President Barack Obama is both over-simplifying and needlessly complicating the issue of poverty when he calls “income inequality” the “defining issue of our time.” Poverty is a complicated problem that can’t be measured by income variables (for example, when everyone is broke, income inequality is zero).
At the same time, Obama is needlessly complicating the issue. We know what causes cyclical poverty, just as we know, in most cases, what helps lift families out of poverty: jobs.
Economist Aparna Mathur of the American Enterprise Institute explains that income inequality is an all-but-useless metric.
“The fundamental issue is about poverty, and not about whether incomes at the top are 10 or 15 times higher than for the bottom,” she explains. “While these latter statistics may serve a useful political end in stoking class wars, they do little to help people in need. Aside from the fact that reducing income inequality per se is an ill-defined goal, a very basic issue with defining the problem of income inequality is the lack of a consistent measure of household income.”
Depending on how you define income, inequality is either rising or falling. But really, that’s a distraction.
“I would argue that the focus on income inequality is somewhat misplaced,” Mathur says. “This is essentially a problem of poverty. And when these high rates of poverty exist in an economy with low economic mobility as is true of the U.S., the problem is exacerbated.”
The great virtue of an income inequality paradigm is that seems as if it’s easily solved — simply redistribute income.
But history can produce no evidence that solution actually works. Higher tax rates on the “rich” inevitably mean there are fewer rich, but rarely does this result in fewer poor.
Poverty instead must be addressed head-on. And that’s relatively simple, because after 50 years of waging a “war on poverty,” we have a pretty good idea what works.
“Access to high quality education and schools is extremely important as an investment into children’s futures,” notes Mathur. “Poor quality schooling can limit an individual’s earning ability. Research has shown that the quality of local public education is improved in areas where there is more competition due to a large number of school districts or a greater availability of nonpublic education.”
Jobless benefits alone won’t help in the long run.
“It is simply not enough to keep extending benefits if at the end of the benefit period, the worker is still unemployed,” she says. “The goal of any such program should be to train the worker to transition to a new job, rather than to simply provide cash benefits to allow them to meet their basic needs for a limited time period.”
If poverty could be defined as not having money, then any form of cash assistance could solve the problem. It can’t, so it doesn’t.
“The bulk of the evidence suggests that programs that enable people to work or transition to work are more effective at fighting poverty, than simple cash assistance programs,” Mathur contends.
It’s really not that complicated.