Poverty in America

Jeff: So, I wanna welcome all of you to this edition of “Conversations on Leadership Matters.” We’re privileged today to have as our guest Michael Tanner, Senior Fellow at the Cato Institute, where he carries a specialized portfolio with an emphasis now on poverty, social welfare policy, healthcare, and social security. And Michael, we’re really happy to welcome you back to the University of Dubuque. And before we start talking, could you just tell our listeners a little bit about the Cato Institute? What exactly is Cato?

Michael: Well, first, let me say, it’s a pleasure to be talking to you, and I hope your blog gets wide readership, it’s certainly interesting. In terms of the Cato Institute, we are an independent, nonpartisan think tank, we’re not connected with any political party. We do research and education on a variety of issues, pretty much anything that falls into public policy these days. We do foreign policy, domestic policy, environmental policy, criminal justice reform, which of course is very big right now. So, pretty much any issue you wanna talk about, Cato is involved in.

We tend to approach these issues from not a partisan perspective but an ideological perspective, and that is that we would consider ourselves libertarians in the sense that we believe in minimal government. Our guiding principles are limited government, individual liberty, free markets, and peace. And we generally look at issues with that perspective, but we also kinda go where the facts take us. We are very rigorous in our academic research.

Jeff: And so, as a think tank in that regard, my guess is, you know, a big portion of your constituency are elected officials, you’re providing research, data, information, etc. for the use of policymakers. Is that correct?

Michael: We certainly do provide information to everyone from Congress, to state legislators, to local players at city councils, and try to provide them with as much information as possible. But we also try to talk to what we call sort of the grasstops, not necessarily the grassroots. We’re not sending out emails saying, “Oh, my God, give us $10 or the world’s going to end.” We try to talk to the people in a community who influence that community because, after all, political leaders, that’s who they listen to. So, people at your Chamber of Commerce, or your labor leaders, or members of various frontline activist organizations. Those are groups we wanna talk to as well because they’re the ones who are gonna make the biggest changes.

Jeff: You know, James Davidson Hunter wrote a book years ago called “To Change the World,” and he talked about the way that kind of change happens. And I like your use of the phrase “top of the grass” rather than grassroots because he talked about all of us having a sphere of influence and exercising leadership within those spheres of influence. So, you’re trying to kinda touch people in those areas of respective influence that can move the needle forward in ways that are consistent with Cato’s mission.

Michael: That’s exactly right. I mean, we should all remember that politicians are seldom leaders, most politicians are followers. You know, they’re like the famous general who looked which way the crowd was marching and then said, “I have to jump in front of it because I am their leader.”

Jeff: That’s another conversation I don’t know whether to laugh or cry. So, how did you get to Cato? There’s a journey there, there’s a story there. So, how did you get to Cato, before we get into your actual work?

Michael: Well, I’ve been at Cato for 25 years now, actually 26. So, I’ve been at Cato for a long time. I’ve always had an interest in public policy. I graduated from Norwich University in Northfield, Vermont with a background in government and English, which is not probably the most employable background to have, but I’ve worked in a variety of think tanks over the years, the American Legislative Exchange Council, the Georgia Public Policy Foundation, and then, about 26 years ago, landed at Cato, and I’ve been there ever since.

Jeff: Well, it’s been a good fit for you, obviously.

Michael: I like the commitment to rigorous research and the belief in certain principles to guide that research.

Jeff: Yeah, I hear you. I do too, I do too. Doing a little research about you and your background, you were very active in the issues of policy matters around social security, however one would frame that, whether it’s privatization of social security saving accounts, etc. Are you still active in that or have you moved now more towards policy matters related to poverty, etc.?

Michael: Well, these days, I’m doing more activity in terms of poverty issues, but of course still keep my hand in on issues like social security and the debt. We just actually, I believe, the other day hit $26 trillion national debt for the first time. That’s certainly something to be concerned about. We’re spending trillions of dollars by the month that we don’t have in order to deal with the COVID pandemic and its economic fallout. That means that when young people get around to retiring, which isn’t gonna be that much longer, social security is going to be in much worse shape than it is today, but right now politicians don’t have much stomach for dealing with anything like that.

Jeff: Right. That’s for sure. And I wanna get into…because I think there is so many things we can talk about related to not so much COVID but the effects of COVID, not just on the economy but on individuals, on individual families, on individual humans, on individuals’ economic and personal opportunity. But before we do that, can you sort of just broadly talk about sort of what changed your interest into, or how did you morph into the policy matters around poverty?

I’m sure you’re very familiar with “Hillbilly Elegy” here by J.D. Vance a number of years ago, which was just a wonderful, very personal story. There were a lot of us who read that book that said, “Oh, I know who these people are.” You know, a lot of us actually grew up in similar environments. So, how did you make that pivot? You know, social security lead you into poverty and those policy issues, or had that always been on the periphery because of your work in social security? How do you think about that?

Michael: It actually predated my work on social security, and in fact, it led into my work on social security. My very first book for Cato was the “Poverty of Welfare: Helping People in Civil Society,” and talked about the need for welfare reform and how we can best alleviate poverty. And in my explorations of that, one of the problems I found out was that low-income people sort of by definition don’t have much in the way of savings. You know, people get rich by being able to invest and save, and poor people are kind of locked out of that.

And one of the reasons that they’re locked out is because social security basically is substitute for savings for those folks, but if social security can’t pay the benefits that are promised, they’re gonna be left out. Whereas wealthy people don’t rely on social security, they have other forms of savings. There was actually a gentleman by the name of Sam Beard who was Bobby Kennedy’s coordinator in Bed-Stuy back in the ’60s, who came to me and talked about the idea of personal accounts for social security as a way in which we can enable low-income people to cash in on that savings the same way wealthy people can, and that led me into the social security fight.

Jeff: Exactly. And one of the challenges with social security, of course in addition to those you pointed out…what people often don’t understand is there’s no liquidity tied to it, and so there’s no opportunity for generational transfer of wealth that it would be provided with a private account as opposed to a social security account.

Michael: That’s right. Jagadeesh Gokhale and some other scholars have done some significant look at the intergenerational transfer of wealth, and what they’ve suggested is that wealthy people actually have assets that they can transfer to their heirs, which means that their kids will be wealthy as well. Whereas low-income people have social security, which doesn’t transfer to your heirs, and therefore they fall further behind. Jagadeesh and others have suggested that, within about three generations, we could cut the inequality in America in about a half if we allowed poor people to save part of their social security taxes.

Jeff: Right. And the same effect, of course, is tied to defined benefit plans for those who have a pension, whereas, you know, a 401(k) or a 403(b), for example, allows one to save and generate wealth that ultimately can be passed on to generations. So, there’s several moving parts to this very complex problem, it sounds like.

Michael: Absolutely, or an employee stock option plan, which would basically allow low-income workers to become part of their employer. If we wanna talk about the poor owning the means of production, these are the types of ways to do that, is actually letting them own equity in the American economy.

Jeff: Such as homeownership, would be a good example of that.

Michael: Yeah, homeownership is a tricky one. We have to decide for ourselves whether or not we think homeownership is an investment or a place to live. And what we’ve done basically is create situations in which we lock people out of having a place to live because other people see it as an investment. So, that’s what you end up with, things like zoning laws, and land-use restrictions, and things of that nature that actually block low-income people from being able to take part in that homeownership. Because we basically have kind of a hybrid system in which your home is basically your biggest piggy bank, it’s the biggest asset most people own, yet at the same time, we can’t promise that your property values are gonna go up forever.

Jeff: Right. Are there examples of…well, there are, there are examples of often nonprofits that are involved in equity creation for the poor in different parts of the country and kind of the relationship not just between the creation of equity but kind of being involved having…I don’t like this phrase, but having skin in the game, which improves just the overall quality of life, you know, the sphere of influence from the neighborhood, to the community, to the schools, etc.

Michael: Yeah, absolutely. At educational programs that teaches people about equity, part of it is basically having within low-income communities…the type of investment advice that’s out there, I mean, is…Merrill Lynch is not building a lot of inner-city offices, but we actually need to encourage that sort of thing to happen so that low-income people can get in on this.

Jeff: I agree, I agree. So, is it safe to say…you probably wouldn’t use this term, so I’ll use it for you. When I look at your work and the body of your work, I would describe you as something that’s very much needed in our society, as a public intellectual. Do you kind of see yourself that way, and if you do, how do you think about your responsibility as a public intellectual?

Michael: God, I mean, I’ve been accused of being one, so I don’t know whether or not I think it’s a good thing or not. But I will say, I do think I have a responsibility to rigorous research and to being willing to have an open mind towards my research. At the beginning of my latest book, “The Inclusive Economy,” one of the things I discussed is the fact that I have, over the years, changed at least my emphasis in terms of how to deal with the poor. My original work focused very heavily on welfare programs, which I don’t believe are effective at reducing poverty, and they probably gave an impression that everybody should just pull themselves up by the bootstraps.

And I’ve said the more research I’ve done, the more I’ve talked to low-income people, the more I’ve been out in poor communities and communities of color, the more I’ve found that that is a little simplistic and that we need to deal with some broader issues if we’re going to get this done. And so, I’ve basically shifted my emphasis, and where I think we should be paying attention, and how we should be talking about these issues. And I think that that’s important, is that people get wedded to their positions and defending their positions no matter what, they don’t seem to be open to new data, and people should be.

Jeff: Oh, I agree. I mean, in a way, I think that’s the sign of a liberated mind. So, talk about some of those…you mentioned some of the broader issues that you’ve just learned over the course of your career and sort of being an honest sort of consumer of the facts, of the evidence of your research. What are some of the broader issues, maybe, that you’ve learned over the last 5 years or 10 years in your research that you weren’t aware of or didn’t think about prior to that point? How have you grown that way?

Michael: Sure. You know, when I talk about poverty and how we should solve poverty, one of the things we need to start with is why are people poor in the first place. I mean, if you were a doctor, you wouldn’t start prescribing medicine until you knew what the underlying disease was. And I think that we need to do that in terms of prescribing solutions to poverty.

Now, there’s generally two theories of why people are poor out there. One is what’s called the cultural poverty, or individual behavior theory of poverty, that points to the fact that a lot of reasons why people are poor is their own behavior. This has worked a lot for something called the success sequence, which says basically that if you finish school, you get a job, you don’t have children until you’re married, you’re very unlikely to be poor. And there’s a lot of statistical evidence to back that up, and I think that that’s probably where I was in terms of my thinking for many years, and in my early works, I think I stressed those issues very strongly.

However, one of the things that’s become more apparent is that while choice matters, our individual decisions matter, we make those decisions and choices within certain constraints, that quite simply someone growing up in a middle-class suburb, a white kid growing up in a middle-class suburb is gonna end up making very different choices and decisions than a poor, minority child in the inner city, in an area where there’s no jobs, where the schools are lousy, where the cops hassle you every time you set foot outside your door. They’re gonna end up making very different sets of choices and decisions. And so, we should recognize that those structural issues: race, gender, economic dislocation matter in terms of the overall consequences of our decision-making.

Jeff: So, those structural issues…so, we’ve got kind of the two, the cultural poverty, the success sequence, and then kind of the cultural issues, is maybe how I describe them. The structural issues, would that be what…and some of our listeners will hear this, are pretty sophisticated consumers of information. Is this what you would refer to as some of the systemic issues related to poverty?

Michael: Yes, exactly. And the two interact with each other, and I think you’ve gotta take both into account. You know, I think it’s very demeaning to suggest that the poor have no decisions or choices in life, nothing they do matters, they’re blown on the winds of fate, and everything is outside of their control. That’s kind of demeaning to the poor, I mean, you know, to pretend that they don’t matter. On the other hand, I think you really can’t say, “Well, they should just do this or do that,” irrespective of the situations they live in, and the circumstances they’re brought up in, and the systemic problems, say race and gender, in our country that really can have an influence on how people behave.

And I’ll give you just one example. Conservatives, and a lot of market economists, have for years pointed out the fact that if you have children outside of marriage, you are far more likely to be poor, it’s about five times more likely to be poor, than if you wait till you’re married before you have children. And this has meant there are a lot of conservatives that push this idea of, “We need to encourage people to get married more, we need to incentivize marriage,” and certainly, you know, “Marriage matters.”

On the other hand, scholars like William Julius Wilson from Harvard, for example, have pointed out that if you’re a poor woman growing up in the inner city, there’s not a great pool of minority computer programmers waiting to marry you, that we have a criminal justice system, for example, that has taken a million and a half young black men out of the marriage pool because they’re involved in the criminal justice system, they’re in jail, they’re on probation, or they have a criminal record that makes it impossible for them to get a job and support a family. So, exactly who are these women supposed to marry? And you have to look at both sides of that equation if you really wanna get anything done.

Jeff: It seems to me, as we talked earlier, as a libertarian, that’s one of…I don’t wanna say advantages, but that perspective kinda facilitates within you the opportunity to honestly see both sides of that coin. Is that a fair insight?

Michael: It certainly allows me to speak to both sides of that coin. I don’t feel like I have a vested interest in either saying it’s all about structural issues and that choice doesn’t matter or that it’s all about choice and we don’t have any structural problems in our society. I think both sides tend to get so vested in their position, and we have red team, blue team beating each other up, that people miss the fact that both sides have something to say.

Jeff: Yeah, I agree. And I wanna talk about what that something to say is, but I wanna probe a little bit before we run out of time here, we’ve got about seven minutes left, about sort of what you see happening, the downstream effects now of COVID-19 and the economy coming to a halt. You know, in our area now, we’ll be at 25% unemployment before this thing finally settles. And of course, there’s no question that the poor, that brown, black communities, that marginalized communities are going to experience this more so than many other communities. How do you make sense of some of this? If you were to look into the future, you know, am I overreacting or is this looking pretty difficult as we look into the next year, the next five years? Have you reflected on that yet?

Michael: Yeah, I do think that as we look at coming out of the economic shutdown that we went through…and we can argue about whether it was justified or not. You know, I think initially it was, and then probably opening up makes sense now. But I think that we have to look at the fact that it did not fall equally across the board. I mean, if you look at most white-collar workers, which is largely a white population, they can work from home, their jobs are largely intact, but the people who lost their jobs are people who had jobs that were in the service industry or the manufacturing industry, jobs that could not be readily transferred to your computer at home or the type of thing that we’re much more able to do, and those jobs are gonna be harder coming back.

We just celebrated recently the fact that unemployment is not as bad as expected, it’s still huge, it’s in the mid-teens. But if you look beyond that and down into, for example, African-American unemployment, that’s still over 20%. African Americans tend to be the last hired, the first fired, and their rehiring is gonna be much slower. And the question is how much structural unemployment’s going to linger with us into the fall and probably early into next year as well before we see any real recovery.

Jeff: Well, that’s discouraging, of course. We can debate whether, you know, the COVID stimulus and its magnitude, was that good economic policy, necessary economic policy, poor economic policy. I was on a conference call the other day with a very senior member of the United States Senate, and he indicated that there’ll very likely be kind of a COVID-19 stimulus two, or three, or however many. It seems to me that that stimulus, if you wanna call it that, has been a little bit like throwing spaghetti on a wall and we’ll see what sticks.

Michael: I think that’s a pretty good description of it. I think they realized they had to do something. And even someone who’s as devoted to limited government and generally just likes income transfers as I do, I think this was a little bit of a sui generis situation. You had a massive increase in unemployment almost overnight and you had a cause and effect by the government. Now, there’s some debate a lot of it was actually occurring voluntarily because people were afraid of COVID and not doing work or not going to restaurants and so on. But then, you had the government come in and literally shut things down, turn off the switch. I think that makes for a certain responsibility on government to help people that they’ve hurt, in effect, and help take care of them.

On the other hand, because they had to do all this overnight, they didn’t really have any time to think about it. We didn’t have real hearings on what’s the best approach or whatever, we had Mnuchin, and Pelosi, and a couple of others sort of negotiate a deal that they thought could get passed. And again, it contains a lot of areas that are problematic. There’s actually people earning more by being on unemployment than they were earning prior to that, and it’s locking a lot of small businesses in place that would have gone out of business anyway, because that’s what a lot of small businesses do. And so, we’ve sort of frozen everything and trying to paper it over with money. I’m not sure we’re necessarily reinventing the economy for a post-COVID world, which is what we really need to do.

Jeff: Well, and that certainly is, I hope, one of the contributions you and your colleagues, as public intellectuals and as, you know, members of Cato, are able to help all of us think through. I know I spend a lot of time thinking about our students. And as we wrap this up, you know, I think, for example, those students that graduated this spring, they’re looking at…entering into this job market is going to be very tough on them. What advice would you give to the graduates of the class of 2020 as they navigate the next 6 to 12 months in their careers? What are some things that they can do in their job search and what are some things that they can do, in addition to what they’ve already done, perhaps to stabilize the foundation from which they will be operating and moving into their professional lives?

Michael: Sure. Two things that they should do. One is to be flexible. The American economy is very dynamic and very flexible. Jobs that existed four months ago are going to go away and maybe not come back, but other jobs are going to appear that we didn’t even think about as we respond to COVID. I mean, if you just think of all the people now doing things like Zoom that was an afterthought three or four months ago. So, when they go out and look for jobs, they shouldn’t necessarily say, “Well, this was the job I was planning on, that’s the only thing I’m looking for,” they should be looking at the broad scheme of things to see what’s out there and matches well with their talents.

The other thing is I would urge them to save because they’re not going to be able to depend on social security when they get to retirement age, and when crises like this happen…you know, they talk about the average American not being able to scrape up $400 in savings, that’s particularly true of young people who haven’t had a lot of time. They are going to encounter, if not this crisis, other crises in their life. Having savings is an important thing.

Jeff: Yeah, it is, it is. And one of the things I think we’ve done well here, Michael, and we can certainly do better, but years ago, we hired a full-time individual, a financial planner, and the purpose of the financial planner was to work with students, and every time that a student took out a loan, to sit down, to kinda game out what that loan meant, what the payment schedule would be like. And through that process, we’ve then managed to keep our student loan debt far lower than the national average, and we can still do better. But we’ve also learned that this financial planner works with families and spends a good part of his time working with families of students.

And I think, you know, that goes back to where we started, in that, you know, savings, the opportunity to live a little more disciplined of a financial life, wherever we start, buys us independence as we move through our life, is maybe one way to think about it. More and more independence, which I think we can both agree is a good thing for us as humans and allows us choice in ways that maybe we don’t have if we’re restricted in our opportunities and our ability to earn.

Michael: Yeah, absolutely. I mean, the ultimate purpose of all public policy should be human flourishing. We want everybody to rise as far as their talents will take them, we want everybody to be masters of their own destiny, and that does require that sort of independence, including financial independence.

Jeff: Michael Tanner, thank you. I suspect you have a busy day before you. We really wanna thank you for being on our blog today and on this podcast, “Conversations with Leaders,” and we thank you for your role in our society as a public intellectual and for your research. And I really would like to get you back to campus again sooner rather than later. So, thank you for being with us, and God bless. We appreciate your work very much.

Michael: Thank you very much. Yeah, thank you very much. I appreciate that. As soon as they open up travel again, I’d love to come out and talk on your campus. And until then, I would urge people to look for my latest book, “The Inclusive Economy.” It’s on Amazon or at a bookstore near you.

Jeff: Well, I’m gonna go buy it right now, but then you have to sign it when you’re here.

Michael: You got it.

Jeff: All right, Michael. Thank you.

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