In the recent months there have been extensive debates on poverty. On one side of the spectrum the Bernie supports want to expand pensions, expand food stamps, and grow government. On the other side are the more traditional conservatives who want to cut welfare spending, since it is a burden on the budget and it benefits the wrong people. And, of course, somewhere in the grey middle is Hillary Clinton, who hasn’t quite decided whether she would senselessly hand out money to the poor to garner votes, or her wealthy donors to raise funds.
The central thesis of the rough majority of these debates circulates around the age old argument on whether or not humans are a product of their environment. Conservatives will typically argue that humans can pull themselves up out of poverty, while liberals will argue for extensive government interference. These debates are not old. However, there is a true lack of understanding, even to an extent on the conservative side, of the possible policy options. Let’s begin this discussion by reviewing the primary harms of the status quo:
(1). Poverty Rates. As of 2015, there were 43.1 million people in poverty, with the poverty rate for the entire population being at 13.5%. To put it straight: a lot of people are poor.
(2). The cycle of poverty. Children in the bottom quintile of income have a 43% probability of maintaining their poor economic status, likely due to a lack of economic mobility that hinders efforts to increase income. This effectively means that once impoverished, the likelihood is that individual will remain impoverished.
(3). Gentrification and the price of living. The price of living in America is significantly increasing, especially in major cities. Gentrification, which is the process of renewal and rebuilding in deteriorating areas that often displaces poorer residents due to increased prices (Merriam Webster) has compounded the situation, resulting in the income stagnation and decline of approximately 20% of America’s impoverished. Moreover, the process of gentrification in the US has been found to increase the expenses of the bottom quintile of income earners by over 53%, pushing the affected deeper into poverty.
(4). Labor force participation. Currently, labor force participation, at 62%, is at an all-time low since the recession. This effectively means that Americans are becoming increasingly disillusioned with the job market, resulting in less competitiveness and more individuals on welfare, weakening the social safety net.
(5). The war on poverty. To combat poverty, the US Government has spent over $22 trillion since the 1950s. 80% of these funds are towards means-tested welfare programs, such as food stamps, which means the majority of funds are allocated to those in poverty (not to social security).
So if workers are disillusioned, government spending is out of control and insolvent, and the price of living is significantly increasing, what should we do? The answer is simple: the United States government should cut and replace the majority of traditional welfare, and allocate funding instead to Individual Development Accounts (IDA). These accounts, which are matched-savings accounts that save dollar to dollar up to a living wage for those below the Federal poverty line, not only protect the impoverished, but incentivize the unemployed to rejoin the workforce. There are several empirical benefits of this policy:
(1). Asset development. Economists and social scientists have generally recognized the social developmental benefits of asset development to individuals. These developments open more opportunities for individuals, and provide stability through increased credit and access to capital. This is significant, as nearly 1 in 10 Americans have no credit. IDAs, however, solve for this crisis. In fact, as a result of having significantly expanded economic mobility, IDA participants are empirically, “35% more likely to be homeowners, [and] 84 percent more likely to own businesses…,” which has been correlated to a 5% decrease in teen pregnancies, a 2.5% decrease in school dropouts, and promises home equity for future expenses. This also results in the reduction of gentrification, as IDA participants, as a result of having asset development to financially support them, face gentrification 2-3 times less than those that aren’t account holders.
(2). Investment in the future. By supporting the impoverished through matched savings programs, they can more easily access educational resources. Having an inherent interest in becoming a strong actor in the marketplace, these individuals pursue postsecondary education. Empirically, studies show that 80% of IDA participants pursue a postsecondary education, which is impactful, as a postsecondary education can increase lifetime earnings by over $600,000.
(3). Competition. IDAs significantly increase the amount of competitors on the job market, creating a more competitive marketplace, which allows for both greater growth and a more frequent exchange of capital.
I realize that many conservatives may be opposed to the creation of new welfare codes. I myself am personally opposed to supporting a system that uses coercion to force businesses to surrender their hard earned money. But the fact of the matter is that the status quo of handouts is failing, and seeing as the Republican party neither has the political capital nor the political support from the populace to pass the policies of Ayn Rand and other libertarians, this is the last pragmatic option left.
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