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Society legislation, the federal government has spent $16 trillion on 79 means-tested welfare programs run by 13 government agencies.1 And what has it achieved? Effectively little. The year “the War” was launched (1965), the US poverty rate was 17.3%.2 In 2010, still 15.1% of the population was living in poverty, and that negligible reduction is more a product of random fluctuations than it is policy. Poverty has never been below 11% since “the War” began.3 Figure 1 – US Poverty Rate, 1973-2010 (Source: US Census Bureau)
10 Povery Rate 5
0 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
Their inefficiencies haven’t stopped entitlement growth, though. An estimated 100 million Americans, or roughly one-third of the population, now receive some form of means-tested poverty assistance.4 There are more Americans receiving benefits from the Supplemental Nutrition Assistance Program (SNAP, formerly “food stamps”) than ever, with more than 21 million households receiving benefits in FY 2011.5 Spending on SNAP has more than tripled since 2000 – from $19.8 billion to $84.6 billion in 2011 (and spending on SNAP has doubled just
Carroll, Conn. “How Many Trillions Must We Waste on the War on Poverty?” Heritage Foundation, March 17, 2011, retrieved from: http://blog.heritage.org/2011/03/17/morning-bell-how-many-trillions-must-we-waste-onthe-war-on-poverty/ 2 US Census Bureau 3 Ibid. 4 Tucker, Rich. “Rise in Food Stamps Part of Growing Dependence on Washington,” Heritage Foundation, August 2, 2012, retrieved from: http://blog.heritage.org/2012/08/02/rise-in-food-stamps-part-of-growing-dependence-onwashington/ 5 Rector, Robert and Katherine Bradley. “Reforming the Food Stamp Program,” Heritage Foundation, July 25, 2012, retrieved from: http://www.heritage.org/research/reports/2012/07/reforming-the-food-stamp-program
from 2008 to 2011).6 In the average month in 2010, 20% of households received food stamps and more than half of those households had received benefits for more than 8.5 years.7 More disheartening is that the Personal Responsibility and Work Opportunity Act of 1996 (“Welfare Reform”), which demonstrated marked success in reducing poverty and cutting spending, has been all but annihilated. After the 1996 reforms, the child poverty rate fell from 20.8% in 1995 to 17.8% in 2004 (a difference of 1.6 million children), welfare roles decreased and employment among single mothers skyrocketed; the most drastic growth in employment occurred for single mothers age 18 to 24, growing by nearly 100%.8 Unfortunately, the current administration has undercut that progress by eliminating some of the key reforms via provisions in the 2009 Stimulus Bill and reverting to pre-1996 Welfare funding methods, whereby states are incentivized to grow their roles through increased federal funding for each newly enrolled family. With federal matching funds of 80% for each new family on welfare, the new funding mechanism is actually worse than the one replaced by the 1996 reforms, which granted more control to the states to design their own programs and place requirements on recipients.9 Furthermore, the President’s budget of $12.7 trillion in welfare spending over the next 10 years clearly indicates that the current administration is dedicated to the continuation of a well-intentioned policy that has borne little fruit despite tens of trillions of dollars spent over almost 50 years.10 The answer shouldn’t be to eliminate anti-poverty programs entirely; they serve a critical purpose for those of us who are most vulnerable. The answer should be to make Americans less reliant on such costly and ineffective programs. And throughout the history of civilization there has never been a public policy, social engineering program or entitlement strategy that came anywhere close to having the same power for raising people out of poverty as straight-up economic growth. Put simply, there is no equivalent mechanism for improving the quality of life for everyone. To demonstrate the power of robust and sustained economic growth, consider the last 57 centuries of human existence. For the first 55 of those centuries, during which the world population grew and wealth was transferred from one empire to the next, conditions barely improved for people. GDP per capita in the Roman Empire was roughly $600 and grew over the next 750 years by less than 0.1% per year.11 (They didn’t call them the Dark Ages for nothing.) Only in the last 200 years since the dawn of the Industrial Revolution and the dramatic rise in global productivity has the human condition improved considerably. From then until now, global GDP per capita has grown by roughly 1.4% per year.12 And the growth of the world’s most industrialized countries has helped raise the standard of living for everyone.
Ibid. Ibid. 8 Caroll, 2010. 9 Carroll, Conn. “Stimulus Bill Abolishes Welfare Reform,” Heritage Foundation, February 11, 2009, retrieved from: http://blog.heritage.org/2009/02/11/stimulus-bill-abolishes-welfare-reform/ 10 Rector and Bradley, 2012. 11 Wilson, Harry. “Seizing the Moral High Ground – It’s About Growth, Stupid,” Speech to CPPAC, January 29, 2012. 12 Wilson, 2012.
This is to say that growth is not a zero-sum game. Our country and world do not require poor people in order for others to be rich. On the contrary, growth allows all of us, simultaneously, to be more prosperous and live more comfortably. Take growth in average wages in all industrialized nations over the course of the 20th century as an example. American per capita income grew from $4,096 in 1900 to more than $27,000 in 1999 (measured in 1990 dollars).13 If growth in one country only came by way of retraction in others, we would see a corresponding decline across other industrialized nations. Except the opposite is true. Of the 24 countries that made up the highest quartile of economies based on 1990 per capita income, only one (the former USSR) had fallen from the highest quartile by the end of the century.14 Right-thinking people would agree that the USSR was a special 20th Century case, and the fact of the matter is that all countries are able to benefit from increased productivity and growth without undercutting any other. The sort of economic growth witnessed in the 20th Century is still possible today. Take Singapore – a particularly encouraging example. In 1960, it was a tiny fishing village with $400 in GDP per capita. Today it is one of the richest countries in the world with more than $40,000 in GDP per capita.15 That wasn’t accomplished through bureaucratic programs that funneled tax dollars to the poor, but through an established national agenda of growing the economic pie for everyone. And, just as developed nations were able to grow together, the growth of an underdeveloped nation to a full-fledged economic power hasn’t come at the expense of anyone else or to the detriment of the United States and other advanced economic nations. On the contrary, increased wealth in other countries means more consumers for our products and better products for us to consume and improve upon. The reason American cars are so much better today than they were in the early 80s is because consumers can by a Toyota Corolla. Without Toyota, Detroit would still be making the Ford Pinto. But how can America, an evolved and fully industrialized nation, achieve anything close to that kind of rapid expansion in the 21st Century? The answer is by committing ourselves to growing the economy, as opposed to failed domestic agendas and meager attempts at social engineering. And the ways to maximize our growth potential are twofold: 1) revive our waning manufacturing sector; and 2) improve our public education system. Let’s start with manufacturing. America currently lags behind every advanced nation except France. The American economy is now more than 75% service-based, as our manufacturing continues its decades-long decline. New York State alone has lost more than 270,000 manufacturing jobs in the last decade.16 Our slow growth is a testament to the fact that a servicebased economy simply cannot support growth in the same way that manufacturing can. Manufacturing jobs pay better with better benefits, and manufacturers provide the entire economy with a multiplier effect that the service sector cannot rival: Every $1 in sales from manufacturing uses $1.40 in inputs from the rest of the economy, while every $1 in sales from
“World Economic Outlook,” International Monetary Fund, May 2000, retrieved from: http://www.imf.org/external/pubs/ft/weo/2000/01/index.htm 14 Ibid. 15 Wilson, 2012 16 According to the Public Policy Institute of New York
the service industry only incorporates 71 cents in output from other sectors.17 There is no better foundation for an economy, especially a large economy, than the productive capacity of manufacturing. We can (and must!) stop America’s declining manufacturing sector in order to achieve sustainable growth, and we can help stop the bleeding and start the healing by doing three things: 1) We need to make it more affordable to open and operate manufacturing plants in this country (the cost of opening a new large-scale factory is currently more than $1 billion more costly in the US and that price tag is driven by over-regulation and taxes, not labor costs).18 This should include lowering the corporate tax rate to 25% so that American companies have a chance to compete, both in the sale of final products and plant relocations. 2) We need to invest heavily in start-up companies (where job creation really occurs) and make venture capital easier to obtain. Startups may only comprise 3% of employment, but they are responsible for 20% of job growth, and access to venture capital is a key driver of their success. 3) We need to emphasize advanced manufacturing. While it will always be possible for third world workers to sew moccasins together more cheaply than in America, such countries do not have the workforce to build 747s. The industries of the future are America’s true competitive advantage. This brings us to the second major way America can ignite sustained and robust future growth: We need to invest in our workforce. That means drastically improving our public education system. Once hailed as one of the strongest in the world, it has fallen behind our global competitors. According to the International Program for Student Assessment of 2010, the US ranks 31st in the world in math, 23rd in science, and 17th in reading. This decline has a direct and profound impact on our economy – present and future – and each year we fail to improve our academic performance we make it harder for our future workforce to compete. A recent study by McKinsey and Company highlighted how important a strong education system is to growth. If the US had closed the achievement gap with better-performing nations in 2008, GDP would have been $1.3 trillion to $2.3 trillion higher. Closing the performance gap among states would have resulted in national GDP being another 5% higher. Close it among rich and poor and GDP goes up another 3% to 5%. Close it among races, and GDP goes up another 2% to 4%. There isn’t a single entitlement program that would push GDP as much as closing education gaps. We also need to focus our education system on the needs of today. This means pushing our students to achieve in the vital subject areas of science, technology, engineering and math (STEM) where demand far exceeds supply. Lockheed Martin plans to hire 142,000 engineers over the next decade, and American universities only produce 60,000 new engineers total every
According to the Manufacturing Institute. Former Intel CEO Craig Barrett’s testimony to Congress, June 6 , 2006.
year.19 High unemployment has as much to do with sluggish economic growth as it does the skills mismatch between open positions and an underprepared workforce. By investing in students (especially those from low-income backgrounds) that want to pursue STEM degrees and incentivizing advanced study in those areas, we can pave the way for future economic growth. The last 45 years have shown that fostering reliance on the government through means-tested entitlement programs does little to help Americans who are languishing in poverty. If these last four-plus decades have been a “War on Poverty,” it has been a costly war with questionable benefits (more Iraq than WWII). It is time for a new strategy and a new enemy. Because poverty’s greatest ally is a stagnant economy, and the only time-tested way to help the poor move towards prosperity is dynamic growth. By focusing our efforts on strengthening our manufacturing sector and rebuilding our public education system, we can achieve the growth in productivity that once made our economy unrivaled and with enough power to eliminate poverty in this country and beyond.
Liveris, Andrew. Make It in America: The Case for Re-Inventing the Economy, 2011, p. 113.
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