Archives for January 2016

Springing the Poverty Trap (from the “Cliff Notes” version of “Healing Our World”)

As we’ve seen in earlier posts, most poverty in today’s world is a result of aggression-through-government, such as minimum wage and licensing laws (see earlier posts for more detail).

We usually support such laws because we are unaware of how harmful they are to the disadvantaged.  Without such awareness, we repeat our mistake by using aggression-through-government to give them a welfare check.  Most welfare backfires by ensnaring the poor in a never-ending cycle known as the poverty trap. 

As a landlady renting to low-income tenants, I found out just how the poverty trap works. In the United States, many different programs of aid, such as cash, food stamps, housing, and medical care are available. Taken together, these programs can combine to give a person on the dole a substantial tax-free income.

Consequently, to a young person just entering the workforce, starting out at minimum wage may seem less attractive than going on the dole. Indeed, for girls raised on welfare, getting pregnant has become a way to receive aid and establish their own households. They can’t marry, because aid is usually denied if the child’s father lives with them.

Once young mothers start receiving welfare, they realize that it’s not really enough to live on.  Since more children mean more welfare benefits, they have more children until they reach the maximum number that the state will support. A number of studies in the United States and Canada show that illegitimate births rise and fall in parallel with the baby’s welfare entitlements.

One of my tenants took me aside one day and chided me for working at my day job and at the apartments at night. “You need to quit your job, have some kids, and get on welfare,” she counseled me. “Then you can have a life!” Clearly, some people choose welfare over work consciously.

Poverty Trap

Of course, opting out of the work force at a young age has grave consequences later. Although a working person might start out with less than someone on welfare, the working person’s experience will eventually bring raises and a higher standard of living. For the person on welfare, however, living standards don’t change. When their working counterparts are ready to buy their first house, those on welfare can’t even afford their first car.

Once a woman realizes that she won’t progress on the dole, however, she’s already had several children. Because she has little or no work experience, she usually must start at an entry-level job. Until she gains experience and the pay raises that goes with it, she’s can’t afford day care. Once she begins working, her state-supported medical coverage ends. This loss can be devastating since entry-level jobs rarely include such benefits.

If a young mother can somehow persist, however, and keep working for two years, her income will usually surpass what she received in aid.  However, few welfare recipients persevere under such conditions. Instead, they usually quit their job and get back on the dole. Unable to work their way up the Ladder of Affluence, they’re caught in the poverty trap. Welfare makes breaking out of poverty so difficult that only 18% of state aid recipients were able to do so in 1987, compared with 45% of equally poor individuals who never received aid. Because welfare keeps people poor, poverty increases in states with high welfare benefits.

In the United States, people seldom end up in poverty if they obtain a high school diploma, marry, and wait until their twenties before having children. By “helping” unwed teenage mothers, our welfare programs discourage them from ever achieving self-sufficiency.

The disadvantaged, at the bottom rung of the Ladder of Affluence, are most likely to be lured into the welfare trap. Most of the disadvantaged are minorities. Between 1940 and 1960, black poverty rates fell from 87% to 47%. The 1960s “War on Poverty” reversed this trend. By the time the “War” had been going on for 20 years, the number of black children living in poverty had tripled.

An economic split developed between working class minorities and those on the dole. Between 1975 and 1992, income for the wealthiest fifth of the black community rose by 23%, while income for the poorest fifth decreased by 33%. Blacks who escaped the poverty trap could look forward to unprecedented gains. Unfortunately, our aggression made that escape more difficult. Welfare enticed the disadvantaged to choose dependence over self-sufficiency, poverty over getting ahead, and illegitimacy over marriage. Like overprotective parents, we’ve stifled the development of self-reliance and self-esteem in our poor by trying to give them the wrong kind of help.

What is the “right” kind of help?  East Harlem’s Strive, which relies primarily on private, rather than public, funding is a great example.  Thirty-three percent of Strive’s clients are ex-offenders, almost half are on welfare, many are on drugs, and some are even homeless. Strive helps their clients, 95% of whom are people of color, change the self-defeating attitudes that give potential employers pause. Strive instructors, who come from the same difficult backgrounds, help their clients shed their ghetto outlook and become cooperative, motivated workers. The program is tough; only 60% graduate.

Nevertheless, since 1984, Strive has put over 50,000 people to work in the U.S., Britain, Ireland, and Israel; the average graduate is paid 50% more than the minimum wage. After two years, 80% were still working.  The cost per placement is around $2,000. In comparison, the $53 billion tax-funded, job-readiness program CETA (Comprehensive Employment and Training Act) placed only 15% of its recruits in unsubsidized jobs. Two separate studies concluded that the program actually created “negative effects” and “earning losses” for men, while having no effect on female enrollees.  Government fails big time when trying to help the poor.

Pride Industries of Roseville, California, became frustrated with “warehousing” their disabled clients. Instead, they began a rehabilitation program designed to get the disabled full-time, well-paying jobs.

Before this shift in emphasis, Pride served 50 individuals with disabilities; 90% of its funding came from taxes. By 2013, 4,900 disabled workers were on Pride’s factory payroll and 99% of Pride’s revenue came from electronics assembly, packaging, snowshoe manufacture, property maintenance, woodworking, and fees from its excellent rehabilitation program. Pride is the second largest manufacturing and service provider in Sacramento and now operates in 13 states.

How do Pride’s clients like the shift from dependency to self-sufficiency? “Most of them will tell you it’s the best thing that ever happened to them,” the president of Pride, Michael Ziegler, states. “They smile just like you and I do on payday.” Rather than feeling disenfranchised from a normal working life by their physical condition, the newly enabled are on the job like everyone else. That’s what Pride is all about!

Some people need more than a training program to achieve self-sufficiency. Delancey Street Foundation provides a two-to-four year program in a family-like shelter for repeat offenders, addicts, and illiterates. Residents have to earn their keep by working in the foundation’s award-winning restaurant, print shop, moving company, or auto-detailing center. Senior residents become befriending leaders, helping newcomers gain reading skills, discipline, manners, and work standards that will help them become self-sufficient. Delancey is 80% self-sufficient; only about 20% of its major project funding comes from private charitable donations. Delancey accepts no government funding. By its 30th anniversary in 2002, Delancey had served over 14,000 residents. It now operates in New Mexico, North Carolina, and New York, as well as San Francisco and Los Angeles.

The poor, disabled, and disadvantaged can be helped.  The most successful organizations give a hand-up, not a hand-out, and avoid government funding and the red-tape that accompanies it.

These posts are part of a “Cliff Notes” version of my award-winning international best-selling libertarian primer, Healing Our World. The next post in this series will be “By Their Fruits You Shall Know Them.” If you’d like to learn more about springing the poverty trap before the next post, check out Chapter 11 of the 1993 edition of Healing Our World, in my Free Library at www.ruwart.com