top 20 percent a decade later. About half will still be in the bottom quintile. And even those 3 percent that move aren’t necessarily Horatio Alger stories. The top quintile includes everyone from a $60,000 a year regional manager to Warren Buffett.”

Source:
http://www.j-bradford-delong.net/Economists/favorite_krugman.html

Sam:“I do believe that upward mobility of the poor is a major factor, and it was one of the main goals of the welfare reform act. That’s why so many perpetual programs were made time-limited, and social assistance was tied to education and/or active job searching.”

As desdisnova has already pointed out, you are assuming that people’s greatest obstacle to upward mobility is the availability of welfare. I myself support certain kinds of welfare reform. But the kind of “reform” that forces single mothers to work jobs that keep them at or below the poverty line while providing no daycare assistance for their children is woefully short-sighted. All the 1996 Act did to hasten upward mobility was to make sure that people wouldn’t be able to remain on welfare. While that’s a successful way to reduce welfare rolls, it’s not guarantee of diminishing poverty. And in fact, as several citations have all alleged, real levels of poverty have, until very recently, stayed the same or increased. And no one expects the recent gains that have been made amongst the poorest–which are owing, not to welfare reform, but to low levels of unemployment–to withstand a recession.

Here is an excerpt from a 1999 Nation article by Paul Wellstone.

“So as we approach the three-year anniversary of welfare reform, it is fair to ask: How are poor families doing? The answer is: We don’t know. Declining caseloads tell us nothing about whether families are on the road to economic self-sufficiency and better off, or whether they have become unable to escape poverty and are living in more dire circumstances than before welfare reform. The reason we don’t know is that there exists no national, comprehensive portrait, based upon accurate data, of what happens to families when they no longer receive welfare. Today no one at the state, local or federal level is required to track recipients once they have left the welfare rolls.”

He goes on to say, “A report from Families USA, which analyzes Census Bureau data, estimates that 675,000 low-income people, mostly children, do not have medical coverage as a result of welfare reform. NETWORK, a national Catholic social justice lobby, collected data on people who visited Catholic social service facilities in ten states with large numbers of people eligible for aid and found an increase of 27 percent in the number of unemployed who do not receive welfare assistance. It also appears that many people who find employment are working at jobs that pay below, often far below, the poverty line.”

What is the likelihood that such people will be able to make a real estate investment as your mother did, or put themselves through grad school with no family help as my father was able to do in the 1960s?

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I wasn’t able to get hold of the L.A. Times piece, although I did track down the Washington Post piece from a few days later that kausfiles.com mentions, where Reich makes the claim in less detail. I have to admit that I am disappointed in Reich for doing this. He may feel that the gains made after 1997 are still rather small (over the total 20 year period) and likely to be at least partly temporary and it may be true that the final IRS data was not in on these later years, but it seems only fair to note that the late 90’s did finally see some gains at the bottom, as most others who I have read on this subject have done.

As to the issues of mobility and of welfare reform, I will defer to Mandestam’s excellent post on this. By the way, I also come from a family that has worked its way up, being that my grandparents were all immigrants from Russia/Ukraine but worked very hard and were living very comfortably by the end of their lives, with their children up in the top quintile. It is fair to wonder why some people are able to do this while others seem to be permanently stuck at the bottom; I have some hypotheses about this but it is probably not easy to prove them one way or the other and is probably a large combination of factors. At any rate, the fact remains that it is much easier and more common to remain well-off if you are raised in a well-off family than it is to work your way up from the bottom.

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Jshore said:

Well, I won’t argue that it’s easier to be at the finish line than it is to have to move there, but at the same time it should be noted that there is plenty of downward mobility as well. There used to be a fairly well known saying, “Shirtsleeves to shirtsleeves in two generations.” Basically, the idea is that if you become rich, and your kids don’t carry on working the way you did, then they themselves may not go broke, but THEIR kids will be starting over again. This obviously doesn’t apply to billionaires, but to, say, your average well-off family with a net worth of maybe a million or two.

By and large, the rich stay rich by continuing to do the things that got them rich in the first place. There may be a few slackard kids or spouses that live the society life, but behind them you’ll usually find a breadwinner working his or her butt off. And once that person dies, if the kids don’t step up to the plate they or their children will be back at the bottom again by and by.

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**Sam Stone **: *"*ut at the same time it should be noted that there is plenty of downward mobility as well."

Indeed, I’m sure you would consider me an example of it! I am very unlikely ever to earn the income that both of my parents have earned, to own a home as nice as theirs, to drive as nice a car, etc. etc. The funny thing is that the education my parents worked so hard to provide for me left me realizing that I didn’t want to spend my life working for the Mercedes lease payment ;). I don’t say this to be dismissive of my parents. My point is that there are things besides economic success that poor people rarely have access to: and those are the things that matter most to me.

*“By and large, the rich stay rich by continuing to do the things that got them rich in the first place.” *

Well, increasingly that doesn’t entail a whole helluva lot, does it? I mean people who’ve inherited enough money to live off of their trust funds can let their brokers do all of the work. That way they can trust to CEOs to make the requisite layoffs, exploit third-world laborers, cut corners whenever possible, evade corporate taxes: to wit, increase profits by any and every means. They can also vote for the Republicans and help themselves to a whopping tax-cut, and, if they’re fanciful enough, persuade themselves their helping the poor through “trickle-down.” Which brings me back to the OP… :wink:

So Sam, I’ve taken some time to review this thread and I’m wondering where you’re left. I’m not trying to be obnoxious here and claim to have “won” the debate. I’m simply noticing that you didn’t have much of an answer for my last post.

You’re on record as being concerned about rising inequality on both economic and social grounds. However, you have some questions as to how much of that inequality is caused by increasing impoverishment. That said, you’ve been presented with some evidence that the level of mobility you’ve been assuming is way out of line. So what’s your answer? Do you still think that tax cuts for the rich are going to help a single mother with no daycare for her kid become as successful as your mother did?

For simplicity’s sake, let’s just assume that a great many people in the bottom 10% are not as resourceful as your mother or my father (or jshore’s parents). The modest gains our hypotheticals have managed to make in their low-skilled minimum wage jobs over the last few years are vulnerable to the next recession. Their chance of moving out of the bottom is about 3 percent. What do you propose we do to increase their odds? Just give Dick Cheney a few extra mill off the top of his stock options? Or decrease the tax Junior pays on his megabucks inheritance?

As anyone who’s looked at the figures can see, the effect of Reagan and now Bush’s tax cuts is simply to shift the tax burden even further onto the single mom (along with the middle class). Single Mom seems to have an awful lot of cards stacked against her before she pulls herself up by her bootstraps what with no daycare assistance, high payroll taxes (to facilitate upper-crust cuts), rising heating costs (more $$ for the Cheneys!), less access to public education (due to tax cuts), fewer training programs (due to tax cuts), fewer benefits at work (due to downsizing to keep profits up), no health insurance for her kid (due to welfare “reform”).

To be honest, I find it really hard to believe that you can manage to persuade yourself that this single mother has any chance of lifting herself out of poverty via Reaganomics. Or maybe you’re imagining that she works as a table dancer and ends up marrying a rich lonely heart so they can both do well off of tax cuts. But if you’ve thought of some other way, do please let me know…

jshore: I’d be very interested to know what you think about why some people are more upwardly mobile than others–whether you’d like to start another thread, or simply detour here.

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Oh dear. Sorry I didn’t take time to preview and get rid of all of that bold.

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The reason intelligent people can disagree about all this is because there are a lot of variables, and it’s really going to depend on your philosophical viewpoint as to how you weight them. For example, you are assuming that making it harder on single mothers is a bad thing. But is it? I don’t think that’s necessarily clear. Because if single motherhood is easy, more people will choose it as an option.

I just read an interesting article about a single mom over on Slate. Welfare reform caused her to get a job, and now she worked days as a cop and evenings doing something else. As a result, she makes a middle-class income, but she’s working her fingers to the bone. Now she’s worried about the supervision (or lack thereof) that her kids are getting. As well she should.

But the point is that life isn’t that easy for her, which is sad, but HER kids might think twice about following in her footsteps and making such destructive mistakes, so they’ve perhaps got more of a chance than they’d have if her poor choices had had lesser consequences.

I grew up in a poor housing project, and most of the people there were on welfare. Almost every familoy there was a kid or two and a single mother, mine included. And I can tell you that there were a lot of mothers there who’s days consisted of watching soap operas and chatting with the other single moms in the area. Now, to a kid contemplating years of homework and no income, the alternative of just partying and going on welfare probably looked pretty sweet. As a result, a LOT of those kids I grew up with are now second generation welfare families.

That’s the tradeoff with your social safety net. Make it too easy to stay where they are, and people will never leave. Protect the kids too much, and they will accept your protection and just do whatever they want.

Back to the technical points: While I have agreed that income inequality is not of itself a good thing, it’s still not clear just what can be done about it without bringing down the economy in general. Also, when the gap between the poorest and richest is smaller, there is less incentive among the poor to try and become rich. So economic growth suffers.

Anyway, I’m glad to see that this thread stayed as civil as it has, with some decent give and take on both sides. I’m getting tired of the polarized web world, in which one person is always right and everyone else is a blithering idiot.