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Why the U.S. lost the war on poverty

When Lyndon B. Johnson declared war on poverty in 1964, an estimated 19 percent of Americans were classified as poor. Today, more than 50 years and 20 trillion dollars later, 15 percent of Americans live in poverty. On the left and right, there's agreement among some economists and policymakers that the war on poverty is a failure.

But there's a wide range of opinions explaining why poverty won. Some suggest the government did not do enough, or didn’t do the right things. Others argue that government is inherently incapable of solving the problem, and that the more it tries the more problems it creates. Still, others suggest the war on poverty actually is working, and that out-of-date measures of poverty hide the progress of the last 50 years.

The government didn’t do enough

Johnson’s war on poverty began with certain assumptions about the cause of poverty.

“Very often a lack of jobs and money is not the cause of poverty, but the symptom,” he said. “The cause may lie deeper in our failure to give our fellow citizens a fair chance to develop their own capacities, in a lack of education and training, in a lack of medical care and housing, in a lack of decent communities in which to live and bring up their children.”

Critics say the problem is that Johnson focused too much on education and not enough on creating opportunities to work.

“Poverty is caused by unemployment,” said Stephanie Kelton, a University of Missouri-Kansas City associate professor of economics. “But unemployment is caused by the economic system, not the shortcomings of workers.”

There are seven job seekers for every job according to data from the Bureau of Labour Statistics, Kelton said.

“I don’t care what you do in terms of training, there still aren’t enough jobs for the people who want to work,” she said. "Even if worker skills match the open positions perfectly, six people still walk away without a job. In an economy where jobs are hard to come by, that’s a real problem."

Generating demand for workers

According to Keltin, one of the best ways to generate more work is through new deal-style federal work programs: “We need to take people where they are and give them an opportunity to work,” she said.

These jobs don’t need to be meaningless "make work" projects either, Kelton said.

The American Society of Civil Engineers estimates that it will cost 3.6 trillion dollars to bring the nation’s infrastructure up to date.

“Building roads is incredibly useful work,” she said. “It’s work that needs to be done ... work that improves the productivity of businesses.”

“GDP is the measure of total spending on goods. You can’t cut spending and expect to grow the economy,” she said. “Spending leads to income, income leads to sales and sales lead to jobs.”

If business isn’t willing to spend, the government needs to step up to the plate, she said.

But how should the government pay the wages of these workers? The simplest way is to print more money, according to Kelton.

Simple though it may sound, it’s a highly controversial because of concerns it will lead to inflation. Kelton acknowledges that increasing the supply of money can lead to inflation, but says it isn’t something we need to worry about: “Inflation is caused by too much money chasing too few goods,” she said.

Inflation occurs when the economy is producing to the limit. That’s not the situation in the United States right now, said Kelton

“Our factories aren’t operating to full capacity, and there is enough slack in the economy that we could easily increase production without causing inflation," she said.

A problem the government can’t fix

Another perspective is that the war on poverty didn’t work because increased government involvement in the economy is bound to result in failure.

The war on poverty, critics argue, addressed the symptoms of poverty, not the causes.

“People were hungry so we gave them food stamps. People were homeless, so we gave them a place to live. People were sick so we gave them medical care,” said Rachel Sheffield, policy analyst with the conservative Heritage Foundation based in Washington, D.C. “Poverty is caused by the choices people make: things like using drugs, abusing alcohol, dropping out of school and having children out of side of marriage.”

The war on poverty didn’t work, according to these critics, because the government doesn’t understand how to influence the personal decisions citizens make, said Ron Haskins, co-director at the Brookings Institute Center on Children and Families. “Unless young people get more education, work more, and stop having babies outside marriage, government spending will be minimally effective in fighting poverty,” he said.

More problematic, government efforts to alleviate poverty created disincentives for people to become self-sufficient, a phenomena Sheffield says we see playing out on food stamp rolls: “Even during good economic times, the work rate is lower among food stamp recipients.”

Haskins said since food stamp benefits are not tied to employment, there’s no incentive for recipients to work: “Policy needs to be founded on principles which promote self-sufficiency through work,” she said.

After all, she asked, are we really curing poverty by making people dependant on government handouts?

Get out the way

Many conservatives believe the best way for government to help the poor would be to reduce taxes. One strategy that has worked is to cut payroll taxes. There’s evidence payroll tax cuts have a significant impact on consumer spending.

During the recession, the government reduced payroll taxes by 2 percent. A month after the payroll tax holiday Walmart reported unexpectedly low sales: “As small as the payroll tax cut was,” said Kelton, “it made a huge difference in how much people had to spend.”

The currently payroll tax is 6.2 percent, said Kelton. If the government just did away with that tax "it would give everyone across the board a 6.2 percent pay raise,” said Kelton. “For the average American family that will translate to about $700 a month in take home pay."

Not perfect, but working

While conventional wisdom seems to be that the war on poverty was a failure, not everyone agrees with this conclusion. In the new book, "Legacies of the War on Poverty," Martha Bailey, associate professor of economics at the University of Michigan, argues that while the war on poverty has been slow and expensive, it’s wrong to call it a failure.

Currently, the poverty rate is a measure of income. Government assistance like food stamps and Medicaid are not counted. The problem with this is that it doesn’t give a truly accurate picture of material well-being.

According to the poverty measures Bailey advocates that includes both earned income and government support such as food stamps, housing support and health care benefits, the current rate of poverty is only 11 percent.

“Maybe that doesn't sound (like a) huge (improvement),” said Brookings Institute policy analyst Isabel Sawhill in an interview with NPR. “But that’s many millions of people helped. It has made a difference.”

Bailey told NPR that the key takeaway from a careful analysis of the war on poverty is that “if (we) want to do something to stem the growth of inequality in the United states, (we) need to be bold and creative.”

When government entities started the war on poverty, “they didn't know what would work...They tried a lot of different things. Some of them didn't work so well, and other ones were huge successes,” said Bailey.