Monday, May 4, 2015

The War on Poverty - $40 Trillion Funding Failure Rather than Facebook or FUBU or Ford

Last year the United States celebrated the 50th anniversary of the War on Poverty begun by LBJ in 1964. Over that time the country has spent approximately $40 trillion on welfare and redistribution programs of one sort or another – and that number doesn’t include expenditures for Social Security or Medicare. The program started out slow, but has steadily picked up steam so that today the United States spends over a trillion dollars on welfare programs every year. To put that $1 trillion in perspective, that is more than the GDP of every country on the planet except for the 15 largest. It’s bigger than the GDP of Sweden, Saudi Arabia, Indonesia, Turkey, the Netherlands and around 175 others.

That’s a lot of money, but it must be worth it as the War on Poverty must have been a success… right? Not so much. Today poverty in the United States stands at approximately 15% of the population. Fifteen percent sounds relatively low, except when compared to the 18% rate it was $40 trillion dollars ago. After $40 trillion dollars and 50 years, the War on Poverty has reduced poverty by a staggering 3 percentage points!  What's worse, the War on Poverty actually stopped the progress that was already occurring:  During the 15 years prior to the beginning of the War on Poverty, the poverty rate in the United States had dropped from 30% to 15%!

Indeed, the single biggest accomplishment of the War on Poverty seems to have been the proliferation of single parent households… i.e. children born out of wedlock. In 1964 the percentage of American children born to unwed mothers was approximately 4%... so out of every 20 babies born, only 1 was born to an unwed mother. Today 8 out of every 20 babies born in the United States is born to an unwed mother. And according to studies by HHS and others, that’s largely because the welfare state has made such as choice feasible: Holding constant a wide range of variables, including income, education, and urban vs. suburban setting, the study found that a 50 percent increase in the value of AFDC and foodstamp payments led to a 43 percent increase in the number of out-of-wedlock births.

And the proliferation of unwed motherhood has resulted in a dramatic increase in crime, violent crime in particular. According to the Atlantic Magazine: “The relationship [between single-parent families and crime] is so strong that controlling for family configuration erases the relationship between race and crime and between low income and crime. This conclusion shows up time and again in the literature.” In 1965 there were 20 violent crimes for every 1000 Americans. By 2013 that number was 37. That doubling might not sound bad, until you realize that the incarceration rate in the US tripled over that same period, which means that as a percentage of the population there are three times as many Americans incarcerated today as there were when the War on Poverty began, but with many more criminals locked up the violent crime rate has still doubled.

So almost $1 trillion a year of welfare spending for half a century has basically made a small decrease in the poverty rate, pushed unwed motherhood through the stratosphere and dramatically increased the violent crime rate and prison population in the country. That sounds like a typical government success story.

Now let’s compare that to what a trillion dollars in one year might look like were in the private sector. Below are fifteen companies whose combined North American revenue was $1 trillion last year: Amazon, Apple, Coke, Disney, ExxonMobil, Facebook, Ford, General Electric, Google, J&J, JP Morgan, McDonalds, Microsoft, Nike, Walmart. So these companies with a combined $1 billion in revenue, what have they accomplished? Simply put, they have changed the world. Walmart has almost single handedly changed American retailing and driven inflation down everyone. Amazon redefined retail even further. Microsoft and Apple essentially created the computer revolution. McDonalds feeds the entire US population once a month. Facebook has connected a billion people around the world. Disney has entertained generations, ExxonMobil has fueled their journeys and Ford has built their cars and trucks.

Not only do these companies employ millions of people directly, but indirectly via their suppliers they drive the employment of tens of millions of others. So with a trillion dollars in revenue – money that was willingly exchanged for products and services – these companies have directly or indirectly generated an income for tens of millions of Americans who in turn support millions more family members. And they accomplished all of that while providing material benefits to the country as a whole.

One has to wonder what might have become of poverty had the $40 trillion the government siphoned out of the pockets of hard working Americans over the last half century had been left in their pockets. How many more of those children born to a single mother might have been born into a two parent household, gotten an education and gone on to start the next Disney or FUBU or UBER? How many more Spanx or Harpo Productions or Mary Kay Cosmetics were never founded because single mothers were sitting at home waiting for a welfare check rather than coming up with some revolutionary entrepreneurial moonshot? How many Under Armours or Facebooks or Chipotles never got founded because children grew up in poverty with no positive male role models around to help guide them? How much poverty would have been eliminated had each year’s trillion dollars gone into financing new startups rather than creating a dependency ecosystem?

At the end of the day the War on Poverty has been nothing short of a disaster. Not only has it sucked $40 trillion out of the hands of American workers and entrepreneurs, but it has also created an environment where tragic of circumstances have become the norm for tens of millions of Americans. More crime, more broken families and more broken dreams are the outcome of a half century of government failure. The tragedy is that this abject failure took place during one of the most economically dynamic periods in American history, and as a result of another failed government policy tens of millions of Americans found themselves stuck in the quicksand of government dependency and never had much of a shot at pursuing the American dream and seeing what potential greatness they might have brought to the world.