"Doing the same thing over and over again and expecting different results" is the very definition of insanity, Albert Einstein said. As politicians and advocates demand federal action on income inequality, they need to remember that the unintended consequences of good intentions can make problems worse.
Fifty years ago this month, President Lyndon Baines Johnson declared an "unconditional war on poverty in America." While the War on Poverty was supposed to ensure "every man has a chance to advance his welfare to the limit of his capacities," to quote LBJ, it appears to have actually limited the capacity of many Americans to pursue a rewarding and independent life for themselves and their children.
Fast-forward 50 years: The U.S. has spent $20 trillion on well over 100 anti-poverty programs supplying cash, subsidies, and other benefits. The poverty rate, however, barely budged from 19 percent in 1964 to 15 percent today.
Meanwhile, the impact on the family and work habits among the poor has been catastrophic. The out-of-wedlock birth rate for African-Americans climbed from 24 percent in 1965 to 72 percent and rose from 3 percent to 29 percent among whites. The effect on workforce participation was equally disastrous. Despite requirements that they work, less than 42 percent of adult welfare recipients actually do so.
Having seen the human toll of misguided compassion, Sen. Daniel Patrick Moynihan, a Democrat, observed, "It cannot too often be stated that the issue of welfare is not what it costs those who provide it, but what it costs those who receive it."
Disappointing results haven't caused politicians to change their minds, only their vocabulary. Today's catchphrase is "income inequality." President Obama contends that growing income inequality and a lack of economic mobility is slowing the economic recovery and jeopardizing "middle-class America's basic bargain — that if you work hard, you have a chance to get ahead."
New York City Mayor Bill de Blasio vowed to take on income inequality "in a way that hasn't been a priority since Lyndon Johnson's war on poverty," according to fellow Democrat Scott Stringer, the city's new comptroller. All of this handwringing is pretext for more taxation, more government programs, and more regulations.
Politicians have one thing right: Since the 1970s, earnings nationwide have risen for all income groups. However, earnings for wealthy Americans increased more significantly. From the late 1970s to the mid-2000s, incomes among Colorado households in the top quartile grew 78 percent, while those in the middle increased 31 percent and those in lowest quartile, 4 percent, according to the Center on Budget and Policy Priorities.
Their contention that these differences in the rates of income growth negatively impact the economy, however, is disputable. Brookings Institution economist Scott Winship has concluded that the evidence does not support "claims that underlie the left's basic economic narrative … that reducing inequality would meaningfully address our lagging growth, enable greater mobility, avert future financial crises, or secure America's democratic institutions."
As for economic mobility, the American dream of one generation doing better than the next remains very much alive. Brookings researcher Julia B. Isaacs analyzed the incomes of Americans and their offspring who were children in the late 1960s to determine generational economic mobility. Sixty-seven percent of adults in the sample had family incomes greater than their parents. Children born of parents in the bottom quartile were more likely to surpass their parents' income than children in other quartiles. More than half of the children in the bottom quartile moved up the economic ladder; 6 percent of them made it all the way to the top quartile. Sometimes mobility takes more than a generation. It took three generations for my family to go from immigrants to college graduates. Isaacs' research also shows that being born into wealth does not guarantee a rich life: 61 percent of children in the top quartile were downwardly mobile.
Are unequal rates of growth and mobility a problem requiring another government redistribution scheme? Can taking what one person has earned and giving it to another make the recipient upwardly mobile? The legacy of the War on Poverty provides a clear answer: Welfare smothers industriousness and personal responsibility, the very keys to economic mobility.
Willingness to work is essential. Only 2.6 percent of full-time workers live below the poverty line. The average poor family with children works 800 hours a year, or about 16 hours a week. If parents increased their work hours to full time, a majority of poor children would leave poverty behind. Similarly, only 7 percent of married families with children live in poverty compared to more than a third of families headed by single parents. Marriage rates also impact generational mobility. Children raised by single parents are 50 percent more likely to be poor as adults.
This isn't to suggest that the government shouldn't provide a safety net for those who cannot work; it should. Care for the mentally ill, support for the profoundly disabled and elderly, foster care services, and education for children with disabilities are all such programs that government should support but are often inadequately funded. Government can also help income inequality by putting an end to subsidies, bailouts, and preferences for big business and agriculture — the crony capitalism that, in President Obama's words, "tilt[s] the playing field in their favor at everyone else's expense."
If, on this anniversary of the War on Poverty, the new conversation on income inequality results in real reform, it will have been a conversation worth having. If it results in more of the same government programs, it will be nothing short of insanity.
Reprinted from the 1/19/14 Denver Post