MYTH: The ‘War on Poverty was successful.
REALITY: This is false. In 1964, Democrat President Lyndon B. Johnson launched his ‘War on Poverty. He believed through vast amounts of government spending and social programs, that the United States could essentially eradicate poverty. Lyndon B. Johnson, during his state of the Union address, said, “Our aim is not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it. The Johnson administration believed in this message so much that Robert Lampman, Lyndon B. Johnson’s key economic adviser, believed that poverty would be eliminated by 1980. Since 1964, the government has spent somewhere between 15 to 22 trillion dollars on social programs to combat poverty.
Despite, spending trillions of dollars over the last several decades, the official poverty rate in the United States is around the same as it was during the end of Johnson’s administration.
In 1969, during the end of Johnson’s administration, the official poverty rate was 12.2%, dropping to a low of 11% by 1973. In 2021, the official poverty rate was 11.6%.
Not only was poverty not eliminated by 1980, but some measures are even worse today.
In 1969, 14% of children were living in poverty. By 2021, the percentage of children living in poverty was 15.3%.
Lyndon B. Johnson stated objective was an absolute failure. Poverty wasn’t eliminated and persists today at a similar level to what it was in the past.
If we want to effectively combat poverty, we should decrease government spending and increase Economic Freedom.
HOW POVERTY IS DETERMINED
During the Johnson administration, they used the official poverty rate to determine the amount of poverty. When you use the same method today, you’ll find that the amount of poverty hasn’t changed by much.
Many supporters of the war on poverty will state that the method to determine the official poverty rate is flawed. They suggest that the method called ‘Supplemental Poverty Measure (SPM)’ is a better method to determine the poverty rate. If the SPM method is used, then the results change dramatically, showing that poverty did decrease as a result of the ‘War on Poverty.’
They’re partly correct. They’re correct that the official poverty rate method is flawed, but they’re wrong that the SPM should be used to determine if the ‘War on Poverty was successful.
Here’s why you shouldn’t use the SPM to determine if the War on Poverty worked, the SPM method adds government benefits to cash income. Government benefits like nutritional assistance, subsidized housing, and home energy assistance are added to cash income.
Of course, that’s misleading. It doesn’t make sense that someone meets the poverty income requirement to be on Supplemental Nutrition Assistance Program (SNAP), but once they receive SNAP, they’re no longer in poverty. Their income remained the same.
For example, if someone is unemployed, and they receive unemployment benefits, that doesn’t mean that they are employed.
Government benefits being added to cash income to lower poverty is not what the ‘War on Poverty’ was set out to do. The Johnson administration’s goal was not to have people become reliant on the government to avoid poverty. He wanted to reduce the cause of poverty, not just the consequences. He believed that his social programs would make people self-reliant and no longer dependent on the government.
What happens when you exclude government benefits from cash income?
A metric called ‘Anchored Supplemental Poverty Measure Before Taxes and Transfers’ (ASPMBTAT) can be used to determine people’s cash income without including government benefits. For example, when you use ‘Anchored Supplemental Poverty Measure Before Taxes and Transfers’ (ASPMBTAT), the poverty rate is similar today to what it was during the Johnson administration.
According to Louis Woodhill, a contributor for Forbes, “The ASPMBTAT is the ultimate quantitative test of the success (or failure) of the War on Poverty, at least in terms of its stated objective. Shortly after the War on Poverty got rolling (1967), about 27% of Americans lived in poverty. In 2012, the last year for which data is available, the number was about 29%.”
Johnson wanted to cure and prevent poverty. This he failed to do. If Johnson cured or prevented poverty, then how come when you use the same method his administration used, you get a similar result today? How come when you remove government benefits from the equation, the poverty rate is similar to what it was in 1967? None of this would be the case if he was successful in what he set out to do.
NEGATIVE CONSEQUENCES TO THE WAR ON POVERTY: ECONOMIC CONSEQUENCES
One of the fastest ways to decrease poverty is by increasing Economic Freedom and Economic Growth. Spending trillions of dollars has negative economic consequences. Various studies show that high government spending decreases Economic Freedom and Economic Growth, leading to more poverty. Here are some of the studies below—
According to an NBER Research study by Alberto Alesina and associates, “increases in public spending can hit company profits and thus lead to a reduction in private investment and economic growth. Cuts in public spending, on the other hand, can lead to more private investment, and faster growth.”
A study from the Federal Reserve Bank of Dallas also stated, “Growth in government stunts general economic growth. Increases in government spending or Taxes lead to persistent decreases in the rate of job growth.”
An article in the Quarterly Journal of Economics reported, “The ratio of real government consumption expenditure to real GDP had a negative association with growth and investment,” and “Growth is inversely related to the share of government consumption in GDP, but insignificantly related to the share of public investment.”
A study in Public Choice stated, “A one percent increase in government spending as a percent of GDP (from, say, 30 to 31%) would raise the unemployment rate by approximately .36 of one percent (from, say, 8 to 8.36 percent).”
(Click: Read the full Heritage Foundation list here)
HIGHER ECONOMIC FREEDOM LEADS TO LOWER POVERTY
Numerous studies have shown that the higher the economic freedom score is, the less poverty there is.
The Fraser Institute has found “that countries with institutions and policies more consistent with economic freedom have higher levels of income, more rapid economic growth, and a greater reduction in poverty rates.”
A 2020 study titled “The Relationship between Economic Freedom and Poverty Rates: Cross Country Evidence,” by Colin Doran and Thomas Stratmann of the Mercatus Center proved that economic freedom is essential to lowering poverty throughout the world.
A 2008 Economic Freedom of the World report by Seth Norton and James Gwartney, found a very strong relationship between higher economic freedom and reduced poverty.
A 2003 study, titled “Poverty and Economic Freedom: Evidence from Cross-Country Data” by Rana Hasan, M. G. Quibria, and Yangseon Kim, found that “economic freedom is as much important for economic growth as for poverty reduction.”
(Click: Read my article on Economic Freedom to have a better understanding)
THE BENEFITS OF GOVERNMENT PROGRAMS
It’s important to mention that this article is not intended to encourage the removal of government programs altogether. (Although there should be a radical change in how we do it). Some programs are necessary for the recipient’s well-being. Government programs can be effective at preventing the consequences of poverty. For those who are incapable of being independent, like children, the disabled, and the mentally handicapped, government programs are essential.
Rector, R. (2014, September 23). The War on Poverty: 50 years of failure. The Heritage Foundation. Retrieved August 29, 2022, from https://www.heritage.org/marriage-and-family/commentary/the-war-poverty-50-years-failure
Adams, Jr., Richard H., Economic Growth, Inequality, and Poverty: Findings from a New Data Set (February 28, 2003). World Bank Policy Research Working Paper No. 2972, Available at SSRN: https://ssrn.com/abstract=1357182
Basmajian, E. (2022, March 11). Why government spending makes the economy weaker. Seeking Alpha. Retrieved September 17, 2022, from https://seekingalpha.com/article/4494904-why-government-spending-makes-the-economy-weaker
Woodhill, L. (2014, March 19). The War on Poverty wasn’t a failure — it was a catastrophe. Forbes. Retrieved September 17, 2022, from https://www.forbes.com/sites/louiswoodhill/2014/03/19/the-war-on-poverty-wasnt-a-failure-it-was-a-catastrophe/?sh=6aaafccf6f49
Haskins, R. (2013, November 19). The War on Poverty: What Went Wrong? Brookings Institute. Retrieved September 17, 2022, from https://www.google.com/amp/s/www.brookings.edu/opinions/the-war-on-poverty-what-went-wrong/amp/
Poverty Increased by 1.2 Million in 1970 (Advance data from March 1971 Current Population Survey). United States Census Bureau. (1971, May 7). Retrieved September 17, 2022, from https://www.census.gov/library/publications/1971/demo/p60-77.html#:~:text=In%201970%2C%20about%2025.5%20million,level%20were%20roughly%20the%20same.
24 million Americans-poverty in the United States: 1969. United States Census Bureau. (1970, December 16). Retrieved September 17, 2022, from https://www.census.gov/library/publications/1970/demo/p60-76.html#:~:text=The%20proportion%20of%20persons%20below, out%20of%205%20in%201959
Lyndon B. Johnson, Annual Message to the Congress on the State of the Union. Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/242292
Creamer, J. (2022, September 13). Poverty in the United States: 2021. United States Census Bureau. Retrieved September 17, 2022, from https://www.census.gov/library/publications/2022/demo/p60-277.html#:~:text=The%20official%20poverty%20rate%20in,and%20Table%20A%2D1).
Income Distribution and Poverty in Nevada. CDCLV. (n.d.). Retrieved September 17, 2022, from https://cdclv.unlv.edu/healthnv/poverty.html#:~:text=The%20population%20in%20poverty%20was,Ornati%201955%3B%20Hurst%202004).
Aber, L., Morris, P., & Raver, C. (2012). Children, families, and poverty: De,finitions, trends, emerging science, and implications for policy and commentaries. Social Policy Report, 26(3), 1–29. https://doi.org/10.1002/j.2379-3988.2012.tb00072.x
Mitchell, D. (2005, March 15). The impact of government spending on economic growth. The Heritage Foundation. Retrieved September 17, 2022, from https://www.heritage.org/budget-and-spending/report/the-impact-government-spending-economic-growth
Ravallion, M. (2015, May 28). Poverty in the rich world when it was not nearly so rich. Center for Global Development. Retrieved September 17, 2022, from https://www.cgdev.org/blog/poverty-rich-world-when-it-was-not-nearly-so-rich
Housing subsidies lift 2.9 million out of poverty. National Low Income Housing Coalition. (2018, September 17). Retrieved September 17, 2022, from https://nlihc.org/resource/housing-subsidies-lift-29-million-out-poverty
Moffitt, R., Phelan, B., & Winkler, A. (2015). Welfare rules, incentives, and family structure. https://doi.org/10.3386/w21257
Doran, Colin and Stratmann, Thomas, The Relationship between Economic Freedom and Poverty Rates: Cross Country Evidence (August 25, 2021). Doran, C., & Stratmann, T. (2020). The Relationship between Economic Freedom and Poverty Rates: Cross-Country Evidence. Journal of Institutional and Theoretical Economics, 176(4), 686–707., GMU Working Paper in Economics No. 21-27, Available at SSRN: https://ssrn.com/abstract=3911478
Press, D. (2017, August 29). Why economic freedom is the best weapon against poverty. Competitive Enterprise Institute. Retrieved August 30, 2022, from https://cei.org/blog/why-economic-freedom-is-the-best-weapon-against-poverty/
The relationship between Economic Freedom and Poverty Rates: Cross… Atlas Network. (2020, September 25). Retrieved August 30, 2022, from https://www.atlasnetwork.org/articles/the-relationship-between-economic-freedom-and-poverty-rates-cross-country-evidence-by-colin-duran
Economic Freedom of the World . Cato.org. (n.d.). Retrieved August 30, 2022, from https://www.cato.org/economic-freedom-world
Rana Hasan & M.G. Quibria & Yangseon Kim, 2003. “Poverty and Economic Freedom: Evidence from Cross-Country Data,” Economics Study Area Working Papers 60, East-West Center, Economics Study Area.
Ladan, L. (2019, June 14). Capitalism remains the best way to combat extreme poverty. Catalyst. Retrieved August 31, 2022, from https://catalyst.independent.org/2019/06/14/capitalism-remains-the-best-way-to-combat-extreme-poverty/
Zitelmann, R. (2020, July 27). Anyone who doesn’t know the following facts about capitalism should learn them. Forbes. Retrieved August 31, 2022, from https://www.forbes.com/sites/rainerzitelmann/2020/07/27/anyone-who-doesnt-know-the-following-facts-about-capitalism-should-learn-them/?sh=64712a213dc1
Sobel, R. S., & Bolen, J. B. (2018, June 1). What is capitalism? the concept of Economic Freedom. Mississippi Center for Public Policy. Retrieved August 31, 2022, from https://mspolicy.org/what-is-capitalism-the-concept-of-economic-freedom/
Leave a Reply