Rethinking America

Getting Serious About Poverty, Inequality, and Economic Growth

by Morgan D. Kauffman

[This is a draft; feedback is welcome, but please do not distribute it without permission.]

Part One

 Chapter 1 – Why care about poverty?

This chapter introduces the central argument of the book: entrenched poverty and growing inequality in the U.S. are hurting not just those at that bottom, but our entire society, reducing economic growth and political legitimacy and making the U.S. less competitive in the world.

The cost of allowing these problems to continue to grow for another generation is unacceptable. We have the means to solve these problems if we are willing to get serious about them, but piecemeal reforms have failed repeatedly. The only way to deal with the problems we face is a deep, well-integrated set of reforms that address the systemic issues that created them.

Chapter 2 – An historical perspective

The US has had a unique economic history, and our modern relationship with and attitudes towards poverty have been influenced a great deal by that history. To set the stage for the rest of the book, this chapter is a brief history of poverty in the US, and our attitudes toward it, from colonial times through the present.

Chapter 3 – Defining success

Any attempt to change the situation needs a metric to measure how well the proposed solutions are working. Chapter 3 lays out what the short- and long-term goals of any serious attempt to deal with poverty need to be, as well as the “signposts” that we need to pass on the road to solving these problems.

Chapter 4 – Why now?

What makes this decade and the next so important, when it comes to poverty? The events and trends of the past twenty years have created a nexus of demand for solutions and a window of opportunity to get solutions implemented. That window will only stay open so long, and if we fail to implement the solutions America needs, we’re going to feel the pain of that failure for many generations to come.

Part Two 

Chapter 5 – The poverty trap

Persistent, multigenerational poverty exists because our society, intentionally or not, makes it very hard for the poor to get education and employment, and to accumulate the financial and other resources needed for upward mobility. These systemic roadblocks keep people from climbing up the income ladder. This chapter gives an overview of these issues and acts as an introduction to Part 2, which covers in detail some of the most significant factors that contribute to poverty.

Chapter 6 – Welfare, taxes, and the issue of incentives

In the words of The Economist, “The American welfare system manages to be both stingy and to disincentivise work.” Chapter 6 covers the ways in which the tax and welfare system in the U.S. fails to fulfill its intended purpose, how its structure discourages marriage and work, and how it encourages a variety of poor life choices for low-income Americans.

Chapter 7 – Jobs and the working poor

Jobs are, obviously, one of the defining issues when talking about poverty. This chapter addresses the current state of the labor market, the barriers that low-income workers face in finding and keeping a job, and the hurdles that keep employers from hiring the way they would like to.

Chapter 8 – Family, marriage, and parenting

Persistent poverty almost invariably involves dysfunctional family units. In particular, having too many children too soon and outside of marriage not only makes the parents poorer, it also often locks the next generation into repeating the cycle. This chapter surveys the significant rise in the single-parent family and its implications, the divergence between the marriage and child-bearing habits of upper- and lower-income Americans, and the difficulties that many American children must overcome as a result.

Chapter 9 – Early childhood

Some of the most severe problems that poor children must deal with are the stressors they endure in early childhood – stressors that leave scars that last their whole lifetime. We have learned a lot in the last few decades about how crucial the first years of life are, and about the impacts of growing up poor on young minds. This chapter covers those impacts, focusing on how they work to “lock in” poverty for those who are born into it.

Chapter 10 – Education

After family circumstances and early childhood development, education stands as the great differentiator between the children who escape poverty and those who do not. The 18th and 19th century movement toward universal free education is what powered economic growth and made the U.S. the leading economic power in the 20th century. Unfortunately, our educational system has stagnated badly since the 1960s. It is failing to give many American students of limited means the education that they need to get good jobs, and it is failing to provide the skilled workforce needed to keep productivity rising and to keep the American economy competitive in an increasingly well-educated world.

Chapter 11 – Health & healthcare

The American healthcare system plays a major part in the poverty trap. In simplest terms, being poor makes you sicker, and being sick very often makes you poor. This chapter covers the ways in which this happens, and the ways in which stress, pollution, poor nutrition, and the lack of access to health and dental care interact with the other parts of the poverty trap.

Chapter 12 – Mobility, and the importance of place

Where you live, where you work, and how able you are to change either of those, are important factors in how likely you are to escape from poverty. Growing up in a toxic community can be as damaging as growing up with abusive parents or going to school at a dropout factory. This chapter looks at the impacts that place can have on low-income Americans, and the trap that is created when well-intentioned welfare rules combine with a lack of savings and a shortage of affordable housing to prevent people from moving to a safer or more economically beneficial community.

Chapter 13 – The justice system

The justice system in American fails to live up to our ideals of equal justice for all. Poor communities generally lack the tax base to support effective policing, and police and courts often adopt a “policing for profit” model to make ends meet. This results in the police force in poor communities becoming more of a predatory gang or occupying army, extracting as much as it can in terms of fines and fees, while doing little to “serve and protect.”

In combination with the disastrous “War on Drugs” and other laws, legal customs, and incentive structures that have built up over the past century or more, this is creating another piece of the poverty trap. Soaring arrest and incarceration rates have severely impacted families and communities, reducing access to education and jobs, and putting millions of children at risk.

This chapter looks at the historical factors that have led to this situation, describes some of the most important ways in which the justice system is failing, and examines how those failures are reinforcing poverty and inequality.

Chapter 14 – Economic growth

Permeating any discussion of poverty has to be an understanding that poverty cannot be dealt with without prosperity. The US is going through a period of low growth as a result of declining labor force participation and the slowing in the rate of productivity growth. This chapter discusses the most serious problems that are slowing our economy down, the ways that poverty is both a cause and a consequence of lower growth, and the opportunities we can create by reversing that vicious circle.

Part Three

Chapter 15 – Wicked Problems

All of the problems described in Part 2 interact with each other in complex ways. Taken together, they form what systems thinkers call a “wicked problem,” one that must be addressed as a whole, rather than piece-by-piece. In this case, most proposed solutions to individual parts of the problem would actually make other parts of the problem worse. As just one example, it is easy to come up with theoretical solutions to problems if money is no object, but lavish spending on a “solution” that has a poor return on investment has the effect of starving the economy of resources for solving other problems.

This chapter introduces Part 3 by describing the sheer complexity of the wicked problems we’re facing and outlining a cohesive set of proposals to address these problems and create a sound foundation that we can build on for America’s next century.

Chapter 16 – Looking Ahead

It is not enough to solve the problems of the past. Any viable solution has to make sense in years to come. This chapter addresses four developing problems that will impact any solution set: climate change; rapid technological changes affecting privacy and identity security; the need for more effective tools for fiscal and monetary management; and our economy-wide structural bias toward destabilizing levels of debt.

Chapter 17 – Tax and welfare reform

This chapter describes a proposal to radically reform our tax and welfare systems. It is intended to be a fiscally responsible proposal, without depending on fanciful assumptions about economic growth. It replaces most of the existing multilevel tax and welfare system with: a greatly simplified system of taxes on income, consumption, and assets; a refundable tax credit to every American citizen that provides a universal safety net and makes the whole system progressive; a universal education, nutrition, and healthcare subsidy for children from birth to age 20; and significant support for local governments on a per capita basis.

Chapter 18 – The impacts of tax and welfare reform

This chapter examines the impact of the proposed system on individuals, families, businesses, and communities in various economic circumstances, contrasting their position under the reformed system with their current situation. It also addresses the effect of the proposed reforms on education, health care, economic growth, and social and political cohesion.

Chapter 19 – Human development

Poverty and inequality are generational issues. Solving them means investing heavily in the next generation. We know that doing so is necessary, and that it has an exceptionally high return on investment. What we need is a system that allows us to provide EVERY child in America with the equivalent of a basic middle-class childhood environment and education.

Between public and private spending on education, child care, health and dental care, nutrition, and other essential services, we already spend more than $3 trillion a year on our children, yet we do it so inefficiently that almost a quarter of our children grow up without the health, knowledge, and skills needed to be productive adults in a modern society. This chapter describes in detail how we can restructure the economics of childhood and education to enable the human capital portion of the reform package, from newborns through post-secondary students.

Chapter 20 – Drugs, cops, and justice

There are a wide variety of reforms needed in the justice system, at all levels of government. Chapter 20 focuses on the two reforms that are necessary for other reforms in this domain to succeed.

The first involves radically changing the way we finance local government by creating a “safety net” with a per-capita share of a national goods & services tax. The goal is to ensure that every community can afford honest and competent police and courts. The second requires ending the “War on Drugs,” legalizing cannabis, and adopting a “harm-reduction” and treatment model for most currently-illegal drugs.

Chapter 21 – Employment, mobility, housing, and infrastructure

The reforms spelled out in Chapters 16-20 already address some of the essential elements in this cluster. Getting all Americans into the banking system will enable poor people to save money securely, giving them better reserves for coping with setbacks, or for moving to a place with better opportunities. And replacing means-tested welfare and public housing with a universal tax credit and child development voucher system will reduce evictions, remove structural restraints on mobility, and allow far more people to obtain affordable housing.

However, the heart of this chapter focuses primarily in how we should finance and manage the long-overdue repairs to our national infrastructure, and do it in such a way that it creates jobs, increases productivity, and enhances economic growth. The chapter also addresses two specific limitations on employment and mobility. The first is the abuse of zoning that creates wide-scale economic segregation and forces the poorest workers to live far from employment opportunities. The second is the abuse of professional licensing to create closed guilds where there is no compelling public interest.

Chapter 22 – Demography and immigration

This chapter addresses a wide range of issues relating to what size, age structure, family structure, and skill profile we want for the population of the U.S., and how we can achieve the desired results. The primary emphasis is on how we should reform our immigration system. The secure identity system described in Chapter 16 provides a tool for effectively eliminating illegal immigration. What is needed in addition to that is a system for attracting and selecting highly educated and motivated immigrants who fill the right demographic and economic niches, categories where we are not producing enough people domestically. This chapter describes a set of immigration goals and policies and a system for implementing them in a way that will enhance economic growth and stability, while reducing the social strains that poorly managed immigration can create.

Part Four

Chapter 23 – Implementation

The reforms proposed in this book rival the reforms from the New Deal in breadth and depth. We’re talking about scrapping multiple, interconnecting, massively complex regulatory and bureaucratic systems and starting over with a complete redesign from the ground up. Assuming that we can find the political will for reforms of this scale, this is still not something that can or should be done haphazardly. This chapter therefore addresses strategies for implementation, including ways to sequence the reforms to make the transition process as smooth as possible.

Chapter 24 – Conclusion

This chapter begins with an economic analysis of the proposed reforms. In simple terms, can we afford to do this? And the answer is yes. A careful analysis shows that we can eliminate poverty, reduce inequality, AND increase economic growth without exploding the debt or engaging in class warfare.

This is possible because the proposed reforms were designed around policies that have been proven to have a high return on investment. In some cases, such as the end of the War on Drugs, all that is necessary to realize a considerable economic benefit is to stop shooting ourselves in the foot. In other cases, such as tax reform and universal day care, the benefits will take a few years. And the full benefits of universal early childhood education will take a generation. But in every case, the net present value of the benefits is higher – often far higher – than the cost.

We can afford to do it. More importantly, we can’t afford to NOT do it. The consequences of “kicking the can down the road” yet again will be dire.

The reforms outlined in Part Three are not the only way to solve these problems. Other people may be able to come up with reforms that are easier to implement that will still do the job. But whether or not we manage to pull together enough political will to pass the reform package I’ve described in this book, we can’t afford to keep working under the belief that solving one problem at a time is an option. The issues America is grappling with are, at this point, too complex and interconnected to be solved that way.

The chapter concludes with a long-form summary of this point, one of the most important points of this book: whatever the eventual solutions we come up with to deal with the problems America is facing, we have to understand and respect how complex and interconnected they are, how they form an interlocking “wicked” problem, one that requires a coherent, integrated set of solutions that takes the whole mess into account.

If we continue to treat America’s problems as a bunch of separate potholes that can be patched repeatedly, one at a time, piece by piece, with no deep structural reforms, those problems will continue to resist our attempts to solve them and will continue to fester, generation after generation. We cannot afford to let that happen; we need to shift our perspective, and truly appreciate the complexity of the challenge before us.