Who Should Help the Poor?

Blank, Who Should Help the Poor? eReserves

U.S. Catholic Conference, Economic Justice for all, http://www.osjspm.org/economic_justice_for_all.aspx

DeParle, Ch. 14: Golf Balls and Corporate Dreams: Milwaukee, 1997-1999

Wednesday’s Topic:How Do Our Governments Help Poor People?Do Government Programs Reduce Poverty?

• Readings:– Schiller Ch 12, Welfare Programs– Congressional Budget Office, Economic and Budget Issue Brief, “Changes in Participation in Means-Tested Programs,” available at: http://www.cbo.gov/publications/bysubject.cfm?cat=12

– Familiarize yourself with 2000 Green Book Over of Entitlement Programs, available at http://aspe.hhs.gov/2000gb/

– DeParle, Ch 15: Caseworker XM128W: Milwaukee, 1998-2000

Today’s TopicWho Should Help the

Poor?• Why bother with this topic?

• Economic arguments for Government intervention

• Can private charity replace the role of government in helping the poor?– Statistics on charitable giving

Topic, Cont.

• What role for government and individuals was asserted in Economic Justice for All? Does it help us answer the questions: Should we help? Who should we help? How should we help?

Why bother with this topic?

• Can we justify government intervention from an economic perspective?

• Can economics help us determine how much we should give? To whom? In what form?

Justifying Government Intervention:The Inefficiency of Poverty

• “The budget [$2.77 billion] drains money from two-thirds of federal agencies and continues a large military buildup. Pentagon funding would increase by nearly 7% and, for the first time in Mr. Bush's presidency, claim more than half the government's expenditure on discretionary programs.”

• WSJ on line, quoting from http://www.washingtonpost.com/wp-dyn/content/article/2006/02/06/AR2006020600464.html

Butter

Guns

Justifying Government Intervention:The Inefficiency of Poverty

Rebecca Blank, “Who Should Help the Poor?” Chapter 5 in, It Takes a Nation, Princeton University Press, 1997

1. Economic arguments based on individualistic notions of self-interest

2. Ethical notions of community responsibility

3. Economics rights arguments

Economic arguments based on individualistic notions of self-interest

• Investment/positive externalities argument —antipoverty programs provide a brighter future for both the poor and nonpoor by increasing productivity and lowering the costs of poverty.

• Risk-sharing—the government can pool resources to assure people that they will have protection against future economic bad luck.

Ethical notions of community responsibility

• Human dignity argument --Primary responsibility of society is to respect human value and avoid wasted human lives

• Capacity to respond argument --The moral responsibility of a society is greater when it possesses economic and technological capacity to assist the poor.

• Administrative Capacity Argument —The government has better administrative and programmatic capacity to carry out efficient redistribution than the private sectors for some types of needs.

• Market failure argument —if a society chooses a market-based economy, it should assume responsibility for those for whom the market does not provide adequately or who cannot compete.

Economics rights (equity) arguments

• Every citizen has a right to access to education, to food, to medical care, to housing and to employment.

• Citizens with equivalent needs living within the same national boundary have a right to similar programs.

Additonal justifications

• See Singer, “How Much Should a Billionaire Give--And What Should You?”

– The Nobel Prize-winning economist and social scientist Herbert Simon estimated that social capital is responsible for at least 90 percent of what people earn in wealthy societies like those of the United States or northwestern Europe.

• social capital: natural resources, technology and organizational skills in the community, and the presence of good government.

– Thomas Pogge, a philosopher at Columbia University, has argued that at least some of our affluence comes at the expense of the poor.

Can economics help us answer:

• How much should we give?

• To whom?

• In what form?

How much do we spend?Government Spending

http://www.irs.gov/app/understandingTaxes/artspec/IWT01L01acs301A.jpg

The Federal Budget in 2006

Revenues $2.407 trillionExpenditures $2.654 trillion_____________________Deficit $ 248 billion

Federal Budget Expenditures

• Pie chart of total federal expenditures http://www.washingtonpost.com/wp-srv/politics/interactives/budget07/category.html

• Total federal expenditures for Medicaid and Income Security = $396 Billion– Includes TANF, unemployment compensation, Supplemental Security Income, the refundable portion of the earned income and child tax cred- its, Food Stamps, family support, child nutrition, and foster care.

• Medicaid $/GDP = $.1806/12.9 = 1.4%• Income Security $/GDP = .2158/12.9 = 1.7%

State Government Expenditures for the Poor,

2004• Public Assistance $345.2 billion• Medicaid $299.7 billion• Total $744.9 billion

(6% of GDP)

• Sourceshttp://www.acf.hhs.gov/http://www.census.gov/compendia/statab/state_local_govt_finances_employment/receipts_expenditures_investment/

Private Philanthropic Expenditures for US Poor, 2004

• See: http://nonprofit.about.com/od/trendsissuesstatistics/a/givingusa2005.htm

Private Philanthropic Expenditures for US Poor, 2004

• Adding gifts for human services, health, and education categories gives an upper limit of $75.0 billion in private gifts.

• Total spending for the Poor = $1.216 trillion– Federal spending = $396 billion– State and Local spending = $745 billion– Private philanthropy = $75 billion

• The amount of foreign development aid given by the U.S. government is 22 cents for every $100 the nation earns (0.2% GDP)

Could Private Spending Replace Government Spending?

• Private spending is at most 6% of total government expenditures of $1.140 trillion, or 7% of all expenditures.– Blank’s estimate was 5% and she had

better information about the percentage of spending in the three categories that went to the poor.

Disadvantages of Reliance on Private Philanthropy

• “Much as we may applaud what Gates and Buffett are doing, we can also be troubled by a system that leaves the fate of hundreds of millions of people hanging on the decisions of two or three private citizens.” (Singer)

• Others?

Advantages of private philanthropic giving

• Private philanthropists are free to venture where governments fear to tread

• Private donors can more easily avoid dealing with corrupt or wasteful governments

• They can go directly into the field, working with local villages and grass-roots organizations.

• Private philanthropists are not beholden to lobbyists. (Source: Singer)

• Others?

Who gives to Charity?

• "Charitable Giving: How Much, By Whom, To What, and Why."Paul G. Schervish, John J. Havens and Mary A. O’Herlihy. The Nonprofit Sector: A Research Handbook, Second Edition. Woodrow Powell and Richard Steinberg (eds.) Yale University Press. 2002.

How much should we give?

• “Everyone who earns above the tax-free threshold contributes something, with more collected from those with greater ability to pay” (Singer, “How much should a Billionaire . . .”)

Average Federal Tax Rates by Income Ranking, 2004

Average

Tax Rate

Average Taxes

for poor support

(tax rate x 0.26)

All Taxpayers 12.10% 3.15%

Top 1% 23.49% 6.11%

Top 2-5% 16.95% 4.41%

Top 6-10% 12.28% 3.19%

Top 11-25% 9.26% 2.41%

Top 26-50% 7.01% 1.82%

Bottom 50% 2.97% 0.77%

Source: http://www.taxfoundation.org/news/show/250.htm

Singer’s Suggested Contributions

Percentage of Income

Top 0.01% 33%

Top 0.02-0.1% 25%

Top 0.2-0.5% 20%

Top 0.6-1.0% 15%

Top 2.0-10% 10%

How much should we give?

• Use your economic knowledge to evaluate Singer’s argument. How would you defend his target percentages? Challenge?

To whom ?

• Does economic theory help us determine the identity of those who should receive assistance?– Consider how eligibility for government

transfers and other assistance is now determined.

In what form?

• What is this best form of economic assistance?

• Is consumer theory, especially the theory of optimal consumption bundles, useful in this discussion?

Economic Justice for All

Economic Justice for All: Catholic Social Teaching in the U.S. Economy, (United

States Catholic Conference, 1986)

1.What is society’s obligation to the poor according to Economic Justice for All?

2. In what respects do Economic Justice for All and Blank’s ”Who Should Help the Poor?” agree? Are there significant points of disagreement? If so what are they?

Economic Justice for All, cont.

3. The Bishops write that their letter, “ . . . does not embrace any particular theory of how the economy works, nor does it attempt to resolve the disputes between different schools of economic thought” (p. 2). Nonetheless, does the letter, in your opinion, seem to lean more toward one theory than another? Are the six moral principles of the Bishops’ letter and their recommendations consistent with the principles of free-market economics?

4. To what extent does PRWORA incorporate the Bishops’ recommendations regarding the poor?

Bishops’ Recommendations regarding the poor

1. The first line of attack against poverty must be to build and sustain a healthy economy that provides employment opportunities at just wages for all adults who are able work. (196a)

2. Vigorous action should be undertaken to remove barriers to full and equal employment for women and minorities. (199b)

3. Self-help efforts among the poor should be fostered by programs and policies in both the private and public sectors. (200a)

4. The tax system should be continually evaluated in terms of its impact on the poor. (202d)

Bishops’ Recommendations regarding the poor, cont.

5. All of society should make a much stronger commitment to education for the poor. (203e)

6. Policies and programs at all levels should support the strength and stability of families, especially those adversely affected by the economy. (206f)

7. A thorough reform of the nations’ welfare and income-support programs should be undertaken. (210g)

Bishops’ Recommendations regarding the poor, cont.

8. Public assistance programs should be designed to assist recipients, whenever possible, to become self-sufficient through gainful employment. (211-1)

9. Welfare programs should provide recipients with adequate levels of support. (212-2)

10. National eligibility standards and a national minimum benefit level for public assistance programs should be established. (213-3)

11. Welfare programs should be available to two-parent as well as single-parent families. (214-4)