There is nothing so permanent as the temporary, so it is no surprise that the mainstream center-left has found, in the supposed emergency economic response to the pandemic, a model for a permanent solution to poverty: Just shower trillions of dollars of government cash on the poor.
How come no one has ever thought of that before? They have, of course, but part of the excitement on the left right now stems from a firm resolution not to remember any of the lessons of the past. Hence The New York Times proclaims, “Pandemic Aid Programs Spur a Record Drop in Poverty.”
The Times goes on to tell us:
The huge increase in government aid prompted by the coronavirus pandemic will cut poverty nearly in half this year from pre-pandemic levels and push the share of Americans in poverty to the lowest level on record, according to the most comprehensive analysis yet of a vast but temporary expansion of the safety net.
The number of poor Americans is expected to fall by nearly 20 million from 2018 levels, a decline of almost 45 percent. The country has never cut poverty so much in such a short period of time, and the development is especially notable since it defies economic headwinds—the economy has nearly seven million fewer jobs than it did before the pandemic.
The extraordinary reduction in poverty has come at extraordinary cost, with annual spending on major programs projected to rise fourfold to more than $1 trillion. Yet without further expensive new measures, millions of families may find the escape from poverty brief. The three programs that cut poverty most—stimulus checks, increased food stamps and expanded unemployment insurance—have ended or are scheduled to soon revert to their pre-pandemic size.
In other headlines: Giving Man a Fish Spurs Record Increase in Eating for a Day.
Making the Poor More Secure in Their Poverty
The most obvious and relevant fact about these claims is that none of these people have in fact been lifted out of poverty. For starters, as the Times itself tells us, “the economy has nearly seven million fewer jobs,” which means that 7 million fewer people are capable of supporting themselves through their own work. The fact that they are being supported temporarily by government cash does not change this; it merely masks it. It alleviates the symptoms of poverty, making that poverty less visible and taking out some of its sting. But the fact itself remains. To paraphrase an old saying, they have been given fish and are eating for a day, or a year. But they are not back out there fishing for themselves.
When he launched the War on Poverty in 1964, Lyndon Johnson promised that the goal was “not to make the poor more secure in their poverty but to reach down and to help them lift themselves out of the ruts of poverty and move with the large majority along the high road of hope and prosperity.” But the left long since gave up even pretending to have this goal.
It’s probable that LBJ, being a big muddle-headed, doe-eyed hippie, was never sincere about it anyway. But today’s left has rejected its last echoes—the (hugely successful) welfare-to-work model of the 1990s welfare reform era—and they now judge their success simply by how many people they have made more secure in their poverty. How else can millions of unemployed people on the dole be counted as a massive reduction in poverty?
The New York Times piece answers this question with a series of profiles of poor people who benefited from pandemic relief. Some of them lost jobs in industries like retail and hospitality, the kind of jobs that were hit especially hard by the pandemic and would not have been easy to replace. It is entirely plausible that many of these people would have been in truly dire straits without some form of external aid. But the question is not whether this assistance helped people cope with the temporary emergency of a pandemic. The question is whether this could be extended as a permanent model for the relief of poverty under normal conditions.
Yet the descriptions in The New York Times report contain all the warnings we need about why this is not a viable or desirable model. Let’s start with this first crucial point: Outside benefits, rather than lifting people out of poverty, merely lull them into dependence. And to be dependent is its own form of insecurity.
The evidence of falling poverty in 2021 may seem at odds with reports of increased hunger and other pandemic-era hardships. But the trends can coincide, as Ms. Goodwin’s experience shows. That is because poverty is based on annual income, and help has fluctuated greatly from month to month as a result of policy changes and administrative bottlenecks. Many families have swung between moments of surplus and desperation.
Her jobless benefits swung from a high of $920 a week (much more than she had received on the job) to a low of $320 (much less) as federal policy changed. She lost food stamps for several weeks and fed the children smaller portions. She waited months for stimulus aid after the payment went to a closed bank account.
‘It was all very unreliable,’ she said.
Dependence on the government, which is to say, on the vagaries of politics, is not a source of stability. At the same time, the total annual benefits being offered are extremely generous. “She received about $25,000 in unemployment benefits (about three times what she would have received before the pandemic) and $12,000 in stimulus checks. With increased food stamp benefits and other help, her income grew to $67,000—almost 30 percent more than when she had a job.”
That is not merely lifting someone out of poverty. It is a solid middle-class income and—for a 29-year-old without advanced education or technical training—a better income than could be gained by working. It is clear that for many who advocate this kind of welfare state, the ideal is simply to be able to live without working. Yet this is literally impossible as a social system.
This welfare-state income of $67,000 is just under the median household income for 2019, the last pre-pandemic year. (Median income figures for 2020 and 2021 will presumably be inflated by government stimulus payments.) What kind of system can function when the median income can be had without working—which is to say that a full half of the population is better off quitting their jobs?
To live without working is sustainable for a small number of people who are willing to live well below the general standard of living because they can be supported by the industry and effort of the overwhelming majority who are able and willing to work to provide a better life for themselves and their families. But if the average person, someone at a middle-income level, is in effect sacrificing his or her time and effort to keep working, with no additional reward, how long can such a system last?
The actual poor people profiled by The New York Times can tell you the problem. “‘In my case, yes, it was very beneficial,’ [Ms. Goodwin] said. But she said that other people she knew bought big TVs and her former boyfriend bought drugs. ‘All this free money enabled him to be a worse addict than he already was,’ she said. ‘Why should taxpayers pay for that?’”
Another recipient of temporary government largesse “urged poor people to help themselves. ‘If you want to change your life, you have to get up and do something—not sit home and get free money.’”
Incidentally, this article first came to my attention by way of a left-leaning academic who was appalled at the skepticism emerging from the mouths of these ungrateful proletarians. It is a perfect example of the blinkered arrogance of the elites. Even though the people they claim they want to help tell them what is wrong with their schemes, they reject these opinions because they don’t line up with their theories.
Many recipients of temporary aid still value work and will either continue to work or, if they lose their jobs, return to it as soon as they are able. But if we reward people for not working, they know that many others will not. And over the long term, when a shower of free cash from the government is not merely temporary but is a permanent way of life—when a single mother who doesn’t work can match the median household income, usually made by two earners—how long will they hold out? When will the people who remain at their jobs start feeling like suckers?
A long-established problem with government benefits is that a worker’s effective income is not how much he gets paid for working. It is how much he gets paid over and above what he could have gotten by not working. If you can make $600 a week from working and $400 from unemployment benefits, your effective wage is only $5.00 an hour. But what if it’s negative—what if, as in the example in this article, you can make 30% more from the government, so that you are effectively paying an employer for the privilege of working?
We are already seeing the answer to this question in the current labor shortage, as many workers hang back from the market because they can make more from pandemic-era government payments. Yet somebody still needs to produce the goods and provide the services all of us rely on. So this just means that employers have to pay hefty premiums to get anyone to work, which they can only do by raising their prices, which means that eventually all of these lavish government handouts will buy us a lot less. We’ll end up in the position Kipling warned us about: “Though we had plenty of money, there was nothing our money could buy.”
How long can a system survive when it punishes the very people who make it work? How can it survive when it discourages the virtues it depends on to keep functioning?
We know the answer because we’ve tried this all before in the War on Poverty, the old welfare system that failed so spectacularly that it had to be reformed in the 1990s. What we should have learned then is that when you “help” the poor in a way that encourages them to give up the practices that would actually enable them to lift themselves out of poverty—things like work, marriage and education—you make their poverty permanent.
The mainstream left’s new love affair with spending endless trillions to wish away poverty is just a plan to fleece those of us who still work, in order to achieve the very “progressive” goal of luring the poor into a permanent underclass.
The Anti-Free-Market Revolt
Social scientists and free-market economists long ago analyzed these pathologies in the wake of the War on Poverty’s failures. So how can otherwise reasonable people—not the crazy woke fringe, but the mainstream center-left—charge ahead without even having to consider all of those old arguments?
One of the people pushing this is Noah Smith, who is often one of the more interesting center-left commenters. (See, for example, recent pieces on patriotism and the left and China’s assault on its tech industry.) But he can also be smug and blinkered, with huge blind spots that are worth exploring because they are common to today’s mainstream.
Consider Smith’s treatment of a question about the field of economics being biased toward free markets: “As far as I can tell, economics is succeeding quite well in its intended goal of providing supporting arguments for the inaction of the ruling classes.” He couples this with a cartoon meme of economists protecting “billionaires/ruling class” from the rage of the “working class.”
The question is revealing in itself. It amounts to a refusal to accept the entire science of economics unless it validates your pre-existing political loyalty to economic intervention and a class-warfare outlook. It’s a pretty open and brazen version of what “following the science” means in many of our political discussions.
The point of getting to understand any science, economics included, is to understand the limits and conditions imposed by reality on getting what you want. If you start, as Smith does, by saying that if economics places any limits on your dreams for government “action,” then to heck with economics—you are admitting to a desire to put fantasy above reality. Yet Smith accepts the challenge on these terms and simply argues that the field of economics has historically been more interventionist than most people think and that the “free-market revolt” of 20th century economics is over.
He may very well be right about that. But what’s interesting is the superficial and dismissive way that he deals with that free-market revolt, writing it off as just a late 20th century fad. “In the 1970s and 1980s, laissez-faire came back into vogue.” He never asks why that is. Specifically, why, in the 20th century, do you suppose there would have been a lot of interest in economic explanations of the failure of central planning and government control? Those of us who remember the era know the answer: There was a whole lot of failure to explain.
Smith goes on to boast about the “empiricism” of contemporary economics and to talk about studies that rely on “natural experiments.” But in the 20th century, we had plenty of large-scale “natural experiments” to look at: East Berlin vs. West Berlin; Maoist China vs. Hong Kong and Taiwan; Cuba vs. Chile; and so on. The whole century was a laboratory that put central planning to the test—and revealed its massive failure.
It wasn’t just the Soviet Union. Does anyone remember the fate of high-rise public housing projects in developed, Western economies? They were unveiled with an extreme amount of confidence by social scientists and “progressive” architects as a solution to the problems of poverty—and they turned out to be synonymous with uncontrollable crime and generational poverty. The whole system failed so badly that it is one of the few statist schemes to be widely rejected (replaced with rent subsidies for privately owned housing).
Or consider all the other failures and perverse incentives of the welfare state—especially the incentives against work and marriage—that perpetuated poverty and led to the reform of welfare roughly 25 years ago, a reform that is gradually being unraveled by the left.
But all that happened just long enough in the past that the whole episode is easily ignored by a new generation and all its lessons forgotten—so they can proceed to hatch pretty much the same kind of welfare-state schemes all over again, with equal confidence. The same legacy of failure goes for antitrust policy or for “industrial policy,” which is now fashionable again despite its thoroughgoing failure in what was once its biggest and best example, Japan.
So yes, there was a “vogue” for free-market economics in the 20th century because it provided explanations that the smug assurances of statist “liberalism” could not.
I would argue, though, that there are far more fundamental reasons that build a justifiable pro-free-market bias into the foundations of economics. Economics is the study of trade-offs and incentives and unintended consequences. When Henry Hazlitt rewrote Frederic Bastiat for a popular audience in the mid-20th century, he summed up the “one lesson” of economics: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”
There is a kind of moral courage necessary for the proper study of economics: a willingness to subject conventional moral pieties—for example, the currently fashionable stoking of resentment against billionaires—to strict logical scrutiny. Most of them don’t hold up, and that can make people very angry.
There is a more specific free-market bias in economics that goes back to the foundations of the field. The central concept of economics, the one that launched it as a science, is the concept of emergent order, the idea that order and regularity and the coordination of effort can come, not from top-down command and control, but as the spontaneous result of millions of small interactions among individuals in the marketplace.
This idea is to economics what evolution by natural selection is to biology: the initially counterintuitive notion that highly complex organisms and the whole taxonomy of diverse living beings could be built up a little at a time through millions of small mutations and adaptations over billions of years. Notice that I said this is “initially” counterintuitive because once you understand evolution and its mechanisms, the notion that all these creatures were created ex nihilo in their present forms by an omnipotent being is the one that seems like an absurdity. It seems, not like an alternative explanation of the existence and diversity of living creatures, but as an attempt to avoid offering any explanation at all.
The same goes for central planning, which is to economics what creationism is to biology. The hand of the central planner is the hand of God, coming down to wipe out poverty and create wealth ex nihilo by a sheer act of will.
To go back to that New York Times article about welfare and poverty, the most interesting line in it was this: “Progressives said the new numbers vindicated their contention that poverty levels reflected political choices.” The idea that poverty is a “political choice” is an anti-economic argument that has been building up in the mainstream left for a while. The idea is that there is no merely practical factor, no principle of economics, that prevents the government from immediately ending all poverty just by giving away lots of free money. Therefore, to refrain from doing so is merely a political choice, and a cruel and callous one at that.
By saying that this is a choice, they are saying that economic outcomes, like the world and all its living creatures in creationist mythology, can be created by a sheer act of will. Naturally, they fancy that their latest new program will be like the hand of God decreeing that poverty must no longer exist, and thereby making it so. By contrast, the concept that there are limits imposed by reality must be nothing more than excuse-making by people who are probably in the pay of those evil billionaires.
What these people object to is that economics is a science. One of the basic rules of science is that “nature, to be commanded, must be obeyed.” Science is about finding the mechanisms and workings of reality, which tell you what you can do—and what you cannot do. It’s not here to conform to your fantasies. It’s not here to validate your pre-existing political program. It’s here to remind you that your goals and the means of achieving them have to conform to reality.
At the moment, a lot of the “smug liberal” types want to escape from this need to conform to reality. But like I said, it has all been tried before. One of the reasons for the late 20th century vogue for free-market economics, and particularly its influence during the Reagan years, was precisely because an older generation of smug liberals got mugged by reality when their confident predictions didn’t pan out.
Ah, but these lessons tend to wear off, and it looks like a whole new generation of blinkered “liberals” is going to have to get mugged again—and us along with them.