Fighting Poverty: Why Redistributing Wealth Doesn’t Work … and Four Things That Do
by Aaron Zubia
The rich are getting richer. The Economist reports that the share of the national income going to the top 1 percent of Americans has doubled since 1980 (from 10 percent to 20 percent). The top 1 percent own around 40 percent of the nation’s wealth.
To many, this growing gap is a threat to our nation’s well-being. In December 2013, for example, President Obama called rising income inequality “the defining challenge of our time” and suggested that the growing wealth of those at the top is what is preventing those at the bottom from improving their standard of living: “Greater inequality is associated with less mobility between generations,” he said. As a result, the president continued, “[a] dangerous and growing inequality and lack of upward mobility … has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.”
To reduce the income gap, President Obama supports hiking the federal minimum wage, increasing tax rates on the highest earners, and instituting various federal programs. But while these methods of government intervention will redistribute wealth, will they actually alleviate poverty or get the lower and middle classes moving again?
These questions are certain to be at the center of this fall’s election cycle, and Christians ought to be informed about them. At Summit, we teach students to apply a biblical worldview to difficult issues by moving beyond political-party slogans to ask hard questions about the proper role of the government, the church, and the family, and how to help people truly flourish.
Some assume that because the Bible condemns greed and commands that we help the poor, we ought to support government programs such as those President Obama suggests. But good public policy demands that we move beyond good intentions and face the facts about what does — and does not — help lower-income families succeed.
Facing the Facts
Income Inequality Is Not the Problem
- The income gap is not what is stopping poor people from getting ahead: A recent study by a group of Harvard economists led by Raj Chetty directly contradicts the President’s claim that greater income inequality hampers economic mobility. “[T]he top 1 percent share [of wealth] is uncorrelated with relative mobility,” Chetty writes. Reviewing the work of his colleagues, economist Lawrence F. Katz admits that, despite the growth in inequality, “it is not true that mobility itself is getting lower.” Ultimately, children today have the same likelihood of moving to a higher-income bracket as they did 50 years ago.
- The rich getting richer does not make the poor poorer: The evidence shows that recent economic growth has made everyone better off. A Congressional Budget Office report from 2011 showed that income grew by 275 percent for the top 1 percent of households, 65 percent for the next 19 percent, just under 40 percent for the next 60 percent, and 18 percent for the bottom 20 percent. In other words, Peter does not have to rob Paul in order to get rich. When wealth is created, both Peter and Paul tend to benefit, even though those benefits do not accrue equally.
- The poor are getting richer too: A study published in the National Tax Journal showed that “more than half of the households in the top 1 percent in 2005 were not there in 1996.” In other words, lots of people are rising to the top. It’s true in lower income brackets as well. Thomas Sowell writes, “[B]etween 1996 and 2005, the income of individuals who had been in the bottom 20 percent of income-tax filers in 1996 had increased by 91 percent by 2005, and the income of those individuals who were in the top 1 percent in 1996 had fallen by 26 percent. … Whatever the relationship between one income bracket and another, that is not necessarily the relationship between people, because people are moving from one bracket to another as time goes on.” According to a Pew report on economic mobility, “the vast majority of Americans have higher family incomes than their parents did.” Additionally, as the Heritage Foundation indicates, a majority of poor households have refrigerators, televisions, air conditioning, microwaves, televisions, cars, and cellular phones, which signals an amazing rise in the standard of living in this country over the last several decades. Gary Burtless, an economist from the Brookings Institution, writes that both the poor and the middle class got richer between 1979 and 2010.
Government Intervention Is Not the Solution
- Federal anti-poverty programs are not the solution: The track record of federal programs to help the poor is not good. A recent House Budget Committee report states: “Today, the poverty rate is stuck at 15 percent — the highest in a generation. … Federal programs are not only failing to address the problem. They are also in some significant respects making it worse.” Fifty years ago, President Lyndon Johnson began the War on Poverty, which was initially designed to help people achieve financial independence. Whereas the poverty rate was 17.3 percent in 1965, it was 15 percent in 2012. Trillions of dollars in government spending and efforts at redistribution have hardly improved the situation of the most destitute. Today, an estimated 21.8 percent of children live below the poverty line.
- A higher minimum wage is not the solution: The Congressional Budget Office predicts that a $10.10 minimum wage would result in the reduction of about 500,000 jobs. The income for each of those 500,000 people would fall from $7.25 per hour to the true minimum wage: zero. An increase in the federal minimum wage will not reduce poverty because over half of all employees earning minimum wage are teenagers or young adults who are not heads of a household. In actuality, 66 percent of minimum-wage workers live in families with incomes above the poverty line. Studies indicate that over 50 percent of Americans start their careers making close to minimum wage, but quickly begin earning more as they gain additional experience.
- Higher taxes are not the solution: In National Review, Michael Barone notes, “If the government had simply confiscated every dollar from those reporting more than $1 million taxable income in 2008, it would not have gotten the $1.3 trillion needed to close the current federal budget deficit.” Rev. Robert Sirico, President of the Acton Institute, reveals the chimera of taxing the rich in order to equalize wealth: “If we confiscated all of the wealth of the world’s richest 1 percent — every last penny — we could distribute about $13,000 to every person on the planet — one time. … [H]ow much good would [that] do for the average poor person in the long term?”
What Really Works in Alleviating Poverty
Christians are concerned about the well-being of the poor, which is exactly why we must turn our attention away from income inequality (a false problem) and the redistribution of wealth (a false solution), toward the real causes of poverty and the best means by which to ease the plight of the poor. These approaches feed envy and resentment, which keeps us from rejoicing in our neighbor’s good and prevents us from appreciating the goods we do have.
Poverty is a real issue, and, although upward mobility hasn’t declined in the last 50 years, it is still too difficult for people to advance to a higher income bracket during their lifetimes. Pew reports that “43 percent of Americans raised in the bottom quintile remain stuck in the bottom as adults. … [And] only 4 percent of those raised in the bottom quintile make it all the way to the top as adults.” According to the National Center for Children in Poverty, 32.3 million kids (45 percent) live in low-income families.
So what should be done? In their widely discussed report on economic opportunity, Raj Chetty and his fellow economists point out that the best way to alleviate poverty is not to reduce income inequality but to remove barriers to upward mobility. These barriers include: family breakdown, low religiosity, low civic engagement, lack of education, and unemployment.
Christians can help increase upward mobility in four ways:
1. Promoting Strong Families
Growing up in a two-parent home is the surest way to avoid poverty. Unfortunately, the number of homes in which kids are raised by a single mother has doubled since the 1980s. Raj Chetty writes, “[T]he strongest predictors of upward mobility are measures of family structure such as the fraction of single parents in the area.” Simply growing up in a community with more single-parent families has a detrimental impact on children raised in two-parent homes.
2. Promoting Faith
Again, Raj Chetty finds that “high upward-mobility areas tend to have higher fractions of religious individuals and greater participation in local civic organizations.” A robust faith and active church involvement thrusts people into community life, helping them to build solidarity and inculcate the virtues necessary for human flourishing. The discipline and values that tend to guide religious believers have a positive impact on their personal, social, and economic well-being. Additionally, charitable endeavors promoted by churches are designed to alleviate both spiritual and material poverty.
3. Promoting Education
The American Enterprise Institute published a study linking high-school dropout rates with low upward mobility. Raj Chetty writes that the highest mobility occurs when children are educated at schools with high test scores, low dropout rates, and small class sizes. Increased school choice will allow children from low-income neighborhoods to attend better schools and associate with better peer groups, which also contributes to upward mobility.
According to the Pew Economic Mobility Project, “47 percent of those born in the bottom quintile will remain there if they are unable to complete college. Contrast that with their peers who do manage to complete college — only 10 percent will remain in the bottom quintile. … Without a job, it is difficult to get out of poverty. And without education, it is difficult to find a job. The lack of affordable education — and of effective training programs — hinders skill formation, which is critical to social mobility.”
4. Promoting Work
In his book Defending the Free Market, Rev. Robert Sirico writes that jobs are the best anti-poverty program. “[T]he past 200 years have seen the astounding rise of billions of the world’s population out of abject poverty. … What rescued hundreds of millions of people from the direst poverty? Simple, humdrum business.” Continuing, Sirico notes, “[B]etween 1800 and 1950, the proportion of the world’s population living in dire poverty halved, and from 1950 to 1980 it halved again. … Economic freedom and business enterprise lift people out of poverty; the absence of freedom and enterprise traps people in poverty.”
Economists at the Brookings Institution put it rather simply: If you work full-time, have a high school education, and wait until you are married to have children, you have a 2 percent chance of being poor. Each of these elements — family, faith, education, and work — combine to give people the tools, the incentives, and the support to rise out of poverty, to improve their standard of living, and, finally being freed from financial hardship, to pursue spiritual goods. By actively promoting and pursuing these goods — these foundational elements of human flourishing that respect human dignity and offer purpose and direction — we can help prevent poverty before it begins. In so doing, we will fulfill one of our most primary Christian duties: to care for the least among us.
- Robert A. Sirico, Defending the Free Market: The Moral Case for a Free Economy (Washington, DC: Regenery Publishing, Inc., 2012), p.48,49
- Thomas Sowell, Basic Economics: A Common Sense Guide to the Economy (New York, NY: Basic Books, 2011), p.220