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Thursday, June 05, 2014

'Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined?'

Neil Irwin on a new study from the EPI:

Growth Has Been Good for Decades. So Why Hasn’t Poverty Declined?: The surest way to fight poverty is to achieve stronger economic growth. That, anyway, is a view embedded in the thinking of a lot of politicians and economists. ...
But over the last generation in the United States, that simply hasn’t happened. Growth has been pretty good, up 147 percent per capita. But rather than decline further, the poverty rate has bounced around in the 12 to 15 percent range — higher than it was even in the early 1970s. The mystery of why — and how to change that — is one of the most fundamental challenges in the nation’s fight against poverty.
The disconnect between growth and poverty reduction is a key finding of a sweeping new study of wages from the Economic Policy Institute. ... From 1959 to 1973, a more robust United States economy and fewer people living below the poverty line went hand-in-hand. That relationship broke apart in the mid-1970s. If the old relationship between growth and poverty had held up, the E.P.I. researchers find, the poverty rate in the United States would have fallen to zero by 1986 and stayed there ever since. ...
...low-income workers are putting in more hours on the job than they did a generation ago — and the financial rewards for doing so just haven’t increased. ...[T]he facts ... cast doubt on the notion that growth alone will solve America’s poverty problem. ... That’s the real lesson of the data: If you want to address poverty in the United States, it’s not enough to say that you need to create better incentives for lower-income people to work. You also have to devise strategies that make the benefits of a stronger economy show up in the wages of the people on the edge of poverty, who need it most desperately.

I think it's also important to understand why the distribution of income changed in the 1970s. It's not enough to say that the rewards have flowed to those at the top because of their increased contribution to society, as productivity has risen since the 1970s workers have contributed more, but their compensation has not increased commensurately. My own belief is that changes in economic power and the political power that comes with it have distorted income flows and changed the rules of the game in a way that favors those at the top. Thus, it's not that those at the top deserve what they have received because of their contributions, though perhpas it's partly that, it's also due to a change in the way income is distributed arising from changes in economic/political power.

    Posted by on Thursday, June 5, 2014 at 01:40 AM in Economics, Income Distribution | Permalink  Comments (44)



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