By Pavlina R. Tcherneva
A recent report on the State of America’s Children revealed distressing statistics. More than 1 in 5 children live in poverty in the U.S., by far the most impoverished age group in the nation. Between 2008 and 2009 child poverty jumped 10%, the single largest annual jump in the data’s history. While the U.S. is the wealthiest nation in the world in terms of GDP (and # of billionaires), it ranks last in relative child poverty among all industrialized nations.
Overall we have 46.3 million people in poverty in the U.S. (the largest number in the postwar era), which is 14.3% of the total population—a percentage that has been trending up since 2000.
Two of the primary causes of poverty are the skewed income distribution in the U.S. and the high levels of unemployment.
While the income of the top 0.01% of households rose by 68% during 2002-2008, the incomes of the bottom 90% fell by 4% (note that the richest 10% of households in the U.S. take nearly 50% of the entire income in the economy). Indeed over the last few years we have witnessed one of the largest redistributions of income and wealth to the top in history.
The unemployment rate is another major contributing factor to the grim poverty picture. While unemployment insurance kept over 3 million people out of poverty, full time jobs at decent wages are the only way to tackle the poverty problem in the US in any meaningful way. In the absence of such policies, families have had to rely on government support, which has been falling, and will likely continue to fall in the face of austerity over the next years. For example in 2010, two years after the start of the Great Recession, the Temporary Assistance to Needy Families (TANF) helped 56% fewer children than in 1996 (note also that Congress refuses to extend the unemployment insurance benefits).
Working families are not doing terribly well either: 16.4% of full-time, full-year workers do not earn enough to escape poverty. Working families thus have had to rely on government programs such as the Earned Income Tax Credit (EITC), which benefited 24.5million families in 2008, most of which was disbursed to families with low-wage workers.
The government programs the poor rely on are either too small or disappearing. The alarming state of America’s children is a stark reminder that public enemy #1 are joblessness, poverty, and income inequality, not the government debt or deficit.
The irrational debt and deficit phobia fabricated by Washington has diverted attention from the most pressing economic problems of the day. MMT economists have made the argument for decades but now even mainstream pundits from Warren Buffet to Alan Greenspan are arguing that there are no good economic reasons why a nation, which issues and controls its own currency, should ever default on its obligations—from interest on government debt, to veteran salaries, to social security payments. All U.S. government spending is denominated in dollars, not a foreign currency, and thus federal government deficit spending is always sustainable, but deficit spending is not always responsible or effective. So given the dreadful economic picture, it is time to rethink and reorient government spending policy.
To start with, I propose a three-prong approach:
1. Institute a Universal Child Allowance
Universal child allowance programs are widely recognized as policies that alleviate child poverty. Almost all industrial nations (but not the U.S.) have some form of universal child allowance—a federally funded program that provides a monthly stipend per child to families with children under a certain age. In the U.S. we have child tax credits (like the EITC) which only go to working families. The children of the unemployed cannot benefit from this assistance. The U.S. tax system is also notoriously difficult to navigate and not all families get the credits or child assistance for which they may be eligible.
2. Strengthen Social Security
The only age group which is not experiencing an increase in poverty is 65 years or older. The sole contributor to the precipitous decline in elderly poverty (from rates above 35% in the late 50s when we began collecting the data) is Social Security and the subsequent benefit increases that took place through the mid-70s. Since then, elderly poverty has stabilized around 9% and while there is still more to do to reduce it further, any impending reforms and reductions in Social Security benefits will undoubtedly reverse these important gains. Note also that many children rely on this program. In 2009, 3 million children received Social Security benefits from disabled, retired or deceased workers.
3. Implement a Job Guarantee
It is time for policy makers to take the Job Guarantee (JG) proposal seriously. Direct employment by government at living wages is the most immediate method for reducing the unemployment rate and keeping the jobless and their children out of poverty. Direct job creation has important macroeconomic stabilization features and is the original Keynesian vision of how fiscal policy should be conducted. Generalized pump priming is slow to work, especially in a balance sheet recession. Instead, government spending needs to be directly targeted to the unemployed themselves and to distressed area and communities. There are far too many public needs that go unfulfilled, there is too much public sector squalor, and too much unmet demand for public goods provisioning. It is time to put the jobless to work for the public purpose.
The JG is the most effective way to jumpstart the economy. It offers an immediate reduction in the unemployment rate and a source of stable demand that will grease the economic wheels. The JG will complete important and much needed public sector jobs and will prove to be an effective transitional program for the unemployed, meaning that as the private sector begins to hire, many JG workers will find private employment upon completion of their public sector projects. Training, education and job placement assistance (all part of the JG program) can help with this transition. It is essential that we implement the job guarantee for another reason. There is plenty of evidence today that firms which are looking for workers explicitly refuse to hire the unemployed. Big or even small gaps in one’s employment history are not looked on kindly by the firm sector.
The JG is a smart and effective fiscal policy, which should be a policy of first resort when recessions hit. And since we have allowed unemployment to develop to such high levels, we would need a much bolder JG program than if it were implemented 2 years ago. Still the JG may be our only policy option left. As Winston Churchill ones said, “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” It’s time for the Job Guarantee.
In Finland, like in the rest of Europe, we measure poverty as relative. This means that any individual or household at less than 60% of the median income counts as poor. This means we get alot more than a few percent of child poverty, something in the 20-30% range. How would the US fare with relative poverty as the measure of choice?
"While the U.S. is the wealthiest nation in the world in terms of GDP (and # of billionaires), it ranks last in relative child poverty among all industrialized nations."No, it doesn't. Israel ranks last, even though it's wealthier than Spain. See OECD's 2011 reporthttp://www.oecd.org/dataoecd/52/43/41929552.pdfThe OECD says, "Poverty thresholds are set at 50% of the median income of the entire population."
This problem will worsen because of advancing technology.Computers and robots are getting better and better. More jobs are being done by software, often incorporating artificial intelligence or machine learning. There was a recent piece in the NYT about teams of lawyers being replaced by e-Discovery software.This is going to ACCELERATE in the future. A company called Heartland Robotics is working on a $5000 robot; that means an employer can buy a robot for the price of a couple of months wages. As jobs at all levels, from McDonalds to college-educated knowledge-workers, are increasingly automated, there will be more unemployment, more downward pressure on wages, and especially even more income inequality as the owners of capital realize even more gains. Ultimately, this will undercut consumer spending because there simply won't be enough average people with discretionary money to spend on goods and services. In fact, we already see evidence of that. For a great overview of this, see this book:"The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future" http://www.amazon.com/gp/product/1448659817A free PDF is also available here: http://www.thelightsinthetunnel.comAlso see the author's blog at http://econfuture.wordpress.com.I think the issues raised in this book are among the most important that we will have to confront as a society. I encourage everyone to read it…
Pavlina Tcherneva advocates a JG system that pays a “living wage”. If that involves paying more than people would get on unemployment benefit, that reduces their incentive to seek regular jobs, which reduces aggregate labour supply, which is inflationary. Bill Mitchell is a bit more honest in this connection, and admits that the JG wage cannot be significantly more than unemployment benefit.Re the training that Pavlina wants in make part of parcel of JG, several studies in Europe have shown that the sort of training that comes with, or is offered as an alternative to JG type work, is a waste of time. That is, subsequent employment histories of those who have done such training is not improved by such training, whereas the subsequent employment histories of those who have done straightforward subsidised work, or JG type work, IS improved. In short, it seems that learning by doing is better than sitting in front of a teacher or lecturer.Re the “stabilisation features” of JG, these are no better than the stabilisation features of unemployment benefit, seems to me. At least that is the case so far as the JG wage alone goes. Of course JG involves further expenditures – on materials, capital equipment, etc. But there is a problem there, as follows.If unemployment is above NAIRU, JG is not the best cure for unemployment: raising demand is. Alternatively, if unemployment is at or below NAIRU, payment for the permanent skilled labour, materials and equipment required for JG system cannot be additional aggregate expenditure for the economy as a whole: that would raise AD which would be inflationary. Ergo the latter factors of production have to “stolen” from the regular economy. I.e. JG jobs will at least to some extent be AT THE EXPENSE OF regular jobs: hardly the object of the exercise.Of course one can get round this by have a very large “relatively unskilled JG labour to other factors of production” ratio on JG schemes. But that just means that the output of the relatively unskilled labour will be pretty hopeless.
Thanks to all for the comments: To Anonymous 1: if relative poverty measure was used for the US as a whole, the rate jumps from 14.5 to approx 25%To Anonymous 2: If you'd like to include Israel, fine–we are second to last in the developed world. Hardly encouraging. But note the Israel data is not based on the OECD questionnaire but is reported by Israel using a different methodology, so it makes sense to leave it out in the comparison.To Anonymous 3: plenty of jobs in short supply that cannot be performed by robots.
To Ralph Musgrave:Unempl insurance is fine as a short term policy, if the jobless have not found employment they are left out to dry and jobs safetynet for those who want to work is the way to go. All of these hypothetical questions have been explained in great detail in the academic literature. Please let's step down from the ivory tower and focus on practical experience. I have documented extensively the recent case in Argentina where a JG program was modeled after the JG/ELR proposals developed in the US. The labor force increased, unemployment precipitously fell, robust GDP growth, exchange rate and prices stabilized, indigency rates collapsed. Public sector workers transitioned to private employment as the economy recovered. The govt jobs were REAL jobs performed by many 'unskilled' people–I have visited many projects and provided countless of examples of what those ‘unemployable’ people did–from landfill cleanup, to recycling initiatives, to soil erosion improvements, and on and on and on—I am talking about the poorest of the poor with little or no education. These were REGULAR jobs, which filled important unmet needs in the community, and provided goods and services that the private market failed to provide. The NAIRU concept really has to be tossed out. The reason why we have inflation barrier is because fiscal policy as practiced today is turned upside down–it stimulates the strong sectors in the economy that operate near capacity and use high tech/high skill/high pay workers. Trickle down economics that never trickles down to the poor. Read my levy.org working paper #542–it explains how policy should target spending to deal with the inflation issue. And I'm sure you are familiar with Bill’s Buffer Stock mechanism. Argentina demonstrated such a countercyclical mechanism. The NAIRU is constantly used by economists who don’t want to think up good policies that will provide jobs for all. Job training policies alone do not work, because they are not supplemented with policies that increase the supply of job vacancies–so we end up with a game of musical chairs.With respect to the wage level, where we set it is an empirical question, but to say that it will cause inflation is once again theoretical speculation. The wage level in Argentina provided a wage floor and a countercyclical program–that's the point of the JG wage level. 97% of JG workers who found employment in the private sector were hired at a premium above the JG wage. Inflation will occur if you keep increasing the base wage continuously. But that's not what I am proposing. I am proposing a stable floor. pure and simple. And I prefer a living wage floor, but that depends on implementation. The living wage floor will increase demand (relative to an economy with mass unemployment where the wage floor is zero and there are plenty poorly paid jobs). Will some people who are not paid a living wage in the private sector opt for the JG job–it's possible, but the level will simply determine the distribution of jobs between the public and private sectors–it will not reduce the labor supply (why would you exclude pub sector workers from the labor supply anyway?). But I do not foresee people getting stuck in the public sector, as the Arg case demonstrated. The private expanded and public sector shrunk as JG workers found jobs in the private sector. There are many living wage ordinances in the US in many states and localities, so there is nothing odd about this proposal–it is a faster way of implementing the living wage nationwide. I think that's a good goal to have. You may disagree. In any case, we have answered in great detail all of the questions you raise and have provided empirical evidence for our claims. But to argue that there is nothing of use for the unskilled to do sounds ideological. I've been on the ground and seen what the poor and unskilled people can do. Our problem is lack of political will, not desire to work or ability to find useful things for those who want to work to do.
Great article. As a poor, sporadically employed, politically active person, my take is a bit more activist than your academic view. The North Carolina Green Party endorsed my plan for full employment. It is called Guaranteed Jobs (GJ). Now I'm pushing for the same on the national level in the USA and Canada. My plan suggests that the grassroots (local and state governments) create the actual jobs, while federal funding pays the wages. The rates would be minimum wage (which could change). Other government poverty relief (unemployment insurance, welfare, etc.) would continue for a worker, but after deducting half their GJ pay. Every adult legal-resident would be offered work immediately or within 48 hours of application. GJ workers could work a maximum of 40 hours per week at all their jobs combined (GJ and other). They could work full-time, part-time, temporarily or permanently, whenever they wanted. The progamme would be permanent, regardless of the rise and fall of jobless rates. It would be nation-wide, not just in the worst areas. The cities of England would not be burning now if they had Guaranteed Jobs.www.korky.ca
If I was even twenty years younger, I'd learn Spanish and emigrate to Argentina in half a heartbeat. The misery and ignorance that define America today weigh on me more and more the older I get. If I hadn't discovered MMT about a year ago, I don't think I'd have the heart to get up in the morning.Thank you UKMC!
Thanks for sharing this post.Job Search
Why not have direct subsidies to businesses, with strings attached?At the same time, have the federal gov. order goods and services.E.g. give Tesla motors a huge grant (with reasonable conditions) to build fleets for the US government. Than, have the US government purchase those vehicles.I.e., WWII this problem. Expand the amount of goods and services (and jobs) and the money supply, simultaneously.This would also alleviate the problem of so called "rusty skills". The WSJ claims businesses consider someone who has been out of a job for 6 months as having become rusty and so unemployable. Perhaps they'd be willing to take a "chance" on an unemployed person, if they didn't have to foot the bill for the "training" period. This would also avoid the issue of re-training programs. Simply train on the job.
"I have documented extensively the recent case in Argentina where a JG program was modeled after the JG/ELR proposals developed in the US."Pavlina, any chance of a link to the most relevant paper in this regard? Thanks.
One other thing. It's my understanding that JG proponents argue that the private sector wage should 'adjust' just above the level of the JG wage — effectively setting a wage floor.Now that makes sense — even from the point-of-view of business because the amount being paid to the workers counts as investment which will roughly return in the form of profits (Kalecki's 'investment = profits' — simplified to assume no worker saving, but it should work out okay in the long-run).However, is there any work done exploring how this readjustment would occur? What sort of resistance it would get from clueless businessmen; what sort of short-term effects it would have on inflation etc.Argentina might be a case study (unless they set the JG wage at the level of a previous minimum wage… I'm not clear on this). But I assume that any country that initiated a minimum wage would also provide a case study.So, any comments, references etc?
Argentina might be a case study (unless they set the JG wage at the level of a previous minimum wage… I'm not clear on this). Pavlina, any chance of a link to the most relevant paper in this regard?
Spam problem up in here, guys…
"Economic Perspectives from Kansas City said… To Anonymous 3: plenty of jobs in short supply that cannot be performed by robots."I think the JG is a GREAT idea. I made a similar comment to Anon3's at pragcap yesterday. I believe what he/she is saying is that society had better start thinking about how technology is going to change the employment picture and whether we want new technologies that displace workers to benefit only a few people. JG is fine for right now but change is in the wind and we need to work on fixing inequality and the lessening need for workers soon.
I am confused re the Argentina issue. The following paragraph about Argentina's economy from an assessment of Brazil by Stratfor as shared by John Mauldin's "out side the box" letter seems to contradict the comments by Economic Perspectives from Kansas City. Can somebody clarify that for me.Thank youRecent developments underline this tendency. An economic crisis in 2001-2002 placed a new populist government in power that defaulted on the country's debt, which freed Buenos Aires of the need to make interest payments. Rather than seize the opportunity to rebalance the Argentine economic and political system onto a sounder footing that leveraged the country's geographic blessings, the state instead spent the savings on mass subsidies to bolster its populist credentials. High growth resulted, but the policies were only paid for by hollowing out the country's capital stock and distorting the economy to the point where fundamental industries — from cattle farming to wheat growing to energy production — have now begun to fail. High taxes combined with high consumption encouraged by large subsidies and price controls have crippled business owners and agriculturalists alike. The subsidies have proved particularly problematic, as they have locked the government into ever-increasing expenditures expressly linked to the populist patronage the people demand as their right. Consequently, Buenos Aires only wields limited influence in South America and little to none beyond the continent.
I am curious as to the relationship, if any, between child poverty and the number of children in a family. IOW, could ensuring access to birth control help alleviate this problem?I am absolutely not advocating restricting the right of people to have however many children they wish, nor suggesting that they are just not smart enough to understand that they "can't afford" to have children. I am simply wondering if people in some social/economic situations, who are well aware that they would be better off postponing child bearing, are not able to do so.
Here is a link for international comparison of child poverty using the measure of 50% of medium income:http://www.stateofworkingamerica.org/charts/view/116