Poverty Is Back!

It was 1988, Ronald Reagan's final state of the Union. The previous eight years had been good to the Gipper. The word “liberal” had been rendered radioactive, many items on the conservative wish list had been checked off, and Reagan himself had stomped two successive Democratic challengers. So you might think he would have been content to ride quietly into the sunset, a conservative legend retiring athwart a horse named History. But that night, Reagan stuck a final knife in the battered, bloodied carcass of liberalism. As was his wont, he did it with a grin: “My friends,” he said. “Some years ago, the federal government declared war on poverty, and poverty won. [Laughter.] Today, the federal government has 59 major welfare programs and spends more than $100 billion a year on them. What has all this money done?”

The jab was classic Reagan. Even now, the chuckles echo, preserved in the transcript as stage direction for future conservatives. But, in classically Reaganesque fashion, the line lacked a sort of historical, well, accuracy. The money had done much. The Great Society had not failed, its programs were not bureaucratic black holes whirling destructively through the inner city. While poverty had indeed weathered Lyndon Johnson's assault, it stumbled forth a withered shell of its former self. Where in 1959 it could claim a robust membership of 22.4 percent of Americans, by 1973 it was at an emaciated 11.1 percent. In 2004, it rested at 12.7 percent.

And there's good reason for that success. Since Lyndon Johnson, only the two Presidents Bush failed to substantively address poverty. Richard Nixon created Supplemental Security Income and considered guaranteeing a minimum yearly wage, Gerald Ford resurrected the Earned Income Tax Credit (EITC), Jimmy Carter passed the Comprehensive Employment and Training Administration Act, and even Ronald Reagan vastly expanded the EITC. To paraphrase Bush's favorite philosopher, the poor we have always had with us, even during Republican administrations.

But for conservatives, halting attempts to eradicate poverty slowly gave way to more successful efforts to vilify it. Conservative leaders kept a dark (literally and figuratively) picture of the underclass visible to the nation's white middle class. The faces of poverty became more sinister: the Willie Hortons and the Linda Taylors (Linda Taylor was Reagan's ubiquitous welfare queen whose ill-gotten payouts totaled no more than $8,000). These visages transformed a discussion over alleviating economic despair into a subtly racist wedge issue that resonated with white males. And so it was easier, after that, to suggest that, irrespective of the facts, the Great Society was a disaster, poverty the intractable affliction of an unsocialized underclass. Egghead liberals with more good intentions than common sense had surrendered to instinct and offered cash prizes to every unwed black mother able to bear a child, creating a culture of government dependency that fostered criminality, broken families, and joblessness.

Conservatives, deciding government involvement had created the problem, concluded that government withdrawal would solve it. But Clinton's ascension and Democratic sympathy for the poor wrecked that plan, and the two sides eventually compromised on a sort of political detente they termed welfare reform. Welfare reform, while about poor people, was never about poverty, it was about politics. It made the impoverished a little less galling to the better off, ensuring that the government's incentive structure didn't reward the out-of-work and thus offend the gainfully employed. Meanwhile, crime was plummeting and the streets, thanks to Bill Clinton's 1994 Crime Bill, were flooded with new police officers. Come the late 1990s, the poor were neither dangerous nor ideologically maddening. A handful of urban politicians continued pleading for inner-city aid, but with electoral power shifting away from metropolitan centers, few listened. After 9-11, no one did. Poor blacks were no longer the threat; poor browns had taken their place. And so America's impoverished became something new: forgotten.

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And then the waters came. Katrina's images washed away the country's comfortable “see-no, hear-no, speak-no evil” approach to poverty. The middle class rediscovered the underclass, and that meant the political class had to address the excavation. George W. Bush even located his inner Lyndon Johnson for the occasion. Seventeen days after Katrina slammed into Louisiana, Bush said: “As all of us saw on television, there is also some deep, persistent poverty in this region as well. And that poverty has roots in a history of racial discrimination, which cut off generations from the opportunity of America. We have a duty to confront this poverty with bold action. So let us restore all that we have cherished from yesterday, and let us rise above the legacy of inequality.”

It might have been a moment for progressives to step forth. After all, Katrina offered an instant of true moral outrage at economic inequality, and no one thought Bush was serious about tackling racism or poverty himself. The trouble was, progressives were not ready to respond. The important question is why.

The obvious, and easiest, answer is that they lacked the power. But while electoral defeats help explain why Democrats couldn't implement a comprehensive antipoverty strategy, they don't account for why they couldn't propose one. It's not just that Democrats couldn't bring policies onto the Senate floor. In this case, the backstage was empty too. The Democratic National Committee's issues page never mentions the word “poverty.” Nor does Harry Reid's, Nancy Pelosi's, the House Democratic Caucus, nor the Senate Democratic Caucus. Not a single one identifies poverty as an issue the Democratic Party cares to solve. That's largely because, politically, poverty hasn't proven a winning issue for Democrats over the past couple of decades. Reagan and Gingrich brandished it as a weapon and Clinton's welfare reform almost tore the Democratic Party apart. So it's little wonder that when the moment came to address it, the party was caught unprepared.

Nonetheless, the policy weapons available to combat poverty have multiplied. They've become smarter, subtler, and electorally safer. Think tanks and academic journals hum with innovative, politically savvy approaches to poverty that reward work and thrift, encourage education and ownership, and protect against fate's nastier whims. These proposals have adeptly structured their incentives to fulfill the unfinished promise of welfare reform: Do right and you'll do well. Where the 1996 bill succeeded primarily in cleansing the welfare rolls, these approaches make manifest the welfare reform consensus that work should serve as the path out of poverty. So far there has not been the political will forcing these solutions into the public debate. But that can change.

So where to begin? First, by understanding that, contrary to popular belief, there's no straight line connecting the economic sins of the father to the impoverishment of the son. Seventy percent of those in poverty ascend out of it within three years, while only 12 percent remain for more than a decade. Unfortunately, it is also recurrent, with about half of those who escape dipping back beneath the poverty line within four years. Indeed, poverty is a primarily transitory condition anchored by a perpetually poor minority.

All of which is to say that there are different types of poverty, many causes, and countless avenues of approach. But a few overarching problems stick out: Almost half of all bankruptcies have a major, if not sole, medical component, and even quick spells of being uninsured at unlucky times can lead to bills stretching far beyond $10,000 and create massive debt. Debt becomes a second major problem for the poor, who, lacking fallback savings, are particularly vulnerable to predatory lenders. Third, at base, the ebbs and flows of poverty tell a story of proportionally unequal income growth. The minimum wage is at a 56-year low compared to the average hourly wage, a depreciation that is also diminishing the worth of the earned income tax credit, and thus battering the total take-home pay of low-income workers.

But these problems, while tricky, are not intractable. What follows is a rough synthesis of progressive policy solutions to poverty, though not the only ones possible. Housing, unions, education all deserve more attention. In addition, there are endless permutations, variations, and alternatives to the proposals laid out here, but these offer, if nothing else, a starting point and model for that discussion.

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Assets are economic air bags. When a financial crunch comes, they inflate, softening the blow. Periods of unemployment can be endured while the wage earner searches for high-quality positions, lessening the chance he'll accept a lower-paying or less secure job. And assets work to lift families out of poverty as well. They're what send a child to private school or college, purchase a car so a parent can take a better job farther away, or provide the down payment on a home. Without them, these affirmative steps often can't happen and, if they do, they carry the threat and even promise of crushing, lasting debt.

Assets also offer the starkest illustration of the country's economic inequities. When the measure is a family's yearly pay, whites take home $55,768, blacks net $34,369, and Hispanics make $34,262. Roughly divided, blacks and Hispanics make 61 percent of what whites make. Wealth, however, is another story: White households have an average $88,651 in assets. Hispanics have $7,932 and blacks $5,988. A quick trip back to the calculator shows that Hispanics have nine percent as much wealth as whites, while blacks command a bit less than seven percent.

The most politically attractive form of asset building focuses on the most sympathetic of entitlement targets: children. In 2005, the UK passed Child Trust Funds (CTFs) into law. CTFs are tax-free bank accounts given to all children and seeded with 250 pounds (a bit less than $450), more if the family is poorer, and yet more when the child turns seven. Families can then put up to 1,200 pounds a year into the tax-protected account, which can only be accessed by the child and only when he or she turns 18.

In the United States, the America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act is a similar piece of legislation with a fair amount of support. But some progressives want to take it even further. One way would be Children's Retirement Accounts. Every year until age six, the government would deposit $1,000 dollars into a tax-free account. At 18, the money could be borrowed at advantageous rates for certain pre-approved purposes (down payment on a home, college tuition, etc.); otherwise, it would continue to collect interest and form the start of retirement savings.

Similar proposals range from work bonds that would give low-income families participating in the workforce for five years $5,000 toward a first home, to Individual Homestead Accounts that would incentivize various life “goalposts” via deposits into a savings account. The best of these plans also allow for emergency borrowing at low rates for certain purposes (transportation breakdowns, etc.), thus allowing the poor to avoid the predatory lending market that “serves” them.

In design, at least, all the asset programs achieve an essentially similar outcome: the creation of wealth that can be used to forge ahead in life. Since their uses are mostly restricted to investment, they aren't very good airbags, but they're powerful accelerators. That's fine, because the next step is for progressives to protect all Americans from health disasters, ensuring that the most effective sort of airbags come standard with birth.

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You know the statistics. Over 45 million Americans are uninsured. Another 16 million are in the nebulous “underinsured” category. Add into the mix the fact that poor health strongly correlates with low incomes, and the massive, economically destabilizing influence of America's patchwork, private health-care system crystallizes.

Right now, health costs are bankrupting big businesses, crushing small businesses, destabilizing the middle class, and generally wreaking economic havoc across society. These problems, again, are most likely to hit the poor who -- unlikely to work for employers with affordable and comprehensive health plans -- are hurled into the individual market, where insurance companies coldly recoup discounts offered to larger, richer, healthier pools by fleecing those lacking the numbers to bargain. Many others are simply priced out of health care altogether, particularly those unlucky enough to suffer from a preexisting condition. Inevitably, medical emergencies strike, the poor are rushed in for care, and they stagger out in debt.

On one level, the poor have Medicaid. Kind of. Medicaid, originally created to cover those unable to work, relies on a complex and anachronistic system of “categorical” eligibility that relies on certain shifting combinations of being old, ill, pregnant, a parent, and poor. Worse, the system is a federal-state partnership, no two states have the same eligibility rules, and many attempt to further complicate and toughen their standards in order to dissuade new and costly enrollees. So not only are many low-income folks ineligible, among those who are eligible, many don't know how to or can't follow up to enroll.

One option would be to simply fix Medicaid, junking categorical eligibility, tying eligibility to certain percentages of the poverty line, and instituting a shifting scale that allows for low-cost buy-in as incomes rise. Lynn Etheredge and Judith Moore proposed just such a reform in 2003 in Health Affairs. But as each successive year of budget cuts shows, Medicaid is a deeply vulnerable program, particularly in periods of conservative control. That's partly structural: With no dedicated revenue stream and a state-federal funding scheme, the instinct is for both Congress and states to slash the program and blame the other. In addition, little is easier than displaying budgetary restraint by bravely cutting health subsidies for the poor.

The answer to this vulnerability, as we've known since FDR, is universalizing programs so the middle class has a stake in their survival. The sharply different political fortunes of Medicaid and Medicare show that clearly. Most developed nations have government-run systems that provide better care at lower cost, but after Clinton's 1994 health-care reform debacle, there's little appetite for a second run at any quasi-statist reconstruction. Nevertheless, there is a sort of consensus emerging in progressive circles that the Federal Employee Health Benefits Program (FEHBP) offers an attractive avenue for reform.

Widely admired (even on the right) for its efficiency and degree of choice, FEHBP is a collection of federally regulated private insurers who cover more than eight million federal employees. FEHBP could be opened to all Americans and businesses, with low-income individuals enjoying full or partial subsidization based on their relation to the poverty line. Health insurance, much like car insurance, would be made mandatory, and a variety of regulatory changes could refocus private insurers on quality and bringing technological and structural coherence to the system (likely modeled on the wildly successful Veterans Administration network). Widespread adoption of information technology could save more than $80 billion, while a large enough pool would allow cost restraints to control premiums.

This approach rationalizes and guarantees health coverage for the poor, while ensuring the program's strength and sustainability by investing the middle class, and even portions of the business class, in the progressive reform agenda. The Great Society may not have been a policy failure, but it eventually became a political albatross, partially (though not solely) due to the demographic specificity of its programs. There's no reason health coverage should be constructed with the same weakness.

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Making Work Pay (Enough)

Of course, not every policy can be universal in its payouts, but every policy can be universal in its moral appeal. The lesson of welfare reform was not that Americans were cheap, but that they were work-oriented. Welfare reform cost more than mere welfare did, but the addition of work requirements was judged worth the expense. Voters decided that those unwilling to work were undeserving of subsidization, but agreed that all who sought and kept employment should find economic dignity within reach.

But work, increasingly, does not pay, or at least not enough. Wage growth has slowed radically, lagging far behind the increases in productivity of the past few years. During late 2004, inflation accelerated past wages, meaning salaries lost ground compared to costs. But even that understates the ever-disintegrating position of low-wage workers. While wage growth across the economy has been slight, there's been growth nonetheless. For the bottom ten percent of wage earners, however, salaries actually fell by ten percent between 1979 and 1999, while the proportion earning wages below the poverty line jumped from 23.7 percent to 26.8 percent.

Good wages, of course, are the key to a stable economic lifestyle. Progressives talk a lot about housing policy, but as Bruce Katz, formerly Henry Cisnero's chief of staff at the Department of Housing and Urban Development, told me, “the housing problems in this country are principally about the gap between wages and prices. … We think of housing policy in very narrow, boxed terms. We need to redefine it to include income policy.” That goes, basically, for everything. Food stamps are great, but unnecessary on an adequate salary. Few progressives will utter an unkind word about heating subsidies, but those would be similarly redundant if the working class routinely made enough to cover electricity costs in the first place. So, despite the need for programs targeting specific material deprivations, the broader solution is better wage supports.

The first step, then, is a serious increase in the minimum wage. This is key, and not just for the stereotypical pimpled teenagers passing time before graduation: Only one in five minimum-wage workers is younger than 20 and the average minimum-wage worker uses that salary to provide a full 68 percent of his family's total income. Sure, The Wall Street Journal will cry buckets over such a blow to our delicate economy, but Clinton's 1996 minimum-wage boost from $4.25 to the current $5.15, which lifted pay for over 9.9 million workers, defied conservative warnings of widespread job decimation. Between 1996 and 2000, unemployment dropped from 5.6 percent to 4 percent. Of the current proposals drifting around Congress, the most likely advocates a three-year phase-in to a minimum wage of $7.50. According to the Economic Policy Institute, hiking the minimum wage to $7.25 would impact 7.7 million workers, 2.2 million fewer than Clinton did, making increased economic distortion highly unlikely.

But a one-time hike, while beneficial, will, due to inflation, rapidly decline in utility. For that reason, progressives should agitate for legislation making minimum wage increases automatic, though with provisions allowing congressional intervention during special economic circumstances. Common proposals here focus on inflation, which makes sense, but has proven politically difficult. More attractive may be tying the minimum wage to productivity, which has grown steadily (and, in recent years, rapidly) and seems a politically intuitive place to peg the wage -- if workers are producing more, why shouldn't they be making more?

Raising the minimum wage would also help the Earned Income Tax Credit. The EITC is a tax-based wage subsidy for low-income workers that kicks in at varying strengths depending on family composition and salary level. By subsidizing low-wage work (in some cases, significantly so), it encourages employment, and has emerged as the most successful antipoverty program in the country. Because of the way the EITC is calculated, the declining minimum wage has sparked a decline in the value of most families' EITC. Lifting the minimum wage would strengthen it. The EITC's only problems, really, are mind-bogglingly complex eligibility formulas that contain a marriage penalty. Simplify the eligibility system, eliminate the marriage penalty, and increase the funding to ensure a decent wage. Work shouldn't just pay, it should pay enough.

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Progressives backing these proposals should not fear they'll be stepping out of the political mainstream. Americans cherish the concept that all who work can succeed, which is why ballot initiatives to raise the minimum wage routinely return results in the high 70s and why the EITC was signed by Gerald Ford and expanded by Ronald Reagan. Similarly, on health care, nearly 80 percent agree that they'd accept higher taxes to ensure that all have easy access to a doctor. And asset programs are beginning to pick up wide and varied supporters, with everyone from Rick Santorum to Harold Ford jumping atop the ASPIRE bandwagon. Indeed, what's so alluring about these proposals is their political practicability. That Democrats haven't spent more time agitating for their comprehensive implementation is testament to how deeply welfare reform scarred the party.

Thankfully, some Democrats are taking up the conversation again, most notably John Edwards, who is constructing a political platform almost exclusively devoted to combating poverty and inequality. He's also engaged in the project -- slightly scary for Democrats -- of rearticulating the moral imperative of poverty eradication. When we spoke in early December, his policies were still in a formative stage but his passion for the impoverished Americans that Democrats have spent ten years avoiding was fully developed. “I've sat with these people and they don't think anyone is speaking for them. They don't even have a notion of what having a champion would be like. … we can galvanize this country around important issues like this.”

Poverty will not vanish on its own. Last time it faced down government, it was slashed in half. But the Vietnam War and the country's swing right simultaneously allowed it to escape and ensured that there'd be no quick pursuit. Forty years later, it's time for round two. And that means progressives had better start training.