The Ludwig von Mises Institute

The Mises Institute monthly, free with membership

January 2000
Volume 18, Number 1

A strong economy is the mortal enemy of the welfare bureaucracy. If Americans are productive and prospering, who needs all those welfare bureaucrats? So, to eliminate the threat of diminished funding of its pay, privileges, and perks, the Washington welfare bureaucracy, led by President Clinton, is proposing to redefine "poverty." Currently, a family of four is in "official poverty" if it earns less than $16,600 per year-an amount that would be middle class in most of the world, and wildly rich in some countries. The government is proposing to increase the official poverty level of income to $19,500, thereby creating an instant 30 percent increase in "poverty."

Clinton and other Washington politicians are forever bragging about how "welfare reform" has reduced the welfare rolls while they work diligently to get more people on welfare. That way they can take credit for ostensibly reducing the welfare burden on taxpayers, while in reality creating even more welfare dependents who can always be relied upon to vote them back into office.

The number of people on welfare may be temporarily down, but the taxpayers shouldn't rejoice yet, for government spending on welfare programs has not fallen commensurately. One reason for this was explained in an August 19, 1999, New York Times story on welfare "reform": ever since Congress "cut" welfare, welfare payments have soared. In Wisconsin, for example, the state had been spending $4,100 per family (in federal funds) before an 80 percent drop in its welfare case load. But with only one fifth the case load the per-family subsidy has risen by nearly 500 percent-to $22,000 annually-and will climb to $35,000 next year (the cost of a year at Harvard), an almost nine-fold increase.

Government poverty statistics have always been a lie, a sham, and a deceit designed to fool the American public into acquiescing in the welfare state. As Charles Murray pointed out in his 1984 book, Losing Ground, the government perversely counts as success in its "war" against poverty an increase in the number of people on welfare-just the opposite of what should be done. Success against poverty should mean fewer people on welfare, not more. But to government welfare bureaucrats more welfare bums is a success.

As economist Jonathan Hobbs stated, "the welfare system sustains a nationwide welfare industry of more than 5 million public and private workers.... The industry has demonstrated that its goal is not to eliminate poverty, but to expand welfare through increased spending...." In other words, even if the welfare rolls are down, we are still spending enough to sustain the real welfare bums, i.e., what economist Walter Williams calls the "Poverty Pentagon"-the army of politicians, bureaucrats, social workers, government-funded nonprofit organizations, and academic researchers who study and "administer" the poor.

The US Census Bureau intentionally understates the financial resources of "the poor" to artificially inflate their numbers. Assets and wealth are not taken into account in any way, and much income is simply not counted. For example, the Census Bureau itself recently reported that people it calls "officially poor" spend about $2.24 for every $1.00 in reported income. Nor are any so-called "in-kind" government handouts (food stamps, housing allowances, education subsidies, free legal representation, day care subsidies, etc.) counted as income for "the poor."

No adjustments are made for family size or the variation of income over time. This gives the impression that there is a large "underclass" that is stuck in poverty forever, contrary to reality. In Myths of Rich and Poor, Michael Cox and Richard Alm made use of the University of Michigan's tracking data on a sample of over 50,000 Americans whose incomes were recorded every year since 1968.

What they found is that only 5 percent of the persons who were in the bottom fifth of income earners in 1975 were still there in 1991. Thirty percent had risen to the top fifth, in many cases taking just a few short years (of hard work) to do so. Less than 1 percent of the sample was comprised of people who remained in the bottom fifth of income earners for the entire 16-year period studied by Cox and Alm. That's not a very big "underclass."

To make "poverty" seem even worse, the government publishes statistics on the "income gap" between "rich and poor" in which the poor's income is understated as described above, while the income of the more affluent is artificially overstated by not extracting taxes from their income. Thus, the "income gap" looks grossly larger than it really is.

Counting all of the income of "the poor," economist Morton Paglin has estimated that the government's official poverty rate would only be about one-fifth as high as the government reports. That, of course, is exactly why the income and government benefits are not counted.

America's "poor" live much better than middle- and upper middle-class people do in most developed countries of the world. In Japan, the average household has 0.8 persons per room, compared to .56 persons per room for America's "poor," according to the government's own statistics. Even in Western Europe the average household is more crowded than the typical "poor" American residence. In many American cities, subsidized town houses are being built for welfare recipients that are in excess of 2,000 square feet and come completely wired with the latest computer technology. In Prince George's County, Maryland, people on welfare are given government housing vouchers worth up to $1,670 per month.

Virtually no one in America lacks the basic amenities of running water, flush toilets, and electricity. But in Japan, according to the Organization for Economic Cooperation and Development, 54 percent of the households lack a flush toilet and 17 percent are without a shower or bath. Seventeen percent of Norwegians are without a flush toilet, as are 7 percent of Germans and 11 percent of Italians.

More than 62 percent of the American "poor" own one or more cars, and about 15 percent own two or more. This is 40 percent higher than the automobile ownership rate of the entire population in Japan and about equal to that in England. More than 22,000 "poor" households have a heated swimming pool or a Jacuzzi, according to the US Department of Energy.

According to the US Department of Agriculture, America's "poor" do not differ substantially in the amount of food they consume compared to the upper half of the income earners. America's poor eat one-third more meat than the average German, twice as much as the British, and three times more than the Japanese. No wonder the former US Surgeon General, C. Everett Koop, is warning of an "obesity crisis."

The state thrives on crises, which is why it is constantly creating them with wars, punitive taxes, price controls, and myriad other interventions. But the state need not create a genuine crisis in order to grow. All that is needed is the perception of a crisis, which is why it is so adept at lying with statistics. That's why the millennium census should be scrapped, along with the Bureau of the Census itself and all other governmental gatherers of statistics.

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Thomas J. DiLorenzo is professor of economics at Loyola College and teaches at the Mises University summer program in Austrian economics. FURTHER READING: James T. Bennett and Thomas J. DiLorenzo, Official Lies: How Washington Misleads Us (Arlington, Va.: Groom Books, 1992).

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