If I Wanted to Keep Poor People Poor

Advocates for free markets often get smeared with comments like “you just want to keep poor people poor and see the rich get richer!” Such accusations are utter nonsense, of course.

But a firm grasp of economics and how individuals respond to incentives, however, can tell us what policies a person who is interested in condemning poor people to a life of poverty would support. That’s what I address in this article, which was originally published in the Charlotte Observer yesterday.  Here’s a sample:

If I wanted to keep poor people poor, there are several government policies I would favor.

For starters, I would advocate for a robust and ever-expanding welfare state. Programs like Medicaid, food stamps, unemployment insurance, etc.? Perfect poverty traps.

I would recognize that a perfect recipe for keeping poor people poor is to create incentives that push them into decisions that prevent them from climbing out of poverty.

Case in point: This year the Fiscal Research Division of the General Assembly analyzed the decisions confronting individuals and families enrolled in various government welfare programs. A single mother with two children ages 1 and 4 earning $15,000 a year through work would be eligible for government benefits (such as Medicaid, housing vouchers and subsidized day care) equivalent to roughly an additional $35,000.

Such a scenario puts this woman in a bind. If she finds a better job paying more, she risks losing substantial amounts of benefits. She would make her family worse off even though her paycheck would be bigger. Just to come out even, once taxes are factored in, she would need to find work paying about $55,000 a year. Not many low-skilled workers can make such a leap.

This scenario is commonly referred to as the welfare cliff. Fear of falling off that cliff is perfectly rational, but it also serves as a highly effective tool to trap people in a life of poverty.