Perhaps the biggest evidence that capitalism in America doesn’t work, at least not for everyone, is growing income inequality and the persistence of poverty. But what is the current state of poverty and inequality in the United States? Why do debates still persist about whether poverty has been eradicated? What do the numbers and official statistics tell us, and should we believe them? What do personal stories and experiences with poverty tell us that data cannot? If poverty has indeed been eradicated, what led to that achievement – and if it still persists, what more can be done to abolish it? Last year on this podcast, we did a series about this topic, and we found these episodes to be surprising and more informative than most of the debates about poverty you’ll hear on the news. So, we wanted to condense that series down into a single episode that captures all of the highlights. The first speaker is former U.S. Senator Phil Gramm (R-TX), who argues in his recent book, "The Myth of American Inequality," that poverty is vastly overstated because official government data does not include transfer payments. The second is Princeton sociologist and Pulitzer Prize-winning author Matthew Desmond, who argues in his recent book, "Poverty, by America," that poverty is a terrible scourge, that we have made no progress, and that it is a moral outrage. The result is a nuanced, surprising, and informative debate on a multifaceted but important issue – leaving our hosts, as well as, by extension, our listeners – to formulate their own takeaways on what we can all do about them.
Perhaps the biggest evidence that capitalism in America doesn’t work, at least not for everyone, is growing income inequality and the persistence of poverty. But what is the current state of poverty and inequality in the United States? Why do debates still persist about whether poverty has been eradicated? What do the numbers and official statistics tell us, and should we believe them? What do personal stories and experiences with poverty tell us that data cannot? If poverty has indeed been eradicated, what led to that achievement – and if it still persists, what more can be done to abolish it?
Last year on this podcast, we did a series about this topic, and we found these episodes to be surprising and more informative than most of the debates about poverty you’ll hear on the news. So, we wanted to condense that series down into a single episode that captures all of the highlights. The first speaker is former U.S. Senator Phil Gramm (R-TX), who argues in his recent book, "The Myth of American Inequality," that poverty is vastly overstated because official government data does not include transfer payments. The second is Princeton sociologist and Pulitzer Prize-winning author Matthew Desmond, who argues in his recent book, "Poverty, by America," that poverty is a terrible scourge, that we have made no progress, and that it is a moral outrage.
The result is a nuanced, surprising, and informative debate on a multifaceted but important issue – leaving our hosts, as well as, by extension, our listeners – to formulate their own takeaways on what we can all do about them.
Episode notes:
You know, the fundamentals of American society are breaking down, especially in the labor market and the housing market for the American poor, and it kind of is a recipe for spinning more to stay in the same place.
The thing I want you to understand is, I want to reform this system not because I'm trying to be mean to people, but because I love people. Because I think the current system is keeping people down.
I'm Bethany McLean. Did you ever have a moment of doubt about capitalism and whether greed's a good idea? And I'm Luigi Zingales. We have socialism for the very rich rugged individualism for the poor.
And Mrs. Capital isn't a podcast about what is working in capitalism. First of all, tell me is there's some society you know that doesn't run on greed? And most importantly, what is it?
We ought to do better by the people that get left behind. I don't I don't think we should have killed the capital system in the process. - So, Luigi, here's a simple question for you. What's the most prominent argument against capitalism?
- I think if we try to synthesize all the arguments we have heard in the last few decades, two words come immediately to mind, poverty and inequality. - Everyone has read Tomas Piketty's capital in the 21st century.
Okay, well, many people at least have it on their bookshelf often pretend to have read it. me among them. The core of the argument is that inequality in the United States in Europe is rising back toward pre -World War I levels.
The core idea is that income is stagnant for those in the bottom 50 % while it's exploding for those at the top. But it's not just Piketty and Saez, even the census viewer, report that the poverty rate in 2021 in the United States after you remember all the tax trials credit that we pay all the money we pay with the stimulus package for COVID,
etc. After all of that was still 11 .6%, meaning that 37 .9 million people in the United States were living in poverty. That's almost like four New York cities of people living in poverty.
At the same time, according to the Congressional Budget Office, the richest 1 % make 84 times in the United States. much as the bottom 20 % in 2019. But what if that's all completely wrong?
So argue former U .S. Senator Phil Graham and economists Robert Eklund and John Early in their book, which is entitled "The Myth of American Inequality, How Government Biases Policy Debate." That's a big title,
"The Myth of Inequality," but the argument is actually pretty simple. It turns out in the way the Census Bureau measures poverty and inequality, it does count non -cash transfers, such as Medicare and Medicaid, food stamps,
and refundable tax credits and more. In 2017, the last year, with all the data available, according to Graham, households in the bottom 20 % of the income distribution actually received a full $45 ,000 in government transfers.
More than a lot of people receive as their annual salary. So the authors argue that thanks to this payment, the percentage of people living in poverty. in the United States has plummeted to only 1 .1 % in 2015.
Their book is also in part a policy prescription. The authors write this, "The explosion of transfer payments following the war on poverty has caused a significant number of prime orca age persons to become detached from the economy.
That disengagement from the world of work has denied them the opportunity to benefit from the extraordinary economic progress that has occurred in the Le Pen." 50 years, and is also the single largest cause of income inequality in post -war America.
In other words, people who are getting these transfer payments just need to get off their butts and work more. So their prescriptions are very simple, and if you want old -fashioned, is to remove the government disincentives to work by,
among other things, adding states implement work requirements for public assistance programs and to reform elementary and secondary education to make sure that maximizes the chance of success of people.
So just so our listeners know this is part of a two -part series we're going to do on poverty and inequality and we're going to bring in the sociologist Matthew Desmond next for a different perspective.
It seems to me that there are two separate arguments in your work, right? One is about inequality. inequality, which is nowhere near what people think. And the other is about poverty, which is also nowhere near what people think.
Let's start with poverty. Can you explain that one to our listeners? Well, when the Census Bureau started measuring household income, which is the fundamental statistical building block of our measure of poverty and our measure of inequality,
they didn't have the statistics. statistical ability to measure the value of in -kind payments. For example, food stamps. Another in -kind contribution would be where government pays for Medicaid or government pays for rent subsidies.
There are over a hundred federal programs, but the Census Bureau does not count the value of those transfers. payments as income to people who receive them.
Also, the Census Bureau does not take into account taxes, including tax credits. So in total, for poor people, about 88 % of all transfer payments from the government are not counted as income in measuring the poverty rate.
And when you count that income and you count taxes as income lost, then the picture changes completely in terms of the poverty rate and in terms of income inequality.
So your argument, in effect, collapses the difference between cash and a transfer payment. But isn't there a difference in the sense that a person has a choice, how to spend the first one,
and no choice at all with the second one? I keep thinking. thinking a little bit about the famous Marie Antoinette quote that she didn't actually say let them eat cake. Isn't this a little tiny bit of let them eat Medicaid?
No, you can argue that the benefits government provides are not worth what they cost, but you can't argue that food stamps aren't worth anything,
which is what the Census Bureau is in essence arguing. So let's now move to the inequality. inequality. It seems that you are suggesting that even on a pre -tax base,
the income inequality has not gone up from 1980 to 2017. Is that correct? - No, we argue that the pre -tax inequality has risen substantially in point because the labor force participation rate among the bottom 20 % of income.
earners has declined from 68 % to 36%. So earned income inequality has grown, but transfer payments have grown faster than earned income inequality.
Taxes are more progressive today than they were in 1967, so that the level of inequality is actually lower today. today, very slightly,
than it was in 1967, and in fact slightly lower than it was in 1947. So if you believe in the dignity of work, isn't it still a problem that earned income has diverged so dramatically,
even if we agree transfer payments have compensated for much of it? Isn't there a problem with how our modern economy is structured? And I'd point to a 2020 GAO report about federal social safety.
net programs and the headline is that millions of full -time workers still rely on federal health care and food assistance programs, most of them work for private sector employees including some of America's biggest companies.
So isn't part of the issue dignity of work and the way in which the labor market works these days such that even people who work full -time have to get federal safety net benefits?
Well, the level of income of bottom income. 20 % earners who actually work has risen pretty dramatically in the last 50 years.
The value of college education has risen by a very large amount and the differential between people who have human capital and people who don't have much human capital.
It shows up in the marketplace, but the two two things that I believe, and the book analyzes and presents statistics on, that we could do to eliminate earned income inequality or to reduce it is a better way of saying,
if you had a mandatory work requirement for welfare, to keep people in the labor market where opportunity is and where skills are developed, and if you have a a more effective education system,
especially in the inner cities that made it possible for more people from poor families to go to college and gave them the tools when they got to college that allowed them to major in the areas where income is high that we could reduce earned income inequality and look.
look, I think we ought to pursue equality of opportunity as a basic right. Obviously, there are limits to what government can do.
If my mother loved me and your mother didn't love you, there's no government program that's going to be able to eliminate that, but providing quality education, and we present the hard data about school choice.
I'm not not sure that school choice in competition is the best way to deal with failing schools, especially in the inner cities,
but it performs better than the public education system that we have now. The statistics are overwhelming and irrefutable, if that's the case. - So Charles Calamirus wrote this in a very favorable review of your book.
He wrote, wrote, "Increased earned income inequality is the natural consequence of redistributive policies. If one can enjoy median household consumption without earning any income,
the incentive to work is substantially diminished." This largely explains the growing distance between earned and total income for poor households. Do you agree with that interpretation or would you argue there's a little more to it?
Well, I think the correlation is very high. When we had the explosion of transfer payments, the labor force participation rate fell from 68 % to 36%.
There's no debate about that. The bottom 60 % of earners in America, when you count all transfer payments and you take away all income paid out in taxes,
the bottom 60 % of a... have similar incomes and so the reward for working if you have a low skill levels very low.
The problem is of course if you don't work, you don't get on the job training, you don't accumulate skills and you don't move up as the economy moves up.
You can think of the economy as an escalator escalator. If you get on it, the escalator is moving up because of a growth in the economy and productivity. But if you don't get on the escalator,
you're just simply dependent on government transfer payments for income. And unfortunately, many poor people in America today have fallen into that trap.
trap. And let me just say, I failed third, seventh and ninth grades. Neither of my parents graduated from high school. I have often said to my mother who's now passed away that we were lucky that the welfare program didn't exist when I was growing up,
because if it existed, she might have taken it and our lives might have been different. Now she argued she would never take it. it, but the truth is everyone she would know would be taking it.
People would look down on her for not taking it. So I want people, I believe there's extraordinary ability and ordinary people, I think in the worst school system in this country,
that there are talented people that are never discovered. I didn't learn to read until I was in the 10th grade. And my guess is a lot a lot of people out there that are like me.
So the thing I want you to understand is I want to reform this system not because I'm trying to be mean to people, but because I love people. Because I think the current system is keeping people down.
Have you heard anything in the various critiques of your book or in discussions with people? Have you heard anything that resonated with you? that changed your mind that made you say, I wish we had taken this into account.
We missed this. - I would say this, Bethany, I've been surprised that there haven't been more effective attacks on the book. If I were attacking the book,
I would say, okay, the numbers are right, but those numbers are misleading and that food stamps aren't really worth what they call it. If you went out and said to people,
you're getting $90 worth of food stamps this week, I'll give you $85 for the food stamps, would they take it? Some of them would. Yeah. Now, I don't know why people have not made the argument.
Maybe if you accept that argument, then you get into a debate that I've had at Chicago and Harvard, and that is... Should we be doing all of this differently?
Given that we're providing now almost $50 ,000 for the average household in the bottom 20 % of income recipients Should we look at whether we need over a hundred federal welfare programs?
Should we look at whether providing all these things is as valuable as is simply finding a way of giving people the money. Now I haven't made a decision about that as to where I stand on it,
but I think it is certainly a subject worthy of debate. Milton Friedman argued for guaranteed annual income. Now I can see problems with it,
but what do I see problems with what we're doing? So that's an area that should be explored. All I'm trying to do, I'm not trying to end the debate.
I'm trying to start a debate. We're spending a lot of money. We need to admit it. We need to show the figures. And then we need to debate. Could we do this better? So Luigi,
what did you think was the most interesting part of our interview? I was pretty surprised by how much money we actually transfer to the bottom 20 percent of the in -constribution.
But in a positive way, not in a negative way, I don't want to, in any way, sounds like I want to reduce. But the point that we don't factor in in -kind payment is pretty remarkable.
I know that you are less excited about adding Medicare, but I think that Medicare and Medicaid paid. are real value to transfer to poor people. Oh, I agree with you. I think they're real value,
too. And I agree. Transfers in the form of Medicaid are real money. I guess I just questioned whether they're dollar -for -dollar real money. And I think Graham would admit that that's a, or agree that that's a question you can ask.
I mean, if I get a dollar of income and I get to spend that however I choose and you get a dollar. dollar of Medicaid and you only get to spend it if you're sick in a very specific place,
I don't think that the two dollars are equivalent. The sicker you get, the richer you are because the sicker you get, the more Medicaid you use, therefore, the richer you are. There's something a little bit screwed up about that.
I can't help thinking it's, you know, Rhianne Twinette did not say let them eat cake, but this is a little bit of let them eat Medicaid. I disagree because honestly, we are actually trying to force people to get... health insurance,
right? Part of what Obamacare was about is to force everybody into enrolling in health insurance. Medicare and Medicaid are the most generous health insurance that you can get in the United States.
In the private market, you cannot get an insurance with zero deductible and zero payment. It's like impossible. So I think that we are actually more than dollar for dollar.
I agree with you that they don't feel the same, but again the question is what are we measuring for what purpose? If we are measuring is the person who is richer, how many times richer he feels or how big the difference in that situation because we are forcing the rich person to have health insurance anyway,
he's not free to choose. He has to get health insurance. So for that comparison purpose, I think it's fine to treat it dollar for dollar. If you are saying in an abstract sense,
if people were given the choice, would prefer do something else? Absolutely. Yeah. You know, that actually is a fair point that if you're very well off, you still have to spend the dollars getting health insurance.
At least it's a really bad idea not to do that. So, I think you have more... convinced me with the side point Medicaid dollars aren't as easy to spend as you would think given the difficulty in finding doctors who will take that insurance.
Okay. So another aspect of fun and games with numbers is the numbers look really different if you're talking the top 20%, the top quintile versus the bottom quintile versus the top 1 % versus the top 0 .1%.
And I was thinking and wondering if you'd agree that that that might explain or help explain why Graham's analysis seems to fly in the face of observed reality, by which I mean this analysis seems to imply a very equal America.
And yet we have all these stories of 30 -year -olds with master's degrees who can't buy a home and a single mom working two jobs who can't afford an emergency medical payment and perhaps even more to the point.
You know, stories about and truth about people being priced out of... cities, coastal cities, and even in Chicago, wealthy coastal cities, New York, San Francisco, LA, even, even Chicago.
And it, those, those, those facts just don't comport with a totally equal America, right? Yeah. Why the debate on inequality is so pervasive? Because the debate or the inequality is really hitting where the educated class is.
So most So most academics, most journalists, most talking heads are not particularly tuning in with the bottom 20 % of the income distribution. As a result,
they don't know whether they're doing better or worse. But we are very tuning in from the middle to the upper part of the income distribution and that's where the dramatic changes are taking place.
So I think that the difference difference between the 0 .1 % and the 10 % has increased dramatically over the last three decades.
And so if you were in the top 90 % of the income distribution, you felt like very rich in the past. And today, by comparison to anybody else, you feel poor.
So I actually, Luigi, ended up thinking that his whole point is we need to look honestly at the data, even when the data isn't what you want to believe. believe. You need to look honestly at the data so we can have a real policy discussion. And I absolutely agree with that.
But then when it comes to looking at data, he doesn't want to believe, which is data showing that people who are working full time and really trying can't make ends meet. He doesn't want to acknowledge that because that's not convenient with the ideological argument that the only problem with these people is they aren't willing to get off their butts.
And that bothers me. It feels hypocritical. Yeah, and I think that he he insists very much on the correlation between increasing these payments and increasing prime age workers who are not working,
but he knows better than most that correlation is not necessarily causation. And he doesn't have any causal evidence of that. And I think this is where ideology comes in the picture.
I think that he likes to portray a certain... certain picture without really having the data to back it up. There have been some experiments where people receive, for example, some transfer and see what impact they have on their willingness to work.
I'm not an expert here, but the majority of evidence is in favor that the effect is not that large because people want to work for other reasons. I think he's right. One point where he's right is to say that if you you don't work,
you are progressively left out from the improvement in everything. And I think that that's actually, if you want, the biggest criticism of the universal basic income,
that if you think that you are going to solve the problem by letting people at home, these people will become increasingly dissatisfied and increasingly marginalized. So I think it's very important to get everybody the opportunity to work,
but the conclusion that people don't want to work because it's too costly for them to work. I think it's a perfectly legitimate conclusion in theory. I don't think it applies so well in practice.
And we economists are the worst in presuming that people behave according to our model rather than the way we behave. I was talking with a colleague and this colleague would say, "Oh, these days, if I don't have the writing standards,
I don't do it." anything." I said, "Wait, you dedicate most of your time to the school, I hope. In most of your time, yes, you're incentive, you're tenure. There is nothing that pushes you to work,
and still you work your butt off." So I think that that's the proof by example that what you're saying is wrong. I would agree with that. I'd also add one wrinkle to it,
the economists and maybe journalists. journalists too, I don't know, maybe journalists are better at this than economists are. Economists are also the worst, assuming that what is a motivation for one person must be a motivation for somebody else.
The truth is, people are wildly varied in people's makeup and their means and the ways they react to things are actually quite individualistic. It might be true. He might be right. For one person,
it might be that they're making enough in transfer payments that they don't feel the need to get a job. But to say that that's true. for one person might be true for one person is already a guess. But to say it's true for the population at large,
I think is quite tricky. I also thought on a slightly different note, I never would have guessed before we did this recording that Phil Graham and, according to him, Milton Friedman were believers in UBI.
And the idea that he might be a believer in UBI, it flies in the face of a lot of what he was saying to me because per his point, people who don't work are left increasingly behind and UBI is hugely problematic in that respect.
But yet here's Phil Graham saying that maybe UBI is better than what we do now, which I realize, I'm pushing it a little bit by saying he recommended it. That's not quite what he said. He basically said it might be a better alternative to what we're doing and I actually did agree with that point of his that we are spending an awful lot of money and if we're spending so much money.
money, we should think about what it's doing. And that was a side point of what he said, but that's true too. Yeah, I would say, first, I would give ourself, and this is ourself as US government, a part in the back say,
we are doing a lot. I think we don't hear very much. I think that there is all this criticism about government and doing this, doing that. In this particular case, the war on poverty actually worked.
Isn't that interesting? I was thinking when we were talking to him that I would have rewritten his book for him and I would have written it with a very different point, at least at the beginning,
which was look at how successful the war on poverty has been. And so rather than a title saying inequality doesn't exist, I would have put a title on it saying, "Look at our great success and how well we've done." And he would have gotten a lot more readers that way and you could have made all the same points just in a slightly different order.
And if you started with the fact that there... has been so successful and then went into what it means for the future and what it means for actual inequality numbers, I think he would have gotten a lot more people to agree with him. - Yeah,
and the point is interesting because one natural conclusion of your kind of book would be to say, why don't we do a little bit more and actually eradicate poverty? We have gone pretty close to do it,
but we need to do the last mile. Now, his point, which is a little bit more subtle, is, is maybe we can do the last mile in the same way which we're doing that,
which is possible, but I'm not seeing any statistic in his book actually making that in a convincing way. So it would be interesting to say, look,
we have done 90 % of the job with 30 % of the money, but the last 70 % is really not doing very well. I think that would be a a very interesting book,
and it's not in this book as far as I know. and poverty has been eradicated.
Okay, not quite, but close. - We promise in that episode that there's a counter to Graham's argument. We'll have Matthew Desmond, who's a professor of sociology at Princeton.
His previous book was "Evicted," which explored the ways in which the housing system reinforces poverty and has won a policy prize for nonfiction. Now he has a new book called "Poverty by America," and the title is very indicative,
is not "Poverty in America," but "Poverty by America." America. And as you probably think, his argument could not be more counter to Graham's one. In effect, he argues that poverty in America is a terrible scooch that will make no progress,
and that's a moral outrage. He writes that according to the government's official poverty measure, there's been a little change in the share of the population considered poor over the last 50 years. 12 .6 % in 1970 and 30 % in America.
.5 % two decades later. And by 2019, he was still 10 .5%. So importantly, Desmond argues the numbers aren't the only way to define poverty.
And this is important. He writes, "Poverty isn't simply the condition of not having enough money. It's the condition of not having enough choice and being taken advantage of because of that. It's constant worry about how you're going to pay your bills,
the inability to think about anything beyond the fear of the present moment." moment. People have called this the bandwidth tax. And Desmond argues that partly because of the horrific stress caused by poverty, it's likely to become a vicious trap.
But here's the funny thing. Graham and Desmond actually agree on one thing, which is that transfer payment have increased enormously. Desmond writes, "If America poverty persisted, I thought it was because we had reduced our spending on the poor,
but I was wrong. Spending on the nation." nation's 13 largest mean -tested programs, aid reserve for Americans who fall below a certain income level, went from $1 ,050 a person,
when Reagan was president, to $3 ,419 a person, when Donald Trump was president, a 237 % increase. - But in Desmond's view,
this hasn't helped. He argues that the money doesn't reach all the people who are eligible. And I think his argument is that that poverty is more than a number is really convincing. He argues that the primary reason for our stalled progress on poverty reduction is that we have not confronted the unrelenting exploitation of the poor in the labor housing and financial markets and that's because more fortunate Americans
benefit from that exploitation. He writes, "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 too." So there's so much to discuss here,
but let's talk to Matthew first. - I would like to start by asking, what made you interested in the question of poverty to begin with?
- Well, I grew up poor. I grew up in a little town in Arizona. Families gas got cut off regularly. We lost our childhood home to foreclosure. And then for my last book, "Convicted," I moved into Milwaukee.
Milwaukee, moved into a mobile home park and a rooming house on the north side of the city. And it's mid -time with families getting evicted. And that's where I saw another kind of poverty that I'd never experienced, never seen before.
I saw, you know, grandmas without heat in the winter. I saw kids routinely evicted. And I think that pressed this question of why there's so much poverty in this rich country inside of me in a deep and unique way.
Now, can you define poverty for us? Because I think that a lot depends on on where you set the line for poverty, right? - Right, so officially poverty is an income level. The American official poverty measure is drawn about $27 ,000,
$28 ,000 a year for a family of four. The supplemental poverty measure is a little higher between $31 ,000 and $33 ,000 a year for a family of four. You know, you get 10 scholars in a room and they're gonna argue about the measurement.
But I think that everyone agrees it's too low. - Yeah, it's too low. but that doesn't even rush the surface, right? And I think that those of us that have spent a lot of time in poor neighborhoods know that poverty isn't just the lack of money.
It's like chronic pain on top of exposure to violence and crime often, on top of eviction and homelessness, hunger, death, you know? And so I think that this recognition that poverty is this tight knot of social maladies and humiliations is really important for like great the stakes of the problem and really making an argument for the moral urgency of how much of an abomination poverty really is.
So I think the point that you make that poverty isn't just a number that we need a much broader definition of it really resonated with me. At the same time, there is, for lack of a better way of putting it,
a sleight of hand of sorts in your analysis because you argue that poverty based on income hasn't budged. Even the though transfer payments have increased dramatically because those transfer payments aren't included in the income levels.
So do you think that's an issue with relying on income levels to define poverty or would you argue that it's immaterial given all these other factors that make up poverty? So there's not a sleight of hand in the book.
There's just the editorial decision and there's a ton of footnotes, right? And the footnotes use different poverty measures and those different poverty measures show that the percentage of people who are in poverty is the same as those who are in poverty. of poverty over the last 50 years,
even in the face of rising government spending. And this is a paradox I think we have to lean into, I think, because there's a ton of evidence that shows that government programs work, they're essential, they're important.
There's also a ton of evidence that spending and investments on the 13th biggest means tested programs, in any case, have grown, right? So, first year in Toronto Reagan's administration,
we spent around $1 ,000 per person on those programs. And the first year in a dental trumps, we spent about $3 ,400 per person on those programs, adjusted for inflation. It's a 237 % increase. And so if you look at the official poverty measure,
it's been stagnant, but it's a flawed measure. It doesn't account for a lot of that spending. But if you look at the historical supplemental poverty measure, which does account for a lot of those transfers and taxes, you get the same results.
So 50 years ago, 1973, 1973, the historical SPM is about 15%. Fast forward 40 years, it's about 15%. It dips a little before the pandemic.
And then of course it plunges, right? Because of this historic investment in the American people by the federal government. But now it's creeping back up. That's the paradox I think we have to embrace if we're gonna solve poverty.
And I think that the solution to the paradox or one kind of solution to that puzzle is that, you know, the fundamentals of American society are breaking down, especially in the labor market and the housing market for the American poor,
and it kind of is a recipe for spinning more to stay in the same place. So let's get into the weeds just a little bit if you don't mind. So like when the war on poverty was launched in 1964,
the Great Society, one in three American workers belonged to a labor union. Real wages were climbing every year. And so in that kind of scenario, those investments were cures. But as workers lost power and our jobs got a lot worse and wages have stagnated,
those programs have turned into something like dialysis. They're incredibly helpful and meaningful, but they're not lifting a lot of folks out of poverty in a permanent way because the job market and housing market continue to be pretty exploitive.
Federal housing spending has increased about 15 % since 2000. 2000 in real terms. And so we might think, oh, 15 % more families are being served, but that's not true. It's about 4 .5 million families in 2000,
and it's about 4 .5 million families today. So why? And it's because the rents have basically increased that much during that time. And if many of our government programs are public -private investments that subsidize the private market,
then that's a recipe for spending more to stay in the same place. So I'm going to posit something somewhat shocking, which is that in a really odd way you infill ground. Graham actually seem to agree, which is that you both argue that transfer payments haven't accomplished what they should have,
given that they haven't gotten more Americans to be able to make more money. Now, he's got a very different set of policy prescriptions than you do. His policy prescriptions are essentially get rid of transfer payments, so people have to go earn money.
But what do you say about just this broad notion that you guys actually do agree that transfer payments haven't accomplished what they should? Well, I think for those of us us that are seeking to end poverty, it's a challenge and it's a paradox.
And I don't think we can run away from it, actually, or adjust the inflation measure in a way that tells a different story. I think we really need to look hard on it. If you just look at normal hardship measures, it's really troubling.
Eviction filings were up 22 % over the last 20 years. The number of families who visited food pantries up 19%. The number of homeless school kids up 74 % since the Great Recession recession, real troubling,
hard measures. That's really difficult to dismiss. And so I think that this book is asking for more or not less. It has a recognition of the power and importance and just life -saving benefits of many of these programs.
I mean, I've been with families when they receive a housing voucher, and they just like fall to the knees and weep, you know, because they know that it's a lifesaver. lifesaver. And the evidence of what those families do when they finally receive that voucher after years and years on the waiting list is moving to me,
they take it to the grocery store, you know, they buy more food, their kids become less anemic. And so arguments about taking away those programs or doing less for those families are pretty insensitive and out of touch.
And sometimes you can cruel, I think, but I also think... we have to recognize that we don't just need more of the same. We need different policies, policies to disrupt poverty, and especially policies that attack exploitation and the financial and housing markets.
And so I think that that paradox is something that we should start leaning into and confronting because it has real policy implications, right? It means that we don't just need an expanded EITC,
for example, which I would be for. But we also should be pushing for things like secretarial bargaining and worker empowerment. When it comes to transfer, I would have expected you to say that maybe we should be reallocating them because it seems to me that a lot of the transfer end up going mostly to older people and young people and kids and etc.
are short change in the equation. So, not that all the... people don't need help, but I think that they are a much more powerful coalition and end up receiving a lot of it.
The way I would frame, but feel free to disagree, is we need to be more targeted in our help. - So I remember being at a policy, the Kennedy School and a colleague turned to me and he said,
you know, would you rather have twice as many housing vouchers, but they're worth half as much, you know? These kinds of questions, trade -off questions. These are serious questions. I think we should pursue them. The book rejects them though, in a way.
The book is like, these are scarcity mindset questions. Do we have to choose in America to support our elderly population or support our kids? I don't think we do. There's this one study that I just can't get over,
which shows that if the top 1 % of Americans just pay the taxes they owed, such evading taxes as successfully, we could raise an additional $175 billion each. year, right? That's enough to reestablish a child tax credit that cut child poverty by 46 % during COVID.
That's enough to double our investment in affordable housing. That's basically enough to pull everyone above the official poverty line. It's a rough estimate, but it shows that I don't think we have to back ourselves in the scarcity corner where we're choosing between kids and elderly folks.
I think that we do have to advocate for policies that result in the richest among us taking less from the government. You know, policies that invest deeper in fighting poverty instead of guarding fortunes or subsidizing affluence.
So one of the important factors that you point out, which I think is very important, is the cost of housing. By and large, the cost of housing is driven by resistance in building more,
not in my backyard policy, have been really a major obstacle. to the supply of new constructions, and that has increased dramatically the cost of rental.
But I also feel that we know a lot less about what's driving higher rents than I think we think we do. And I think that in some cities, the lack of supply is clearly the story.
But many cities, Toledo, Tucson, Houston even have have decent vacancy rates and are still seeing real pressures on the rents. And some of the highest evicting cities in the country,
Richmond, Virginia, Tulsa, Oklahoma, Albuquerque, New Mexico, Wilmington, Delaware, are not cities that are suffering from the kinds of housing crisis that we see in the coastal big cities. And so I think that there are many drivers to the rental crisis that aren't fully understood yet,
actually. but I think that attacking exclusionary zoning, both as a policy point, but also just as a cultural change and building the political will that allows neighborhoods not to let their property lines dictate where their values stop is really important.
One of the arguments of the book is about exploitation and the housing crisis. One of the things that I was really binopeling to me, I was living in a mobile home park in Milwaukee,
and the landlord let me see his. rent books so I could calculate his bottom line. And I learned that the landlord that I was rented from, which was a really poor mobile home park in the fourth poor city in the country at the time,
he was making over $400 ,000 a year after expenses. And so that set him in a completely different life than many of us tenants who are on disability or working minimum wage. And that me thinking like how unique is that?
And we actually have data for that. It's called the Rental Housing Finance Survey. And it's a nationwide survey of landlords. Not perfect, but it's pretty good. And if you look at that data, you learn that landlords in poor neighborhoods have much higher margins than landlords in middle class neighborhoods.
They don't make just more. They make double often. When you have a captive tenant group that doesn't have a lot of choice, then you can charge them more for less. In 2020, the United States spent about $193 billion on homeowner tax subsidies.
[MUSIC PLAYING] about $53 billion on direct housing assistance to the needy. Most of those homeowner tax subsidies just accrued to rich families, the top 20 % of families. And we do have agreement in economics that the things like the mortgage interest deduction does not increase homeownership.
It just makes our homes more valuable than they would be without it. So for me, this is a clearly regressive imbalance in the tax code. It's interesting about homeownership as a solution to the affordable housing crisis is that in a lot of markets,
it's much cheaper to own your home than to rent. I remember meeting a woman named Higby that I write about in the book. She was in Cleveland working for Amazon as a picker, and she was paying, I think, $950 a month to rent a four -bedroom home in Cleveland.
But if she bought that home under conventional mortgage standards, her mortgage payment and insurance would be about $500. a month. It's like $4 ,500 more in her pocket every year with no writ hikes. So she could afford it,
so to speak. There's just no odd ramps for someone like IKEA because banks aren't super interested in small -dollar mortgages. Not because they're riskier, the data suggests that they're not, but they're less profitable.
You could just make a lot more money issuing a million -dollar mortgage than a $75 ,000 mortgage. This is why the books suggest on -ramps to homeownership for low -income families as one of many solutions to the housing crisis.
Last year, 27 % of homes sold for $100 ,000 or less, affordable homes, but only 23 % of those were financed with a mortgage. So I think this is another place that we can kind of help with down payment assistance and incentivize lending institutions to get more of those families like Lakeos into homes like that.
I agree with you on homeownership. I think it's also a solution to what's are partly a solution to what's going to be a retirement crisis, right? If you have a whole subset of Americans getting to retirement age and they don't have a home in which to retire,
then you have a mammoth problem. And Luigi and I've talked about this before on the podcast, the idea that home ownership for poor people was responsible for the financial crisis in 2008 is just one of the worst tropes that's been put out there because it's just,
it's completely wrong. So I've ended up thinking after this kind of, that maybe part of our problem is a measurement problem and maybe we need to scrap all these measures like the poverty line and the supplemental poverty measure and focus instead on these numbers that you outline like whether evictions are going up and children living in homeless situations and food shortages and define them in a very granular way and
just get rid of these big picture statistics that can both be misused and that may not actually be. be telling us anything. So what do you think about that idea? Let's just start from scratch, scrap it all,
and come up with a new definition of what poverty actually is. - I think there's really something to that, you know, and I think that if we wanna measure hardship, let's measure hardship, and let's kind of come together and agree on a set of indicators about human flourishing and basic necessities,
and let's track those. I think that that gives a real texture and reflection of the lived experience of poverty, in a way. that the poverty line doesn't. And the poverty line too, it's just, it's very susceptible to manipulation and change.
You can tell really different stories about poverty, depending on the inflation measures you used over the last 50 years, or if you're anchored or not. And so I think that gets you into these debates about completely different Americas in a way,
but it's just based on really technical things. And so I like that idea. I think England does this. this. One of the measures that England uses is I think they have a 20 or so point scale about child poverty that they use to kind of measure hardship.
I think adopting that over here makes a lot of sense. Thank you so much for your time and for your work. No, thanks both. I mean, thanks for doing such great homework and thanks for having me on. I really appreciated this conversation.
So, Luigi, who did you end up agreeing with more? Mark, Graham or Desmond, or maybe a better way to ask the question is, did Desmond change the way you thought about Graham's analysis?
That's a very good question. Yes. First of all, the analysis is different in so many dimensions that it's really, I think we should congratulate ourselves to pair the two because together they're very useful.
I think Graham is all about numbers, and I think he's right with the numbers, but as Mark Twain said, you can lie with the statistics. very effectively, so don't give a full picture. The thing that I like the most of Desmond is when he talks about the friction that makes poverty structural,
so the screw up in the tax system, the lack of competition or access to credit in housing, these are structural problems that have nothing to do with transfer.
It's very hard to disagree with Desmond on those issues. issues. In America, we did make significant improvement in fighting poverty, but not enough. And particularly,
a lot of money is misallocated. One of the factoids that Desmond was citing is how much money that is dedicated to fight poverty end up in somebody's hands, which is a serious problem.
And how many other things on the margin we can do to make this society more... welcoming and giving more opportunities to everybody, which is something that also Senator Graham wanted to do.
Yeah. I was stunned by one number in his book in particular, and there were bigger numbers, but the number that just jumped out at me was that a billion dollars of social security disability payments go into the hands of lawyers because anybody who needs a social security disability payment knows that you're not going to get it at first and that eventually you have to hire a lawyer and the lawyer is going to take a
portion of the money you get. And I thought, that if there's anything that sums up the exploitation more, then it's that it's that it's that. So Luigi, one thing that I'm still struggling with is how they can both be right.
How can Graham's numbers be right? And I think most people agree that the numbers are right, even if we don't agree with the story they tell. But how can Graham's numbers be right? And yet Desmond can have all these heartbreaking examples of really extreme poverty.
How can those two things coexist at the same time? So I'm looking at Phil Graham's number. And think about the bottom quintile of the income distribution. You see that we see $41 ,000 a year,
but of this $41 ,000, $16 ,000, $17 ,000 is Medicare, Medicaid. And another $10 ,000 is Social Security. So basically, for the old people who are not necessarily poor.
because they might own a house and then might have some wealth, etc., but they are in the bottom 20 % of the income distribution, you have a lot of help. And part of that $10 ,000 in Medicaid and $8 ,000 in Medicare,
those are also, I'm sorry to say, but the all the money that you spend in the last 30 days of your life where you spend the fortune, right? The statistics are that enormous amount of money is spent there. So that money does not really translate into helping the single mother with a kid struggling.
So if you are a single mother and you're trying to raise a kid and try to work at the same time, you don't get social security for sure, you don't get Medicare, maybe we get Medicaid and some food stamps, but the food stamps at the end of the day are only $1 ,500 on average.
So they're not that much. So the big chunk is social security and Medicare, Medicaid. And those are certainly social security and Medicare, mostly for the elderly.
That's the reason why I asked this question about the misallocation. So I think that there is a tale because if you're temporarily poor and if you've made a lot of money through your,
a lot of money, you've made a decent amount of money through your life, you own a house and now you're not making a lot of money. but you're receiving a lot of subsidy in Medicare is one thing, and that doesn't compensate for the poor people who don't receive anything.
And I think it just points to this idea that these top -line measures of poverty are just so flawed is to be almost useless, because any top -line measure encompasses such different sets of people and such different sets of money that they're that they're getting or not getting,
that it is almost, it's almost irreplaceable. when it comes to the lived experience of poverty. with production assistants from Udesof Gandhi,
Sebastian Burka, and Brooke Fox. Don't forget to subscribe and leave a review wherever you get your podcasts.