Poverty: The New Growth Industry in America

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Dean Baker

Dean Baker is co-director of the Center for Economic and Policy Research

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September 2nd, 2012 11:44 AM

Poverty: The New Growth Industry in America

Recent trends in poverty rates should have the country furious at its leaders. When we get the data for 2011 next month, we are likely to see yet another uptick in poverty rates, reversing almost 50 years of economic progress. The percentage of people in extreme poverty, with incomes less than half of the poverty level, is likely to again hit an all-time high since the data has been collected.

The situation is made even worse by the fact that so many of those in poverty are children. In 2010, 27 percent of all children in the country were reported as living below the poverty level. For African-American children, the share in poverty is approaching 40 percent.

Many will blame the welfare reform law in 1996 that passed with bipartisan support. That is appropriate. This bill involved a great deal of political grandstanding and removed guarantees that could have protected millions of families in a severe downturn like what we are now seeing.

Advocates of this bill who now profess surprise at the result need to turn to a new line of work. There were plenty of people at the time who warned that the lack of federal guarantees could lead to severe hardship in an economic downturn. No one has a right to be surprised on this one. The surge in the poverty rate in a downturn like the present one was a predictable and predicted outcome of the legislation.

However, there is the other side of the story, the overall state of the economy, which is the more important cause of the increase in the poverty rate. The vast majority of the people in this country rely on work for the bulk of their income and that would also be true for the tens of millions of people in poverty, if work was available. These people cannot find jobs in today's economy, or at least not full-time jobs that pay anything close to a living wage.

The reason why so many of these people cannot find jobs is the incredible economic mismanagement by people with names like Robert Rubin, Alan Greenspan, and Ben Bernanke. These people thought that the bubbles that drove the economy in the last two decades, the stock bubble in the '90s and the housing bubble in the last decade, were really cool. They somehow thought that either the bubbles would not burst or that it would be easy to pick up the pieces after a crash. In Robert Rubin's case, he personally profited to the tune of more than $100 million from the housing bubble after he left his post as Treasury Secretary to take a top position at Citigroup.

As much as it is important to have strong safety net protections to ensure that people are able to survive tough times, it is even more important to have a strong economy that can generate good paying jobs. Unfortunately, there is nothing on the political agenda at the moment likely to bring the economy back towards full employment any time soon.

Both presidential candidates claim to be committed to deficit reduction as though there is magical process that causes private businesses to start hiring workers when they see that schools are laying off teachers and defense contractors are laying off factory workers. Just as few politicians had the courage in 1996 to stand up and say that the welfare reform bill would jeopardize the security of millions of families, few politicians are prepared to stand up now and say that we actually need more government investment to create jobs and rebuild the economy.

The reality is that the collapse of the housing bubble created an enormous demand gap in the economy. In the short term, this gap can only be filled by the government, whether we like it or not. Until we do get the economy back on its feet, and start creating the millions of jobs that are needed, the poverty numbers will continue to be horrible. That is why the main route for fixing poverty requires fixing the economy.