RYAN BOURNE, CATO INSTITUTE
Paul Krugman’s column yesterday lamented Republican policy towards the poor. He has particular gripes with Ben Carson’s changes to housing subsidies, increased work requirements for those seeking food stamps, and waivers granted to states to enable new work requirements for Medicaid.
I’m not going to get into these specific policy changes here. But let’s take Krugman’s analysis of the changes and the motivation for them at face value, and pose a question: how robust is an anti-poverty agenda that depends so much on political and societal attitudes to the poor?
As I outlined in a recent blog, it’s a mistake to think of policy towards the poor being merely about government transfers, services and benefits-in-kind. In fact, this focus on income and services has blinded the debate about poverty from the truth that there are lots and lots of state, local and federal policies that increase the price of goods and services the poor spend a disproportionate amount on.
Zoning laws and urban growth boundaries raise house prices. Regulations make childcare more expensive. Sugar, milk programs and the ethanol mandate increase food costs. Tariffs on clothes and footwear have particularly regressive effects. Energy regulations which seek to subsidize renewables rather than being “technology neutral” can raise prices. CAFE standards, constraints against ride sharing, and some regulations on gas taxes raise some transport prices too. Not to mention the broader effects of protectionism and occupational licensing in both raising prices and reducing efficiency across the economy.
Some of these things affect families by orders of magnitude greater than the changes Krugman is concerned about. Combined, they would have a huge impact for many households. What’s more, most of the status quo interventions make the economy less efficient too, reducing market-wages and, in the case of housing and childcare, deterring the mobility of labor over different dimensions. One cannot talk about a “war on the poor” without acknowledging these fronts and the armies which battle on them, not least because these bad policies in part drive significant demands for redistributive transfers in the first place.
In my view, it would be far more fruitful for liberals concerned with the well-being of the poor to focus on all these issues as part of a “first do no harm” poverty agenda. Why?
1. There’s evidence that fiscal transfers may have hit diminishing returns in terms of their role in poverty alleviation.
2. The fiscal environment is not conducive to huge new expenditures on programs, and evidence from other countries (not least Britain) suggests working age welfare is the first port of call for cuts when a fiscal crisis hits.
3. There are clear economic trade-offs where transfers are concerned. As this accompanying Twitter thread by Paul Krugman acknowledges, even increasing the availability and generosity of transfers to more people disincentivizes people from earning more income.
4. And crucially for Krugman’s column, attitudes to redistribution are volatile, and support can be replaced by narratives about “moochers” or “welfare queens” relatively quickly.
In contrast, a pro-market agenda seeking to undo existing damaging regulations at the local, state and federal levels could: reduce poverty, reduce the demands for redistributive activity, would not undermine work incentives and would be harder to undo given its dispersed nature. Those in favor of extensive redistribution should see this too: you do not have to believe existing anti-poverty programs have failed to acknowledge they can have negative unintended consequences, hit diminishing returns, or that their effectiveness is undermined by bad policies which drive up living costs.
A pro-market cost of living agenda would not “solve” poverty, of course. And there are major vested interests in each of these areas who would resist reform. But there are clearly lots of different wars on the poor being raged, even if inadvertently. As long as the poverty debate focuses on just income transfers and government services, the more bountiful battles against vested interests who drive up the poor’s living costs go unfought.
Ryan Bourne occupies the R. Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute. He has written on a number of economic issues, including: fiscal policy, inequality, minimum wages and rent control. Before joining Cato, Bourne was Head of Public Policy at the Institute of Economic Affairs and Head of Economic Research at the Centre for Policy Studies (both in the UK). Bourne has extensive broadcast and print media experience, and has appeared on BBC News, CNN and Sky News, whilst having articles published in (among others) the Wall Street Journal Europe, The Times (London) and the UK Daily Telegraph. Bourne holds a BA and an MPhil in economics from the University of Cambridge, United Kingdom.