The American Way of Poverty: How the Other Half Still Lives (38 page)

With this additional revenue ear-marked for anti-poverty programs as a cushion, localities and states, funded by the federal government, should be able to get to work building up the assets of the poor rather than, as occurs all too frequently, stripping them down.

Legislators could, for example, set in place a guaranteed minimum income, of the sort advocated by no less a conservative than Richard Nixon, back in the 1970s, as a way to ensure that everyone has at least a few dollars to spend on necessities each month. How would it work? One way would be to design it in a manner akin to the proposal for old age pensions put forward by the Townsendite
movement during the Great Depression. That movement called for all seniors to be given $200 a month from the federal government. But, it came with a catch: All $200 would have to be spent each month. If the money wasn’t spent, it was forfeited. In the 1930s, such a plan was deemed impractical. How would the government be able to monitor the spending levels of millions of individuals? Today, with modern-day technological advances, such a system would be easy to implement: anyone without work and without income could qualify for, say, a guaranteed subsidy that would take them somewhere between a quarter or halfway toward the poverty line—on the assumption that food stamps and other assistance would bring them up closer to the poverty line itself. It would provide enough income to avoid complete destitution, but not enough to be an attractive long-term alternative to work.

The country could, argued Almaz Zelleke—a Harvard-educated political scientist who worked as associate dean for academic affairs at New York’s New School until 2011, when she left to devote more time to campaigning on behalf of the U.S. Basic Income Guarantee Network—set a minimum of $10,000 per adult per year. Come tax time, anyone who had earned less than that amount the previous year would have the difference made up to them in the form of a government check. Or, if policy makers wanted to go down a more ambitious route, she explained, they could establish an annual income floor of between $6,000 and $7,000 per year to every man, woman,
and child
in the country—an idea embraced in the past by Milton Friedman and Martin Luther King Jr.—thus going a long way toward eliminating the huge and growing problem of deep poverty experienced by single mothers and their children. Extending income guarantees to children would move the country into line with most Western European nations, which have long used child allowances, or “milk money,” to ensure that kids get basic levels of nutrition and avoid the worst ravages of destitution if their parents’ finances collapse.

Zelleke believed this would be relatively easy, and affordable, to set in motion. But she also felt that it was a second-best solution. Ideally,
she argued, one would go further down this road, with the government sending monthly checks to
all
Americans, regardless of income. Those who fell below certain income thresholds would get to keep this money; for those above it, the money would be recouped through a series of banded income tax levels at the end of each tax year. Warren Buffett and Mark Zuckerberg would get their checks as regularly as would an out-of-work single mother. But whereas the impoverished lady would keep it, Buffett and Zuckerberg would be expected to pay it back. Do this, she argued, with all the fervor of a convert to a cause, and one could do away with a slew of other bureaucratic, and costly-to-implement subsidies and social programs. There would, for example, be no need for the mortgage interest tax deduction, or for housing assistance, or food stamps, or the Earned Income Tax Credit. How much would it cost? At $6,000 per person, its first year would run to an eye-popping $2 trillion. But, Zelleke hurriedly explained, aware of the almost cartoonish nature of that number, most of that would be recouped through back-end taxes, through the elimination of other costly subsidies, and through the magnifier effects created as money more effectively circulated through some of the country’s most vulnerable regions. Think of it like a hybrid car: The starting price is far more expensive than for the gas-guzzling version of the same car, but over the years, most of that difference is recouped via lower annual gas expenditures. It was, Zelleke said, somewhat optimistically, something that libertarians and progressives might one day be able to build an alliance around, its universality, like that of Social Security, protecting it from being whittled away, its simplicity making it easy to administer. “It’s a way to provide all Americans with economic security forever,” she averred. “A permanent safety net that is truly substantial.”

As grist for her argument, Zelleke explained that a handful of cities in New Jersey, Washington, and Colorado had run what were called guaranteed minimum income pilot programs in the 1960s as a part of the War on Poverty. Canada had also experimented with
the idea. More recently, some basic income projects had taken root in towns in Brazil, India, and Namibia, with preliminary research suggesting they were effective at lowering rates of malnutrition, boosting local economic activity, and increasing the number of local kids attending schools.

Furthermore, Zelleke added, for more than three decades Alaska, hardly a bastion of radical socialist thinking, had had a variant of this in place, in the form of the Alaska Permanent Dividend Fund. There, every man, woman, and child was entitled to a percentage of the state’s oil revenues, an amount that, in recent years, had ranged from a little under $1,000 on up to $3,000 per person. In September 2012, the Associated Press calculated that a resident who had lived in the state since the first checks were issued in 1982 would have received more than $34,000 from the fund during the three decades that followed.
⁵
Perhaps not entirely coincidentally, despite the fact that the legislature doesn’t collect back the dividend from wealthier residents via higher state taxes, Alaska’s Gini Coefficient data—Gini being a complex measure used to track inequality—indicated the state had less extremes of wealth and poverty than almost any other state in the union.

Almost certainly, Zelleke’s proposal is too big a pill to swallow. But there’s no practical reason that an alternative, more limited, model couldn’t be developed. It would be easy to distribute a basic guaranteed income to the poorest of the poor via an EBT card—the same sort of card that food stamps recipients currently receive their benefits on; one that would be accepted by any business that accepts credit card payments. And, at month’s end, any remaining balance would simply be erased from the card. Such a program, which could be administered either federally or via existing state agencies, would prevent the most extreme cases of destitution while also circulating desperately needed funds through low-income communities and the businesses located in these neighborhoods. In 2012 America, six million people had
no
sources of cash income, relying exclusively on food stamps and the charity of friends, relatives, churches, and nonprofits to survive.
Were such a program to provide each of these men, women, and children with a few thousand dollars a year to get them heading up toward the poverty line, the total cost would be between $20 billion and $30 billion. That’s a lot of money, but it would pay dividends through stimulating local economies, increasing sales taxes that cities and states would bring in, and reducing the number of health emergencies experienced and crimes committed by the desperately poor.

It would also go a long way toward eliminating the sort of destitution experienced by Maria, in Phoenix, Arizona, when, at the age of 36, she took her five children and left her abusive, drug-addicted husband. Maria, a high school dropout, had worked for a time in a factory making phone parts, but she had never managed to save anything: What she earned kept her kids fed and clothed. What was left, she said, her husband spent on drugs. When the work ran dry, her car was repossessed; the family was evicted five or six times from different apartments for failure to pay the rent. More often than not, her husband was out of a job too.

“It was destroying my children, destroying me as a person,” she said. Without a dime to her name, Maria finally screwed up the courage to leave. But it had taken her years to find that courage. “It was very scary. The uncertainty of where I’m going to live. Are they going to have food to eat? Are we going to be out in the cold? It was scary. I took my kids, a few things we needed. I lost everything. Memories, those are all gone. But I looked at it as new beginnings; we can make new memories.”

At first she stayed with her mother. Then she and her five children lived with a friend—but they had to leave after the landlord threatened to evict the friend for housing too many people. “Just the thought of having to take my kids to sleep at a bus stop, that was horrifying. I lost sleep. Somebody told me to call the Contacts Line, that they could help me with somewhere to stay. Every time I called, they had no room.” Eventually, she managed to get a spot in an emergency shelter, and the family moved into their new accommodations.

When I met Maria two years later, she and her kids were living in a sprawling transitional housing shelter, home to more than 500 residents, a couple miles from the Phoenix airport in a building that, until recently, had been a low-end hotel in a region of the city long bedeviled by prostitution and crime. The building was full-to-overflowing; from 2009 to 2010 alone, the number of homeless families in Maricopa County had increased by 28 percent.
⁶
Maria was, finally, fulfilling her dream: She was studying to be a registered nurse. She was getting her life together. Had she had a guaranteed income years earlier, however, she wouldn’t have been stuck in a violent, abusive situation for as long as she was. She would have had the means to move much sooner, to start the next stage of her life without worrying that her kids would be out on the street.

WHEN SMALLER IS BETTER

Beyond the guaranteed income, state governments should also experiment more with state-backed micro-credit lending for low-income communities. Such lending seeds startup businesses in much of the developing world, yet, despite its documented success in raising numbers of borrowers out of poverty in countries such as Bangladesh, there has been a paucity of it within the United States.

Yes, the Small Business Administration provides low-interest, long-term loans to organizations such as the Milwaukee-based Wisconsin Women’s Business Initiative (WWBI), which then leverage that money to raise additional low-interest loans from private banks, which can then be turned around and loaned at a slightly higher rate of interest to poor Americans looking to start their own companies. Yes, the Treasury Department, the Department of Commerce, and the Department of Health and Human Services’s office of refugee resettlement, all have dollars that they provide to micro-lenders. But the numbers have never kept up with the need, and too often the programs simply remain hidden, underutilized and lacking clout.

And that, said Connie Evans, president of the D.C.-based Association for Enterprise Opportunity, the trade association for American micro-lenders, was a shame. If one out of three Main Street businesses each added one employee, she argued, America would rapidly reach full employment again. Many of those businesses, she believed, could use micro-loans to expand; yet the programs that could help them do so were too few and far between. The Aspen Institute’s FIELD program estimated that nationwide in the years leading up to 2012 only around 117,000 such loans were disbursed annually.
⁷
Given that there were more than 20 million micro-businesses in the country, and given the fact that small businesses in the post-2008 environment too often were denied credit by banks, that wasn’t nearly enough.

Why not use some of the revenues raised from a financial transactions tax to put the federal government directly into the micro-loan business? Why not open up these loans to employees wanting to buy out retiring company owners and create worker-owned cooperatives? Why not, asked Wendy Baumann, executive director of WWBI, create a national micro-credit lending pool into which the government, as well as private banks, could contribute? In 2008 and 2009, such contributions could have been one of the conditions upon which the feds provided banks with bailout money. These days, such contributions could be one of the requirements for banks wanting the umbrella of FDIC insurance.

Owing to the desperate nature of the times, said Baumann—whose organization lent small amounts of money for a few years at a time, and 95 percent of whose clients met the terms of their loan—in an era of high unemployment and obliterated retirement nest eggs, increasing numbers of people were asking to borrow limited pots of cash to start their own businesses. “There’s a large number of individuals 50 or over starting businesses. It’s out of necessity.” With pilot-program funding from the Department of Labor and the Small Business Administration, Baumann’s organization had held workshops, in conjunction with the Milwaukee Jobs Corps, for young men
and women and had held similar sessions, in conjunction with the AARP, for older people.

Baumann’s organization only lent to people looking to start, or to expand, businesses. But in theory there was no reason why micro-lending couldn’t also be used to tide over low-income Americans from one paycheck to the next. According to the Center for Financial Services Innovation, every year fifteen million Americans use payday loans, auto title loans, pawn shops, and other cogs in the low-income debt machine.
⁸
Micro-loans issued by nonprofits could be used as a short-term alternative to these exploitative products, providing a method for the poor to access credit to tide them over rough patches in a way that doesn’t condemn them to endless fees and exorbitant interest rates. That’s what the company Progresso Financiero does in California and Texas. Aimed mainly at Hispanics in the two states, the short-term loans are provided at roughly 36 percent—far higher than the long-term loans given out by banks so that people can buy homes and cars, but far lower than those of payday loan companies, the fees and penalties on which can rapidly add up to several hundred percent annually. It’s also what the nonprofit Capital Good Fund does in Providence, Rhode Island, using grant money as well as dollars raised from investors to loan small sums to homeless women and those who need to escape domestic violence, so that they can pay a month’s rent.