“How to Keep Poor People Poor” was written by Brian Balfour, Policy Director of the Civitas Institute. It was originally posted on January 2, 2014 and appears here with permission.
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.
If I wanted to keep poor people poor, I also would finance the welfare state poverty trap through punitive taxes on the job and wealth creators of society. The key ingredient to economic growth, and thus a higher standard of living for society’s poor, is through productivity gains made possible by capital investment. High marginal taxes on profitable companies and small businesses alike discourage capital investment. As businesses decide to either not expand or take their businesses to friendlier areas, job opportunities dry up.
If I wanted to keep poor people poor, I would advocate for higher minimum wages. The law of supply and demand tells us that the higher the price of a good or service, the less of it will be demanded. The demand for low-skilled labor is no exception. Higher minimum wages will price more and more low-skilled people out of the labor market. Such laws are an effective tool to cut off the bottom rung of the career ladder for those most in need of establishing work experience.
If I wanted to keep poor people poor, I would support government “green energy” initiatives that make energy more expensive. State and federal initiatives that mandate more expensive “renewable” energy mean that – in the words of President Obama – utility bills “necessarily skyrocket.” Poor people trying to scrape by just to stay even can scarcely afford higher electricity bills.
If I wanted to keep poor people poor, I would see to it that government imposes many costly regulations on businesses. Such tight restrictions discourage businesses from starting or expanding, meaning fewer job openings for those most in need of opportunity. And mountains of red tape force business to expend scarce resources on compliance costs rather than investing in their businesses and creating jobs.
If I wanted to keep poor people poor, I would support “quantitative easing” policies. Under such programs, the Federal Reserve creates money out of thin air. The inflated money supply then erodes the value of the dollars sitting in your wallet or bank account. The poor are hit hardest by this inflation because their limited skill set makes it far more difficult for their incomes to keep up with the rising cost of living.
In short, if I wanted to keep poor people poor, I would fully support the liberal “progressive” agenda that has been carried out for decades, and indeed ramped up during the last five years.