- The Left’s policies to fight poverty have failed
- Welfare programs subsidize poverty and create vicious poverty traps
- Over the last two-and-a-half decades, North Carolina has spent more than half a trillion dollars on welfare programs yet poverty rates have overall trended upward
- North Carolina families are roughly five times as likely to be in poverty when there is no father in the home
Thanks in part to conservative, pro-growth economic policies over the last five years, North Carolina’s economy has been growing at a robust clip, outpacing national and regional averages in many categories. Poverty is falling to rates not seen in over a decade.
Yet, far too many North Carolinians continue to struggle with the mental and emotional anguish of being poor. The single mother working two jobs to feed her family, exhausted from lack of sleep and thus risking health problems to make ends meet. The rural family confronting the fact that even as the cost of living increases, their paycheck isn’t – prompting agonizing decisions like selling the family farm in order to pay off debts. And there is the gut-wrenching feeling of uncertainty of the unemployed father, unsure when or if he will be able to once again provide for his family.
The psychological, and even physical, toll of living in poverty can place unrelenting stress on one’s dignity and relationships, and often causes self-destructive behavior like alcoholism or drug addiction.
That’s why it’s so important for North Carolina to make a clear-headed, rational evaluation of how to reduce poverty.
The Left Takes the Wrong Approach to Poverty
The Left’s primary approach to poverty is to subsidize it. An old, and true, statement most people are familiar with goes: “when you tax an activity, you get less of it. When you subsidize something, you get more of it.”
This holds true for poverty as well. Unfortunately, the Left’s agenda of subsidizing poverty has the effect of creating more of it.
The Left’s approach to poverty fails to understand how to promote economic growth – which is the only way to lift the living standards of society’s least financially well off. As John Chamberlain, the late economic historian stated, “Poverty in society is overcome by productivity, and in no other way. There is no political alchemy which can transmute diminished production into increased consumption.”
Productivity gains create a greater abundance of goods and services valued by society, enabling people to satisfy more of their needs and wants. When productivity gains are stunted, the decrease in goods and services disproportionately harms the poorest.
Public policies that better incentivize investments in productivity will help reduce poverty. Policies that disincentivize such investments, or otherwise take resources away from productive investments, will create relative scarcity of goods and services, leading to higher poverty rates.
Following the Left’s prescriptions for poverty will only lead to more poverty, and accelerate a decline in the standard of living for the poor.
Are Welfare Programs Reducing Poverty in NC?
The Left likes to call spending on government welfare programs “investments” that are supposed to reduce poverty. What sort of return on these “investments” have we seen in North Carolina?
The chart below offers a damming critique.
The red line tracks state and local spending in North Carolina on “public welfare” from 1992 – 2015. Spending totals in this category include: cash assistance programs, Medicaid, TANF, energy assistance and several other programs including their administrative costs. Figures include federal dollars as well. The numbers used are on a per capita basis, and adjusted for inflation; meaning the numbers are in real terms.[i]
As you can see, there has been a dramatic increase in real spending on these programs – increasing from just below $1,800 per capita to more than $3,700.[ii] In short, the amount of inflation-adjusted, per capita welfare spending in North Carolina more than doubled in less than 25 years.
The blue line tracks North Carolina’s poverty rate from 1991 to 2016.[iii] Unsurprisingly, the poverty rate fluctuates along with economic cycles, varying within a range mostly between 12 and 17 percent. The dotted trendline, however, indicates that average poverty rates during this time have trended upwards.
In other words, during a time when real, per capita spending for the Left’s favored anti-poverty programs has more than doubled, poverty in North Carolina has — on average — been getting worse.
For still more perspective, between 1992 and 2015, total state and local public welfare spending in North Carolina topped $570 billion. What sort of return on investment did North Carolina see from spending more than half a trillion dollars to fight poverty? Very little. If anything, poverty has worsened during this time.
Poverty Traps, Not Poverty Reduction
So, what policies does the Left favor to address poverty in North Carolina? For the most part, the policies the Left advocates for only mitigate the negative financial impacts of being poor. They fail to encourage productive investments that would actually grow the economy and reduce poverty.
Not only do current welfare policies stunt economic growth in a broad sense, they also serve to trap individuals in poverty. By creating so many means-tested welfare programs, low-income individuals are often confronted with a perverse choice: if they take a job, or choose to work more hours, or are offered a promotion with higher pay, they face losing government benefits of substantial monetary value. For many individuals, finding work, or higher pay, actually makes them financially worse off because the value of lost government benefits outweighs the increased financial reward of work.
Confronted with this situation, many individuals understandably opt to continue receiving the government benefits. Rather than help individuals, the perverse economic incentives created by the “social safety net” instead help to trap aid recipients on welfare. And the longer they remain out of the workforce, or at lower-levels of employment, the less employable they become. It is a vicious, self-reinforcing cycle that keeps people poor and dependent on the state.
Following are some of the favored “anti-poverty” programs the Left advocates for:
- Expand Medicaid – Two bills, introduced during the 2017 legislative session, HB 858and SB 290 – both entitled Medicaid Expansion/Healthcare Jobs Initiative – constituted the latest effort to make this goal law. Medicaid expansion is also included in the North Carolina Democratic Party platform. The destructive nature of Medicaid expansion is substantial, and its negative consequences were outlined in previous articles, most notably here and here. Suffice it to say, Medicaid expansion does not provide enrollees access to medical care, provides subpar health results to recipients, comes with a massive taxpayer price tag, destroys jobs and serves as a powerful poverty trap.
- Minimum wage/living wage – For years, the left has been advocating for raising North Carolina’s minimum wage, often going further to demand a “living wage.” The latest such efforts include bills such as: S 210(Living Wage by 2022); HB 474 (raises minimum wage and ties increases to COLA); HB 812 (expands coverage of minimum wage regulations to agricultural and domestic workers) and SB 174 (raises minimum wage to $15 over five years, and among other things also adds mandatory paid sick and medical leave). It too is included in the Democratic Party platform. Minimum wage laws, as documented many times like here, here and here, harm the very people they are purported to help. Criminalizing labor agreements below a government wage threshold prices the lowest-skilled workers out of the job market; or otherwise results in employers cutting back hours or reducing non-wage benefits for the lowest-skilled workers. Such measures do not reduce poverty, but rather make it more difficult for low-income, low-skilled people to gain valuable work experience and climb out of the poverty trap.
- Affordable housing programs – So-called affordable housing programs are also included in the Democratic Party platform. Affordable housing programs typically involve either financial assistance to renters/buyers or zoning rules forcing developers to sell a certain percentage of their new units at below-market prices. Of course, neither of these policies reduce poverty, but are designed to mitigate the hardships of poverty. Making matters worse, these programs actually increase housing prices and decrease the amount of available affordable housing. Financial assistance to renters or buyers of housing artificially props up demand for housing. Such programs inject more money into the housing market, which drives up prices. Affordable housing zoning requirements mandate that a percentage of units be sold at below-market prices. Such provisions discourage new development, restricting the supply of housing – which drives up prices. Higher prices not only put housing out of reach for the poor, they also place undue financial strain on the middle class. In a study of low-income housing mandates in the San Francisco Bay Area from 2003 to 2007, economists found that new home construction fell by an average of 30 percent in the first year, resulting in an average 8 percent increase in housing prices. Moreover, if such mandates don’t lower new housing starts, low income housing mandates prompt developers to raise prices on the remaining houses to make up for the lost revenue from the share of houses they are forced to sell or rent at below-market rates. Thus, the real impact of affordable housing policies is less, not more, affordable housing.
- Increase/Extend Unemployment Insurance Benefits – When legislators reformed North Carolina’s unemployment insurance program in 2013, one of the major reasons was to accelerate the state’s pay off of a $2.7 billion loan to the federal government. The move was roundly criticized by the Left. Indeed, national outlets even labeled the move as overly harsh and even “disturbing.” Ever since, North Carolina progressives have been calling for increased benefits for longer durations. What the Left ignores, however, is that early repayment of the debt enabled North Carolina to avoid massive tax hikes on employers. Estimates suggested that by 2017 employers would be saving $700 million a year in taxes, thanks to the early debt repayment. Again, unemployment benefits do nothing to lift people out of poverty, but instead subsidize joblessness. In sum, unemployment insurance creates a vicious cycle: the higher the UI tax on employers, the less money they have to create jobs, and the higher and longer the UI benefits to the unemployed, the greater incentive individuals have to remain jobless. Fewer employers will seek to hire, and fewer unemployed will look for work. Research by economists of all stripes agree that more generous unemployment benefits increase unemployment rates. Even the New York Times resident left-wing economist Paul Krugman acknowledges that extended unemployment benefits will likewise extend higher levels of unemployment. In his 2010 economics textbook, Krugman stated “Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect.” A 2014 University of Pennsylvania study concluded that North Carolina’s UI reforms improved our labor market conditions. Taxing job creators while paying people not to work results in less productive activity and investment, harming the increases in productivity needed to grow the economy and reduce poverty. Expanding North Carolina’s UI program will harm the very people advocates claim it will help.
- Earned Income Tax Credit (EITC) – The EITC is a long-time favorite “poverty-reduction” tool of the Left in North Carolina. A federal EITC is already in place. Advocates want to add a refundable state component as well, which North Carolina eliminated as part of its 2013 tax reforms. The EITC is a tax credit for working people, and the credit is calculated as a percentage of earnings. As the recipient’s earnings increase, the amount of the credit likewise increases – up to a maximum amount at which point the credit decreases as income rises, and phases out once a certain income level is reached. Many consider EITC to be the least damaging of welfare programs because it seeks to eliminate perverse poverty trap incentives. Nevertheless, it increases the tax burden on non-recipients by forcing taxpayers not eligible for the credit to finance a larger share of government spending. The increased tax rates of course discourage productive investment and activity, and as a result curtail economic growth.
Fatherlessness: The Elephant in the Room
Any discussion of poverty is incomplete without looking at perhaps the leading cause of poverty in North Carolina, and America: fatherless homes.
According to 2016 American Community Survey data from the U.S. Census Bureau, North Carolina families with at least one child in the home headed by a married couple have a poverty rate of just 8.7 percent. But in households with at least one child in the home headed by a female householder with no husband present, the poverty rate skyrockets to 42.7 percent.
In other words, North Carolina families are roughly five times as likely to be in poverty when there is no father in the home.
Moreover, for households with multiple children, one of which is under five years old, headed by a married couple, the poverty rate is 15.6 percent in North Carolina. In households in the same situation, except with no father in the home, the poverty rate jumps to a heart-wrenching 60.6 percent.
It is professional negligence to speak about poverty in North Carolina and ignore these facts.
Welfare programs championed by the Left break up families by replacing a father’s paycheck with a government check and benefits. Nationally, since LBJ’s Great Society ratcheted up government welfare programs in the mid-1960s, the rate of unmarried births has tripled.
If North Carolina is serious about poverty reduction, the issue of fatherless homes, and the role that government welfare programs play in increasing that number, must be acknowledged.
Conclusion
Should the Left once again regain power in North Carolina, we can expect them to double-down on failed “anti-poverty” programs that have been shown to not reduce poverty but to arguably make it worse. The only ways to lift more people out of poverty are to increase society’s productivity, which comes from productive investment fueled by savings, and take steps to strengthen families, because fatherlessness is so strongly linked to poverty.
Progressive welfare state programs are not designed with this in mind. Instead, their programs subsidize poverty, meaning they generate more of it. Moreover, the perverse incentives introduced by welfare programs serve to trap many in poverty, and create a greater dependency on the government.
Poverty is a wrenching human problem. The Left fails to understand the proper means of reducing poverty, and North Carolina deserves to know the truth. North Carolina is just one election away from the Left once again ramping up their failed government welfare programs. The result will be more of our fellow North Carolinians suffering the emotional, psychological and physical toll of being snared in the poverty trap.
NOTE: In Part 2, coming soon, we will discuss better alternatives for poverty reduction than government welfare programs.
[i] Inflation adjustment figures used: U.S. Bureau of Economic Analysis, Gross Domestic Product: Implicit Price Deflator [GDPDEF], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/GDPDEF, March 9, 2018
State population figures from NC Office of State and Budget Management: https://www.osbm.nc.gov/facts-figures/demographics
| [ii] U.S. Census Bureau, Annual Surveys of State and Local Government Finances. Category labeled: “Social Services
and Income Maintenance” serves as proxy for welfare program spending |
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| Available online at: https://www.census.gov/govs/local/historical_data.html | ||||||||
| [iii] Poverty Stats Source: U.S. Census Bureau, Historical Poverty Tables: People and Families – 1959 to 2016; Table 21.
Number of Poor and Poverty Rate, by State: 1980 to 2016 |
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| Available online at:
https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-people.html *Note to poverty spending figures: no state data available for years 2001 and 2003. Author created an estimate for these years based on NC’s share of total US ‘social assistance’ spending in years prior to and after the unavailable years.
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