Earlier this month, the President's Council of Economic Advisers (CEA) declared that the War on Poverty launched by President Lyndon Johnson in 1964 is "largely over and a success." Although it is premature to declare an outright and absolute victory, it's great that policymakers at the highest level of government recognize that our social safety net programs are working.
But if we are to continue to reduce hardship and promote mobility from poverty through access to good jobs, work and other means, we have to understand the nature of poverty today. It's important that we draw the right lessons from the past so we don't underestimate our current challenges and cede our hard-won progress in the War on Poverty.
Let's start with the good news in the CEA report: material well-being in the United States has improved considerably. The poverty rate has also declined over the last few decades, although you wouldn't know it if you looked just at the official poverty rate, which has not fluctuated greatly since the 1960s, ranging from 10 to 15 percent.
The official poverty rate draws a threshold based on food consumption patterns from the 1950s and considers only pretax cash income as available resources. Consequently, the official poverty rate understates both the needs of today's families and the resources available to them. In fact, two of our largest sources of support to low-income families—the earned income tax credit (EITC) and the Supplemental Nutrition Assistance Program (SNAP)—don't count in our official poverty measure.
Recognizing the limitations of the official poverty measure, the Census Bureau developed a supplemental poverty measure (SPM) in 2009 that better captures needs and resources.
When researchers extended the SPM back in time, they found that the poverty rate dropped from 26 percent in 1967 to 16 percent in 2012 and to about 14 percent in 2016, more accurately capturing poverty's downward trend than does the official poverty measure. In addition, without SNAP and refundable tax credits, the poverty rate would have been 3.7 percentage points higher than it was in 2016. Expansions of the EITC and SNAP have alleviated poverty in ways the SPM reflects and the official poverty measure misses.
The "too good to be true" news from the CEA is that the poverty rate declined from 30 percent in 1960 to just 3 percent in 2016 when applying a "consumption-based" poverty measure, which measures what a family consumes instead of how much income it earns. A consumption-based poverty measure has some merit. After all, a family with no income but substantial assets would be considered "income poor" but could be consuming at comfortable levels.
Because there is no official measure of consumption-based poverty, the CEA relies on the work of economists Bruce Meyer and James Sullivan. To develop a consumption-based poverty rate, Meyer and Sullivan need accurate data on consumption and a meaningful standard for how much a family needs to consume to have a minimally adequate standard of living. Some scholars have expressed concerns about the data Meyer and Sullivan use to construct their consumption-based poverty rate.
Those concerns aside, the consumption-based poverty rate from Meyer and Sullivan that the CEA cites is indexed to 1980, an arbitrary threshold that might understate the hardship and need families experience today. Using this measure allows the CEA to suggest that poverty isn't much a problem in the US today.
Drawing a meaningful threshold for consumption-based poverty is a challenge—for example, when the authors equate the consumption and official poverty rates in 2015 and then apply their techniques backward, they find that nearly 40 percent of Americans were poor in 1980, and nearly 60 percent were poor in 1960. Those levels are too high to be a meaningful indication of overall hardship in those years. Similarly, the 3 percent figure touted by the CEA for 2016 is too low.
Further, crossing a given consumption threshold does not mean you have the power and control over your resources and life to not be "poor." Exposing yourself or your children to a potentially abusive situation just to have a roof over your head or trading sex for food or income might keep you out of consumption poverty, but you are still poor.
Although it's too soon to declare the War on Poverty over, it is important to recognize the progress we have made and the important role our antipoverty programs such as SNAP and EITC have played in that success. Use of a consumption-based poverty measure should neither lead to a misguided belief that the War on Poverty has been won nor justify making major changes—however well intentioned—to safety net programs that risk cutting people off from the very programs that have kept them out of poverty.
Well-designed reforms that help recipients overcome their barriers to work, supplement and support their efforts to work, and recognize that some recipients will be limited in the amount and type of work they can do can help us make even more progress against poverty.
For the most part, reporting on 2nd quarter growth has been pretty decent. But I haven't seen clear explanations of why one quarter's growth tells us so little about longer-term growth prospects. I'm sure that reporters get it; maybe they assume that readers already know (a very bad assumption), or maybe they're afraid of sounding too technical. But anyway, it seems as if there's a gap worth filling; so here it comes.
The key point when you look at real GDP is that the economy's actual output depends both on its capacity – the amount it is capable of producing on a sustained basis – and the rate at which it is using that capacity. That is,
Output = capacity * capacity utilization
CBO actually produces an estimate of capacity – "potential GDP" – which you can argue with, but is a useful benchmark. And you can look at the ratio of actual GDP to potential, which is an indication of how hot the economy is running:
Why does capacity utilization fluctuate? Mainly because the economy sometimes suffers from periods of inadequate demand, as it did after the 2008 financial crisis. Sometimes, also, the economy overheats, reaching levels of capacity utilization that will lead to rising inflation. The Fed thinks we're in or near to that state now, although many economists disagree. Whoever's right, the point is that there's some limit to how hot the economy can run.
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Now, suppose that for whatever reason capacity utilization rises. This will generate a period of rapid growth. To take a not at all arbitrary example, suppose that capacity is growing at a 2 percent annual rate, and capacity utilization rises 0.5 percent over the course of a quarter. Then growth in that quarter will be at an annual rate of 4 percent (because half a point in a quarter is two points at an annual rate.)
This, however, says nothing at all about whether the economy can achieve 3 or 4 percent growth over a longer period, say a decade. That would require evidence of an acceleration in the growth of capacity.
So does 2nd quarter growth say anything at all about the Trump economic agenda? The tax cut probably helped give the economy a bit of a bump: massive deficit spending will do that. (Obama could have presided over a much more rapid recovery if Republicans hadn't insisted that deficits and debt are vast evils – but only when a Democrat is in the White House.) But deficit-based Keynesian stimulus wasn't how the tax cut was sold, and isn't a basis for sustained growth.
In short, one quarter's growth is a nothingburger. The real news is that we're still waiting for both the investment surge and the wage gains the tax cutters promised; as far as we can tell, they're never coming.
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One of the most fascinating things, to me, about the current moment and the revival of socialism is how the whole question of democracy—not substantive or deep democracy, not participatory democracy, not economic democracy, but good old-fashioned liberal democratic proceduralism—plays out right now on the left.
Throughout most of my life and before, if you raised the banner of socialism in this country or elsewhere, you had to confront the question of Stalinism, Soviet-style sham elections, one-party rule, and serial violations of any notion of democratic proceduralism. No matter how earnest or fervent your avowals of democratic socialism, the word "democracy" put you on the defensive.
What strikes me about the current moment is how willing and able the new generation of democratic socialists are to go on the offensive about democracy, not to shy away from it but to confront it head on. And again, not simply by redefining democracy to mean "economic democracy," though that is definitely a major—the major—part of the democratic socialist argument which cannot be abandoned, but also by taking the liberal definition of democracy on its own terms.
The reason this generation of democratic socialists are willing and able to do that is not simply that, for some of them, the Soviet Union was gone before they were born. Nor is it simply that this generation of democratic socialists are themselves absolutely fastidious in their commitment to democratic proceduralism: I mean, seriously, these people debate and vote on everything! It's also because of the massive collapse of democratic, well, norms, here at home.
First, you have the full-on assault on voting rights from the Republican Party. Then there's the fact that both the current and the last Republican president were only able to win their elections with the help of the two most anti-democratic institutions of the American state: the Electoral College and the Supreme Court. In both cases, these men won their elections over candidates who received more popular votes than they did. There's a lot of words one might use to describe a system in which the person who gets fewer votes wins, but democracy isn't one of the ones that comes immediately to mind. Any notion that anyone from that side of the aisle is in any position to even speak on the question of democratic values—again, not robust democratic values but minimal democratic values—is a joke.
Second, you have the Democratic Party. Massively dependent in its nomination process on super-delegates. Massively dependent in its district-level wins on low voter turnout, in districts where the party structure resembles the Jim Crow South, as described by V.O. Key. You have incumbents like Joe Crowley who've not had to face a primary challenge in so long that, as we saw in the case of Alexandria Ocasio-Cortez, they don't even know how to wage much less win electoral campaigns. You now have, in the case of Julia Salazar's race for the New York State Senate (whose campaign I really encourage you to donate to), an incumbent, Martin Dilan, who's trying to forgo an election challenge from her simply by forcing Salazar off the ballot, with the help of, you guessed it, the least democratic branch of the government: the courts. I can imagine the Democratic Socialists of America (DSA) folks saying to these Dems: you really want to have a debate with us about democracy? Bring it on.
And last you have this very sophisticated take by Seth Ackerman, who has become in a way the intellectual guru behind the whole DSA strategy, on how the party system in America works. Right around the 2016 election, Seth wrote a widely read (and cited) piece, which has become something of a Bible among the DSA set, on how to think about a left party that can avoid some of the pitfalls of third-party strategies in the US.
Here, in this interview with Daniel Denvir, the Terry Gross of the socialist left, Seth explains how much our two-party system looks like those one-party states that socialists of the 20th century spent their lives either defending or being forced to criticize in order to demonstrate their bona fides.
Again, what I think this shows is that, maybe for the first time in a very long time, socialists have the democracy side of the argument on their side.
Here's Seth:
In most places in the world, a political party is a private, voluntary organization that has a membership, and, in theory at least, the members are the sovereign body of the party who can decide what the party's program is, what its ideology is, what its platform is, and who its leaders and candidates are. They can do all of that on the grounds of basic freedom of association, in the same way that the members of the NAACP or the American Legion have the right to do what they want with their organization.In the United States, that's not the case at all with the Democratic Party or the Republican Party. We've had an unusual development of our political system where, in the late nineteenth and early twentieth centuries, the bosses of the two major parties undertook a wave of reforms to the electoral system that essentially turned the political parties into arms of the government, in a way that would be quite shocking — you could even say "norm-eroding" — in other countries.
If you took a comparative politics class in college during the Cold War, it would have discussed the nature of the Communist system, which was distinguished from a democratic system by the merger of the Party and the state, becoming a party-state. Well, the United States is also a party-state, except instead of being a single-party state, it's a two-party state. That is just as much of a departure from the norm in the world as a one-party state.
In the United States, the law basically requires the Democrats and the Republicans to set up their internal structures the way that the government instructs them to. The government lays out the requirements of how they select their leaders and runs their internal nominee elections, and a host of other considerations. All this stuff is organized by state governments according to their own rules. And of course when we say state governments, who we're talking about the Democrats and the Republicans.
So it's a kind of a cartel arrangement in which the two parties have set up a situation that is intended to prevent the emergence of the kind of institution that in the rest of the world is considered a political party: a membership-run organization that has a presence outside of the political system, outside of the government, and can force its way into the government on the basis of some program that those citizens and members assemble around.
Dean Baker
NBC Think, July 26, 2018
Donald Trump made his opposition to much of America's international trade policy a central theme in his presidential campaign, and his position almost certainly played a major role in his victory in key industrial states like Michigan, Ohio, and Pennsylvania. But the public now seems largely opposed to his recent tariffs against our major trading partners.
It is possible to make sense of these seemingly contradictory facts.
First, most people are not policy wonks. They have day jobs and, when they get back from work, they often have family responsibilities, so getting the news means hearing a few tidbits on the television or radio, or possibly skimming an article in a newspaper or online.
This means that the vast majority of people only have the most general understanding of trade and trade policy. In the election of 2016, there was a widely held view that trade policy had hurt many people, which was why both Donald Trump and Hillary Clinton opposed the Trans-Pacific Partnership, the most important trade deal then on the table. (Trump pulled out of the deal shortly after his inauguration.)
People were not wrong to hold a negative view of trade policy: Over the prior four decades, it had put U.S. manufacturing workers in direct competition with their low-paid counterparts in the developing world by reducing tariffs and other barriers that had caused foreign-made products to cost more. The predicted and actual effect of this policy was the loss of millions of manufacturing jobs.
Losing these jobs put downward pressure on the pay of less-educated workers more generally, as the workers who lost their jobs in manufacturing then sought out employment in retail, health care and other service sector industries. This was an important factor in the rise in inequality and the weakening of unions over the last four decades.
A tariff is a tax, and tax increases are usually not popular.
While people could see and feel the pain that resulted from U.S. trade policy overall, they are now not clear on what is to be gained from the tariffs Trump is imposing on imports from Canada, the European Union, China and other trading partners. A tariff is a tax, and tax increases are usually not popular.
The immediate impact of tariffs is to raise the price of the goods on which they are imposed, and that has already happened for a variety of products. On items like washing machines, it has already led to a 13.1 percent increase over the last year in prices paid by consumers.
In intermediate goods, like steel, it has led to price increases for downstream industries, like the auto and appliance industry. The higher price is good news for steel producers, who are adding some jobs, but it is likely to cause jobs losses in other industries.
In addition to the U.S. taxing its own consumers for purchasing foreign-made goods, other countries are retaliating by imposing their own tariffs on U.S.-made products. This is already hurting the prices of a number of agricultural crops and, as tariffs spread, many other industries might be hit as well.
While tariffs have real costs, they can be an effective tool in trade negotiations — if they are part of a well-worked out strategy to achieve specific goals. Unfortunately, Trump's tariffs do not appear to be part of a carefully considered plan.
Instead, Trump has publicly lashed out at our trading partners over largely-imagined wrongs. For example, he complained to Canadian Prime Minister Justin Trudeau over his country's large tariffs on U.S .milk, but, imports to both the U.S. and Canada are regulated by quotas, which allow dairy products to enter tariff-free. Canada has hugely expanded its quota in recent years and now allows more dairy products from the U.S. to enter tariff-free than we accept from Canada.
He also has complained about the high tariffs the EU imposes on imports from the U.S. when, in fact, the average tariff is just 3.0 percent.
There are real issues that Trump could raise with our trading partners — most importantly the issue of China's under-valued currency, which makes its goods and services more competitive internationally. But after pressing the issue of "currency manipulation" for over a year in his campaign, it has disappeared from his trade agenda and Treasury Secretary Steven Mnuchin has said only that the administration is "monitoring" China's actions and would issue its regular semiannual report on the issue in October.
So, though Americans don't suddenly have a positive view of "free trade," they are seeing a president imposing punitive tariffs on a wide variety of products, with the threat to add more, in the pursuit of ill-defined and constantly shifting goals. This does not seem like a trade war the United States is likely to win and it is not surprising that most Americans are not anxious to join his battle.
