Why we’re losing the war on poverty
Q&A | Mark Hendrickson on the United States’ perverse incentive system
by Warren Cole Smith
Posted 9/01/16, 11:06 am
Grove City College professor Mark Hendrickson advocates for limited government and free markets in his classes, books, and columns for Forbes.com. I had this conversation with him at Summit Ministries in Manitou Springs, Colo., where he spoke to students about economic issues.
A common theme in economic conversations today is that income inequality is inherently bad, and the government should do something to fix it. What’s wrong with that argument? It’s not bad. It’s natural. Many times in human history, the unequal distribution of wealth has been unnatural in that it’s been imposed by the political elite. Under feudalism and mercantilism, the privileged political powers-that-be rigged the system to enrich themselves at the expense of others. But we have a free market system, which means the only way you’re going to become wealthier is to deliver value to your fellow man.
Some people excel at that by virtue of natural gifts that they have: musicians, athletes, entertainers, inventors, entrepreneurs. As long as they’re becoming wealthy in return for adding wealth and value to the lives of others, as opposed to the immoral way, which is taking wealth by force or fraud from others, where’s the moral objection? If you’re doing good to your fellow man, where’s the gripe? No harm, no foul.
Do we really live in a free market right now? Some would say a privileged elite is tilting the playing field in its favor. What you’re referring to is what is commonly called cronyism. Cronyism is a new form of feudalism or mercantilism. The person who’s benefiting from cronyism has a business and gets a favor from the government. It’s not this entrepreneur going out and finding a way to create value for others. It’s this entrepreneur finding a way to milk the political system for benefits that are taken by force, by taxation from others, and put in his pocket. That’s frustrating to people. I think this is one area that both conservatives and liberals, people on the right and the left, can unite. Occupy Wall Street said, “Oh my goodness, that’s not fair. Why should big businesses get special bailouts and handouts?” In the Tea Party movement on the right, you have a lot of free-market, capitalist conservative folks saying, “That’s not fair. The rest of us go about earning our living, not extracting it from the political process.” Cronyism is a significant step on the road to socialism where all the decisions about who prospers are made by the government.
What is wrong with how the government tries to help the poor in the United States? The United States of America has spent approximately $22 trillion in today’s currency on the war on poverty since President Lyndon Johnson launched it in 1965. … As the line depicting spending keeps going higher and higher at a sharp angle, the poverty rate has leveled off since the inception of the war on poverty.
Regardless of your ideology, you can make the common sense point that it isn’t working. What a horrible return on an investment of $22 trillion dollars in total, $1 trillion last year alone. We’re up to the point where we’re spending almost a trillion dollars a year on poverty and it’s not making a dent in the long-term poverty rate.
You cited a chart by Gary Alexander, the former Pennsylvania secretary of public welfare, showing that a single mother is better off earning $29,000 and adding government benefits than earning $69,000 with no benefits.
It’s called “Julia’s Mother.” … A single mother earning a gross income in the workplace of $29,000 a year finds that her lifestyle is subsidized through rent, food stamps, healthcare, etc., to the point where when she gets raises beyond that, she starts losing those benefits at a faster rate than her income increases. Even at $69,000 a year, gross income in the workplace, her net after the taxes that are taken out at that level and the loss of the welfare benefits that have been taken away because she’s made more money, she still hasn’t quite caught up at $69,000 a year to the lifestyle she had at $29,000 a year. So the message there is, “Don’t escape. Don’t quit being a client.” …
Government bureaucrats, especially the federal bureaucrats, make a very handsome living compared to those in the private sector. The last thing they want to do is lose that lucrative job. It’s in their interest not to solve the poverty problem, so they’re constantly redefining poverty up. If somebody’s poor in America today, [they have] more living space than the average Briton, the average German, the average French person, the average Japanese person. … There’s the small number of people who are caught up in very serious problems and then they need some help, but most of the people who are poor today have a standard of living comparable to what I remember as a child in the 1950s in a middle class family. Part of this persistence of this many people, 46 million people, being in poverty last year is because of that. Part of it is again, these bureaucrats need to justify their jobs and so they set things up to keep people coming back for more.
In Washington, D.C., you measure your influence by the size of your budget and the number of people who report to you. If you’re in the poverty game, it makes no sense for your budget to be reduced and for the people working for you to go down. That’s a very uncomfortable truth, but it is a truth. Eighty-seven thousand dollars per family of four [living in poverty] was spent last year in America, taxpayer dollars, spent on poverty. Now if that $87,000 were deposited directly in that family’s bank account, there would be no poverty in America. The fact that there are people still living below the poverty level means that they’re not getting anywhere near that amount of money, even though Americans are paying that much for it.
This is what bugs me when I hear politicians say, “Well, people aren’t paying enough taxes. We’re not doing enough to care for the poor.” We’re getting taxed so much now that we’re spending $87,000 per year per family of four. Where does most of that money go? It goes to the bureaucrats administering the program. That’s where a lot of it goes. So I would say to your listeners directly, “Don’t feel guilty. We’re not being cheap about this.”
What we’ve done is we’ve bought into a program that just isn’t working and has these perverse incentives that are hamstringing poor people and causing middle class bureaucrats to fix things by not fixing things—fixing things for themselves, but not fixing things for others, which is not the way the free market works.
Listen to Warren Smith’s complete conversation with Mark Hendrickson on the July 22, 2016 episode of Listening In.