Reducing Poverty

September 11, 2012
Posted by Jay Livingston

The poverty rate in the US in the mid-2000s was about 17%.  In Sweden, the poverty rates was 5.3%; in Germany, 11%.   That was the rate after adding in government transfers.  In Germany, the poverty rate before those transfers was 33.6%, ten points higher than that in the US.  Sweden’s pre-transfer poverty rate was about the same as ours.

Jared Bernstein has this chart showing pre-transfer and post-transfer rates for the OECD countries.

(Click on the chart for a larger view.  Or see it at Jared Bernstein's blog.)

Three  points:

1.  Governments have the power to reduce poverty, and reduce it a lot.  European governments do far more towards this goal than does the US government.

2.  It’s unlikely that America’s poor people are twice as lazy or unskilled or dissolute as their European counterparts.  Individual factors may explain differences between individuals, but these explanations have little relevance for the problem of overall poverty.  The focus on individual qualities also has little use as a basis for policy.  European countries have fewer people living in poverty, but not because those countries exhort the poor to lead more virtuous lives and punish them for their improvident ways.  European countries have lower poverty rates because the governments provide money and services to those who need them. 

3.  The amount of welfare governments provide does not appear to have a dampening effect on the overall economy.


Bob S. said...

#1 -- is it the responsibility of the government to reduce poverty?
Or is it just the responsibility of the government to make it possible for each individual to reduce their own poverty?

If it is the responsibility of the government -- what is the minimum amount of money each person should make?

Is there a maximum amount a person should make?

2. What is your point here?
That Europeans aren't poor because other people are rich and provide for them?
That is what it certainly sounds like. How is this a good thing?

3. What about the individual dampening effect? I know I could be doing more, spending more, studying more, helping more people IF I was allowed to keep more of my own money and I'm not even in the highest tax brackets.

Where do we draw the line on the government's power to help individuals versus helping society in general?

Roads help everyone in society, national defense is a general category -- income redistribution, not so much wouldn't you agree?

Bob S. said...

And also, there is the varying levels of "poverty". The article referenced "50% of Median Income" for each country.

But the data wasn't listed as to what that income was.

Using 2007 OECD data:
Sweden - 22,889
Denmark - 22,461
Austria - 24,114
Norway - 31,011
France - 19,615
Finland - 20,875
Netherlands - 24,024
United Kingdom - 25,168
Switzerland - 26,844
Belgium - 21,532
New Zealand - 20,679
Germany - 21,241
Italy - 16,866
Canada - 25,363
Australia - 26,915
Greece - 15,758
Spain - 18,391
Ireland - 24,677
Japan - 19,432
United States - 31,111

Wow...quite a range there. Am I reading this right; that poverty in America is around the MEDIAN income for Greece and Italy?

Jay Livingston said...

#1. [Role of govt] European governments tends towards the former (govt.); the US towards the latter (leave individuals to fend for themselves). European countries have fewer people in poverty, especially children. That doesn’t seem like such a bad thing to me.

#2. [Minium] Ideally, enough to afford the package of goods that allows one to feel that one is part of society. When you ask people, “What’s the minimum income it takes to get by around here?” the numbers you get turn out to be pretty close to 55-60% of median income. The measure of poverty should be relative, not absolute.

Yes. Should the government set that limit? No. Should taxes be progressive so that richer people pay a higher rate? Yes. (The rich certainly should not pay a lower rate, but, as Romney and Buffet demonstrate, they do.)

2. [Is govt providing for poor a good thing?]
See #1.

3. [Dampening] It’s a choice. To provide health care, education, nutrition, etc. to people who could not otherwise afford it vs. leaving individuals, including children, to go without those things.

[helping everyone or just some] See the WaPo graphic on tax expenditures – the poor are not the only ones who benefit from govt breaks. As for aiding the poor, I would prefer a society that leaves the poor, esp. children, on their own.

4. [median income differences – I’ll take your word on the accuracy of the numbers.] That’s why I prefer a relative definition of poverty (see #1 above). You could tell a Greek family earning $20,000 that they’re not really OK economically because by US standards they’re in poverty, but that information would not be relevant to them.

Bill Cover Insurance said...

Let us all be confident that European poverty rate have lessened down.