Redistribution Works

A blog about business and economics.
Sept. 15 2012 11:21 AM

How To Win The War On Poverty: Recognize That Redistribution Works

I came back from the Brookings Papers on Economic Activity conference with a column on some new poverty research from Bruce Meyer and James Sullivan. The basic point is that while the poverty rate has barely declined over the past 45 years according to official measures, that's because the official measure—which looks at pre-tax pre-transfer income—by definition rules out the beneficial impact of most public policy solutions. If you look at income after taxes and transfers you see that the shape of American public policy has become much friendlier to the poor during this period. If you look at consumption measures—which can help capture the value of the in-kind provision of services—there's even more improvement.

Read the column (or even the paper itself in all its wonky glory) if you want more details on poverty. I wanted to use the blog to make a broader ideological point.

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One of my big complaints with contemporary progressive politics in the United States is an unfortunate tendency to try to use public services as a roundabout mechanism of income redistribution. Hence the fiasco of Amtrak's money-losing food services line. My view is that the government should try to provide public service in a cost-effective way rather than viewing public service agencies as a jobs program. Then if you want to do redistribution—which I certainly think we should want to do—just do the redistribution. Give people money working toward a guaranteed basic income. Or give people wage subsidies. Or do a mix of the two. There's a common viewpoint out there which holds that even if this makes sense in theory it's just clearly impossible in practice. The politics, I'm told, will never work. So it's important to understand in this regard that the politics do work. Income taxes on the poor were cut, then through the EITC and Making Work Pay Tax Credit made effectively negative for some low-income families. Social Security's disability benefits have come to play an important role. Medicaid is much more generous in 2012 than it was in 1982. And you only have to go back in time to 2010 to find Congress enacting, through the Affordable Care Act, what amounts to a large transfer program for people in the bottom third of the income distribution specifically targeting their health insurance needs. We could (and should) do more along these lines. I'm a fan of the suggestions in Lane Kenworthy's Progress for the Poor which shows that many other countries have done a good deal more than we have to advance this cause.

But the point is that even in America, with our ethnic diversity and veto-laden political system and hefty commitment to military spending and all the rest it's been quite possible over the decades to bolster low-income living standards through the sensible strategy of giving people money.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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