One of the most common debates that has occurred in the United States for the past six decades is the discussion of the poverty rate. As the narrative goes, the US has an unusually high poverty rate compared to equivalent nations in the OECD (Organisation for Economic Co-operation and Development). Although it’s true that the measure of poverty is flawed, especially when compared cross-nationally, this piece addresses the reasons why the poverty rate in the US in particular has not improved.
If we look at the graph below, we see that official poverty rates fell 44 percent between 1960 and 1969 then spent the next fifty years fluctuating between an 11 and 15 percent poverty rate. It’s this lack of improvement over a five-decade period that is interesting, especially considering that poverty rates had consistently been dropping for over a century.
One of the key problems is that during the 1960s the Great Society programs were implemented, particularly the War on Poverty. Over this period, spending on anti-poverty programs exploded five times in inflation adjusted dollars, going from three percent of public spending to 20 percent between 1973 and today.
Yet the poverty rate stubbornly ignored all this lucrative expenditure. A key problem is that none of these programs built in an incentive system to graduate people off the assistance. Push systems, systems where a person is ejected from assistance if they prove unwilling to improve themselves, are nonexistent, while pull systems, like job training programs, are ineffective at best. Without these systems, people neither have the tools nor the drive to exit these programs.
These programs, in effect, have generated a culture of dependency. Out of sixty-nine welfare programs that the government operates, just two, EITC (earned income tax credit) and the child refund credit, require any kind of employment and even then are tax discounts. Further, the expansion of various handout programs has successfully eradicated the stigma of public assistance, removing the social pressure to improve and exit. When nearly half the population receives public assistance, not including individuals receiving a paycheck for public sector work, people view it as normal and acceptable.