August 21, 2017
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The Real Story About Family Poverty

by Matt Bruenig (Center for American Progress) 

Brookings just released a report called, "Campaign 2016: Eight Big Issues the Presidential Candidates Should Address." In it, they include a chapter on poverty that is a total conceptual disaster. The basic problem with the chapter is that, like most other Brookings' poverty products, its analysis proceeds by relying on a problematic statistic that has been debunked many times now.

According to Isabell Sawhill and Ron Haskins, the key to poverty alleviation is the so-called Success Sequence. The exact rules of this sequence have curiously changed over time in subtle ways, but, as currently constructed, you follow the success sequence by graduating from high school, delaying child-having until age 21, getting married before having a child, and living in a family with a full-time worker.

This statistic has already been so thoroughly disproved (me, Cohen, Fremstad) that I won't waste time rehashing its problems here. It suffices to say that Brookings should not keep using its considerable brand to push misleading work like this—work which is not really focused on attacking poverty head on, but instead focused on using poverty to push a totally unrelated traditional family norms agenda.

The Real Story About Family Poverty

The saddest part of the traditional-family people taking over poverty discourse in such dishonest ways is that it obscures the much simpler reality about family poverty. In reality, differences in family poverty levels are mainly about differences in the number of family members that are economically active, i.e. what percentage of the family members are working and bringing home some labor income.

One-person families that consist of a single economically inactive person have a market poverty rate of 79.7%. One-person families that have a single active person have a market poverty rate of 12.5%. If you are puzzled as to why the 0-Active bar is not necessarily 100%, remember that people can collect income without working, e.g. through capital income and private retirement pensions.

Two-person families where both members are economically inactive have a market poverty rate of 63.4%. Where one of the people is active, it's 17.2%. For the Double Income No Kids (DINK) families, it's 1.2%.

 

The same basic trend holds here as for one-person and two-person families. The more economically active people you have in your family, the lower your likelihood of market poverty is.

Notably, with five-person families where all the members are economically active, we have our first appearance of 0% market poverty. If Brookings were serious about finding the truest Success Sequence, the five-person, five-earner family would be it. In any event, with the five-person families, the basic point remains: family poverty is mainly predicted by the number of economically active people in the family.

If you wanted, you could add in extra variables for education and marriage and delay, and probably even find some marginal effects here and there, but the fundamental story of how market poverty works doesn't really require it. The story of poverty in rich countries is the story of economically inactive people, i.e. dependents. It is these people that make up the vast majority of the impoverished people in society. It is these people that largely "drag down" economically active people into poverty. And it is the presence of these people that primarily predict which families are going to be in poverty and which are not.

What To Do

A serious discussion about poverty reduction that isn't just a proxy for other ideological fighting starts by asking how our economic system should treat economically inactive people. That is where almost all the poverty comes from. Economically inactive people need income to live, but they have little or no means of securing any income from the market. This necessarily means that their income must come from some non-market mechanism.

To me, the "problem" of economically inactive people can be solved easily and cleanly by ensuring that basically every economically inactive person receives some kind of welfare income. This sort of universal welfare scheme would help to keep the risk of poverty for economically inactive people quite low, regardless of how they organize themselves into households with others.

Here is what that would look like for the groups that make up nearly all of the economically inactive people in our society:

  1. Children - Child allowance (monthly flat rate benefit paid to parents).
  2. Elderly - Old-age pension.
  3. Disabled - Disability benefits.
  4. Student - Living grants and public loans.
  5. Caretakers - Caretaker allowances.
  6. Unemployed - Unemployment benefits.

Welfare benefits of this sort would ensure that almost all economically inactive people received transfer incomes. If made generous enough, the welfare would also dramatically reduce poverty rates. With every economically active person receiving labor income and every inactive person receiving transfer income, almost any family grouping would have enough combined income to stay out of poverty. For instance, a five-person family with 1 active worker, 2 kids, and 2 disabled relatives would receive one labor income, two child allowances, and two packets of disability benefits each month. That would put them on far firmer economic footing than trying to stretch one paycheck across all five people.

To be sure, we need to do more on this front than just put in place these generous transfer incomes. We must become more serious about full employment, not just because more economically active people means less people impoverished at the market distribution, but also because more economically active people means more national income that can be taxed and used to fund the generous universal welfare scheme.

Although I think this is the best strategy (and, in fact, the only proven strategy) for getting rock-bottom Nordic levels of poverty, I fully admit that there are other conceptual strategies.

Whatever you come up with, though, the point is that we need to be addressing poverty head on. And that means addressing the basic question of how our economic institutions should funnel more income to the economically inactive. There may be a number of viable strategies for achieving that goal, but playing around with misleading data-cutting in service of some separate traditional family norm agenda (like Brookings does and has done for decades) is not one of them.