Poorly Understood: A Critique
This critique was prepared as an assignment for the class “Public Economics for Business Leaders“ taught by prof. David Besanko at the Kellogg School of Management, Northwestern University. (June 2022)
To conclude my very first visit to the United States in October 2015, I took a 45-min flight from Los Angeles to San Francisco. Downtown San Francisco shocked me. I did not understand why the famed Silicon Valley was not able to solve the homelessness problem, an issue so prevalent throughout California.
A year later, I moved to Chicago and traveled America ever since. I consider it a privilege to be able to explore places and lifestyles that are not often exported by Hollywood. I have seen the poverty of Native Americans in Arizona and the poverty of White Americans in rural Nevada, “a block away” from the riches of Las Vegas. In early 2020, I returned to LA for a community program that took us to Skid Row, Downtown Los Angeles, a district that contains one of the largest stable homeless populations in the United States. It is estimated that on any given day, approximately 50,000 people sleep in the streets of the city of angels.[1] This too is America.
I reached the conclusion that this rich country chooses not to address its social problems and the book Poorly Understood by Rank, Eppard and Bullock (2021) validated and corroborated this inference of mine.
Poorly Understood addresses the topic of poverty in the United States in a bird’s eye view. Because the book is structured around the myths that the authors set out to debunk, it inevitably provides a high-level picture of poverty in America. In other words, in most cases, the American poor are depicted as a “monolith” that the authors are describing in both quantitative and qualitative terms to make the problem of poverty real and vivid for the reader. This is both an appeal and a shortcoming of the book. It is an appeal because the authors quantify the American poverty and thus demonstrate its scale, but it also is a shortcoming because the poor are not a homogenous group. For instance, root causes of poverty among the Native Americans in Arizona are very different from those among the White Americans in the Appalachia. Because the root causes are not the same, policy needs might not be the same either. This bird’s eye view is also evident in the authors’ policy proposals that tend to focus on large-scale welfare programs. Those might be effective if designed well to alleviate poverty (cash transfers and tax credits can be universally applied to any population regardless of root cause) but policies aimed at preventing poverty will likely need to vary as a function of their cause. To be fair, if the book set out to quantify the extent of poverty in the United States and debunk the myths around who the American poor are, the goal has been accomplished.
The richness of the data in the book is the book’s strongest argument. Undoubtedly, the quantitative analysis lends credibility although it makes the book hard to follow at times. The book’s appendix should be considered a chapter of its own. To further enrich the narrative, the authors provide a plethora of additional resources ranging from academic studies through newspaper articles, interactive data tools and documentaries. I watched two recommended documentaries[2] while reading the book, as well as two TED talks[3], checked three data simulators[4] (and found them disturbing), and ordered another book to understand the concept of the working poor as a follow-up for myself.[5] The appendix is beautifully done. It makes you engage with the topic beyond the book, which might have been one of the authors’ goals given their focus on awareness building on the closing pages of the book.
The authors go beyond numbers and attempt to explain why America is not choosing to address its poverty. The reasons, they say, are philosophical and tie back to the very founding ideals of this country, the notions of hard work and self-reliance. I agree with their assessment. Because the Americans see poverty as individual failing, U.S. welfare policies are not as generous and efficient as those in other OECD countries. Overall, the authors strike a good balance between the economic (the data) and the philosophical (the American dream). Weaving in the beliefs of the Americans around the importance of hard work, individualism and self-reliance is also the book’s biggest attempt to provide the why. Otherwise, Poorly Understood is largely a book of what.
The authors hint that the reasons why poverty exists in America are largely structural. For example, they explain that the country produces many low-quality jobs that cannot support workers. However, they do not explain why this happens. The authors also imply that there is a difference between policies alleviating poverty (short term) and policies addressing the root causes (long term) but they only scratch the surface with regards to the former and largely leave out the latter. With respect to the short-term, I agree that raising the federal minimum wage to $15 per hour, providing a more generous tax credit[6], and creating a better tax credit system for families without children would all work well to alleviate poverty. However, with regards to the long-term, the book focused mostly on the existence of (too) many low-quality jobs and only briefly mentioned the provision of public goods (education and healthcare) as a potential issue at the core of the American poverty. However, these did not make it to the suggested policy changes as the policy ideas mostly focused on cash and tax credit programs.
The truth is that to “cure” the apparently endemic problem of poverty in America, we need a variety of complementary and mutually reinforcing structural changes. The Aspen Institute[7] identified criteria that together make for a “good-quality” job – wages, heathcare, paid leave, retirement savings and financial wellness, legal rights, equity and inclusion, worker voice, opportunity to build skills and supportive work environment. Each of these criteria is an opportunity to address poverty.
A policy whose goal is to alleviate poverty does not need to be a large politically unpopular cash program. It can be as simple (or “simple”?) as mandating the provision of health care insurance for each job of 20 hours or more. This would bring more people to the pool of the insured thus decreasing insurance premiums for all, like the idea behind Obamacare. An anti-poverty policy could also be mandating paid parental leave, 401k plans or protecting against long-term disability. All of these would help prevent poverty in long term. Poorly Understood talks about “poverty spells” that happen around “the rough edges of the capitalist system” and provides evidence that the spells that are triggered by the birth of a child or (unexpected) health issues have the biggest power to cast a poverty spell over individuals. Policy changes suggested above would be very effective at providing support in those crucial moments.
The issue of the provision of public goods is particularly relevant when talking anti-poverty measures. Take the U.S. prison system as another example. Crime rates are well documented to positively correlate with poverty yet how do you want to keep people out of prisons for minor delicts when prisons are privately run? A basic revenue framework says that there are two ways of increasing revenue – higher price or higher volume. The way I interpret this is that you want to keep prisons as full as they can be. Research from the American Action Forum[8] makes the point very clear – “poverty and excessive legal punishments contribute significantly to the United States’ high rate of imprisonment, which has disproportionately affected low-income and minority populations.”
Another public good problem is that of education. If American schools continue to be financed by property taxes, one cannot expect that low-income neighborhoods will be able to improve the quality of education and thus increase opportunities for poor children. This effectively means that the “vicious correlation cycle” between low income hence low-quality education hence higher likelihood of crime will likely continue. Poorly Understood mentions that many anti-poverty policies have historically focused on “fixing” the individual by supporting better education outcomes. A report from the Learning Policy Institute[9] finds:“Increasing per-pupil spending by 10% in all 12 school-age years increases probability of high school graduation by 7 percentage points for all students, and by roughly 10 percentage points for non-poor children,”. Changing the way U.S. schools are financed could have an outsized positive impact on education outcomes, yet it has not been done.
One problem that the authors omit entirely when discussing American poverty and low-quality jobs is immigration. According to the Pew Research Center, around 5% of all U.S. workforce is undocumented, a larger share in certain industries.[10] The Center for Immigration Studies estimates that immigrants are 60% more likely than native-born workers to be employed in low-quality jobs[11]. The abundance of illegal workers in the country might suppress the equilibrium “minimum” wage for low-quality jobs and thus “disincentivize” the government to make $15 per hour a reality.[12] In a very short-sighted-political-cycle view, why would the government care about the poverty of non-voters who sit outside of the formal system and are willing to work for below-sustenance-level wages? In reality, the United States is ripe for an immigration reform that would ensure that the country brings in the workers it needs along the continuum between the lowest-income to the highest-income jobs.
Coming out of the vulnerabilities of a global pandemic and amidst continuously worsening wealth inequalities in the country, Poorly Understood is undoubtedly a book that America needs to read. The onus is on each one of us to give voice to the many poverty-related issues, bring them to our policy makers, and thus help build a better society for all of us.
[1] The static learned during the Collaboratory, a community leadership program that took place in Los Angeles in April 2020, led by the Jewish organization UPSTART. <https://upstartlab.org/>
[2] The Economist, “Why Is there Still Poverty in America?” (2019). Retrieved on May 28, 2022 from https://www.youtube.com/watch?v=5i45h76ioHY and DW Documentary “How Poor People Survive in the USA” (2019). Retrieved on May 28, 2022 from <https://www.youtube.com/watch?v=JHDkALRz5Rk>
[3] Dan Ariely, TED talk (2009 and 2015)
[4] Stanford Center on Poverty and Equality (2021) <https://inequality.stanford.edu/>, OECD Data Website (2021) <https://data.oecd.org/inequality/poverty-rate.htm> and Amy K. Glasmeier, “MIT Living Wage Calculator” (2021) <https://livingwage.mit.edu/>
[5] David K. Shipler, The Working Poor. Invisible in America (New York: Knopf, 2004).
[6] Such as the Earned Income Tax Credit (EITC).
[7] The Aspen Institute (2022). Strengthening Practice to Improve Job Quality. Retrieved on June 4, 2022 from <https://www.aspeninstitute.org/longform/job-quality-tools-library/section-4-strengthening-practices-to-improve-job-quality/>
[8] The American Action Forum (2020). Tara O'Neill Hayes, Margaret Barnhorst. “Incarceration and Poverty in the United States.” Retrieved on June 4, 2022 from <https://www.americanactionforum.org/research/incarceration-and-poverty-in-the-united-states/>
[9] The Learning Policy Institute (2017). “How Money Matters for Schools”. Retrieved on June 4, 2022 from <https://learningpolicyinstitute.org/product/how-money-matters-report>
[10] The Pew Research Center (2019). Mexicans Decline to Less Than a Half of the U.S. Unauthorized Immigrant Population for the Very First Time. Retrieved on June 4, 2022 from < https://www.pewresearch.org/fact-tank/2019/06/12/us-unauthorized-immigrant-population-2017/>
[11] The Center for Immigration Studies (1998.) The Wages of Immigration. Retrieved from < https://cis.org/Report/Wages-Immigration> Note: An assumption can be made this number has decreased further over the past 20 years given rising inequality and a decline in real wages for the low-skilled.
[12] By the very nature of illegal migration, there are no official accounts of undocumented workers’ wages. Francesc Ortega and Amy Hsin (2019) estimate that on average, undocumented workers earn 42% less than their documented low-skilled native workers. < https://econofact.org/what-explains-the-wages-of-undocumented-workers> This means that if a legal/native low-skilled worker makes the minimum federal wage of $7.25 per hour, his or her undocumented counterpart would work for $4.205 per hour. Doing the same exercise assuming the desired minimum wage of $15 per hour would bring an undocumented worker to $8.7 per hour. <calculations are my own>
