American Poverty, World Poverty

By Ray Marshall

Vol. 8, No. 1, 1986, pp. 3-7

For poor people in this country, and in the world, the outlook is not good. And because the lives of the poor are joined together with ours, their problems and poverty are ours-directly and indirectly, in our communities, through international trade, and through immigration.

Rising unemployment is a worldwide phenomenon. Joblessness in the Third World is fifty percent, and climbing. The International Labor Organization estimates that to keep that figure from going up by the end of this century for people already born we'll need to create 700 million new jobs.

There are not 700 million jobs in the whole industrialized world today. Things are going to get worse.

The Greatest Economic Policy Mistake

The American economy is losing its competitiveness across the board, not just in the smokestack industries but, as a presidential commission reported in 1985, in seven out of ten high-tech industries. Our ability to maintain jobs in this country is being eroded.

The main reason for the loss of competitiveness and for our loss of two million jobs is the over-valued dollar-which comes about directly because of Reaganomics. The 1981 tax cut was the single greatest economic policy mistake in US history. Historians will leave no doubt about that.

To give you some idea of the magnitude of the damage that has come from the tax cut decision, Ford Motor Company estimated in 1983--before things got as bad as they are now--that of the $2,000 differential between American and Japanese automobiles, $1,400 was because of exchange rates. The Caterpillar Company estimated that on a $200,000 piece of equipment, they ought to have a $30,000 advantage over Komatsu. They've got a $30,000 disadvantage.

So what do they do? They leave the country. They're moving the jobs to other countries. Not because of inefficiency in the United States, not because we can't be more competitive in real terms. They're moving those jobs from the United States because with differentials in exchange rates of that magnitude they simply cannot compete. They cannot produce in the United States. Ninety-five percent of all the increased capital goods final demand over the past business cycle came from imports. Ninety-five percent.

Our capital goods industries--our machine tools and basic production capability--are in shambles. And although we also have structural problems, the fundamental problem is the over-valued dollar that came about because of high real interest rates, that came about because of the enormous budget deficit, that came about because of the 1981 tax cut.

Corporations Beyond the Rule of Law

There are other problems. What to do about multinational and transnational corporations? (Transnational companies are owned by people from different countries. Multinationals are American companies operating in different countries.)

Transnationals and multinationals are driven by profits. Whatever is second to profits is a long way behind. They will move the jobs wherever they can make the greatest profit. Ordinarily that means to where they can get the lowest wages. So they are able to whipsaw countries. And whipsaw workers.

I've seen no effective means to bring multinational and transnational corporations under the rule of law, to make them responsible for their actions. I think it can be done, but I see no organization now to do that.

Many of the jobs in the South are on their way to the Third World. We will not be able to keep them. Many of them came here because of low wages. And this is their last stop in this country. In the Third World, Mexico is a high-wage country and their wages are about one-fifth of ours.

American Poverty

The US poverty figures remain high. The little improvement among some categories last year was very little. We have to be very discouraged about the overall decline in the national poverty rate from 15.2% to 14.4%

Income is being redistributed in the United States. The top ten percent of income recipients have never received a larger proportion of the income at any time since we've been keeping numbers than they did in 1984. (see Tables l and 2) The bottom forty percent of income recipients in the country have never received a lower proportion of income than they did in 1984. The lowest ten percent of income recipients in the country have lost about $400 since 1980 while the richest ten percent have added $5,000 to their median income.

Programs to help the poor have been drastically reduced. You know those numbers. Most discouraging, most alarm-


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ing is what is happening to children. Poor children are much worse off now than when the War on Poverty started. There are more of them. Their numbers are increasing while the resources to deal with their problems are diminishing.

Over one-half of poor children live in families headed by women. These children's futures are inextricably bound up with the conditions of women in poverty. They will never escape from that. If they don't get proper nutrition as infants and children, they and we are damaged by that forever. These programs have been drastically reduced despite evidence that they save the government three dollars for every dollar spent.

Among our most important anti-poverty programs are our anti-discrimination laws. But, now we've got an administration intent upon weakening civil rights enforcement. In their attitudes about discrimination against women and blacks, they would send us back to the 1940s.

Many of the organizations that might help poor and near-poor people are either weakened or are looking the other way.

Unions are weakened and under full-scale attack. The National Association of Manufacturers has formed a Council for a Union-Free Environment. They wouldn't have dared do that twenty years ago. I don't think they will pull it off. But in the process they have greatly weakened unions and unions' ability to represent the interests of workers.

Community-based organizations and civil rights groups have been weakened.

The government--which in a just and humane society should always be concerned about the least fortunate--is looking the other way. They have convinced themselves that there's no problem or, that it's the poor's own fault that they're poor.

The Democratic Party seems unconcerned about the poor. It has not even demonstrated the concern that would be in its own self-interest: by registering the poor to vote. We could only get six out of over thirty Democratic governors involved in encouraging community service organizations to register voters.

We've also got the "neo-liberals" who are disaffected. They believe that the programs that tried to help the poor failed. They believe that if we just let the market work and have the proper macroeconomic policies we don't need jobs programs and we don't need most of these programmatic interventions. That strikes me as looking the other way. Denying a problem that clearly exists.

An Intellectual Code of Nonsense

We are seeing a weakening of the intellectual support for human resource development programs. Having such intellectual support during the New Deal was one of the reasons we were able to make progress.

People used to believe that a just and humane society took care of the least of these our brothers and sisters. And, that in so doing, we were helping the country. We did not believe we could prevent depressions and have lasting prosperity unless all major goups shared in that prosperity.

We still say that people are our most important asset. And it's unquestionably true. But many people who know that, don't understand it.

So we have cut programs for education that have demonstrated their effectiveness. And we have cut programs like WIC, the women's, infants and children nutrition program which returns three dollars to the government for each one it spends.

In the past, we believed that these programs were not costs but investments. Public education was an investment in this country. So was the GI Bill. We didn't only look at the cost of doing things.

Creating a just society once meant something pretty concrete. It meant a bias in favor of the disadvantaged. Nothing was more unjust than the equal treatment of unequals. We felt an obligation to the poor and the disadvantaged.

All this now is being challenged by an intellectual code that contains several parts. The first is Reaganomics, an economic theory of sheer nonsense. I don't think anybody of sound mind and any training believed that supply-side economics--the doctrine that was used to justify the 1981 tax cut-ever had a chance. You remember what this promised--that by cutting taxes by 750 billion dollars and increasing defense spending to 1.6 trillion, we would so stimulate the economy that we would balance the federal budget by the end of 1983.

The result was the creation of a budget deficit so huge that people now view balancing the budget as the most important thing we can do--even if it means cutting out education and nutrition for children.

As former Reagan budget director David Stockman said in his famous interview, you couldn't sell trickle-down out loud, so you called it supply-side. That's all Reaganomics was and is: the myth that if you make the rich richer, we'll all be better off.

Well, we made the rich richer. And we made the poor poorer--they have been trickled down on. Investment went down. Savings went down. And the result is a budget deficit larger than that produced by all the preceding administrations combined.

Beyond Reaganomics, other doctrines have undercut intellectual and popular support for economic justice. One idea--put forth by Charles Murray in his book Losing Ground--is that government assistance programs are


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counterproductive. Murray's view, which continues to be surprisingly well-received, holds that social spending makes the receipients dependent and the problems worse. Murray says that as a result of the War on Poverty and the rest of the government's social spending programs, poverty went up.

A variant of that argument is, "The programs didn't work." That's the easiest one to deal with. Because the evidence is overwhelming that the programs did work. And produced rich dividends for the country.

But let's look at the ideas of Reaganomics and then at the notions of Murray. First, is the budget deficit our most important problem? Not really. The budget deficit is not likely to cause a recession. It is troubling. Its real effects are on interest rates, the exchange rate, and in creating an obstacle to economic growth. But bringing the deficit down will not necessarily reduce real interest rates.

There are various reasons for that. First, in the deregulated financial environment, competition for deposits keeps the interest rates up. There used to only be competition on one side of the market. Moreover, with very low corporate profits, corporations are no longer as sensitive to interest rates. So there is likely to continue to be high demand for money. Also, there's simply a lot of speculation, which causes rates to be high and volatile.

By trying first to balance the budget by 1987, we could end up with a deeper recession than that of 1981-82. It's the wrong time to do it. And the worst possible way to do it would be to make further cuts in domestic spending. We need to reduce the budget deficit as much as possible by raising revenues, cutting military spending, restoring many of the cuts in human resource development programs, raising taxes and reforming the tax system.

Now, let's look at Charles Murray's arguments. The evidence is overwhelmingly against the idea that government domestic spending is counterproductive. Bet me just tick off a few reasons.

First, there is the assumption, underlying Murray's view, that the poor don't want to work. Nonsense. If you have had any experience with these programs you know that if you make a few lousy jobs available, you get inundated with applicants. Secondly, Murray doesn't exclude the elderly from his federal expenditure numbers, but he excludes them in terms of how their lives have improved. The elderly have benefitted tremendously from government programs. They have received 86% of social welfare spending. Poverty among the elderly has declined from over 25%, at the beginning of the War on Poverty, twice the overall level, to fourteen percent in 1983.

The neo-conservative argument ignores the fact that a relatively small part of social welfare spending goes to the non-elderly. We are told by Murray that black male teenage crime is a result of government spending. What government program is for black teenage males? None. There's no social spending on black teenage males. Indeed I know of no human resources development program where conditions got worse because we spent more money.

Even from looking at Murray's own statistics, the only conclusion you can come to is that social program spending reduces poverty. When we quit spending and reduce


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programs, poverty went up. Problems get worse because of changing conditions or poor program design, not because we spent money. There is overwhelming evidence that programs like the Job Corps that have had time to grow and learn from their mistakes have greatly improved the employability of the young people they were designed to help and are good investments of public resources.

Things have gotten worse for many people because we have discontinued the programs, not because we adopted them. We have serious problems of a secular rise in unemployment; growing inequality, which will greatly weaken an already fractured national unity; and the development of a self-perpetuating social and economic underclass-made up disproportionately of minorities, but including many whites as well.

One manifestation of this self-perpetuation is the teenage pregnancy problem. Unwanted pregnancies among children is a serious national problem with devastating long-run consequences. Its causes are not well understood, but they can be understood with study and attention. I would guess that a good bit of the problem relates to unemployment and social isolation of very poor young people. In the black community, joblessness, racism, the movement of middle- and working-class people out of predominantly black areas (thus removing role models and sources of social stability), and growing unemployment among young black males, all have contributed greatly to a self-perpetuating system of helplessness and despair.

I believe we should make the elimination of this growing underclass a high national priority.

Many object to the costs of programs to change this situation, but we will pay dearly if we do not deal with it.

Most of the work force growth between now and the first two decades of the twenty-first century will be among women and minorities By about 2015, there probably be a combined minority population of 91 million in the US; this will constitute about 34% of the population and well over forty percent of the work force (because white males are older and more likely to retire).

How well prepared these young people are for twenty-first century jobs depends on what is happening to them right now. And the evidence is not encouraging. Most eighteen year old minority males are not sufficiently literate to function in even the emerging low-wage jobs.

Probably less than ten percent of our growing prison population can function at the twelfth grade level. The fact that it costs between $25,000-$30,000 to keep somebody in prison for a year is only part of the cost of inadequate human resource development.

If there is any one fault with what we did in the past, it was that we paid too much attention to income transfers and not enough attention to making people self-sufficient. For the poverty problem is going to be solved by poor and near-poor people themselves. The rest of us (and organizations like the SRC) can help, but programs must be designed to give people greater ability and incentives to help themselves.

So what can we do? It's very clear that we need a new international economic order. That we've got to renegotiate GATT (the General Agreement on Trade and Tariffs). We've got to have much better coordination between the economic policies of the major industrial countries.

We've got to say to Japan and Germany and other countries, "You've got to help. We've got to move together. And what you ought to do now is to start stimulating your economy. What we all ought to do now is relax our monetary policies to bring real interest rates down. And we'll start doing some things to balance our budget."

Within the US, we need a full employment strategy. We need to create enough jobs at decent wages to provide one for everybody who is willing and able to work. We can and ought to do it. We can't do it through monetary-fiscal policies alone, but we can create jobs There's a lot of useful work to be done.

We know that a full-employment policy would be good business. With a jobs program, $15 billion could save the federal government $30 billion. We've demonstrated that in the past. The main reason we don't do it now is the neoconservative mythology that it didn't work. We ought not let them get IJY with that. The contrary evidence is overpowering.

We need to greatly strengthen our human resource development. Our education, our health care. We must educate people, get them trained.

Worker ownership of industry has already started in


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other countries, and is beginning in the United States. We ought to develop policies to facilitate worker participation in and ownership of industry.

We must strengthen collective bargaining.

We need to strengthen community-based organinzations that assist people in gaining greater control of their own destinies.

We must get ready, for our time will come I think the country will be looking for new answers by 1988 when many of Ronald Reagan's chickens come home to roost and the consequences of his policies are more obvious.

What should we do? We must keep the faith. We must do what we think is right. We ought not be stampeded into doing things simply because they are popular. We especially should avoid the trap that balancing the budget should take priority over everything else-an idea t hat seems to be very popular with many Democrats. We ought to learn. We ought to act We ought to challenge. We ought to develop strategies and tactics to improve the conditions of the poor. We ought to organize. We ought to register voters. We ought to form coalitions.

We ought to present our analysis and the realities of life under Reaganomics to as wide a popular audience as we can, using the most modern and accessible forms of media. We should make clear what life for the working poor is really like. We should present the examples of young people who have been trained in the civil rights movement or in community-based organizations who are now assuming positions of leadership in the country. We should present the lives of young women who have been able to escape from welfare and poverty because of government programs which support training and childcare. We should present the very real stories of adults who have learned to read and write because of an adult literacy program.

We should not let people make abstractions of human suffering. Above all we should not be afraid to experiment, to try new approaches to dealing with our human problems. We should not be afraid to make mistakes and we should learn from our mistakes.

Rather what we should fear most, as citizens of the richest nation on earth, is the judgment of the world community and of history that we were unwilling to tee good and faithful stewards of our resources, that we deliberately decided not to use our resources to try to improve the human condition.

One of the reason that I am proud to have been associated with the Southern Regional Council is that this organization can stand that test. Whatever else historians may say about the SRC, I am confident that they will say we at least tried to use our resources to make the South a better place for all of our people.

Ray Marshall holds the Audre and Bernard Rapoport Chair in Economics and Public Affairs at the University of Texas at Austin, and is vice-president of the Southern Regional Council.