I think most people reading this will agree that one of the most virtuous things a society should strive for is to provide meaningful, sustainable incomes to the largest number of people.
Most people should agree that it is truly a great thing to see the poor or middle class lift themselves up through honest employment, especially from dead-end situations that provide little hope.
So, we should probably agree that government policies should be aimed 1)providing the most amount of jobs and opportunity 2)helping the poor and middle class attain jobs that allow class mobility and 3)concentrating on economic self-actualization (it is better to teach a man how to fish than to give him free fish).
So, what is the single most important way to promote these policies? Economic growth. There are no two ways about it: the economies that grow the fastest are also the ones that provide the most job growth, the most mobility and the most opportunities for economic self-actualization.
Check out this podcast on Planet Money (one of the many great things you can listen to on NPR, by the way). A sociologist named Katherine Newman followed 300 people who worked at fast food in Harlem in the 1990s. After eight years, she checked out what had happened in their lives. She divided the results into three broad categories based on how much they advanced and were able to rise out of poverty. About a third advanced pretty well, a third advanced slightly and a third stayed stagnant or declined economicly.
What was the primary determining factor in their success? The overall growth of the economy. Yes, individual factors like initiative and education were important. But the thing that really allowed them to advance was the booming economy of the 1990s that really did cause most boats to rise.
The economic growth of the 1980s, the 1990s and (some) of the last decade has stopped in the last three years. Newman has a real fear for the poor in this generation.
I’m worried about what’s going to happen to the children of these people. Because they are coming into an economy that is very unfavorable. And if you start there, and it takes a long, long time for the economy to pick up, you could be scarred by a labor market like that. … In a persistently bad economy, you can hit a point where it’s almost irretrievable, and even when the economy recovers, you’re too damaged.
Newman’s point, and I think this is crucial, is that a persistently bad economy like we have had recently damages an entire generation, and the damage is most severe to the very poor. It is the poorest people who suffer the most when an economy doesn’t grow, when new jobs are not created and when there is little opportunity for economic mobility.
What do the economic figures show?
This graph is extremely instructive. You really need to click on the attached if you are at all interested in resolving poverty in the United States, but in case you don’t want to, let me summarize it for you.
First, take a look at this graph, which shows economic growth from 1970 to the present.
What do the charts show us? First, there was a severe recession in the late 1970s, which caused the poverty rate to rise. The economy boomed starting in 1983, and the poverty rate declined. The (relatively) small recession in the early 1990s caused the poverty rate to go up. The 1990s boom caused the poverty rate to decline. The 2001 recession caused a small uptick in poverty, which then declined until 2007-2008, when it started to soar.
The data could not be clearer: poverty declines during periods of high economic growth and increases when the economy goes into recession or stagnates.
What does this mean for economic policy and the poor? We should adopt pro-growth policies because such policies help the poor most of all. What do the periods of economic growth all have in common? There are two common threads: either lower tax rates (instituted by Reagan or Bush) or lower spending (instituted by Clinton and the Republican Congress).
Current policies, higher tax rates set to take effect in 2011 and higher spending, will not cause greater economic growth. Capital is sitting on the sidelines awaiting a resolution to the issue of the higher tax rates, which Congress has not yet addressed. The economy is not growing because companies are not investing because the tax issue has not been resolved. This explains our current economic malaise.
Unfortunately, this economic malaise has real effects for real people, including the poor who are being left on the sidelines during the current slowdown. There is one solution: economic growth, and the policies that have been proven to bring economic growth. I hope we learn our lesson.