Poverty Won't Be Solved by Congress

Since Congress has trouble tying its shoes, states and localities must take the lead reversing the dangerous trends of rising inequality and stagnant mobility.
by | March 2014
President Barack Obama delivers the State of Union address before a joint session of Congress in the House chamber Tuesday, Jan. 28, 2014, in Washington. (AP Photo/Larry Downing, Pool) ap

As the Great Recession recedes at a painfully slow pace, the emergent national issues are the twin threats posed by increasing economic inequality and stagnant social mobility—both of them decidedly un-American.

Their emergence comes as we mark the 50th anniversary of the nation’s War on Poverty, the 20th anniversary of the signing of the North American Free Trade Agreement (NAFTA), the inept launch of the first new significant health-care reform effort in decades, and the beginning of the first wave of baby boomers moving into government retirement and health-care programs. All these are interrelated.

The numbers tell the dismal story. Since 1967, the inflation-adjusted earnings of middle-class Americans have risen a paltry 19 percent, while those in the top 5 percent have enjoyed a 67 percent gain, according to the U.S. Census Bureau. The recession has been disastrous: Income has collapsed and is still 8.3 percent below where it was seven years ago. In all, 46.5 million Americans are living below the poverty level; 48 million have no health insurance. Looking back in inflation-adjusted dollars, the median household income was just more than $51,000 in 2012, a drop of $5,000 from the all-time high scored in 1999. Not long ago, corporate CEOs were making 30 times as much as their average employee; now they are hauling in 270 times as much.

The issue generally is a Washington story, because we are talking about the national economy and labor force. But, as with so many issues, it plays out in our states and localities, both in terms of the definition and nature of the problem and the array of possible solutions. And even though, in the end, it at least should be addressed on a national level, it seems unlikely because Congress has trouble tying its shoes, much less figuring out how to lessen economic disparity and promote social mobility without lowering economic growth.

Take the minimum wage issue. The federal level, now set at $7.25 an hour, has not been increased in five years and has lost almost 6 percent of its purchasing power since then. At just 38 percent of the median income, it is one of the developed world’s lowest, and most research shows that “moderate increases” in the wage will not affect employment levels. President Obama has proposed increasing it to $10.10, a move supported by around three-quarters of those polled by Gallup last fall. It’s unlikely to pass the House of Representatives, but 21 states already have a minimum higher than the current federal level, and more are likely to pass increases this year through either legislation or ballot initiatives, even in deep-red states like Alaska and South Dakota. A prominent conservative tech mogul in California is underwriting an effort to get an initiative on the state ballot that in effect would double California’s minimum wage to $16 by 2016.

Some local governments, when they are permitted to under state law, are doing the same. A few months ago, Washington, D.C., joined with Montgomery and Prince George’s counties in Maryland to pass a regional minimum wage of $11.50. However, some analysts are warning that such a increase as this one or California’s might exceed the “moderate increase” rule and begin to affect job growth.

New York City arguably is the most unequal jurisdiction in the country. A Census report last fall pegged the median income for the city population’s lowest fifth at almost $9,000 and for the highest fifth at about $225,000. Real estate prices and rents have soared as more of the world’s wealthy pour in. So it’s no surprise that the new mayor, Bill de Blasio, calls himself the mayor “for the 99 percent”. He cannot raise the minimum wage because the city doesn’t have that authority, but it’s a good bet he will talk the state legislature into allowing it. He has pledged to raise taxes on the wealthy to fund a vastly expanded preschool program and other services. But, as with the minimum wage, he will need to be careful since the top 1 percent of taxpayers pay a stunning 43 percent of income taxes. The city’s success economically this past decade will be a key ingredient in solving its inequality problem.

Indeed, the solutions to the inequality and mobility dilemmas touch on myriad issues beyond minimum wages, continuing benefits for the long-term unemployed or the availability of food stamps. These are safety-net programs designed to ease the pain, which is very real. To ultimately reverse the trend toward growing inequality and stagnant mobility, our leaders will need to be more aware of the consequences for their own workforce when signing trade agreements, such as NAFTA, which could exacerbate wage disparities.

It will mean that state and local leaders will have to redefine what public education really is—from preschool to the Ph.D. It will involve an expansion in job training and retraining. It will require accepting new technologies, such as massive online learning, to teach more people at a higher level. And it will mean trying to reverse the trend toward one-parent families.

Such massive and far-reaching changes will work best if they do not come from Washington. Sure, the feds must help. But the willingness to experiment, to take risks and achieve significant results must come from businesses, universities, nonprofits, and states and localities.

Peter Harkness
Peter Harkness  |  Founder, Publisher Emeritus
pharkness@governing.com

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