Fighting poverty is about more than dollars and cents

Advocates of extending social welfare benefits tend to cite the success of European systems —especially Scandinavian ones — in improving economic mobility, and they argue these policies and practices could be easily replicated in the US. A recent NBER study of Denmark’s social welfare system calls this understanding into question.

The study shows that
while generous social welfare successfully alleviates poverty, it does little
to influence long-term skill and economic outcomes or improve intergenerational
economic mobility. In Denmark, outcomes among children from wealthy families
still outpaced those from disadvantaged backgrounds. Skill formation was no
better in both Denmark than in the US despite stark differences in income
inequality between the two countries. Money fixes some things, but it can’t fix
everything.

First year apprentice iron worker George Vacheresse pauses during a class at Ironworkers Local 539 in Wheeling, West Virginia, March 6, 2012. Vacheresse was a steel worker for 17 years but decided to retrain after watching layoffs erode the workforce at his machinist shop over 17 years. Via REUTERS/Jason Cohn

AEI’s Director of Domestic Policy Studies, Ryan Streeter, recently asked why Congress is attempting to raise the minimum wage and institute a child allowance program rather than investing in the nation’s human capital base. It’s a very good question — one that lies at the heart of improving social and economic outcomes for all Americans, and especially disadvantaged and disconnected populations. While reducing poverty, especially for children, is a good idea, addressing the long-term need for skill and social-emotional development that will help parents and their children find meaningful and remunerative work is even more important. The expansion of child allowances to boost income addresses only the first half of the equation while leaving a giant question mark over the second.

The reason for avoiding
the human capital and skill development challenge is easy to understand: It’s
very, very difficult to solve. Trillions spent since the launch of the War on
Poverty and its progeny have shown us how hard it is to reshape human character
and behavior from the outside. People don’t like being told they need to
change. Culture is remarkably resistant to the implied criticism our social
programs embody, and resentment can, and often does, follow.

A better approach, embodied in projects like Family Independence Initiative and the Community Independence Initiative, would shift the policy emphasis to recognizing and supporting “positive deviance” in low-income communities and investing in the often abundant entrepreneurial drive in the people and families who live there. Resources targeted toward opportunity — school choice, Personal Reemployment Accounts, access to appropriately-scaled investment capital — tap into the most important asset any individual or community has: the deeply rooted human aspiration for self-improvement. Income transfers that help poor kids and reduce family stress are probably helpful and, as an anti-poverty strategy, a modest improvement over an intrusive nanny-state. But if we want to get beyond warehousing the poor, more creative policies that leverage the hope and hustle of human nature are still needed.