This article originally appeared in National Review Online on July 31, 2007
BARACK OBAMA announced last week his policy agenda to combat urban poverty. As president, he would spend an additional $6 billion a year for such things as:
- Providing funding in 20 cities across the country to replicate successful child- and youth-development programs like the Harlem Children’s Zone in New York City and the Town Hall Education, Arts & Recreation Campus in the District of Columbia;
- Providing federal financial support for unwed fathers who help raise their children, while cracking down on those who fail to pay child support;
- Expanding the Nurse-Family Partnership program, which provides home visits by registered nurses to new low-income mothers and pregnant women;
- Providing $1 billion in funding for jobs programs that would place unemployed workers in temporary jobs and train them for permanent ones;
- Creating an affordable-housing trust that would finance the building of as many as 112,000 new low-income housing units in mixed income neighborhoods across the country;
- Providing capital for inner-city businesses through a national network of business incubators.
Obama has also proposed to index the minimum wage to increase each year with inflation.
The federal government already spends close to $600 billion each year on welfare programs for the poor, including Medicaid, food stamps, housing-assistance programs, Temporary Assistance for Needy Families, and dozens of others. Spending an additional $6 billion a year on the above litany of moldy, outdated ideas is not going to have any effect except to waste more taxpayer dollars.
I am sure the youth-development programs in New York and D.C. Obama has highlighted do good work. But the vast welfare-state empire already has plenty of programs that can and do provide funding to help expand such local initiatives where desirable. Increasing funding for such micro-initiatives even more is not going to have any significant impact on the big picture
Another billion for jobs programs? Is Obama not aware that the unemployment rate is 4.5 percent and 8 million new jobs have been created since the Bush tax cuts were adopted? In addition, millions of illegal aliens have streamed across the border to get available jobs in the U.S. There is no problem with jobs in the American economy. Moreover, federal job-training programs were once a new idea — 45 years ago during the Kennedy administration. Now, with dozens of new government job-training initiatives since then, Obama’s proposal is neither new nor likely to have significant effect.
Federal programs for construction of new low-income housing units is such an old and counterproductive idea (it dates back to at least the 1930s) that the government has virtually stopped doing it. The private sector does a perfectly fine job of building housing. Increasing federal spending marginally faster on any of the broad array of federal housing-subsidy programs is not a remotely new idea and will do little to relieve poverty.
Over the past 20 years the federal government has already cracked down so hard on deadbeat dads who don’t pay child support that the overall policy would serve as a good model for cracking down on terrorists. Marginally increasing welfare payments for unwed dads who do support their children is also only going to increase federal spending with little positive effect. These dads need to go to work to support their kids in the highly productive private sector where they can prosper and provide much more for their kids over the long run.
Providing capital for new inner-city businesses is another old, long tried-and-failed idea that would not have any significant effect either. The federal government has no idea which businesses to fund nor how to finance them. The Nurse-Family Partnership program is another already existing initiative and, as before, Obama’s proposed boost in funding would make little difference on the big picture. States can be given flexibility to decide whether to spend existing funds on this type of initiative, depending on whether it would really help in different localities.
The only thing that keeps the minimum wage from being really harmful is that it is not indexed to automatically increase with inflation. It regularly falls behind market wages over the years, and so has little effect. Automatically increasing the minimum wage every year will just price more young and low skilled workers out of the market, only adding to poverty. The government should not be in the business of setting private-sector wages. It has no idea who should be paid in what amount. There are better ways of addressing poverty and low income than this counterproductive idea.
If Obama and the other Democrats really do want to help the poor and low-income workers, here is an agenda that would make an enormous difference.
First, allow workers the freedom to choose to substitute personal accounts for at least part of Social Security. In the bill introduced in the last Congress by Rep. Paul Ryan (R., Wis.) and Sen. John Sununu (R., N.H.), workers would be free to choose switch the employee share of the payroll tax, 6.2 percent of taxable payroll, into their own personal-investment accounts. To the extent workers exercise this option over their careers, the accounts would take over responsibility for paying future retirement benefits. Even for lower-income workers, these accounts would accumulate with investment returns to several hundred thousand dollars over the worker’s career. At the same time, the long-term deficits of Social Security would be eliminated.
Because market returns are so much higher than what non-invested, purely redistributive Social Security even promises –let alone what it can pay — low and moderate income workers would get significantly higher benefits through these accounts. Nor would these workers have to take on greater risk. The Ryan-Sununu bill holds the safety net in place with a federal guarantee that workers with personal accounts would receive at least as much in total benefits as Social Security promises under current law.
Such personal accounts would amount to an historic breakthrough for poor and low-income workers. For the first time, they would be able to accumulate substantial capital ownership over their careers along with higher income workers, the only true way to increase equality without crushing the economy with redistributive taxes.
Another historic breakthrough for the poor and low-income workers would be to adopt school choice across the country. This would enable poor children to escape bad public schools that are effectively depriving them of a meaningful education. In the face of this competition, even currently rotten inner-city schools would improve sharply over time to avoid losing all of their students.
A true, modern anti-poverty agenda would also transform Medicaid to provide vouchers to the poor to buy private health insurance, allowing them to participate in the same health care system as the middle class. With the low doctor- and hospital-payment rates of Medicaid, the poor find many now refuse to treat them under the program, and getting in to see a doctor can be a long and difficult process.
This would best be done in the context of a modern overhaul of all federal welfare programs block-granting them back to the states, where new and modern programs would be designed to get the poor into real jobs, private health insurance, and eventually home ownership.
That would be a good start. What an enormous difference for the poor this agenda would make. The problem with our current welfare system is not that it is financially impoverished: It still eats up more in government spending each year than national defense. The problem is that it is intellectually impoverished, as shown by Obama’s measly litany of tired, outdated initiatives older than the candidate himself.