Poverty and Welfare

I'm a bit late in getting to this, but I was busy last month, and I'm trying to catch up on things to which I've been meaning to respond. About a month ago, Ampersand wrote a fairly lengthy post at his blog Alas claiming, among other things, that income transfer programs reduce poverty (scroll down to section 4). In support of this, he posted a chart showing child poverty rates of various countries before and after taxes and transfers. Key facts shown in the chart include:

  • The US has a slightly above-average pre-transfer child poverty rate, but the highest post-transfer rate for all countries listed.
  • Denmark, Luxembourg, Belgium, Finland, Norway, and Sweden have the lowest post-transfer child poverty rates (listed in descending order).
  • Poverty is defined as 50% of the median income, presumably adjusted for family size.

The point Ampersand makes with this chart is as indisputable as it is unremarkable: If the government takes enough money from the upper and middle classes and gives it to the poor, then the number of families living on less than 50% of the median post-tax income will decline.

That government can flatten the income distribution through brute force is obviously true, but beside the point. There are two main utilitarian arguments against liberal welfare benefits: First, poverty is almost always caused by bad choices---bad for those who make them, bad for their childen, and bad for society as a whole. The big one is having children out of wedlock. Liberal welfare benefits greatly diminish the cost---particularly the short-run costs---of making these choices, and thus make it less likely on the margin that people will make better choices. There's no question that welfare programs decrease post-transfer poverty in the short run, but in the long run they tend to increase pre-transfer poverty. The second argument is that income redistribution tends to slow down economic growth, which makes all of us poorer in the long run. Ampersand and I don't agree on much when it comes to economics, but I hope that we can agree that economic growth is good and welfare dependency bad.

Keeping this in mind, let's take another look at child poverty in the United States and Sweden. First, note that Sweden's pre-transfer child poverty rate is only slightly lower than the United States': 23.4% vs. 26.7%. At first glance, this looks like a win for the Swedish system, but a closer analysis suggests the opposite, as the United States is doubly handicapped in this measure. First, since the poverty line is defined as 50% of the median income, rather than an absolute standard, the bar is set higher in the United States than in Sweden. By an absolute standard, the pre-transfer child poverty rate is almost certainly lower in the United States.

In fact, the report from which Ampersand gleaned this chart does have another chart (page 7) comparing post-transfer child poverty rates by an absolute standard. Using this measure, the post-transfer child poverty rate increases from 2.6% to 5.3% in Sweden, and falls from 22.4% to 13.9% in the US, putting it ahead of Australia (16.2%), Ireland (21.4%), and the UK (29.1%!), and not far behind Germany (12.5%), the Netherlands (11.1%), and France (10.7%).

Furthermore, Sweden has the advantage of an overwhelmingly (90-95%) white population, while roughly 20-25% of the population of the United States is either black or Latino. Because blacks and Latinos tend to have significantly lower IQs than whites (by 10-15 points), and because low IQ is a major contributor to poverty, it's much more difficult to achieve low poverty rates in a country with the United States' demographic profile than one with Sweden's. I don't have the data at hand, but I'd bet against long odds that the rate of absolute pre-transfer child poverty among whites is much lower in the US than in Sweden.

While I have little sympathy for adults who end up in poverty after squandering the opportunities inherent in being born in a first-world nation, I do share Ampersand's desire to alleviate child poverty. But antipoverty programs should be designed to obsolete themselves, and the modern welfare state perpetuates itself by subsidizing the behaviors which lie at the root of poverty. If the left is serious about eliminating poverty in the first world, then it needs to acknowledge the behavioral roots of poverty and start looking at welfare checks as a last resort, and not as a first respones.

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