08 Jan 2014

A Brief Note on the “War on Poverty”

Economics 122 Comments

In this country, if you want to spend trillions of dollars on an aspect of social life that you dislike, while not solving the problem, then the best thing to do is have the federal government declare a “war” on it. For example, lots of people are commemorating the 50th anniversary of LBJ’s “War on Poverty.” But even by the defenders’ own logic, the underlying problem has gotten worse.

To pick just one prominent example, the White House’s Council of Economic Advisers issued a report that contained the following chart:

Sure, we can quibble with the calculations, but let’s take the chart at face value. What it shows is that the percentage of people in poverty before we look at government measures (i.e. the green) has gone up since 1967, and that this can’t even be blamed on the recent recession (or depression to be more accurate); the number bounced around, but showed no trend toward improvement over the whole period of the “War on Poverty.”

The way the White House (and other defenders of the welfare state, such as Paul Krugman) are trying to spin the above stats, is to look at the black area of the chart, showing that after government taxes and transfer programs, the percentage of people falling below the “poverty line” has gone down. Thus, they declare, the United States government is waging a successful war on poverty.

Yet hang on a second: Surely to actually “win” the War on Poverty would mean that the government could stop spending money, because every household were self-sufficient. The criterion can’t be, “After you account for how much money we’re still throwing at it, the net result is better.”

Switch to an actual military context to see my point. Suppose after Pearl Harbor, the federal government declared war on Japan. Further suppose that 50 years later, U.S. and Japanese forces were still engaged in massive naval battles in the Pacific, and in fact the Japanese had more ships and aircraft than at the start, though they had been pushed back about a third of the distance toward Japan and away from Hawaii. Wouldn’t it be time to declare, “This is not at all working” and sue for peace?

122 Responses to “A Brief Note on the “War on Poverty””

  1. Daniel Kuehn says:

    The average of the green for the period looks pretty flat to me. Isn’t it? It’s higher in 2012, sure (the report says 1.7 percent higher), and that certainly is the recession (it always goes up with recessions). The variance of the series is a lot bigger than that increase from 1967 to 2012.

    Your readers will be sorely disappointed that you left out Figure 1. That tells a big story that I think contradicts some (not all) of Horwitz’s recent WSJ article.

    Look at Figure 1 and this figure you’ve shared and I think you can determine at least three first approximations about the war on poverty:

    1. There was a big improvement in pre-transfer poverty in the 1960s. It is hard to pull out how much of this is the booming economy and how much is the beginning of the war on poverty, because the latter happened right in the middle of theformer.

    2. The EITC made a further round of big post-transfer gains.

    3. The relative constancy of the green line, smoothing out the business cycle, suggests that the labor supply or other negative behavioral consequences of the welfare state are not huge.

    None of these three points have good counter-factual identification behind them, and I am a strong proponent of identifying your model well. So I won’t rest too much too heavily on them. But they’re a good starting point for talking about the war on poverty.

    • Daniel Kuehn says:

      My #3 could be expanded to the idea that no positive labor supply or other behavioral consequences are not that big either.

    • Matt Tanous says:

      “Your readers will be sorely disappointed that you left out Figure 1. That tells a big story that I think contradicts some (not all) of Horwitz’s recent WSJ article.”

      On the contrary, it is a known fact acknowledged by most free market libertarians. They simply hold that trend line was due to the booming economy, and once the boom turned to inflationary bust it, along with drastically increased anti-poverty spending (due to the bust at first), has led to the twin problems of welfare dependence and ever changing levels of “poverty” (the poverty line assumes that one is cooking expensive meals made by a “moderately skilled housewife”, not eating cheap sandwiches or casseroles), which have ceased the note of decline.

      “There was a big improvement in pre-transfer poverty in the 1960s. It is hard to pull out how much of this is the booming economy and how much is the beginning of the war on poverty, because the latter happened right in the middle of the former.”

      It’s easy to do this if you have a theory, instead of pretending you just “analyze the data” without one.

      “The relative constancy of the green line, smoothing out the business cycle, suggests that the labor supply or other negative behavioral consequences of the welfare state are not huge.”

      Unless, for just one counter-factual, that green line should have been declining as the black line has, and it hasn’t been because the welfare state has caused it to stagnate. A simple substitution effect, for instance – the black line is where we would be with or without transfers, and the green is where we remain because we have the results for the poor without the economic growth that would normally bring them there.

  2. Cosmo Kramer says:

    Why argue that point, although a very interesting POV. Why not just focus on the record amount spent with nothing to show for it?

    http://mhulshoff.files.wordpress.com/2012/11/184875_450465428324136_2054109883_n.jpg

    For statists to win empirically, they need to show spending with a decrease in poverty. They can’t sell the idea of exponentially higher expenditures and no decrease in poverty.

    Circling back to your point…….. there should be no poverty with this much money spent, if their narrative were true.

    • Daniel Kuehn says:

      If you care about the lives of people in poverty, you care about the black line too.

      • Cosmo Kramer says:

        So an exponential increase in spending only accounts for a slight decrease in the black line? Success?

        An exponential increase in welfare dependency.
        Success?

        Success would be a welfare expense that led to a person no longer needing it. Whereas you define success as continued dependency.

        It’s like saying prison rehabilitation works while observing the same individual returning to prison after release.

        I ask you how much lower you think your black line will go for the next exponential increase in welfare spending?

        Personal responsibility cures poverty. Absent of wasteful government spending and creating more people dependent on welfare, the free market would have lowered poverty far more than exists today.

        • Matt M (Dude Where's My Freedom) says:

          This is what they do, Kramer.

          Even if the black line went up, they’d simply make the Krugman-style argument of “Well you see, without huge welfare programs, it obviously WOULD have gone up even higher than it did!”

          • Cosmo Kramer says:

            That is a possible conclusion, but hard to sell with the incredible increase in productivity of the recent decades. This, poverty should be declining dramatically.

            Instead we have government subsidizing the choice not to work.

            When your kid gets an F, pay his teacher to change it to an A. Thn tell your son what you did. Guess what you get in response?

            That is welfare economics. The economics of moral hazard.

      • Dyspeptic says:

        “If you care about the lives of people in poverty, you care about the black line too.”

        This is just stereotypical compassion babble. If economics is a true science then it should be free from subjective emotionalizing about a group of people who are subjectively determined by some moving goal post to be “poor”.

        Hypothetically, why should we care about the poor any more than they care about us? Perhaps you could give a response which is not covertly religious in nature or completely based on your personal feelings.

        • Richie says:

          +1000

        • Daniel Kuehn says:

          – Well it’s compassion, sure. It’s kind of weird how angry that makes you.

          – And it’s normative, not positive, so… yes.

          – It’s not subjectively determined. Take a look at how it’s determined on the Census site.

          – I think we should care about everyone equally, but the question is what do we care about? We care about people in deprivation. We care about people in pain. Care about people equally, but guide it by these concerns. I care about rich people too – my care doesn’t motivate me to act in the same way for them, though.

          I don’t think it’s religious. I don’t really care if it’s based on my personal feelings. If you do, that’s your problem buddy – not mine.

          • Richie says:

            Some economist you are.

          • Matt Tanous says:

            “It’s not subjectively determined. Take a look at how it’s determined on the Census site.”

            Based on subjective determinations of the people in charge of the Census calculations. Yes, it is subjective.

    • Bob Roddis says:

      The statists have to show that the market failed. I’m interested in how they do that for the periods of slavery and Jim Crow where the was no free market in which black people could participate (with Keynesians being so superior to us Austrian peons in the skills of empiricism). Or how they do that for the period of the War on Drugs.

      • Daniel Kuehn says:

        Statists, huh? I’ll be on the look out and let you know if I see any.

        • Dyspeptic says:

          Have a look in the mirror then.

          • Daniel Kuehn says:

            I cut a rather striking figure, even though I’ve put on a few pounds this winter.

  3. Mike M says:

    Bob, Bob, Bob… I’m so disappointed. You just don’t understand. We didn’t spend …. strike that … invest ENOUGH money for the war on poverty. It we only spent more, we could have bent the green line down.

    sarc off

    • Daniel Kuehn says:

      If we invested less what do you think would happen to the black line? Does that matter or not?

      • Dan says:

        DK, surely you realize that we believe your policies prescriptions hurt poor people, and we believe that our policy prescriptions would help them, right? So, why ask if it matters or not?

        • Daniel Kuehn says:

          1. My policy prescriptions or LBJs?
          2. Because Mike M was focused on the green line.

          • Dan says:

            1. Both
            2. And you know full well that he believes that a different approach would reduce the total number of people living in poverty. It’s not like libertarians are saying that our views will reduce the green number, but there will be more total people living below the poverty line. Why act like you don’t know this?

            • Daniel Kuehn says:

              I do not know that full well. I think by far the most reasonable thing to assume is that more people will be living in after tax poverty and I imagine quite a number of people that hold is policy views agree.

              Surely they’re not all consequentialists.

              I think a reasonable libertarian position could hold that the green line will decline but that the black line will be higher – probably much higher. That’s not an absurd thing to think at all.

              • Dan says:

                Well, I guess I gave your understanding of what libertarians think our policies would do for society too much credit then.

                “I think a reasonable libertarian position could hold that the green line will decline but that the black line will be higher – probably much higher. That’s not an absurd thing to think at all.”

                I disagree. I think it is absurd to think that is a reasonable libertarian position. I’ve never met a libertarian who believed our ideas would increase the number – probably much higher – of people living in poverty.

              • Daniel Kuehn says:

                Whose interest is it to have a welfare state then?

                So let’s be clear. You and I both agree there are efficiency gains from eliminating the welfare state as well as positive gross labor supply effects (it is hard for me to say net given the EITC in here), right?

                You are telling me that the cash value of those gains to welfare recipients is so great that it actually outweighs the benefits they get? Even though most of the remedied distortions redound to the benefit of those who are NOT on or anywhere near earning welfare?

                Is THAT what you are saying because that is what I’m saying is a very hard position even for a thoughtful libertarian to hold.

              • Dan says:

                “Whose interest is it to have a welfare state then?”

                Nobody. I think the welfare state is terrible for everyone involved. I think we should end all welfare programs, eliminate the minimum wage, eliminate taxes, eliminate government regulations, and that this will result in a lower total number of people living in poverty.

            • Daniel Kuehn says:

              Think about that claim. People are getting free money. You take away that money and they are poorer relative to when they had that money.

              You are saying that the efficiency gains for the economy from taking away that money are so strong that it will make up for how much poorer they got from losing that free money.

              It’s an extremely heroic assumption. I would be shocked if man thoughtful people honestly believed it.

              I have no clue what sort of person Mike or most of the rest of you are (thoughtful, not thoughtful, etc.). I can’t keep track of all commenters here. I am genuinely curious if he is making a truly heroic assumption like that, or if he thinks the black line will rise and is diverting attention away from that (knowingly or unknowingly), and if that’s the case what his views are on the rising black line.

              • Daniel Kuehn says:

                *shocked if MANY thoughtful people honestly believed it

              • Dan says:

                Well, I’m shocked you think libertarians don’t believe our views will reduce the overall amount of people living in poverty.

              • Daniel Kuehn says:

                I’m going to do libertarians a favor and assume you’re not their spokesman.

              • Daniel Kuehn says:

                Is this like a long run thing? Surely you at least agree that within, say, a ten year time horizon the after tax poverty rate will go up from eliminating the welfare state?

              • Dan says:

                If we eliminate the welfare state, end the minimum wage, end government regulations, etc. I think we would see a drastic reduction in poverty within ten years.

              • Daniel Kuehn says:

                OK.

                I really need to know the answer to the dictator question now.

                I have to know that you at least there is some level of inefficient transfer scheme whereby the transferee loses out by losing the transfer.

              • Daniel Kuehn says:

                And ideally if you’d agree on that you’d admit my initial position was perfectly reasonable and probably descriptive of lots of libertarians.

            • Daniel Kuehn says:

              Another way to think of it is this – if there was a reasonable case, based in basic economics or reasoning, that the black line would actually rise why would anyone ever want a welfare state in the first place?

              Even if you take the crudest, most cynical rent-seeking view of it there has to at least be a rent to seek!!!

              • Daniel Kuehn says:

                *”would actually FALL”.

                OK I should stop this – too many typos

              • Dan says:

                This is bizarre. You actually thought that libertarians concede that views such as yours will be better at reducing the amount of poverty? So, you think libertarians believe our ideas will increase poverty but we accept that as a necessary evil?

                I mean I guess I can see how someone could think that. I wouldn’t support murder even if it turned out to have a net positive effect. But the truth is libertarians think we are right morally and pragmatically.

              • Daniel Kuehn says:

                I thought that they would at least think when someone hands cash to you, taking it away doesn’t make the recipient richer.

                Do you also think that corrupt dictators get richer after they stop stealing and brutalizing their population?

                Now I feel like I have to parametrize the crazy.

              • Daniel Kuehn says:

                There are efficiency losses associated with both interventions and transfers associated with both interventions. What differentiates the two?

                Or does the dictator get richer too?

                The dictator at least pays costs to maintain his regime – so he should have a BETTER chance of getting richer if anything.

              • Dan says:

                Come on, Daniel, you’re not even attempting to be fair to our views. We are saying that if you want to reduce poverty you need to remove all government involvement from people’s lives. And that doing the types of things you or LBJ advocate will make things worse, other things equal. Now, I understand that you disagree with our solutions, but you’re sadly mistaken if you think libertarians believe a society guided by our principles would have more poverty.

              • Daniel Kuehn says:

                “Come on, Daniel, you’re not even attempting to be fair to our views.”

                I resent that.

                And you did not answer my question.

                So I’ll ask it again:

                Do you think that that all transferees would benefit from the removal of inefficient transfers or is it reasonable to think that there is wide scope for transferees to be less well off from the removal of the transfer?

                Answer it or don’t tell me again that I’m not taking you seriously because it’s obvious that you’re not taking your own ideas serious enough to actually talk about this.

              • Ken B says:

                Divided into two stages.

                In stage one we replace the current welfare system with series of transfers to the current recipients. The amount of the transfer is equal to the cash value they place on the benefits they currently receive.
                We eliminate the infrastructure providing the benefits currently.
                I claim that recipients are no worse off, and that society is probably better off, The providers might not be.

                In stage 2 eliminate the transfers. This leads to net social gain by hypothesis. More wealth is available. But it is rather a tall order to expect that every recipient who is deprived of cash transfer achieves a level of benefit from this gain in efficiency sufficient to compensate completely for the lost transfer.

              • plaidma1 says:

                DK… I hate to presume, but it really seems like you are making an assumption.

                You state “Surely you at least agree that within, say, a ten year time horizon the after tax poverty rate will go up from eliminating the welfare state?”

                You seem to imply that in the absence of a welfare state, no resources would be allocated to people who fall below the poverty line.

                Very few people who dream of the elimination of the welfare state hold the opinion that no resources should be allocated to the poor.

                We just think that less resources could be allocated with much greater effect, AND, that it could all work voluntarily! I have faith in you, DK, and in me!

                I will only give my own example: if my taxes were eliminated, I would re-allocate both the dollars that were going to fund overseas wars as well as the dollars that were going to the welfare state, and I would instead donate them to Catholic charities that I know and trust to apply those dollars to the truly needy, as well as to those closest to me that are poor (my church’s list of those in trouble, my soup kitchen, etc).

                Distributism rules!

              • Daniel Kuehn says:

                plaidma1 – I don’t think I make that assumption anywhere but I do doubt it will turn the tide.

                It’s one thing that could turn the tide. I’m not trying to make universal claims, but in this case I find the view that post-transfer poverty would decrease highly unlikely. Clearly there are forces going in both directions though and it is something that could happen in theory.

              • Matt Tanous says:

                “Another way to think of it is this – if there was a reasonable case, based in basic economics or reasoning, that the black line would actually rise why would anyone ever want a welfare state in the first place?”

                BUY. VOTES.

      • Matt M (Dude Where's My Freedom) says:

        DK,

        You obviously don’t agree with it, but don’t play dumb. You know quite well what the argument is: That the money “we” “invested” was stolen from productive individuals and corporations who likely otherwise would have invested it privately into concerns that would increase our overall standard of living and “create jobs” (even though I hate that term).

        You cannot just look at the total amount of money distributed to the poor and simply declare that obviously the poor are now X dollars better off than they would have been without said distribution. It’s not nearly that simple.

        • Daniel Kuehn says:

          That’s fine – I’m concerned about tax distortions too. But that wasn’t the question. Do you have thoughts on my question.

          To quote you, don’t play dumb.

          re: “You cannot just look at the total amount of money distributed to the poor and simply declare that obviously the poor are now X dollars better off than they would have been without said distribution. It’s not nearly that simple.”

          It’s quite lucky for me that I never declared such a thing! In fact I spoke at length above about precisely these counterfactual issues.

          Thoughts on my question?

          • Matt M (Dude Where's My Freedom) says:

            Your question was, “If we invested less, what would happen to the black line, does that matter or not?”

            My honest answer is, “I don’t know exactly what would happen, but there is a reasonable argument to be made that “investing less” wouldn’t dramatically affect the black line either way, or would actually cause it to decrease even further, and that you very well know exactly what that argument is.”

            Why bother asking questions you already know the answer to? You know that a lot of austrians and libertarians believe that welfare programs, on net, do more harm than good for the poor. You know the reasoning and the arguments behind this position. So either address them or don’t, but don’t just sit here playing coy trying to trap people into a corner of saying “Who cares about the poor?”

            • Dan says:

              I thought this same exact thing, yesterday, but apparently we were giving him too much credit. He thinks Murphy is mistaken when he says, “This is a no brainer. There aren’t actual libertarians walking around who think, “In practice my ideas would make a bunch of people poorer, but gosh darn it sometimes you bite the bullet and respect property rights come what may.”

              DK believes there are libertarians who think our ideas will make people poorer.

              • Daniel Kuehn says:

                re: “DK believes there are libertarians who think our ideas will make people poorer.”

                Again, not “libertarian ideas” – eliminating the welfare state specifically. Stop moving the goal posts. And we are talking about a specific class of people losing transfers, not society as a whole.

                Even I’m willing to admit that the efficiency losses of welfare are likely to make society as a whole poorer. I’m not 100% sure (welfare is going to improve the human capital, sometimes labor supply, and productivity of recipients after all), but I would entertain the idea.

                But we’re not talking about whether “people” are poorer or not. We’re talking about welfare recipients.

                So for a second time in this one sentence, stop moving the goal posts.

              • Dan says:

                I’ve stated multiple times that I believe eliminating just the welfare state would reduce the overall number of poverty. I don’t think you can find a libertarian arguing against the welfare state that says, “while I believe eliminating the welfare state will hurt poor people, it will make society as a whole better off.”

                No libertarians make that argument and if you think they do then find me some show me who they are and where they’ve written stuff like that.

                That said, Bob Murphy was writing in the context of libertarian ideas, which is why he said libertarian ideas!

                Then Ken B. said,

                “Flap-doodle. Of course there are. That’s essentially the position of anyone who argues from notions like homesteading. There certainy are libertarians who see proper rights instrumentally as the best way to make people better off, but there are also those who see property rights as apodictic.”

                To which you said you agreed strongly!

                Now maybe you misread both Bob and Ken, and thought they were only talking about the welfare state, but you were wrong if that was your assumption. So don’t get upset with me when you misread people and mistakenly say you “agree strongly” with them because of that misreading.

      • Dyspeptic says:

        “We” haven’t “invested” anything in the failed and tyrannical War on Poverty. What has really happened is that a bunch of lying, thieving collectivist utopians have violated our natural and constitutional rights, stolen our property and pissed it down the rat hole of the metastasizing welfare/warfare state.

        Try taking off your clerical collar and acting like a real scientist, instead of a bleeding heart egalitarian with delusions of moral superiority. No matter how smart or well educated or well intentioned you are you can’t save the world from itself or eradicate human nature with redistributive policies. You can however make the world much less free and prosperous with nothing more than good intentions and bad policies.

  4. Andrew_FL says:

    Looks like the green would (roughly!) track unemployment.

    It’s worth noting that an increased divorce rate plays an important role in these statistics, and if it hadn’t happened the numbers would be better. Of course, you could arguably lay that at the feet of the fighters of poverty, as well. And in any case, it did and they aren’t.

  5. Dan says:

    DK, I have no interest in getting bogged down in the minutiae of my economic beliefs. MF has more patience than me for that kind of stuff. I’m making a simple point and you can take it or leave it. My belief is that if we lived in a libertarian society that we would have less poverty overall. I believe that the types of solutions for poverty presented by people with your kind of ideas will not only not solve the problem, they will make the problem worse than it otherwise would’ve been. I also believe that you will struggle to find a libertarian who would disagree with me in this regard.

    • Daniel Kuehn says:

      OK but this post was never about living in a libertarian society – it was about keeping or eliminating the welfare state. Even you said above “doing the types of things you or LBJ advocate will make things worse, other things equal”. We were never talking about the whole libertarian package. There was no pretense in OP that that was a subject of debate here.

      So I am assuming you don’t want to answer whether you think that that all transferees would benefit from the removal of inefficient transfers.

      My working assumption is that you realize that of course in lots of conceivable real world cases (and maybe it’s even dawning on you in the case of welfare) it’s very reasonable to think transferees will suffer.

      And my working assumption is you don’t want to say that.

      Because you’ve been answering questions pretty unflinchingly until that one.

    • Daniel Kuehn says:

      You libertarians overplay your hands far too often.

      That’s why it’s best to operate without a pinned down worked out ideology, and instead walk around with a few assorted ideas in your head that you think merit approval.

      • Ken B says:

        +1

        We never knows much about general principles as we do about the particular case in hand. Better to fit the principles to facts than vice versa. A “Principled stand” is a precommitment to that vice versa.

      • Michael says:

        Hi DK,

        I think a lot of the people you’re arguing with here are being unfair to your point and while I may (in some sense) agree with them, they’re really not responding to you but rather talking past you.

        Forgive me if someone else has already pointed this out elsewhere in this thread, I can’t be bothered to read it all….

        I think the fair point here is that while obviously, ceteris paribus, removing the transfer will see an increase in the black line in the short run, the reality of the situation is that it is NOT a ceteris paribus situation. Removing the transfer will change behaviour in such a way as to make previous recipients pursue higher incomes in the future then they would’ve been incentivized to pursue had the transfer still been in place.

        So it’s about the distortionary effects on behaviour that welfare introduces, and removing these distortions to allow past-recipients to more fully participate in market rewards.

        I assume you still disagree, but I think thats a better exposition of what some of these commenters are thinking when they state their case.

        • Daniel Kuehn says:

          re: “Removing the transfer will change behaviour in such a way as to make previous recipients pursue higher incomes in the future then they would’ve been incentivized to pursue had the transfer still been in place. “

          This depends on the welfare program we’re talking about. Some increase labor supply. Some decrease labor supply. And some do both at different points of the income distribution. So it’s not a clear situation at all.

          But let’s just consider a welfare program that reduces labor supply. Why would you expect the income to exceed the transfer in most cases (I suppose if the work was truly awful it might). If it exceeds the value of the transfer it would be preferred to the transfer.

          Obviously this all depends on precisely the sort of preferences, work opportunities, and welfare programs that we’re talking about. You cannot talk about this very much in the abstract. But even to the extent that you can talk about it in the abstract it seems unlikely that labor supply adjustments will actually offset a transfer. If they did, then what’s the point of the transfer in the first place? And what’s the incentive to take it?

          Not an impossible case to convince me of, but very, very hard.

          • Michael says:

            ” If it exceeds the value of the transfer it would be preferred to the transfer.”

            You’re discounting the value of leisure here. Have you ever recieved unemployment benefits? I have, twice. In the first case, I simply didn’t look for work until the benefits exhausted themselves. in the second, I was offered a job that paid more than all previous jobs – I would’ve definitely declined many, many jobs that paid more than the level of benefits because being paid to do nothing is a lot more enticing then accepting a marginal increase in pay for a monumental increase in effort.

            So you have to realize that people are (of course, and necessarily) doing their best to maximize value as THEY see it, but not as you are imagining it in your model.

            i.e. your model doesn’t reflect reality, and you don’t understand what people value.

            • Michael says:

              also just to be clear, I also don’t understand what other people value, no one does. this isn’t a dig at you, it’s a broader point about the futility of the exercise.

              • Michael says:

                triple post!

                John is a 25 year old man who is currently receiving welfare benefits. The value of the benefits is roughly $600/M and if he took a minimum wage job, he would only earn $1000/M. He decides that on balance, he would prefer to continue recieving the benefits. Maybe he also thinks that the minimum wage is simply too low for the work he has to do, and has a bunch of hangups about being exploited by greedy capitalists.

                Now, the thing is what John doesn’t know is that if he took the minimum wage job, he would’ve been introduced to Ben. Ben and John become good friends, and when Ben leaves his job to work construction, he puts a good word in for John because hes enjoyed working with him. John goes to work for a marginally higher than minimum wage job at the construction site, and after several years and with the experience hes gained, begins to earn substanstially more as he cements himself in a skilled trade.

                If John knew this possible future, he might choose to accept the minimum wage job and gamble on the opportunity. But since he doesn’t believe in this future, he continues to accept benefits.

                I’m suggesting that by removing the option of subsisting on welfare, we force John into the workforce (as he has no choice but to support himself somehow) and indirectly he is now exposed to a life of opportunity that he may have avoided if given the option.

            • Daniel Kuehn says:

              I’m not discounting the value of leisure. That comes into play much more on the margin. It’s a different proposition entirely to say that possible income minus the value of leisure on welfare is less than the value of the transfer.

              There’s a big difference between saying that welfare programs shift the labor supply curve and some kind of “great vacation” hypothesis.

              The former is obvious. The latter is not.

              • Michael says:

                im not sure what you mean about great vacation, but it IS a great vacation.

                source: i’ve had two great vacations.

            • Daniel Kuehn says:

              re:“i.e. your model doesn’t reflect reality, and you don’t understand what people value.”

              You actually think your point was lost on me? It’s an elementary point.

              • Michael says:

                so then is your position that the large majority of welfare recipients would prefer to work, but can’t find a job – not even at minimum wage?

            • Daniel Kuehn says:

              I’ve made repeated reference to labor supply effects and behavioral consequences. What exactly do you think those are references to? The whole reason we have a labor supply curve is that people value labor. That’s elementary.

              • Michael says:

                then we must disagree about the behavioural consequences part.

  6. Dan says:

    DK, I’ll also posit that simply eliminating the welfare state completely will also have a net positive effect on reducing poverty overall. And I believe you’ll struggle to find libertarians who would disagree with this. They may have differing ideas on how quickly to eliminate the welfare state, but I don’t believe you’ll find actual libertarians arguing that the welfare state reduces poverty on net.

    That said, I’m not sure why I have to limit myself to saying we should just limit the welfare state. While I think that is a good idea, I think it’d be better to eliminate the welfare state, the warfare state, and all the rest of the counterproductive government functions.

    • Daniel Kuehn says:

      “I’ll also posit that simply eliminating the welfare state completely will also have a net positive effect on reducing poverty overall.”

      Pre- or post-transfer? Pre- is a reasonable position… post- is less reasonable.

      “And I believe you’ll struggle to find libertarians who would disagree with this.”

      Well that depends on whether we’re talking pre or post.

      “That said, I’m not sure why I have to limit myself to saying we should just limit the welfare state. “

      Nobody said you should limit yourself to that. The thing is that’s just a completely different conversation from the one we were having.

      • Dan says:

        What do you mean by pre or post transfer? I’m saying that if we stop all welfare transfers, and completely eliminate the entire welfare state, that it will have a net positive effect on reducing total poverty.

        • Dan says:

          Oh I see what you meant. Yeah, I meant overall poverty would be reduced. Not just pre-transfer poverty.

      • Dan says:

        “Pre- or post-transfer? Pre- is a reasonable position… post- is less reasonable.”

        I understand that you disagree with me that eliminating the welfare state will reduce total poverty, but I’d be surprised if libertarians disagreed with me on this. Maybe I’m wrong and other libertarians believe that we should eliminate the welfare state even though it will increase the total number of people living in poverty, but I don’t believe I’m wrong in assuming that is not what libertarians believe.

    • Daniel Kuehn says:

      Now you’ve gone back to responding to me again and still haven’t answered my question (timestamp 9:36 EST).

      So don’t give me that BS that you’re just oh so tired of talking. You just don’t want to answer the question.

      • Dan says:

        I didn’t say I was tired of talking. I said I had no interest in getting bogged down in the minutiae of my economic beliefs. Those conversations lead down a never ending rabbit hole and I avoid them at all costs.

        • Dan says:

          I mean that is a question for someone like MF. I only commented initially because I wanted to point out that libertarians not only believe the war on poverty is counterproductive, but that we believe libertarian prescriptions would actually reduce poverty on a net basis.

          • Ken B says:

            When you describe taxes as theft though you leave the distinct impression you really don’t care about the consequences. You only care about the “property rights”, so you would support Libertarian policies even if they could be demonstrated to emiserate most of the world, provided they were required to support “property rights”.
            I think this is clearly major freedom’s position.

            • Dan says:

              I get that people who aren’t very familiar with libertarians, and haven’t read any libertarian literature explaining why we believe our views lead to better results, might think that way. I said above,

              “I mean I guess I can see how someone could think that. I wouldn’t support murder even if it turned out to have a net positive effect. But the truth is libertarians think we are right morally and pragmatically.”

              But I do find it surprising that DK doesn’t believe that libertarians think we would reduce total poverty by eliminating the welfare state. I could see if he simply believed we would support its elimination regardless of the outcome, but it surprises me he thinks we believe it will actually cause more overall poverty by eliminating it.

              • Daniel Kuehn says:

                “But I do find it surprising that DK doesn’t believe that libertarians think we would reduce total poverty by eliminating the welfare state. I could see if he simply believed we would support its elimination regardless of the outcome, but it surprises me he thinks we believe it will actually cause more overall poverty by eliminating it.”

                It shouldn’t surprise you. Most libertarians I come across are pretty intelligent. A lot out there aren’t I know, but I like to talk to the thoughtful ones. Why wouldn’t you expect me to think this?

              • Dan says:

                Look, you’re completely ignorant of libertarianism if you believe we think removing the welfare state would increase poverty. I mean that is the dumbest shit I’ve heard in a long time.

              • Daniel Kuehn says:

                No YOU’RE completely ignorant of libertarianism.

                Come on, Dan. You’re moving into Bob Roddis territory. You’re better than that I think.

                Care to answer my question now?

              • Dan says:

                DK, find me a libertarian who writes against the welfare state that believes eliminating it will cause more poverty, but is ok with that because it will be better for society as a whole.

                Since you believe all intelligent libertarians would disagree with me on this, thent should be simple for you to point me to a bunch of articles saying things along those lines. Hey, I’m willing to be proven wrong on this and I’d happily admit that I was mistaken to think libertarians believe eliminating the welfare state would cause more poverty overall. Prove me wrong if you’re so confident you’re right.

              • Dan says:

                *that second to last sentence should say “cause less”

          • Daniel Kuehn says:

            re: ” I only commented initially because I wanted to point out that libertarians not only believe the war on poverty is counterproductive, but that we believe libertarian prescriptions would actually reduce poverty on a net basis.”

            Sure, but I had always taken that to mean pre-transfer poverty.

  7. Bob Murphy says:

    Oh my gosh you guys. Here’s what’s going on:

    ==> Dan the libertarian (not Daniel Kuehn) is saying that *of course* 99.9% of actual libertarians believe that if the government enacted libertarian policies (or if no gov’t, for anarcho-capitalists), then just about everybody would be materially better, even today’s poor people. This is a no brainer. There aren’t actual libertarians walking around who think, “In practice my ideas would make a bunch of people poorer, but gosh darn it sometimes you bite the bullet and respect property rights come what may.”

    ==> Daniel Kuehn isn’t talking about widescale libertarian reform. He is focusing on a very narrow question. If the government starts sending checks for $2,000 every month to Joe Blow, can we all agree that Joe Blow will be richer in the new equilibrium than he would be if the government stopped sending those checks?

    Now if you guys want to keep arguing about the time horizon etc. on the latter question, so be it. It’s actually not as obvious as you think, Daniel Kuehn, once you make it closer to reality. It’s not just sending checks to randomly selected people, but rather it’s sending checks to people based on them having kids, making less than a certain level of income, blah blah blah.

    • Dan says:

      I’m not sure that is exactly what’s going on, but maybe I’m wrong.

      I think if you read our first few exchanges, it looks like he thinks libertarians favor eliminating the welfare state, but that we favor it even though it will cause more overall poverty. He said,

      “I think a reasonable libertarian position could hold that the green line will decline but that the black line will be higher – probably much higher. That’s not an absurd thing to think at all.”

      And,

      “Whose interest is it to have a welfare state then?
      So let’s be clear. You and I both agree there are efficiency gains from eliminating the welfare state as well as positive gross labor supply effects (it is hard for me to say net given the EITC in here), right?
      You are telling me that the cash value of those gains to welfare recipients is so great that it actually outweighs the benefits they get? Even though most of the remedied distortions redound to the benefit of those who are NOT on or anywhere near earning welfare?
      Is THAT what you are saying because that is what I’m saying is a very hard position even for a thoughtful libertarian to hold.”

      Now, maybe I’m wrong and libertarians support eliminating the welfare state, and that by doing so it will cause more overall poverty, but we should do it for ethical reasons. But I believe that is not what most libertarians view things. I think we can make a perfectly reasonable case for why subsidizing poverty will only cause it to rise higher than it otherwise would have risen.

      I agree that DK also made the more narrow position you stated about Joe Blow, but I think he also thinks most libertarians believe eliminating the welfare state will cause poverty to rise higher – probably much higher.

      • Bob Murphy says:

        But Dan, Daniel is viewing the welfare state as government sending checks to Joe Blow, Mary Jane, Nancy Smith, etc. He’s not viewing welfare state as including war on drugs, minimum wage laws, government schools, taxicab medallions, etc.

        • Dan says:

          OK, then I can see why we would be talking past each other then.

          • Daniel Kuehn says:

            taxicab medallions are part of the welfare state? you couldn’t possibly have been thinking that. i refuse to believe that – it would be too uncharitable of me and i’m a nice guy.

            • Dan says:

              Only sending checks to people is part of the welfare state? You couldn’t possibly have been thinking that – it would be too uncharitable of me and I’m a nice guy.

              • Daniel Kuehn says:

                Welfare state is non-social insurance (although we could debate about UI) discretionary funds spend on low income families.

            • Matt M (Dude Where's My Freedom) says:

              Taxicab medallions are corporate welfare.

              Whether that qualifies as “part of the welfare” state is probably a semantics issue that varies from person to person.

    • Daniel Kuehn says:

      Dan never brought up widescale libertarianism until the end of the convo. He specifically talked about the removal of welfare programs holding all else constant. I think you are doing damage control for him, Bob. If he meant that he doesn’t write very well.

      I never said randomly selected I don’t think.

      • Dan says:

        DK, you can keep feigning ignorance all you want but I’ve been clear this whole time.

        From the beginning I kept bringing up that libertarian policy prescriptions would reduce overall poverty. And if you have no understanding of what libertarians policy prescriptions would be, which seems evident at this point, then it should’ve been clear what I was saying when I posted this as my third or fourth response.

        ““Whose interest is it to have a welfare state then?”
        Nobody. I think the welfare state is terrible for everyone involved. I think we should end all welfare programs, eliminate the minimum wage, eliminate taxes, eliminate government regulations, and that this will result in a lower total number of people living in poverty.”

        Now when I realized you wanted me to only answer whether eliminating just the welfare state, and nothing else, which is a weird restriction but whatever, I further clarified that I believe eliminating just the welfare state would also reduce overall poverty.

        Then when Bob Murphy pointed out that by welfare state you only me checks being sent out to Joe Blow, etc. I realized we were just talking past each other. To me, the welfare state includes much more than that, and I didn’t realize how narrow your view of what constitutes the welfare state is. Regardless, at this point it’s clear you don’t understand jack about libertarianism and seem hell bent on turning this into a match of insults based on your Dickinson responses I saw today, so there appears no need for further discussion with you on this matter.

    • Ken B says:

      RPM:

      There aren’t actual libertarians walking around who think, “In practice my ideas would make a bunch of people poorer, but gosh darn it sometimes you bite the bullet and respect property rights come what may.”

      Flap-doodle. Of course there are. That’s essentially the position of anyone who argues from notions like homesteading. There certainy are libertarians who see proper rights instrumentally as the best way to make people better off, but there are also those who see property rights as apodictic.

      • Daniel Kuehn says:

        Agree strongly. This is silly, Bob. That’s the whole point of the consequentialist/deontological food fight. That wouldn’t be an issue if there were no difference between the two.

        • Dan says:

          You talk with a lot of libertarians. Go find one who believes libertarian ideas will make a bunch of people poorer. You’ve spent all this time talking with libertarians and yet you think this nonsense? Amazing.

          • Daniel Kuehn says:

            Jesus H Christ THAT IS NOT AND HAS NOT BEEN MY CLAIM.

            Go home, Dan. You’re drunk.

            • Dan says:

              LOUD NOISES! That was Ken’s claim, which you said you agree strongly with. Bob specifically said libertarians don’t believe “our ideas” would make a bunch of people poorer. Ken disagreed with that, and you strongly agreed with Ken. It’s not my fault if you misinterpreted them and strongly agreed with something you don’t actually believe.

              • Daniel Kuehn says:

                My comment was about the consequentialist/deontological distinction he made. You can tell by… reading my comment.

                I haven’t been talking about broad libertarian policies. You keep bringing it back to that (which is fine, but it’s not what I’ve said).

                Ken mentioned non-welfare policies like homesteading. Talk with Ken about that if you’re interested in KEn’s point.

              • Daniel Kuehn says:

                All-caps were unnecessary on my part, but you’ve been exasperating throughout this. That’s all I’ll say in my defense.

              • Ken B says:

                Dan, I cannot recall your position on slavery, but will you concede

                1. some libertarians favored freeing the slaves
                2. freeing the slaves would make some slaveholders poorer

              • Dan says:

                Hey, man, I understand that you feel exacerbated by me, but I feel the same way towards you. I even emailed Murphy last night trying to see if he could help me see where we were having trouble communicating.

                I’m not trying to misrepresent your views, and my only goal would be for us to understand what the other person thinks. The reason I don’t want to get into the economics of why I think my views will result in less poverty is because we’ll never agree on that. We’ll also never agree on political philosophy, so I’m not interested I’m explaining why I think my position is the more moral and ethical position.

                I fully believe that you are a Keynesian and hold your political beliefs because you think they are the correct views, and that they are more moral and ethical than alternatives. Obviously, we both think that of our positions, and I think there is enough evidence from the last few years to determine neither of us are going to sway each from those beliefs, which is why I don’t feel like taking the discussion in that direction.

                But, I do believe we can come to an understanding with regards to the more narrow question of what libertarians think will happen if we eliminate the welfare state. I’m willing to be proven wrong, but until you show me libertarian or Austrian scholars saying that eliminating welfare will be good for society overall, but will increase overall poverty, then I’m going to say you are mistaken. If you show me libertarians saying this, then I’ll gladly eat my words.

                Also, just so I’m clear on your position, is that, above, a fair way to present our disagreement?

      • Keshav Srinivasan says:

        Well, Major_Freedom claims that praxeology demonstrates with apodictic certainty property rights violations can only make us worse off.

        • Ken B says:

          I’d like to see a formal development of that …

          /ducks

          🙂

        • Ken B says:

          That’s not logically sufficient. He doesn’t argue I think that the rights violateor is necessarily worse off because of his predation. MF believes that the welfare recipient is stealing from taxpayers. The point at issue is whether, once that “theft” is ended, will that recipient be better or worse off.

      • Tel says:

        That’s essentially the position of anyone who argues from notions like homesteading.

        It’s essentially the position of ANY political advocacy group you care to name. They all end up making someone worse off.

        The warfare/welfare advocates support the idea of depleting people’s savings and even undermining their very ability to save by using Capital Gains Tax together with money printing and inflation, but gosh darn it sometimes you have to bite the bullet and transfer wealth come what may.

        The bigger government (i.e. central planning) advocates support the idea of cranking taxes (which duh make someone poorer) and government borrowing (i.e. making future generations poorer) but gosh darn it sometimes you have to bite the bullet and build a bigger government come what may.

        Even the Occupy Wall Street group (i.e. envy politics) wants to tear down the 1%ers … and gosh darn it sometimes you have to bite the bullet and punish people for the crime of success, come what may.

        Their at all at it.

      • Ken B says:

        What’s so amusing is how heated people get over the charge “you want to make people poorer!’. Do I want to make some people poorer? Damn right I do. Just one example: teachers suspended from the classroom but still getting full pay. Make them poorer!

        • Tel says:

          That’s a more difficult question than it seems because at the moment people can make anonymous accusations (i.e. the teacher is not allowed to know their accuser). Thus, the temptation for nuisance is high, and it happens.

          The school is stuck… if they don’t take the accusation seriously, they are badly screwed later when you get kiddy fiddling turning up in court and the evidence is found that the school sat on hands and did nothing.

          If the school takes every claim seriously they will get sued by the teacher who was unfairly excluded from working by a nuisance accusation.

    • Mike M says:

      I was just channeling Krugman in a sardonic manner. Didn’t intend to start a firestorm between the Dan(s). LOL

  8. Brandon says:

    The “war on poverty” wasn’t supposed to be a temporary thing in the same way that spending on education isn’t supposed to be temporary. The war analogy was always pretty flawed.

  9. joe says:

    Once again, you need to construct a counterfactual to determine the effectiveness of the war on poverty. Comparing the poverty level to 1967 is meaningless since the economy has changed a great deal. For example, in 1967 the trade surplus was .4% of GDP. In 2012, the trade deficit was 3.4% of GDP.

    Demographics have changed quite a bit as well.
    http://www.calculatedriskblog.com/2005/12/demographics-gif-1920-2005.html

    • skylien says:

      A reasonable post by joe! Amazing. I am sure though that Bob (as an Austrian) is aware about this, and that he just took this approach because it is the one mainstream econ is done, which is: Counterfactuals are not available, so simple pre-/post comparisons (maybe corrected by some arbitrary but fancy math) must be good enough.

  10. Harold says:

    It is interesting that (official) poverty among elders has declined dramatically since 1968 from 25% to about 8%, whilst child poverty has increased from 16 to 22% Given the ageing population this must be very significant. The counterfactual of a world today with a similar demographic to 1968 would look quite different.
    http://www.irp.wisc.edu/faqs/faq2.htm

    I agree that the rhetoric of a “war” is stupid, but the criterion for whether it is working *could* be exactly as described. In the hypothetical case of war against Japan, if the Japanese would accept nothing except total unconditional surrender, then pushing them back may be consdered “winning”. Sueing for peace may not be an option.

    Consider a “war on infectious disease”. We have eradicated only smallpox, and anti-infectives still require significant expenditure, but we cannot “sue for peace” against bacteria and viruses.

  11. Keshav Srinivasan says:

    Bob, if what you and Dan are saying is correct, then wouldn’t that be a bit suspicious? Why would there be such a strong correlation between what people believe ought to be done from a deontological perspective and what they believe is best from a utilitarian perspective?

  12. James Oswald says:

    Even if you assume welfare is done via lump sum transfers, to minimize the marginal incentive, leisure is still a normal good, so you’d expect people to work less, and thus the green line should increase. Anti-poverty programs with income thresholds increase the marginal tax rates on the poor and thus one would expect the green line to increase a lot. A society which is growing more prosperous and adding more anti-poverty programs would have forces pushing in both directions, so a flat line isn’t surprising at all.

  13. Dan says:

    Fellow libertarians, maybe when I’ve read Austrian economists explain why we should eliminate the welfare state, I never grasped what they were actually saying. See, I was under the impression that libertarians, like myself, believed that by eliminating the welfare state you would see society as a whole benefit, AND it would actually decrease the overall level of poverty, even though that idea is counterintuitive.

    DK, seems to believe (he can correct me if I’m misinterpreting him, which very well may be the case) that any intelligent libertarian believes that while eliminating the welfare state would be better for society as a whole, on the downside it will cause more poverty overall.

    Now, let’s leave aside the arguments for why someone might believe that subsidizing poverty and giving people incentives to make less money, have more kids, not work, etc. would be bad for the very people those policies are intended to help. And let me also say that I think it’s perfectly fine if someone wants to argue that in the very short term eliminating welfare might have negative effects, much the same way I think all libertarians would concede our solutions to the Great Recession would have had short term negative consequences, but that we’d all be better off for it by now.

    But are there actually any libertarians who think that the welfare state reduces overall poverty, but it’s just bad for society as a whole?

    • Mike M says:

      Dan
      You ask an interesting question that is probably better suited for in person live roundtable discussion rather than a blog post because of all the nuances involved.

      Does welfare reduce poverty?

      I suppose it depends how you define poverty which is subjective. A person living on welfare in the USA could be viewed as middle class in a third world country.

      Assume welfare does reduce poverty. It must be paid for by taking from others. Ethical issues aside, who is to say those resources left with the productive would not advance the economy and lift most out of poverty as well? (exclusion of the unmotivated or disabled which is another matter)

      One can play a counterfactual game all day long which is why the only legitimate debate on the matter should be primarily focused on the legal, philosophical and ethical aspects of a welfare system.

      • Dan says:

        I feel where you’re coming from, and if I was going to debate someone on welfare I would focus on the legal, ethical, and economic reasons to oppose it. But, my view is that both myself and DK would not change our positions if we had that debate. We’d just go round and round telling each other why we disagree with each other, and none of that would be new knowledge.

        I’m purely focused on the fact that I believe libertarians can, and do, make economic cases for why welfare hurts the poor and that by eliminating it you will help the poor. I have read a lot of Austrian economic literature and a lot of libertarian literature, and I can’t remember any of it arguing that eliminating welfare is good for society but bad for poverty. Unless, I have some serious reading comprehension problems, the standard Austrian argument against welfare is that if you subsidize something you get more of it. So if you subsidize poverty you get more of it. Therefore, if you stop subsidizing poverty, you get less of it. Maybe I’m wrong but I’m not sure you’ll find libertarians saying that eliminating welfare will cause more overall poverty.

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