CHAPTER 11
SPRINGING THE POVERTY TRAP

When we use aggression to alleviate the poverty caused by aggression, we only make matters worse.

 The Marketplace Ecosystem at Work

Our country has a proud history. Less than 200 years after its founding, the United States was the richest nation on earth. Yet few who migrated here were wealthy; most people came to this country with little more than the clothes they were wearing. What made America the land of opportunity for penniless i˙˙˙˙rants was something that could not be found in any other country at that time. People in the United States were relatively free, not to do as they pleased, but free from aggression. No minimum wage laws kept the disadvantaged worker from getting a start. Few licensing laws prevented people from providing services to willing customers. Education was available and affordable. It could be integrated into a working lifestyle. No wonder people were willing to leave their homes for a new culture and even a new language. In most other nations at that time, education and the creation of wealth were limited to the elite by aggression-through-government.

Aggression Disrupts the Marketplace Ecosystem


Today, of course, aggression once again keeps the disadvantaged from creating wealth for themselves and their loved ones. Minimum wage laws exclude unskilled workers from the job market, while increasing the prices they must pay for goods and services. Licensing laws squeeze small companies out of business. Sixty percent of all new jobs in the United States are created by firms with fewer than 21 employees. These same businesses also provide 80% of all new minority positions. (1) Strangling the small businesses with aggression destroys jobs, especially for disadvantaged workers. As aggression increases, the large firms become monopolies and the price of services increases, further penalizing the poor.

If, in spite of all these setbacks, disadvantaged individuals manage to acquire something, they are the first to flounder in the alternating waves of inflation and deflation produced by the money monopoly. Moving to the poor side of town has grave consequences for the children of parents financially crippled by aggression, however. Unless the parents are willing and able to make heroic sacrifices, their children will be subjected to inner city-style public education. Less skilled than their parents, they are even more likely to be stopped at gunpoint, if necessary from creating wealth.

As we survey the plight of these unfortunates, we are usually unaware of the role we have played in creating their poverty. For example, we fail to notice that when minimum wages go up in a particular region of the country, welfare payments increase to the newly unemployed.2 Without such awareness, we repeat our mistake of using aggression as we try to help the destitute. As a result, we used the aggression of taxation to support a massive "War on Poverty."

Two "wrongs" don't make a "right." Welfare, which is charity by aggression, ensnares the poor in a never ending cycle known as the poverty trap.

In the 1970s, welfare payments and other forms of aid available to poor families (e.g., food stamps, medical care, etc.) increased to such an extent that total benefits exceeded the median income of the average U.S. family! In 1975, working heads of households needed to make $20,000 to give their families benefits equivalent to what they could have on welfare. Only 25% of U.S. families earned this much!3 In 1979, the median family income was $1,500 less than the potential welfare benefits for a family of the same size. (4)

In the 1970s, two working parents had to make more than the minimum wage to match what they would receive on the dole. (4) A young working couple with children might find that their net income after child-care costs would be less than what they could receive on welfare. In these circumstances, accepting aid instead of working would seem like the smart thing to do.

Opting out of the work force at a young age has grave consequences later on, however. While a working person might start out with less than those on aid, experience would eventually result in raises and a higher standard of living. On welfare, however, little progress is made over time. Since most welfare benefits can be used only for food, medical care, and shelter, saving is almost impossible. When their working contemporaries are ready to buy their first house, those on welfare are still unable to afford a car.

The attraction of the short-term gain encourages many individuals to choose poverty for life. One study estimated that one-sixth of aid recipients could have worked but chose leisure and the other benefits of being supported by tax dollars instead. (5) An elaborate study involving almost 9,000 people documented the deleterious results of a guaranteed income. One group of subjects, who served as controls, received no benefits. An experimental group was told everyone would be given enough money to bring total individual income to a specified target amount. Those in the experimental group who worked would receive less money than those who didn't, so everyone would have the same income for three consecutive years.

When the control and experimental groups were compared, the results were unequivocal. Young men who stayed unmarried throughout the experiment worked 43% less when income was guaranteed. These young men jeopardized their future earnings by getting less work experience than their peers. Wives in the experimental group cut their hours by 20%, and their husbands reduced their work week by 9%. If a female head of household lost her job, it took over a year for her to find a new one if she was receiving guaranteed income. Her counterpart in the control group found new employment in less than half the time. (6) Clearly, welfare payments decreased the incentive to work, especially for individuals with no family responsibilities.

Divorce rates went up by 36-84% for most couples in the experimental group. Evidently, part of what binds couples together is the economic benefits of a family unit. Guaranteed incomes made it easier to say good-bye. In one group, couples thought that their welfare payments would be stopped if they separated. As a result, divorce rates in that group were comparable to those of the controls. (7) Clearly, people adjusted their behavior to adapt to income guarantees.

In 1980, I began to rehabilitate low-income housing in Michigan and observed this heart-wrenching situation repeated time and time again. My tenants were rarely disabled physically or mentally; most were able-bodied men and women with small children. These adults were quite capable of full-time employment. They seldom had trouble doing the arithmetic necessary to figure how much rent they owed, even if an erratic payment schedule made the calculation more difficult. Consequently, they easily figured out that women with several children were able to maintain a higher standard of living on welfare than women or men without dependents. More babies meant more benefits. Unskilled teenage women, eager to establish an independent household, found that having a child out of wedlock gave them sufficient income to do so.

In 1980, 82% of all black infants in the United States born to mothers aged 15 to 19 were illegitimate. (8) Paternal desertion is encouraged in many states because aid is unavailable to a woman if the father of her child lives with her. (9)

Industrious individuals who take jobs find their welfare benefits abruptly terminated and their net income lower than before. The welfare habit is difficult to break, partly because of the withdrawal period of lower income that accompanies an entry level job in the work place. Only the most determined recipients succeed in breaking out of the poverty trap.

Those who remain ensnared eventually come to believe that they are incapable of supporting themselves and their loved ones. Some simply lose their self-esteem or bitterly blame society for their plight. Sometimes they lose their sense of responsibility, not caring for their children or their home. Landlords refuse to rent to them, knowing that, on the average, their children are more likely to run wild and the apartment is less likely to be maintained. Children raised by parents with such attitudes have a lot of destructive conditioning to overcome.

A Lose-Lose Situation


Just how have the minority poor adapted to the country's welfare system? In 1980, more 20-24 year-old black males were on welfare than the worst-case scenarios that had been based on the atmosphere of discrimination existing between 1954 and 1961. Black illegitimate births and single-parent homes were much higher than the most pessimistic predictions. (10) In the 1940s, less than 10% of all black babies were born out of wedlock; by 1982, more than 50% of them were illegitimate. The number living in poverty tripled from 1959 to 1982.11 Easily accessible welfare payments had the same effect as guaranteed income. Individuals had less incentive to work and to maintain a family structure. Conse-quently, fewer did.

Black poverty was hardly a result of increasing discrimination. Blacks had unprecedented opportunities awaiting them in the work place. By 1980, the percentage of black workers employed in white-collar jobs, the percentage of blacks in college, and the black-to-white income ratio of full-time workers had exceeded optimistic projections based on the trend toward less discrimination established between 1961 and 1965. (10) Clearly, blacks who escaped the poverty trap could look forward to unprecedented gains. Unfortunately, the increased aggression of minimum wage, licensing laws, and welfare made that escape extremely difficult.

With the best intentions, we've hurt the poor instead of helping them. Our brotherly love has caused the disadvantaged to choose dependence over self-sufficiency, poverty over getting ahead, and severing family ties in times of stress over pulling together. As a result, by the late 1970s, 20% of all U.S. families depended upon government welfare for 96% of their income. (12) By 1980, more people were economically dependent on the government than in 1965, (13) when the War on Poverty programs began!

Like overprotective parents, we've stifled the development of self-reliance and self-esteem in our minority poor by trying to give them too much. No matter how much we might wish to save people from suffering through the low-paying entry-level job, it's simply not something we can do for them. In trying to protect them, we destroy their ability to protect themselves.

mothWe pay handsomely to keep people poor. In 1982, enough of our taxes went toward social welfare programs to provide every poor family of four with an income of more than $46,000! (14) Instead of the poor getting this amount, however, approximately 74 cents of every dollar went to the welfare industry! (15)

With so much welfare going to middle-class administrators, the hard-core needy are literally left out in the cold. Those truly incapable of producing significant wealth, especially those who are mentally disabled, may end up among the increasing numbers of homeless. In San Francisco, where I lived for a year, many of those unfortunates roamed the parks and cities scrounging for food and shelter.

The housing problem that generates homelessness has been linked to the aggression of rent control, zoning restrictions, building codes, and construction moratoriums, all of which limit the availability of inexpensive housing. (16) When construction is limited and landlords can charge only a minimal rent, they naturally rent to only the most affluent tenants, rather than the poor who might be late in their payments. Once again, aggression hurts those it is supposed to protect.

The Easy Way Out

How can we take care of those truly in need without destroying the incentives and development of those who are truly able?

Many individuals are capable of creating wealth but are excluded from the job market by minimum wage and licensing laws. Much poverty can be alleviated by allowing people to create wealth at whatever level they can and "work their way up."

Guy Polhemus, a soup kitchen volunteer, realized that New York City's homeless might be able to create a little wealth for themselves by collecting beer and soda cans. (17) He started a non-profit organization, WE CAN, to redeem the cans and hired some of his earliest "customers" to help staff the fledgling business. Industrious collectors earn $25 to $30 a day by helping clean up the city's litter and reducing the garbage going into landfills. Some people have told Polhemus that scavenging cans was too degrading. Obviously, the homeless, who voluntarily participate, disagree.They choose to create what wealth they can. Polhemus was so impressed with their dili-gence that 12 of the homeless can collectors became WE CAN employees with full health benefits. Polhemus is starting new redemption centers to meet the demand. Now these employees will have a chance to work their way up into management.

Lupe Anguiano left the Department of Health, Education, and Welfare in frustration to create LET'S GET OFF OF WELFARE, which placed 42 San Antonio women into jobs. Six months later, the program had helped 500 women leave welfare for the work force. After one year, 88% were still employed. Anguiano is implementing her program in other cities too. She seeks funding from the corporate sector, because accepting government grants comes with so many regulations that not enough time is left to help the clients! Her training program costs less than $700 per person in 1973, while comparable public sector services ranged from $3,000 to $15,000.

In another case, 29-year-old Kimi Gray was approached by three teens who wanted to know how to get to college. Because she was a youth coordinator for the public housing project in which they resided, the teenagers thought she would know what to do. Kimi started a prep group, COLLEGE HERE WE COME, which met regularly. Twenty-five students drilled each other, practiced taking exams, and dreamed what seemed like a hopeless dream. Only two teens had ever left the housing development for college.

The enthusiasm of the determined students was catching, however, and soon the parents started a booster club to raise money through raffles, bake sales, and sundry other projects. Slowly but surely, the dream materialized. In August 1975, (17) youngsters left for out-of-town colleges amid the cheers and best wishes of the entire housing project.

COLLEGE HERE WE COME continues and boasts more than 600 students' success stories. Kimi Gray and other residents eventually convinced the city of Washington, D.C., to let them manage the public housing project where they live. Rent receipts went up by 60% and management costs went down by the same amount. Welfare and teenage pregnancy were cut in half, and crime fell by an incredible 75%. (19)

These success stories demonstrate that the poor and the homeless are capable of creating wealth. Our aggression destroys their opportunities. After crippling them financially, we offer to share the wealth we've created in the belief that they are helpless. Then we pat ourselves on the back for our generosity!

The best way to help the poor is to do away with the aggression that entraps them. For those who truly cannot support themselves and their loved ones, voluntary contributions of time and/or money would be more than adequate. For example, in 1984, individuals contributed $62 billion to charities. Eighty-five percent of the population makes some sort of donation, in spite of paying taxes for welfare. Almost half of all adults volunteer an average of 3 hours per week to charitable causes; the dollar value of this donated time is minimally estimated at $65 billion. The combined contributions of time and money by individuals to charitable causes exceeds the poverty budgets of federal, state, and local governments combined. (20)

The freedom from aggression that makes it possible to create great wealth also spurs Americans to generosity of spirit. Loving our neighbor comes more easily in a culture when we need not fear aggression from that neighbor! Loving our neighbor comes more readily when we are not accustomed to being aggressors ourselves.

 

 

 

 

 

 

 

 

 

 

 

 

 

The government laws that have proven most devastating, for many blacks, are those that govern economic activity. The laws are not discriminatory in the sense that they are aimed specifically at blacks. But they are discriminatory in the sense that they deny full opportunity for the most disadvantaged Americans, among whom blacks are disproportionately represented.

- Walter Williams, black economist

 

Economic control is not merely control of a sector of human life that can be separated from the rest; it is the control of the means for all our ends.

- Ludwig von Mises, HUMAN ACTION

 

No matter how worthy the cause, it is robbery, theft, and injustice to confiscate the property of one person and give it to another to whom it does not belong.

- Walter Williams, Professor of Economics, George Mason University

 

The fundamental fact in the lives of the poor in most parts of America today is that the wages of common labor are far below the benefits of AFDC, Medicaid, food stamps, public housing, public defenders, leisure time and all the other goods and services of the welfare state.

- George Gilder, WEALTH AND POVERTY

 

 

 

 

 

 

 

 

 

 

The more that is given, the less the people will work for themselves and the less they work, the more their poverty will increase.

- Leo Tolstoy, author of WAR AND PEACE

 

The combination of welfare and other social services enhance the mother's role and obviate the man's. As a result, men tend to leave their children, whether before or after marriage. Crises that would be resolved in a normal family way break up a ghetto family. Perhaps not the first time or the fifth, but sooner or later the pressure of the subsidy state dissolves the roles of fatherhood, the disciplines of work, and the rules of marriage.

- George Gilder, WEALTH AND POVERTY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Love is more than simply being open to experiencing the anguish of another person's suffering. It is the willingness to live with the helpless knowing that we can do nothing to save the other from his pain.

- Sheldon B. Kopp, IF YOU MEET THE BUDDHA ON THE ROAD, KILL HIM!

 

...we could end up in an absurd situation where a third of the population produces goods and services, another third are social workers and the last third are welfare cases and pensioners.

- Jens Aage Bjoerkeoe, Danish social worker

 

Cities with rent controls had, on average, two and a half times as many homeless people as cities without them.

- William Tucker, THE EXCLUDED AMERICANS: HOMELESSNESS AND HOUSING POLICIES

 

It's me using my own mind to do something for me. It gives me pride. It's not like we are living off welfare or stealing.

- Jack Miller, a WE CAN customer

 

 

 

 

 

 

 

 

 

 

 

Americans make really great sacrifices for the common good, and I have noticed a hundred cases in which, when help was needed, they hardly ever failed to give each other support.

- Alexis de Tocqueville, DEMOCRACY IN AMERICA