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Volume 18, Number 1
Reinventing America's Poor
Thomas J. DiLorenzo
A strong economy is the mortal enemy of the welfare bureaucracy. If Americans are productive
and prospering, who needs all those welfare bureaucrats? So, to eliminate the threat of
diminished funding of its pay, privileges, and perks, the Washington welfare bureaucracy, led by
President Clinton, is proposing to redefine "poverty." Currently, a family of four is in "official
poverty" if it earns less than $16,600 per year-an amount that would be middle class in most of
the world, and wildly rich in some countries. The government is proposing to increase the official
poverty level of income to $19,500, thereby creating an instant 30 percent increase in "poverty."
Clinton and other Washington politicians are forever bragging about how "welfare reform" has
reduced the welfare rolls while they work diligently to get more people on welfare. That way they
can take credit for ostensibly reducing the welfare burden on taxpayers, while in reality creating
even more welfare dependents who can always be relied upon to vote them back into office.
The number of people on welfare may be temporarily down, but the taxpayers shouldn't rejoice
yet, for government spending on welfare programs has not fallen commensurately. One reason
for this was explained in an August 19, 1999, New York Times story on welfare "reform": ever
since Congress "cut" welfare, welfare payments have soared. In Wisconsin, for example, the state
had been spending $4,100 per family (in federal funds) before an 80 percent drop in its welfare
case load. But with only one fifth the case load the per-family subsidy has risen by nearly 500
percent-to $22,000 annually-and will climb to $35,000 next year (the cost of a year at
Harvard), an almost nine-fold increase.
Government poverty statistics have always been a lie, a sham, and a deceit designed to fool the
American public into acquiescing in the welfare state. As Charles Murray pointed out in his 1984
book, Losing Ground, the government perversely counts as success in its "war" against poverty
an increase in the number of people on welfare-just the opposite of what should be done.
Success against poverty should mean fewer people on welfare, not more. But to government
welfare bureaucrats more welfare bums is a success.
As economist Jonathan Hobbs stated, "the welfare system sustains a nationwide welfare industry
of more than 5 million public and private workers.... The industry has demonstrated that its goal
is not to eliminate poverty, but to expand welfare through increased spending...." In other words,
even if the welfare rolls are down, we are still spending enough to sustain the real welfare bums,
i.e., what economist Walter Williams calls the "Poverty Pentagon"-the army of politicians,
bureaucrats, social workers, government-funded nonprofit organizations, and academic
researchers who study and "administer" the poor.
The US Census Bureau intentionally understates the financial resources of "the poor" to
artificially inflate their numbers. Assets and wealth are not taken into account in any way, and
much income is simply not counted. For example, the Census Bureau itself recently reported that
people it calls "officially poor" spend about $2.24 for every $1.00 in reported income. Nor are
any so-called "in-kind" government handouts (food stamps, housing allowances, education
subsidies, free legal representation, day care subsidies, etc.) counted as income for "the poor."
No adjustments are made for family size or the variation of income over time. This gives the
impression that there is a large "underclass" that is stuck in poverty forever, contrary to reality. In
Myths of Rich and Poor, Michael Cox and Richard Alm made use of the University of
Michigan's tracking data on a sample of over 50,000 Americans whose incomes were recorded
every year since 1968.
What they found is that only 5 percent of the persons who were in the bottom fifth of income
earners in 1975 were still there in 1991. Thirty percent had risen to the top fifth, in many cases
taking just a few short years (of hard work) to do so. Less than 1 percent of the sample was
comprised of people who remained in the bottom fifth of income earners for the entire 16-year
period studied by Cox and Alm. That's not a very big "underclass."
To make "poverty" seem even worse, the government publishes statistics on the "income gap"
between "rich and poor" in which the poor's income is understated as described above, while the
income of the more affluent is artificially overstated by not extracting taxes from their income.
Thus, the "income gap" looks grossly larger than it really is.
Counting all of the income of "the poor," economist Morton Paglin has estimated that the
government's official poverty rate would only be about one-fifth as high as the government
reports. That, of course, is exactly why the income and government benefits are not counted.
America's "poor" live much better than middle- and upper middle-class people do in most
developed countries of the world. In Japan, the average household has 0.8 persons per room,
compared to .56 persons per room for America's "poor," according to the government's own
statistics. Even in Western Europe the average household is more crowded than the typical
"poor" American residence. In many American cities, subsidized town houses are being built for
welfare recipients that are in excess of 2,000 square feet and come completely wired with the
latest computer technology. In Prince George's County, Maryland, people on welfare are given
government housing vouchers worth up to $1,670 per month.
Virtually no one in America lacks the basic amenities of running water, flush toilets, and
electricity. But in Japan, according to the Organization for Economic Cooperation and
Development, 54 percent of the households lack a flush toilet and 17 percent are without a
shower or bath. Seventeen percent of Norwegians are without a flush toilet, as are 7 percent of
Germans and 11 percent of Italians.
More than 62 percent of the American "poor" own one or more cars, and about 15 percent own
two or more. This is 40 percent higher than the automobile ownership rate of the entire
population in Japan and about equal to that in England. More than 22,000 "poor" households
have a heated swimming pool or a Jacuzzi, according to the US Department of Energy.
According to the US Department of Agriculture, America's "poor" do not differ substantially in
the amount of food they consume compared to the upper half of the income earners. America's
poor eat one-third more meat than the average German, twice as much as the British, and three
times more than the Japanese. No wonder the former US Surgeon General, C. Everett Koop, is
warning of an "obesity crisis."
The state thrives on crises, which is why it is constantly creating them with wars, punitive taxes,
price controls, and myriad other interventions. But the state need not create a genuine crisis in
order to grow. All that is needed is the perception of a crisis, which is why it is so adept at lying
with statistics. That's why the millennium census should be scrapped, along with the Bureau of
the Census itself and all other governmental gatherers of statistics.
Thomas J. DiLorenzo is professor of economics at Loyola College and teaches at the Mises
University summer program in Austrian economics. FURTHER READING: James T. Bennett
and Thomas J. DiLorenzo, Official Lies: How Washington Misleads Us (Arlington, Va.: Groom