Friday, August 5, 2011

Guest post: Poverty in America

Poverty in America
Samuel L. Skogstad.
Professor Emeritus of Economics and former Chair, Department of Economics at Georgia State University (and a Marine Vet).

I have spent much of the past two years studying income distribution. The Heritage article on poverty in America was incredibly impressive for its thoroughness and the sharpness of its focus. It also saves me much time and effort by assembling in one place so much of the data and source material I would eventually need. It is particularly interesting to note that the bigger the share of GDP we direct to "warring against poverty," the more poverty we have.

I would attribute this to the incentives contained in the dozens of anti-poverty programs and the hundreds of bureaucracies and jobs poverty creates for academics and government employees. And never underestimate the influence of the lobbyists for the huge masses of private sector companies that supply the products and services that the programs consume. They include agricultural product suppliers, condom and other ‘birth-spacing’ product suppliers, ‘affordable housing’ suppliers, ‘household electrical and electronic gadget suppliers,’ inter alia. But I go too far afield.

Here's a riddle for you to ponder and the answer to the riddle, in case pondering it starts to bore you.

Total Federal Government Outlays,  FY 2008:              $2.983 trillion, or 21 percent of GDP.
Total Federal Government Spending, FY2008:              $1.085 trillion, or  8 percent of GDP.
Total Federal Government Outlays, FY 2010:                $3.456 trillion, or 24 percent of GDP.
Total Federal Government Spending, FY 2010:             $1.335 trillion, or  9 percent of GDP.

Riddle: What's the difference between "total outlays" and "total spending?"

Answer: Total outlays include total expenditures on goods and services PLUS payments by the government unrelated to current production (Transfer Payments.) Total expenditures represent only the first of the two components above. That is, only purchases by the government of goods and services produced. So only a little under 40 cents of every dollar of government outlays is paid for production, while a little over 60 cents is given to people not involved in current production. Some of the 60 cents goes to veterans, government retirees and social security retirees, and could be considered payment for past production. Another part of it was given by the federal government to state and local governments.

But by my calculation, at least 5 percent of GDP was collected and given to beneficiaries of means-tested welfare programs. And if the Heritage article is right that $714 billion was spent on such programs in 2008, and if we assume the Census Bureau's inflated number of "poor people" (35 million) was correct, these welfare programs were sufficient to deliver over $20,000 to each of the 35 million. Having spent half a career working in countries that have real and massive poverty, I am certain that welfare in the United States is generous enough to attract clients from around the world. But surely that isn't a government objective---is it?

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