Increased Government Spending Has Negligible Effects on Poverty

February 5, 2013

While some argue for increased government spending to reduce poverty, the empirical evidence suggests that such efforts will do nothing to reduce the record number of Americans living in poverty. Indeed, economic growth and good-paying jobs will do more to reduce poverty than increased spending, says Keith Hall in U.S. News & World Report.

  • There are 46 million Americans living in poverty, a number that has grown by nearly 9 million since the beginning of the recession.
  • Sixty-six percent of the working-age poor were unemployed for the entire year of 2011 and there are more than 100 million working-age people who remain jobless.
  • Over the last 20 years, the poverty rate has mirrored the jobless rate in America.

Recessions are known to increase the number of families in poverty. America's anemic economic growth has averaged just 2.3 percent since the Great Recession officially ended in the middle of 2009. With wages rising below the inflation rate, data from the last decades suggests that for every 1 percent reduction in the poverty rate the jobless rate must decline by 2 percent as well.

The estimate of 46 million Americans living in poverty is low if the U.S. Census Bureau's new Supplemental Poverty Measure (SPM) is correct. The new measure redefines the poverty measure by accounting for "in-kind" transfers like nutrition or housing assistance, as well as "necessary" expenses like child care and health insurance premiums. Using the new measure, the SPM indicates that 50 million Americans are living in poverty, meaning 50 percent of the poverty population did not work in 2011.

Despite record highs in government spending, poverty has not decreased. Hall states that we must focus on the underlying issue of a stagnant economy if we are to reduce poverty.

Source: Keith Hall, "More Government Spending Won't Reduce Poverty," U.S. News & World Report, January 29, 2013.

 

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