Breaking out of the poverty trap

January 26, 2021

Illustration by The New York Times; photographs via Getty Images

By Paul Krugman

Opinion Columnist

Today's column was about the Democratic proposal to give most families with children a substantial cash grant. It is, as I said, a very good idea. What I didn't have space to talk about was a broader issue: What should we do about Americans with low income — and their children? Should we make a new push to reduce or eliminate poverty, and if so, what should it involve?

As with everything else in modern America, the two parties have starkly different positions on this issue. I'm being careful not to say different philosophies or different analyses because, to be honest, I don't believe that the Republican position on this, or for that matter on any major policy issue I can think of, reflects a good-faith attempt to figure out what works best. But the expressed views of the parties do show a big divide about how the world works.

You can actually see those expressed views in two dueling reports released six years ago, 50 years after Lyndon Johnson initially declared his War on Poverty. One was produced by the Obama administration. The other was produced by House Republicans — essentially Paul Ryan, back when Ryan was still widely perceived as a policy visionary, and those of us who described him from the beginning as a flimflam man were marginalized (we were right).

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The Republican view is basically that anti-poverty programs aren't the solution, they're the problem. How so? When you have "means-tested" programs — programs that are only available to people with sufficiently low incomes, or that phase out as income rises — you are in effect imposing high marginal tax rates on the relatively poor. That is if, say, a single mother manages to increase her earnings from $15,000 to $20,000 a year, she will find much of that extra $5,000 taken away in the form of reduced benefits.

This high de facto taxation, conservatives say, discourages efforts to break out of poverty. And they also say that it fosters a culture of dependency. So they argue that to help the poor we should, well, offer them less help.

Progressives don't deny that incentives can matter. To use one of my favorite examples, countries that offer generous benefits to people who retire early, like France, end up with many people, you guessed it, retiring early.

But economists on the center left generally argue that the disincentives created by anti-poverty programs are exaggerated, and that the main thing actually trapping people in poverty is a lack of resources: It's hard to get an education, start a business, even move to a place where jobs are available, when you have no money in the bank and are living hand-to-mouth.

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Also, being poor imposes a lot of cognitive stress: It's hard to focus on self-improvement when you're constantly worrying about where the next rent check will come from or how to pay medical bills.

If you see resources as the main problem for the poor, the answer to poverty is to provide more resources; this doesn't just improve the lives of the poor in the short run, it also increases their chances of breaking free of the poverty cycle.

This is the kind of debate that should be settled with evidence. And for what it's worth, there is growing evidence that the resources view of poverty is much closer to the truth than the incentives view. As I explained in the column, this is especially true for programs that help families with children, which seem to improve the lives of those children long after they've matured past receiving aid.

Unfortunately, only one of our two major political parties believes in looking at evidence. Sorry if that sounds partisan, but it's the simple truth.

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But my sense is that the growing weight of evidence, combined, to be fair, with a general leftward shift in the Democratic Party, has set the stage for a new effort to fight poverty. Nobody will call it the War on Poverty 2, but it will be an important shift, and can do a lot of good.

Quick Hits

How high are those marginal tax rates, and how much do they matter?

Canada has had a "poverty reduction strategy" since 2015. Pre-pandemic, it seemed to be working.

Behind the Democratic child benefit proposal.

Minimum wages as an anti-poverty program.

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