Many books have been written about poverty in the United States. Matthew Desmond makes an interesting contribution to that body of work by discussing poverty as an inevitable feature in our economy and society because of the way our economy and society operate. His take on the issue is presented in his recent book Poverty, by America.
Desmond provides this perspective.
“As estimated by the federal government’s poverty line, 12.6 percent of the U.S. population was poor in 1970; two decades later it was 13.5 percent; in 2010, it was 15.1 percent, and in 2019 it was 10.9 percent. To graph the share of Americans living in poverty over the last half century amounts to drawing a line that resembles gently rolling hills. The line curves slightly up, then slightly down, then back up again over the years, staying steady through Democratic and Republican administrations, rising in depressions and falling in boom years. There is no real improvement here, just a long stasis.”
He wishes to understand why, no matter what policies are implemented, the level of poverty remains consistent. He concludes that understanding the phenomenon requires us to look at ourselves and our society in a new way.
“To understand the causes of poverty, we must look beyond the poor. Those of us living lives of privilege and plenty must examine ourselves. Are we—we the secure, the insured, the housed, the college educated, the protected, the lucky—connected to all this needless suffering? This book is my attempt to answer that question, addressed to that ‘we.’ Which makes this a book about poverty that is not just about the poor. Instead, it is a book about how the other other half lives, about how some lives are made small so that others may grow.”
“Ending poverty will require new policies and renewed political movements, to be sure. But it will also require that each of us, in our own way, become poverty abolitionists, unwinding ourselves from our neighbors’ deprivation and refusing to live as unwitting enemies of the poor.”
Desmond is suggesting that many will be uncomfortable with the arguments he will present. His research has convinced him that poverty is not an accident. Rather, it is designed into our economy and society so that members of the upper classes can benefit.
“Tens of millions of Americans do not end up poor by a mistake of history or personal conduct. Poverty persists because some wish and will it to.”
He provides numerous examples of cases where low-income people are exploited, sometimes by the greedy, and sometimes by us with our “unwitting” approval. He also lectures us convincingly that welfare in our country is mostly aimed at providing benefits for the affluent, benefits that many of us enjoy that are not available to the poor.
Economists, bankers, politicians and religious leaders have all been complicit in developing an economic model that fosters the lowest wages possible for the working class in our nation. Workers in the upper classes all benefit from the cheap goods and financial returns that accrue from this system and are complicit as well.
There was a time when our workers benefited from their contributions as wages increased as their productivity increased. That correlation disappeared in the 1970s as productivity increases yielded stagnant wages. The connection was removed by a deliberate campaign to eliminate workers’ ability to unionize and negotiate their compensation.
“The United States now offers some of the lowest wages in the industrialized world, a feature that has swelled the ranks of the working poor, most of whom are thirty-five or older. Workers with a high school diploma made 2.7 percent less in 2017 than they would have in 1979, adjusted for inflation. Workers without a diploma made nearly 10 percent less.”
These figures might point to a conclusion that increased education would have improved economic outcomes, but that was not the intention baked into our economic system.
“In 1970, fewer than a third of young adults from families in the bottom 25 percent of the income distribution were enrolled in college; by 2020, roughly half were. Yet during this time, the share of decent-paying jobs fell and the share of poverty jobs rose, especially for young people. In 2020, almost a third of full-time workers between the ages of twenty-five and sixty-four who had earned at least a bachelor’s degree made less than the national medium ($59,371).”
Economists contributed to the wage stagnation with unfounded and untrue claims that increasing wages would harm workers by eliminating jobs and increasing costs of the goods they would have to purchase.
The economics profession is as polarized as our political parties. Economists, like judges, find it difficult to eliminate their political biases from their activities. The wage/jobs issue went untested for decades and became conventional wisdom. Even after numerous studies have disproved this notion, conventional wisdom persists. And everyone benefits except low-wage workers. Consumers with money to spend enjoy low prices for products, and businesses enjoy greater profits.
The next step to limit costs for workers would be to eliminate, where possible, the notion of an employee: convert employees into contract workers either from another firm or, even better, as “independent contractors.” This creates a barrier between actual employees and mere contract workers. The employees benefit from the pain imposed upon the contract worker and the barrier makes it more difficult for people hoping to one day merit better wages and better jobs.
“…capitalism is inherently about workers trying to get as much, and owners trying to give as little, as possible. With unions largely out of the picture, corporations have chipped away at the conventional mid-century work arrangement, which involved steady employment, opportunities for advancement and raises, and decent pay with some benefits. As the sociologist Gerald Davis has put it: Our grandparents had careers. Our parents had jobs. We complete tasks. That’s been the story of the American working class and working poor, anyway.”
“Today, temp agencies compete over who can offer the cheapest labor. OnContracting, a staffing agency, estimates that U.S. tech companies like Google and Apple can save an average of $100,000 each year per job by using their services.”,
“The rise of gig jobs is not a break from the norm as much as an extension of it, a continuation of corporations finding new ways to limit their obligations to workers. Platforms such as Uber, DoorDash, and TaskRabbit force their employees (sorry, their ‘independent contractors’) to assume more responsibility on the job—they must supply their own car, buy their own gas, cover their own insurance—while simultaneously subjecting those workers to heightened supervision. Some countries, including the United Kingdom and the Netherlands, have classified Uber drivers as full-time employees, which entitles them to basic protections like minimum wage and holiday pay, while other countries such as Hungary and Thailand, have banned Uber altogether. But in America, Uber drivers and other gig workers usually don’t get sick days, overtime, vacation time or worker compensation. They often aren’t covered by minimum wage laws or the National labor Relations Act, which regulates employment conditions, and are ineligible for unemployment insurance.”
The financial industry will immediately punish any firm that announces wage or employment increases with lower stock prices and diminished net worth, while rewarding in a similar fashion those who announced lower wages and benefits, and fewer employees.
Conservative economists, aided by conservative lawyers and judges, sold the fallacious notion that corporations legalized and supported by state governments in order to benefit state populations had no need to consider any issue except the benefits of their shareholders. This provided a legal, and even a moral excuse for any adverse effects imposed on their workers. This attitude has benefited the large population of shareholders. Generally, the higher the income, the greater the benefit.
“Who benefits from this? The shareholders, of course, but who are they? It’s tempting to view them as a group of men in pinstriped suits and power ties, gathered in some high-rise Manhattan boardroom. But over half of U.S. households are vested in the stock market (though it should be said that the richest 10 percent of families own over 80 percent of the total value of all stocks). We are shareholders, we lucky 53 percent who have a pension, a 401k, a 403b, or any other kind of investment—or we who have parents using 529 plans to fund our education or are enrolled in universities whose endowments pay for residential dormitories and study abroad trips. Don’t we benefit when we see our savings go up and up, even when those returns require a kind of human sacrifice?”
“Consumers benefit from worker exploitation too. We can now, with a few clicks, summon rides and groceries and Chinese takeout and a handyman, all at cut rates. We have become masters in this new servant economy, where an anonymized and underpaid workforce does the bidding of the affluent.”
Bankers made participation in their field more expensive for the poor by increasing fees and financial penalties, and limiting access to credit, driving them into the hands of outrageously expensive short-term lenders. They could have provided services that accommodated the needs of poor people at much lower cost, but instead chose to punish the poor with fees and penalties in order to concentrate on serving their wealthier customers.
“There are many ways to be exploited. When we are underpaid relative to the value of what we produce, we experience labor exploitation. And when we are overcharged relative to the value of something we purchase, we experience consumer exploitation. Our economic freedom is limited when we don’t have resources at our disposal. When we don’t own property or can’t access credit, we become dependent on people who do and can, which in turn invites exploitation because a bad deal for you is a good deal for me. When someone has us over a barrel, we are at their mercy.”
“Many writers have depicted America’s poor as unseen, shadowed, and forgotten people…But markets have never failed to notice the poor, and this has been particularly true of the market for money itself.”
“The deregulation of the banking system in the 1980s heightened competition between banks. Many responded by raising fees and requiring that customers carry minimum balances. In 1977, over a third of banks offered accounts with no service charge. By the early 1990s only 5 percent did. Big banks grew bigger as community banks shuttered, and in 2019, the largest banks in America charged customers $11.68 billion in overdraft fees. Just 9 percent of account holders paid 84 percent of these fees. Who were the unlucky 9 percent? Customers who carried an average balance of less than $350. The poor were made to pay for their poverty.”
Those with low and often irregular incomes who could not meet minimum balance requirements, or could not afford the inevitable fees, or who did not have easy access to a bank because of their location, created a market where money could be made exploiting these individuals.
“Where there is exclusion, there is exploitation. Unbanked Americans have created a market, and thousands of check cashing outlets now serve that market. Their formula is simple. Their first step is to open stores in low-income and non-white neighborhoods. As banks have fled Black communities, and as Black customers have sworn off banks, fringe institutions fill the gap…Payday loan stores and check cashing outlets are more prevalent in low-poverty Black neighborhoods than in high poverty white ones, but the reverse is true for traditional banks.”
“Four in five payday loans are rolled over or renewed…The average borrower stays indebted for five months, paying $520 in fees to borrow$375. Keeping people indebted is, of course, the ideal outcome for the payday lender. It’s how they turn a $15 profit into a $150 one.”
“Payday lenders do not charge high fees because lending to the poor is risky—even after multiple extensions, most borrowers pay up. Lenders extort because they can.”
“Every year: $11 billion in overdraft fees, $1.6 billion in check cashing fees, and up to $9.8 billion in payday loan fees. That’s over $61 million in fees collected from predominately low-income Americans each day—not even counting the annual revenue collected by pawn shops and title loan services and rent-to-own schemes. When James Baldwin remarked in 1961 how ‘extremely expensive it was to be poor,’ he couldn’t have imagined these receipts.”
The real-estate industry continues to buy up near worthless property and rent it to low-income workers at inflated rates, earning more on their investments than they could from higher-valued properties. Meanwhile, existing homeowners continue to fight against anything that would lower the value of their properties such as affordable housing initiatives in their neighborhoods, knowing full well that their bounty comes at the expense of the poor who endure rental rates rising faster than inflation.
“There exists a long history of slum exploitation in America. Money made slums because slums made money. What about today? Poor Americans continue to be crippled by the high cost of housing. Rent has more than doubled over the past two decades, rising much faster than renters’ incomes. Median rent rose from $483 in 2000 to $1216 in 2021. All regions of the country have experienced a surge in housing costs.”
“We need more housing; no one can deny that. But rents have jumped even in cities with plenty of apartments to go around…There’s another dynamic at work, one that has to do with the fact that poor people—and particularly poor Black families—don’t have much choice when it comes to where they can live. Because of that, landlords can overcharge them, and they do.”
“Across the United States, landlords in poor neighborhoods do not just come out ahead. After accounting for all their costs, they typically enjoy profits that are double those of landlords operating in affluent communities.”
Desmond tells the reader of the plight of a woman named Lakia who earned enough to purchase the property she was renting and save a lot of money each month, but there was no way to make that happen.
“Poor renters are also excluded from home ownership, not because they are too poor to make regular mortgage payments—if people can pay rent, they almost certainly can afford a mortgage—but because several factors discourage them from even trying…The rent was $950 a month…But if Lakia had bought that home under conventional terms, her monthly mortgage payment would have been around $577, inclusive of property tax and insurance fees.”
“Even if Lakia had a decent credit score, and even if she’d managed to save enough for a down payment, her chances of securing a mortgage for an affordable home would have remained slim because banks are not interested in financing the kind of homes she could afford. With no access to such mortgages, poor families must pay high rents on otherwise affordable homes. In the not-so-distant past (from 1934 to 1968) banks didn’t do business in poor and black communities because the federal government refused to insure mortgages there. Today, banks don’t do much business in these same neighborhoods because they can make more money elsewhere. Redlining may no longer be official U.S. policy, but poor and predominately Black neighborhoods, and even whole towns, continue to function as ‘mortgage deserts.’ If millions of poor renters accept exploitive housing conditions, it’s not because they can’t afford better alternatives; it’s because they often aren’t offered any.”
One might assume that a country with a large population living in poverty over an extended period would have formulated a coherent plan to address the issue, but that is nowhere near being true. Welfare policies for how to deal with the poor have long been embroiled in various cultural disputes: is being poor the result of personal failings or structural issues; assistance could create dependency; how important are various forms of racial or ethnic discrimination and bias. With two political parties with vastly different viewpoints, the result is an ineffective mess. Strict means testing produces a bureaucracy that inhibits access to benefits and makes the benefits less effective. Each state can control federal welfare funding differently. Since the poor have no political power, most social spending actually goes to assist the affluent.
“If you count all public benefits offered by the federal government, America’s welfare state (as a share of gross domestic product) is the second biggest in the world, after France’s. But that’s true only if you include things like government subsidized retirement benefits provided by employers, student loans and 529 college savings plans, child tax credits, and homeowner subsidies: benefits disproportionately flowing to Americans well above the poverty line. If you put aside these tax breaks and judge the United States solely by the share of its GDP allocated to programs directed at low-income citizens, then our investment in poverty reduction is much smaller than that of other rich nations. The American welfare state is lopsided.”
“Altogether, the United States spent $1.8 trillion on tax breaks in 2021. That amount exceeded total spending on law enforcement, education, housing, healthcare, diplomacy and everything else that makes up our discretionary budget. Roughly half the benefits of the thirteen largest individual tax breaks accrue to the richest families, those with incomes that put them in the top 20 percent.”
“Today, the biggest beneficiaries of federal aid are affluent families. To benefit from employer-sponsored health insurance, you need a good job, usually one that requires a college degree. To benefit from the mortgage interest deduction, you need to be able to afford a home, and those who can afford the biggest mortgages reap the biggest deductions. To benefit from a 529 plan, you need to be able to squirrel away cash for your children’s college costs, and the more you save, the bigger your tax break, which is why this subsidy is almost exclusively used by the well-off.”
“…we members of the protected classes—have grown increasingly dependent on our welfare programs. In 2020 the federal government spent more than $193 billion on homeowner subsidies, a figure that far exceeded the amount spent on direct housing assistance for low-income families ($53 billion).
There is little bureaucracy between the affluent and their subsidies. They are easily attained, and their utilization is near universal. A different situation exists for the poor and the benefits for which they are eligible.
“If you dig into the data, you quickly realize that the problem isn’t welfare dependency but welfare avoidance. Simply put, many poor families don’t take advantage of aid that’s available to them. Only a quarter of families who qualify for Temporary Assistance for Needy Families [TANF] apply for it. Less than half (48 percent) of elderly Americans who qualify for food stamps sign up to receive them. One in five parents eligible for government health insurance (in the form of Medicaid and Children’s Health Insurance Program [CHIP]) do not enroll, just as one in five workers who qualify for the Earned Income Tax Credit [EITC] do not claim it…At the height of the Great Recession, one in ten Americans was out of work, but only one in three drew unemployment.”
“There are no official estimates of the total amount of government that goes unclaimed by low-income Americans, but the number is in the hundreds of billions of dollars a year.”
One of Desmond’s discoveries was that federal welfare program funds often never reach the people they are intended to help.
“When welfare was administered by the Aid to Families with Dependent Children program, almost all of its funds were used to provide families with cash assistance. But when President Bill Clinton reformed welfare in 1996 replacing the old model with Temporary Assistance for Needy Families (TANF), he transformed the program into a block grant that gives states considerable leeway in deciding how to distribute the money. As a result, states have come up with rather creative ways to spend TANF dollars.”
“Nationwide, for every dollar budgeted for TANF in 2020, poor families directly received just 22 cents. Only Kentucky and the District of Columbia spent over half of their TANF funds on basic cash assistance. Of the $31.6 billion in welfare funding, just $7.1 billion was realized as dollars-in-hand relief to the poor.”
“States aren’t required to spend all of their TANF dollars each year, and many don’t, carrying over the unused money into the next year. In 2020, states had in their possession almost $6 billion in unspent welfare funds. Nebraska was sitting on $91 million. Hawaii had $380 million, enough to provide every poor child in the state with $10,000. Tennessee topped the list with $790 million.”
Allowing individual states to arrive at their own welfare policies is a foolish policy. Many states are still driven by centuries-old racial policies that drive them to limit welfare spending for all poor people just to make sure not much money reaches undeserving Black people.
Desmond’s work provides a picture where funds are headed toward poor people in a “leaky bucket,” while funds are directed to the affluent in a raging river. He provides his feelings on the matter in what serves as an apt conclusion to this essay.
“Help from the government is a
zero-sum affair. The biggest government
subsidies are not directed at families trying to climb out of poverty but
instead go to ensure that well-off families stay well-off. This leaves fewer resources for the
poor. If this is our design, our social
contract, then we should at least own up to it.
We should at least stand up and profess, Yes, this is the kind
of nation we want. What we cannot do
is look the American poor in the face and say, We’d love to help you, but we
just can’t afford to, because that is a lie.”
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