Poverty in the United States: Social Welfare vs the Market

August 10, 2011
In the latest 2011 report, the Census Bureau counted over 49 million people living in poverty in the United States. And the more poverty there is, the more it affects the economy and productivity. But if the economy is down, the number of jobs is shrinking too and so poverty in the US keeps on getting worse.

Poverty's economic impact

On the other hand you could invest in anti-poverty programs but because of the public debt there isn't enough money and too much tension about doing so. First, let’s try to understand some basic effects of poverty on the economy and then look into the characteristics of poverty in the United States. Poverty undermines the economy by upsetting the normal growth of human capital (education, professional experience, health) which is in theory the main driver of economic growth.

This means that poverty will both affect and thrive on people’s lack of education, professional experience and health. Nothing is as unproductive and unattractive (for businesses) as an unhealthy and uneducated workforce.

Poverty in the United States - A national threat?

A recent report by the GAO (Government Accountability Office) tells us how US poverty is threatening people’s health and hence the economy by: “reducing participation in the labor market”, increasing “exposure to environmental hazards” as well as “engaging in risky behaviors” in order to cope with skyrocketing levels of stress (from heavy smoking to binge drinking, eating unhealthy and suspiciously savory food, and drug use).

Not to mention the fact that higher unemployment leads not just to social exclusion – and more mental health diseases – but also to a rise in property crime. Now Medicare might be recently available, but education is still far from being fully democratized or a right accessible to everyone.

Map of individual poverty in the United States
Individual poverty in the United States

The current state of poverty in the United States

The rise of the food stamp era

Since the 2008 great recession started, over 6.5 million Americans have joined the ranks of the unemployed making the rate jump to 9% of the workforce. And the number of people benefiting from food stamps (the SNAP program) is now higher than ever.

Where things have changed a little is that now poverty has expanded to a new geographic area: the suburbs. It used to be confined to specific urban (ghettos) and rural areas, but now everybody can have its share of witnessing poverty every day.

Poor response to the crisis

Even while all governments since the 1990s and the 1996 welfare reform have been trying to better target the families that need support, there are still huge problems in delivering welfare. Worse, many states have turned a blind eye to the crisis and chose not to change anything in the way they provide social assistance to the poor. It’s not like 6 million people have suddenly decided to become lazy all together, at the same time. This makes food stamps all the more important to the poor and explains why millions more have joined the program, including - for the first time - the good old middle class suburbs.

This a new type of poverty in the United States that causes brand new problems, since many of these suburban families often don’t know anything at all about welfare programs and how it can help them cope with the crisis. Plus, the high price of oil and the need to take the car to get anywhere creates one more incentive to limit your movements around town - for example going town to find out, what kind of help you're entitled to. But seeing as food stamps are getting famous and considering the complete lack of coordination and coherent welfare structure, it’d make sense for the government to use this program to publicize others and provide bundles or something like that.

The war on welfare

american poverty rate US 1959-2009
American poverty rate 1959-2009

As you can see on this graph, the rate of poverty in the United States dropped by 10% precisely when the controversial war on poverty started - with the first 1959-1969 plan (take a look at that downward trend). After this, new problems kicked in – other than democrats and republicans creating and shutting down welfare programs on a whim – such as economic crises, changes in the family structure and immigration.

Now you could argue that in the past 4 decades, poverty in the United States has remained within a 11-15% range since 1969 and it’s not that a big difference. And you’re right, so long as you believe that a 12 million people difference in poverty isn't that big (11% of Americans in poverty means 12 million less than 15%).

Kill the welfare state? Yes and no.

Now a small word on the welfare state (this article on US welfare will take care of the rest). Tons of studies at the beginning of the 2000s have pointed out the fact that previous statements against welfare programs up to the mid-1990s lacked proper hindsight and numbers on whether welfare did reduce poverty or not. These studies have now been able to compare different forms of welfare societies across nearly 20 countries over a 30 years span. You couldn’t possibly wish for a better sample.

They all showed that even while many programs were poorly designed, overall welfare was the primary cause of poverty reduction, as long as it assisted the economy and addressed market failures . The most effective measures include transfer payments – especially when conditioned on finding a new job – , public health care, social wages (medicare, childcare, maternity allowance etc), but not for example public employment.

Bringing market efficiency and social goals together

The idea here is not to say that welfare is all-powerful, but simply to say that if neither 100% market-based policies nor 100% welfare-based policies worked in substantially reducing poverty (though welfare did, to some extent) … then why not join forces? This isn't about partisanship, this is not about who’s right or wrong, this is about pragmatism, scientific research and facts. This is about doing the right thing to eliminate poverty in the United States. And this require both out-of-the-box thinking and rigorous study into what works and what doesn't, not "guesstimates".

Child poverty in the US

‍Child poverty in the US: the black population is the first to suffer from it
‍ ‍Child poverty in the US: the black population is the first to suffer from it

As mentioned previously, child poverty in the US is higher than any other social group in the country and higher than in most other developed countries. With one in four children in poverty and just as many living on food stamps, government welfare proves vital to children across the country.

It’s time to keep only the most effective programs and get rid of the others. Poorly designed anti-poverty plans provide the best arguments to those opposing the very existence of welfare at all. And in the case of children there's still so much left to do.

Improving anti-poverty programs and the labor market

Many programs however do work but have a limited effect. It’s then important to know that for instance increasing the level of food stamp benefits won’t change anything, because studies have proved the extra food won’t reach those you’re targeting. What’s needed then is to target and create sub-groups, the poorest of all, who will be eligible to additional benefits.

Among the causes of child poverty in the United States is the precarious situation of single parent families, with generally single mums struggling to either: find a job, find a job with day care for the kids, find a full time job because part time wages are far from enough (and single-parent households are not eligible to a great deal of government welfare), find a full time job that really pays.

There's like a problem with the system

Often times even normal jobs aren’t enough to keep the family above the US poverty line. And to make things worse even when there’s a father around, but no marriage, the household is still not eligible to family-specific social support. Looks like some are trying to protect the traditional values of the American family, right? They just forgot along the way that people are supposed to be free as well. At least leave them free to divorce or lead their lives as they see fit.

If changing the job market and structure of wages proves not so easy, what single-parent families need first is more social security aimed at their kids. Not only food stamps but also day care, tax credits, educational support and all that good stuff that regular families plagued by poverty in the United States usually benefit from. Providing support for American children is a strategy that will least affect economic efficiency during the recovery period. And parents are more productive because less stressed at work, knowing their kids are being taken care of (and less prone to going mental over their financial stress).

The need for a coherent policy on all fronts

What this means here again is that social welfare needs a coherent framework that should be articulated with the job market. These two aspects (welfare & jobs) do not by any means work independently, they constantly influence the people. So why think you have to choose? Work on both!

The strategy to tackle poverty in the United States has often relied on an incentive system: the incentive to work. But without higher pay or greater work benefits this strategy never really worked because since the 1970s wages of the low class have been going down due to globalization (that pushed wages down for the less educated). Even if they do work full-time, it’s sometimes not enough anymore, and now the economic crisis shows the limits of this strategy. A complete overhaul of the job market is needed, which would help as well fight consumer indebtedness.

Same problems as anywhere else

It’s quite interesting to notice that poor children both in rural and urban areas suffer from much higher levels of psychological stress than the better off ones. This comes from all kinds of sources: from noise, to overcrowded areas or home, shabby housing, violence at home and in the neighborhood.

The stress is in fact just as much psychological as it is physical. And the way kids usually respond to that is by more violence, as the result of a self-protection mechanism. This affects their brain development for life and they tend to show problems to socialize as well as to learn in school. That’s why the best answer is to intervene as early as possible before the behaviors are too deeply anchored into them.

Urban poverty on the rise

‍Inner city poverty in the US
‍ ‍Inner city poverty in the US

The current state of urban poverty in the United States is by far one of the biggest issues the country has to face nowadays. It intensifies racial tensions through the concentration of poverty in ghettos teeming with ethnic minorities who rightfully feel excluded from the rest of the society, its job opportunities and institutions. These institutions are indeed much less present, less active and do not offer the same quality as elsewhere: public schools and public transportation among other are blatantly substandard when not in decay.

Inner city poverty: when entire areas go to rack and ruin

What the concentration of poverty implies is that places matter just as much as people. In other words you won’t solve poverty simply by looking at what you can do for the poor. You need to get to the hard part of the job too: making the place where they live a part of society again and not just some no-man’s land where jobs are as rare as successful businesses and college graduates. These neighborhoods are precarious, unsafe and public and private services alike are as shoddy as the housing usually is.

This bundling of the poor into communities puts an additional burden on the poor themselves who now have to put up with an aggressive environment, at home and outdoors, that is constantly falling apart. Economic activity becomes a fairytale and the idea of harmonious communities the latest Walt Disney motion pictures.

Urban renewal and revitalization

These places emerged for different reasons: sometimes because of the community’s lack of education and therefore lack of adaptability to the postindustrial economy of the 70s-80s. Sometimes because entire communities were forced to move to social housing blocks separated from the rest of the city (that’s called a ghetto) on the grounds of urban planning or outright segregation, and other times because communities have been living in geographic isolation, e.g. in the mountains or so.

Forced relocation for example – a common practice 2-3 decades ago – is a quite ironic process. It disintegrates communities by moving "unwanted" people away, in order to revitalize a city’s economy. By doing so they leave the massively unemployed out of the new economy and away from the new jobs (which were reserved for the better educated white population anyway). Even recently there were many cases of booming African American local companies that were forced to relocate for the sake of “urban renewal”. Hm … Renewal for who?

The renewal of black poverty, that's for sure.

Ironically enough the policy of “build it and they will come” proves once more a failure as many US cities have bet their economic re-birth on a specific sector (health, high tech or so) but failed to attract the young talent they needed to operate all this. By not investing in their own population’s education, these cities often faced a new decline because of this mismatch between offer and supply.

Cities are poor too

Impoverished urban areas & American ghettos
‍Impoverished urban areas & American ghettos

Isolated cities

The fact that poverty is geographically concentrated creates additional problems that anti-poverty policymakers don’t always think of. In this case, it’s that cities plagued by extreme poverty have de facto a weak economy coupled with a huge fiscal burden, because of the amount of welfare they have to distribute. And as the government decentralizes this means… everybody’s gotta take care of his own mess. Good luck.

While this website wholeheartedly supports decentralization, there are different ways to start anew and one might as well try to reduce some “natural inequalities” for a better start. This is especially so because we live in an increasingly competitive society which implies that poorer cities start with a massive disadvantage against other cities due to the cost of poverty in the United States. The overall consequence is that they tend to cut provision of public services and raise taxes which aggravates poverty all while driving the better off and bigger businesses away. Game over.

The fiscal burden of poverty on American cities

Because poverty has this all-pervasive effect on society, impoverished cities face higher health care costs, need to privilege affordable housing (often partly subsidized by them), have higher policing costs due to the poverty-crime relationship, and so on. And most often neither the state nor the federal government plan for compensation because state revenue distribution to cities is based uniquely on the size of the population. Which is not the most pertinent criteria.

The fiscal poverty that cities face suggests that anti-poverty policies focus also on tackling the crowding and bundling of the poor into ghettos (or “isolated and avoided neighborhoods” if you find it less shocking). Obviously the government-to-city fiscal distribution system needs to be rebalanced by taking into account the different needs of different cities. Poor cities need assistance to provide public services (housing, education, transportation, police…), in addition to the social transfers they provide to their population. In other words public policy should address poverty in the United States as both a problem consisting of people and places.

We are all the product of our environment

At the end of the day, community poverty is about places where there are no jobs, where schools and educational levels are in a sorry state (i.e. no social ladder), where conditions of sanitation are often a shame and contribute to spreading diseases, where there’s still no decent public transportation and so on. At the end of the day, people are still stuck where they live and those places still exist no matter what. So rather than hoping in vain that folks will eventually make it out of these places – which is interesting only if you're into creating ghost cities – the only realistic solution is to “fix” them and help them redevelop again.

For a more complete picture of poverty in the United States, have a look at the articles on US welfare and the national poverty line.

Don't miss the documentary above on Money, Power & the American Dream.


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Dario Berrebi

Digital strategist, researcher & filmmaker. 

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