Though not all of you will share Mickey’s cynicism, he raises a number of good questions about The New York Times story on the near poor.
One of the interesting findings concern home ownership:
Bruce Meyer, an economist at the University of Chicago, warned that the numbers are likely to mask considerable diversity. Some households, especially the elderly, may have considerable savings. (Indeed, nearly one in five of the near poor own their homes mortgage-free.) But others may be getting help with public housing and food stamps.
This reminded me of David Alexander’s excellent article “Free and Fair: How Australia’s Low-Tax Egalitarianism Confounds the World,” which includes a passage on home-ownership:
Recent research at the University of Melbourne has revealed the way that inequality measurements to date attribute an artificially low income equality to Australia deriving from its very high level of home ownership and an artificially high income equality to European countries associated with low homeownership.
In short, the low levels of home ownership in European countries necessitate high levels of government payments to low income retirees to pay for housing, and these higher payments tally into a reduced measure of income inequality; by contrast, in high proportion home-owning countries like Australia, a large proportion of low-income retirees live rent-free in existing homes, but the lower government payments translate into a higher reading of inequality. Correcting for this methodological flaw, according to researchers at the university, gives Australia a significantly higher level of measured income equality versus European countries. [Emphasis added]
Alexander’s analysis might apply in this case as well. Regardless, the supplemental poverty measure is definitely not good news. The left will tend to think it strengthens the case for more steeply progressive income taxes and higher levels of redistribution. Some of us on the right will tend to think it strengthens the case for reforming the tax code to reduce the burden on capital formation and reducing the cost of formal employment and improving the quality of public service delivery through competition and institutional reform.
One of the main differences between these two approaches concerns the appropriate timescale: Do we take action immediately, and do we maintain that more steeply progressive taxes will have no impact on work effort and that providing more funds to the existing welfare state will yield significant and sustainable social gains? Or do we assume that our social challenges rest on multigenerational dynamics and that sustainable growth and self-help strategies are generally preferable, though the results will not be immediately apparent in the form of the disbursement of funds and the creation of new public sector jobs?
