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06/01/2006 Welfare Does Not Breed Poverty -- But Wal-Mart Does



Thursday, June 01, 2006

Growing-Economy

Welfare Doesn't Breed Poverty

One of the stated defenses of cutbacks in aid to poor families in the last decade in the US was the idea that welfare spending traps families in poverty from generation to generation. But new studies, as detailed in this week's Economist magazine (subscription) show that countries with MORE spending on the poor have LESS persistent poverty than in the US.

Contrary to many Americans' self-image, there is less social mobility from generation to generation in the United States than in supposedly class-bound Europe-- and the European states like Sweden and Norway with the highest welfare spending also had the most people born in poverty becoming middle class when they grew up:

Around three-quarters of sons born into the poorest fifth of the population in Nordic countries in the late 1950s had moved out of that category by the time they were in their early 40s. In contrast, only just over half of American men born at the bottom later moved up...

The obvious explanation for greater mobility in the Nordic countries is their tax and welfare systems, which (especially when compared with America's) deliberately try to help the children of the poor to do better than their parents...social mobility is a product of high public spending.

The other advantage for the poor in Nordic countries seems to be a better education system that provides a more equal education for the poor compared to the United States.

US Policy Went the Wrong Way: What these studies indicate is that US welfare policy went in exactly the wrong direction in the last decade. For decades, we had much lower spending on the poor and the results were less economic opportunity than in European countries. And instead of improving the system, the US merely cut off aid to many families, leaving them even more trapped in poverty, as groups like the Center for Budget Policy Priorities have highighted:

  • [M]ost studies have found that between 50 to 75 percent of welfare leavers remain poor two to three years after leaving welfare.
  • 42 percent of welfare leavers remain poor five years after leaving welfare compared to a 55 percent poverty rate in the first year after leaving welfare.
  • A recent study of Michigan women who received TANF in 1997 found that by the fall of 2001, only one-quarter were working in “good jobs.”? [jobs paying at least $7.50 per hour with health insurance or $8.50 per hour without]
  • A HHS-funded study of welfare reform in Wisconsin ”” a state often cited as having a particularly innovative welfare reform program ”” found that the net income of welfare leavers in the year after they exited welfare is lower than their income prior to leaving.

Many US political leaders engage in happy talk that welfare reform was a success, but the documented reality is that both over the last few years and over the last few decades, the low level of US spending to help the poor has meant less opportunity for the children of the poor to attain the dream of a better life than the poor in Europe, where more welfare spending and fairer education systems gave them a chance to join the middle class.

A lot of rightwing propanda promoted the idea that somehow spending less to help poor people would make their lives better, but it all just ended up as a lie used to justify tax cuts for the wealthy and cuts in social programs.

As more and more evidence rolls in of the failure of "welfare reform", it's about time that we return to a commitment to spend the money to give every child the opportunity to reach the American Dream when they grow up.

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Growing-Economy

Wal-Mart Increases Poverty

Paying terrible wages was never likely to be a route to economic growth, so it's hardly surprising that research continues to show that Wal-Mart's growth undermines local economies. The most recent study is in the June 2006 issue of Social Science Quarterly (subscription).

The core finding of the study is that, even after controlling for a host of other factors, poverty increased more in communities that added Wal-Marts than those that did not. During the last decade, dependence on the food stamp program nationwide increased by 8 percent, while in counties with Wal-Mart stores the increase was almost twice as large at 15.3 percent.

Part of the problem is that Wal-Mart doesn't just pay bad wages; according to the study, "by displacing the local class of entrepreneurs, the Wal-Mart chain also destroys local leadership capacity." The closing of those local stores often leads to the elimination of local wholesalers, transporters, logistics providers, accountants, lawyers and other higher-paid jobs as well.

Obviously, if Wal-Mart was replacing local jobs with better-paid alternatives, this displacement of local job markets wouldn't lead to increased poverty. But Wal-Mart's low wage model means that communities are in many cases trading their economic future for a discount goods that many residents can't even afford as poverty increases.

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Strengthening-Communities

Drilling for Oil in New York City

Instead of looking in Alaska for a massive source of energy, look at New York City.

It doesn't look to most people like an oil geyser, but every day New York City residents consume just one-third of the gasoline used by other Americans and one-half of the residential energy use of a typical American. They drive fewer cars because of a well-developed mass transit system and their multi-unit buildings use less energy per household.

That adds up to the equivalent of between 221,000,000 to 296,000,000 barrels of oil saved per year by New York residents -- just a bit less than the 320,000,000 barrels per year that would be produced by the ANWR field in Alaska at its peak production. Just by its urban design, New York City is one of the most important energy sources in the country.

Which emphasizes why the design and development of our urban areas is far more significant for the goal of achieving energy independence in our country than the oil subsidies that typically dominate discussion in Washington, D.C. While New York City's outstanding energy efficiency is a product of its unique history, every urban and suburban area could be producing energy savings with better transit and more energy-efficient buildings, leading to BILLIONS of barrels of oil saved across the country.

And existing high-density urban areas like New York City should be treated like the natural resource that they are-- and encouraged to keep producing more energy savings for the nation.   Projections are that New York City is likely to add a million people in the next decade or so-- a million people who would collectively cut projected energy use by tens of millions of barrels per year.   The more federal and state governments do to support the mass transit and housing needed to absorb that growth, the better for the environment of the whole nation.

So instead of drilling for oil in pristine land, we can leave those areas preserved while finding oil right where we already live in great numbers.

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Increasing-Democracy

CA: National Popular Vote Advances

In states across the country, a simple idea is building momentum. Rather than amending the Constitution to guarantee that the winner of the national popular vote wins the Presidency, why not simply amend state law?

The gist is this: states enter into an agreement. If states with enough electors to elect a President on their own pass similar measures, all the measures go into effect and the bound states award all of their electors to the winner of the popular vote nationally.

The good news is this: California's assembly just embraced the measure by a vote of 42-25. The measure has had similar success in the Colorado senate and a Louisiana committee. Even better -- the measure is meeting with bipartisan support, including from legislators whose own parties may stand to lose their own states' electors if the measure passes.

The fact that this legislation is moving in so many states only reinforces the need for an increased progressive focus on the state level. The states have a huge ability to significantly impact issues of national concern. And state lawmakers, from both parties, are less a part of the culture of corruption than too many federal officials.

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Research-Roundup

Good News on Dropout Rates, Bad News on Offshoring, and the Value of Early Education

Some good news: the scare numbers on low graduation rates in our high schools are overstated, according to a new study by the Economic Policy Institute.  A much hyped factoid that half of African American and Hispanic students don't graduate from high school is based on bad data.  In fact, the last four decades have seen tremendous progress in increasing high school completion, the best estimates being that 82% of students graduate with a regular diploma with black and Hispanic students showing a 74% graduation rate.   And about half of the students who don't get a regular degree eventually receive a GED, which allows entry into college, the military or other options requiring high school.

Less encouraging is another EPI study on the offshoring of jobs to other countries.  The threat of offshoring is increasingly used to force US workers to accept lower pay and public policy, including the tax codes, tends to reward companies for such offshoring, rather than encouraging them to compensate workers losing jobs and retrain them for alternatives.

Why invest in early childhood education?  How about the $1 trillion EACH YEAR in additional economic growth by 2065, the estimate by the Center on Children and Families in a new policy brief.   In a knowledge economy, investing early in the American people seems to be one of the safest investments in the future we could make.

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In Today's Dispatch:

Strengthening-Communities

Drilling for Oil in New York City

Increasing-Democracy

CA: National Popular Vote Advances

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Eye on the Right

After thirty years of failed supply side policies, conservatives have acknowledged that reality doesn't mesh with their misguided economic theories. Now if only they could realize that up-and-down the board. Instead, the American Legislative Exchange Committee -- the corporate interest group that parades as a legislative association -- is now parroting claims to a gullible press that states will hurt their economic climate if they embrace higher minimum wages. And ABC's John Stossel is hawking a book that argues that higher minimum wages actually hurt workers. Both claims are false. Studies from the Fiscal Policy Institute and Oregon Center for Public Policy make it clear that the relatively small increases in the minimum wage being considered by states will not negatively impact their economies. And they will help workers.

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Matt Singer
Editor, Stateside Dispatch