@garethmorgannz are the poor are just like everyone else except that they have less money?

There is a large literature on what money can buy in terms of improved child outcomes. Central to the left-wing view is the poorer are just like everyone else but they have less money. Susan Mayer, a proud registered Democrat all her life, kick-started the literature challenging this with her book in 1997.

More money does help the children of poor families but the effect is considerably less–and more complicated–than is generally thought because as Mayer says ‘once children’s basic material needs are met, characteristics of their parents become more important to how they turn out than anything additional money can buy.

Doubling the income of poor families would lift most children above the poverty line, it would have virtually no effect on their test scores and only a slight effect on social behaviour. Among her findings, which have largely survive the test of time, are:

  1. Higher parental income has little impact on reading and mathematics test scores.
  2. Higher income increases the number of years that children attend school by only one-fifth of a year.
  3. Higher income does not reduce the amount of time sons are idle as young adults.
  4. Higher income reduces the probability of daughters growing up to be single mothers by 8 to 20 percent.

Mayer found that as parents have more money to spend, they usually spend the extra money on food, especially food eaten in restaurants; larger homes; and on more automobiles. As a result, children are likely to be better housed and better fed, but not necessarily better educated or better prepared for high-income jobs. Mayer said that her findings do not endorse massive cuts in welfare:

My results do not show that we can cut income support programs with impunity…Indeed, they suggest that income support programs have been relatively successful in maintaining the material living standard of many poor children.

Mayer found that non-monetary factors play a bigger role than previously thought in determining how children overcome disadvantage as she explains. Parent-child interactions appear to be important for children’s success, but the study shows little evidence that a parent’s income has a large influence on parenting practices.

Mayer said that if money alone were responsible for overcoming such problems as unwed pregnancy, low educational achievement and male idleness, states with higher welfare benefits could expect to see reductions in these problems. In reality

once we control all relevant state characteristics, the apparent effect of increasing Aid to Families with Dependent Children benefits is very small.

Social economics has been here before. In the 1960s, the Coleman Report rather than finding that investing in schools improved child outcomes found that most variation between child outcomes depended on family backgrounds. When we talking about schools not matter in too much we are talking about average bad schools and average good school not American inner-city schools into war zones.

Source: Savings, Genes, and Fade-Out, Bryan Caplan | EconLog | Library of Economics and Liberty.

Behavioural genetics has been a bit of a blow to those that think greater parental investment can raise child outcomes as Bryan Caplan has explained:

Economists like Nobel laureate Gary Becker have been studying the family for decades.  Like most modern parents, economists usually take it for granted that “parental investment” has large, lasting effects on adult outcomes.

And yet adoption and twin researchers find surprisingly little evidence for this this assumption(link is external)!  With a few notable exceptions, the measured effect of upbringing on adult outcomes is small to zero.  Adoptees barely resemble their adopting families, identical twins are much more similar than fraternal twins, and identical twins raised apart are often as similar as identical twins raised together.  Almost all traits run in families, but the overarching reason is heredity.

Caplan notes that while it is extremely difficult for parental investments to change the adult outcomes of his children, it is well within his power to give his children a happy childhood.

1996 US welfare reforms & single mother employment rates @garethmorgannz @geoffsimmonz

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Source: Ron Haskins (2015).

Poverty Rates by Mothers’ Marital Status, 1987 to 2013

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Source: Congressional Research Service.https://www.fas.org/sgp/crs/misc/R41917.pdf

What is the success sequence?

image

Source: The success sequence: Conservatives think they have a formula for raising people out of poverty.

.

@GarethMorgannz is repeating Bob Hawke’s mistake that child poverty can be solved by more money

Jess Berentson-Shaw’s series on child poverty in the Dominion Post on child poverty had two major flaws. She argues that the solution to child poverty is to give more families more money.

The first flaw is she does not discuss previous failed attempts to solve poverty with more money. For example, Bob Hawke promised in the 1987 election that no child need live in poverty by 1990. Raising the family allowance to $1 above the family poverty line did not fix child poverty. That promise was the one Hawke later said he regretted most in his public life.

During the 1987 Australian Federal election campaign, Labour Party Prime Minister Bob Hawke announced a Family Allowance Supplement that would ensure no Australian child need live in poverty by 1990. These changes in social welfare benefits and family allowance supplements would ensure that every family would be paid one per week dollar more than the poverty threshold applicable to their family situation. I know child poverty was to be done in this way because I worked in the Prime Minister’s Department at this time.

About 580,000 Australian children lived in poverty in 1987. In 2007, at least 13 per cent of children, or 730,000 people, were poor. This was after social welfare benefits and family allowance supplements were increased to $1 above the child poverty threshold.

There is an infallible test of the practicality of Left over Left dreams such as the abolition of child poverty by writing bigger and bigger cheques to those currently poor.

If you could abolish child poverty simply by increasing welfare benefits and family allowances, the centre-right parties would be all over it like flies to the proverbial as a way of camping over the middle ground and winning the votes of socially conscious swinging voters for decades to come. Many people who would naturally vote for the centre-right parties on all other issues vote for centre-left parties out of a concern for poverty and a belief that centre-left parties will give a better deal to the poor.

The notion that poverty is simply the result of a lack of money and giving people more money will abolish child poverty has never worked. As the OECD (2009, p. 171) observed:

It would be naïve to promote increasing the family income for children through the tax-transfer system as a cure-all to problems of child well-being.

Berentson-Shaw’s second major flaw is she does not discuss the success of the 1996 US federal welfare reforms. Any serious participant in discussions of child poverty must address those 1996 US reforms.

These reforms cut Hispanic and black child poverty rates by 1/3rd in a few years by moving single mothers into employment. Time limits on welfare for single parents reduced caseloads by two thirds, 90% in some states.

After the 1996 US Federal welfare reforms, the subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: young (ages 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers. These low-skilled single mothers were thought to face the greatest barriers to employment. Blank (2002) found that:

…nobody of any political persuasion predicted or would have believed possible the magnitude of change that occurred in the behaviour of low-income single-parent families.

Employment are never married mothers increased by 50% after the US well for a reforms: employment of single mothers with less than a high school education increased by two-thirds; and employment of single mothers aged 18 to 24 approximately doubled.

With the enactment of welfare reform in 1996, black child poverty fell by more than a quarter to 30% in 2001. Over a six-year period after welfare reform, 1.2 million black children were lifted out of poverty. In 2001, despite a recession, the poverty rate for black children was at the lowest point in national history.

The only modern welfare reforms to significantly cut child poverty were the US federal welfare reforms. They emphasised helping those who helped themselves, which is the classic Samaritans’ dilemma.

Countless studies show that when comparing the carrot and the stick in welfare reform, the stick is always more effective in reducing poverty and increasing employment.

The best solution to child poverty is to move their parents into a job. Simon Chapple is clear in his book last year with Jonathan Boston:

Sustained full-time employment of sole parents and the fulltime and part-time employment of two parents, even at low wages, are sufficient to pull the majority of children above most poverty lines, given the various existing tax credits and family supports.

The best available analysis, the most credible analysis, the most independent analysis in New Zealand or anywhere else in the world that having a job and marrying the father of your child is the secret to the leaving poverty is recently by the Living Wage movement in New Zealand.

According to the calculations of the Living Wage movement, earning only $19.25 per hour with a second earner working only 20 hours affords their two children, including a teenager, Sky TV, pets, annual international travel, video games and 10-hours childcare.

This analysis of the Living Wage movement shows that finishing school so your job pays something reasonable and marrying the father of your child affords a comfortable family life. In the USA this is called the success sequence.

@GarethMorgannz the universal basic income is inferior to the minimum family tax credit

Gareth Morgan’s universal basic income appears to make everybody better off except those for whom the modern welfare state was established to protect. Examples of these from his online calculator are single mothers and retirees.

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Source: The Big Kahuna – Tax and Welfare.

To stay even just with single mothers blows a good $10 billion hole in the budget deficit according to the online calculator provided by Gareth Morgan. Retirees are still worse off.

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Source: The Big Kahuna – Tax and Welfare.

Central to the package is a comprehensive capital gains tax despite evidence growing with each day that the optimal tax rates on income from capital and on capital gains are zero.

A universal basic income for New Zealand is a long  trip to where we are now. There is already a guaranteed minimum family income in New Zealand.

The minimum family tax credit makes sure that a family’s annual income (net income after tax has been deducted) doesn’t fall below $23,036 a year ($443 per week). To qualify, you must  work for a salary or wage for at least 30 hours each week as a couple, or 20 hours each week as a single parent, and receive a family tax credit.

The Treasury modelled a Guaranteed Minimum income at the request of the Welfare Working Group in 2010. A  guaranteed minimum income  of $300 per week – the mean benefit income among those on benefits – would cost $44.5 billion or $52.6 billion if we extended it to super annuitants as a replacement for NZ Superannuation or old age pension. The former could be covered by a flat personal income tax rate of 45.4%; the latter, 48.6%. Full fiscal neutrality would require tax rates of 50.6% and 54.4%.

The universal basic income seems to be a big day out for Director’s Law of Public Expenditure. Director’s Law is public expenditure is used primary for the benefit of the middle class, and is financed with taxes which are borne in considerable part by the poor and the rich.

The universal basic income and a comprehensive capital gains tax seems to cause a lot of economic upheaval but still struggles to make the worse off groups in society even break-even on this throwing of all the cards in the air. Brian Easton put it well the other day when he said:

Many advocates put the UMI forward without doing the sums. Those who do, find that the required tax rates are horrendous or the minimum income is so low that it is not a viable means of eliminating poverty. Among the latter are New Zealanders Douglas, Gareth Morgan and Keith Rankin.

US maternal employment rates by number and age of children

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Source: Pensions at a Glance 2015 – Statistics – OECD iLibrary.

More evidence of the success of the 1996 US federal welfare reforms

#itsnotchoice @povertymonitor ‏@PlunketNZ % Australian, NZ and ‏US sole parents who do not work

The only major success in reducing sole parent beneficiary numbers anywhere has been time limits introduced as part of the 1996 US federal welfare reforms. Time limits on welfare for single parents reduced caseloads by two thirds, 90% in some states.

Source and Notes: OECD Family Database; Australian data are available only from 2005.

The subsequent declines in welfare participation rates and gains in employment were largest among the single mothers previously thought to be most disadvantaged: young (ages 18-29), mothers with children aged under seven, high school drop-outs, and black and Hispanic mothers. These low-skilled single mothers were thought to face the greatest barriers to employment. Blank (2002) found that

nobody of any political persuasion predicted or would have believed possible the magnitude of change that occurred in the behaviour of low-income single-parent families.

With the enactment of welfare reform in 1996, black child poverty fell by more than a quarter to 30% in 2001. Over a six-year period after welfare reform, 1.2 million black children were lifted out of poverty. In 2001, despite a recession, the poverty rate for black children was at the lowest point in national history. Employment are never married mothers increased by 50% after the US reforms; employment a single mothers with less than a high school education increased by two thirds; employment of single mothers aged of 18 in 24 approximately doubled.

This great success of US welfare reforms was that after decades of no progress in their war on poverty, poverty among both single mothers and black children declined dramatically.

% British, German, French and Australian children in jobless sole parent households

Source: OECD Family Database.

Welfare benefit receipt of the New Zealand working age population

https://www.facebook.com/FigureNZ/photos/pb.374053709279073.-2207520000.1449201572./1091952534155850/?type=3&theater

Nearly one in six New Zealand children live in workless households

@NovakMikayla on middle-class welfare in Australia

Fact checking @Bernie Sanders latest presidential debate

Poverty in America since 1960

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