As the Build Back Better bill fell into ruins, at least for now—as the promise of the child tax credit to help lift families out of poverty sank low into the political muck pulling at its feet—the critics came out.
Specifically, University of Chicago economist Tomas Philipson wrote in a Wall Street Journal opinion piece that the Biden administration claim of having cut child poverty in half was false. As the advance tax credit moved into play in July 2021, rising prices from inflation were eating up the gains. “Using actual income and child-tax-credit data the Chicago team found that child poverty hasn’t fallen at all, even before considering the declines in real incomes due to accelerated inflation since July,” Philipson wrote.
But then came the kicker:
You don’t cut poverty by increasing reliance on government. You do it by making them self-reliant. This is exactly what happened under President Trump before Covid hit, when both poverty and welfare rolls were in decline. The Trump administration’s strategy wasn’t to offer people government handouts but to get government out of the way. Reducing regulation and cutting taxes allowed a business-friendly environment to develop, which induced a surge in labor demand.
First, the growth in labor demand had been underway for years. The following graph shows a calculated jobs per unemployed person.
For years, under Trump and not, the number of jobs per unemployed person had grown steadily after the Great Recession. It dropped massively with the pandemic—where a little more action early on by the administration Philipson applauds, and for which he worked as a first a member and then chair of Trump’s Council of Economic Advisors, could have improved things measurably. Then it rose rapidly as the economy improved. Millions were able to move on to better jobs without financially drowning.
As the above graph shows, real (as in adjusted for inflation) median household income had been growing after the Great Recession and under Barack Obama. The period under Donald Trump looks a continuation, not the creating of something new. That alone is proof the causal relationship Philipson argues for isn’t there. If so, the ramp under Obama should have been downward moving.
More importantly, the sink-or-swim theory is nonsense because so much of the conditions of people’s lives are not under their control.
While the U.S. has a mythos of self-created people, that story is far more uncommon than people think.
At such a time, it’s worth remembering a story about someone whose startup was trying to make a big sale to an even larger company The startup wasn’t well known and had actually gained its newest big product by buying it from the inventor. But marketing and sales are as much a part of business as invention and creation. Sometimes more, because without a way of getting the right people to buy a product, there’s no way to stay in business.
As it turned out, the mother of one of the founders happened to know the chair of the corporation that was the potential customer. She talked to the person, set the deal moving, and then the transaction went through, putting the startup on the fast road to major success.
The mother was Mary Maxwell Gates, mother of Bill Gates. The chair was John Opel of IBM
“Mom, could you put in a good word with IBM?” “Certainly, dear.”
Warren Buffett? Son of Congressman Howard Buffett, who insisted the future mogul finish college before going into business. There are famous performers who came from serious money, which meant they had a greater opportunity to keep pushing forward in their careers.
Yes, some scratch their way to the top. There are people who can run a four-minute mile, though most can’t. You can find prodigious natural talents in any field, whether sports, academics, business and finance, art, crafts, or what have you. But most people could work hard every day and not reach not obtain outsized success.
Breaking through from poverty to greater financial security or even wealth is not something everyone can do. Those who propose this as a solution are almost guaranteed to be among the comfortable who too often want to believe in their grit and determination rather than their good fortune.
To see real grit and determination, find someone who is working hard at multiple jobs while raising kids, even in the face of one calamity after another. Chances that you or someone you know equivalent, let alone better, ability to keep pushing is unlikely.
The engineer and statistician W. Edwards Deming, who was a parent of statistical quality control, stressed that the problems in manufacturing firms were rarely caused by individuals. Instead, they were the product of systems that drove results. If a country has millions of poor people, chances are that systems in government and society force people into hopeless, low-pay jobs.
The first step out of the problem is to admit it exists and not pretend that everything is fine except for a few individuals who need a push. They’ve largely already received multiple pushes into the mud.