What is income mobility and the definition of poverty?

In his column on Sunday, Randy Edelman of Georgetown University asks why the United States can’t end poverty, but he ignores some basic truths regarding income mobility and those who start life below the poverty line. As his solution to the poverty issue, the 74-year-old Edelman pushes the same liberal policies that have never lifted anyone out of poverty and have kept entire groups in poverty for decades. Also, he doesn’t lament the number of dependent citizens and how to help them stand on their own, but rather how to get more people on the government handout list.

It’s impossible to tackle every fallacy in this column in one blog post, so what we will tackle is his underlying assumption that the United States is a static economy where the pie never grows and can only be redistributed between people permanently entombed in a particular class.

Edelman begins his column with a series of interesting statistics that are nothing more than a snapshot of income values at any given moment. He doesn’t quite define where he’s coming from until about three-quarters of the way through the column, where he recites a portion of the liberal litany of social justice:

We know what we need to do — make the rich pay their fair share of running the country, raise the minimum wage, provide health care and a decent safety net, and the like.

This amounts to no more than a series of bandaids that don’t heal any wounds and ignore a basic reality of the economic spectrum.

Thomas Sowell has frequently reiterated the fact that most people who are in the bottom quintile of the income spectrum tend not to stay there, and people in the top quintile of the income spectrum tend not to stay at the top. The following graphs illustrate this point clearly: 

Upward mobility from 1996-2005
Downward mobility from 1996-2005
Income mobility from 2001-2007

(H/T to Carpe Diem)

We do not have permanent class structures in the United States. The hippies who backpacked penniless to Woodstock in the 1960s are the millionaire politicians and businessmen of today. The people who sell their houses for half a million dollars one year do not repeat that process the next.

Every year, a fresh group of young and inexperienced Americans starts out in the workforce. They do not possess the experience or skills that would make it worth hiring them at governmentally mandated higher rates. Making it more expensive to hire them results in more Americans who do not learn the basic and most fundamental aspects of keeping a job, nor the work ethic to advance within that job, thus elevating them to higher income brackets.

Where the minimum wage is raised beyond a business’s ability to hire additional workers, businesses unsurprisingly hire fewer workers. This also happens with middle class jobs that are made more expensive due to government regulation and taxation. Denying people access to jobs by making it unaffordable for employers to hire them is the real driver of perpetual poverty.

When government makes “rich” business owners “pay their fair share,” that money that is taxed out of their earnings goes to government instead of going to workers or to other businesses for services that those businesses’ workers provide. When government turns around and hands that money out to the unemployed with no strings attached, the government is essentially acting as the redistributive middle man in a system where instead of business owners paying employees to perform productive work, the businesses are paying government to pay the would-be employees to not work.

In society, the truly sick and needy will always be with us, and as a compassionate society, we ought to have a social safety net to care for these individuals who are truly incapable of helping themselves. This is not the bulk of the recipients of government handouts. Creating more government programs that take from productive people and give to unproductive people, or people who are struggling because they made bad life choices, is unfair and only encourages more of the bad decision making.

Finally, a critical aspect of this conversation is the definition of “poor” and “poverty.” Edelman is not alone in writing on this topic, and recent news stories have noted rising numbers below the poverty line as well as outlandish numbers such as 100 million Americans in poverty.

Income statistics are frequently cited as being solely indicative of someone being “poor.” Yet making $50,000 a year in the United States is not the same as making $50,000 a year in Sudan. Making $50,000 in the internet age is different than making $50,000 a year in the horse and buggy age.

The quality of life, technological advancement of a society, and industry’s ability to produce vital services at economized rates is a vastly underrated aspect of living in the United States and undervalued aspect of whether an individual is “poor”. Of the millions of people on food stamps, how many own a smart phone? How many own a car? How many have a flatscreen television or Playstation 3?

The most basic definition of economics is the allocation of scarce resources that have alternative uses. In other words, life is a series of tradeoffs. Choosing to use money for these other amenities because the government is giving you food stamps does not mean you can’t afford food. For those that are capable of providing for themselves, it’s not reasonable or sustainable to ask everyone else to pick up the tab so you can live a lifestyle you can’t afford. Otherwise, we see economic catastrophes such as the financial collapse of 2008, where subprime borrowers bought houses they couldn’t afford, Wall Street issued loans it couldn’t afford, and all this was backed by the government with a wink and a nod.

The majority of people in lower income brackets eventually work their way up to the middle class. A thriving middle class is created by a healthy market that grows the economic pie and allows room for more members of the middle class, not by redistributive socialist policies that result in government taking from producers and giving to non-producers.

In discussing Republican policies that follow this line of thinking, Edelman throws out this bit of glibness:

Robin Hood would turn over in his grave.

As noted previously on this site, Robin Hood would be more likely to turn over in his grave if he found out he was an IRS agent collecting taxes for King John. And when Robin Hood calls on his Merry Men to help him collect, he’ll find they’re all too busy texting and driving on the way to the local pub to pay him any heed.

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4 thoughts on “What is income mobility and the definition of poverty?

  1. 1. The rich, who own businesses that operate on the infrastructure of the United States, should pay to keep that infrastructure working. Its practically an upkeep cost.
    2. Income inequality doesn’t cause growth, income mobility, which inequality is, at first, a side effect of, is what causes growth. Further income inequality inhibits income mobility, so in the long run, inequality itself is actually bad.
    3. Don’t you think that workers should be able to pay for their shelter, food, etc? If workers can’t sustain themselves, how do you think they are going to hold jobs?
    4. The government DOES NOT hand out money to the unemployed with no strings attached, they (the unemployed) have to be in a work related activity to get the money. At that point, redistributive policies decrease dependency and increase human capital investments and productivity.
    5. The GSE and CRA loans backed by the government were often less risky and were, therefore, better trade offs than the loans that the deregulated, government free banks made.

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    • 1. Everyone should pay to keep the infrastructure working, but only the top half of earners are actually paying (payroll tax theoretically goes toward social security). Moreover, they should get credit for paying.
      2. The gap between top and bottom is a moral issue in regards to where the bottom is, not to where the top is or the distance between the two. There should be no cap at the top, and everyone should have the opportunity to go as far as they can take themselves. Push the bottom up; don’t push the top down.
      3. That is the ideal, but it would require several posts unto themselves to fully respond to that. There are a number of factors (personal decision making, cultural destruction, age, etc.) that play into that.
      4. “States reported zero hours of participation in qualified activities for 54.6 percent of families.” Only 29.4% fully met the work requirements. http://www.acf.hhs.gov/programs/ofa/data-reports/annualreport9/9th_report-to-congress_3-26-12.pdf
      5. Less risky for whom? Fannie Mae and Freddie Mac are a money-losing mess. The risk isn’t gone; it’s been socialized, which is the problem. We’ve essentially codified into law the privatization of gain with the socialization of risk and loss, which will only continue to encourage even riskier behavior.

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