From Marco Rubio, a new approach to ending poverty

By Reihan Salam
January 10, 2014

I realize that I ought to be writing about Chris Christie, the recently re-elected Republican governor of New Jersey, who has just had a brush with political death. But though I wish Christie well, and though I continue to believe that he is one of the most promising elected conservatives to have emerged in my lifetime, the Republican future rests less on the fate of individuals and more on the fate of ideas. And this week, one of Christie’s fellow presidential aspirants, Florida Sen. Marco Rubio, introduced a genuinely new idea for helping tens of millions of Americans escape poverty.

On Thursday, the 50th anniversary of President Lyndon Baines Johnson’s declaration of a “War on Poverty,” Rubio gave an address that weaved together stories from the lives of his immigrant parents with the barriers to upward mobility facing people very much like them today. “America is still the land of opportunity for most, but it is not a land of opportunity for all,” Rubio told the assembled crowd, drawing on the fact that 70 percent of U.S. children raised in poverty never achieve middle-income status.

Conservatives are known for celebrating American exceptionalism, and Rubio does so himself. Yet in this speech, he raised a number of awkward truths, like the fact that more Canadians surpass their parents’ incomes than Americans. Moreover, he offered a clear-eyed, if not complete, diagnosis of the reasons why so many Americans raised at the bottom of the income distribution remain stuck there. In the past, the U.S. economy was dynamic enough to replace jobs lost to automation or offshoring with new jobs. Yet that dynamism has suffered in recent years, and the result has been a series of jobless recoveries, each more disappointing than the last. After decades during which the educational attainment of Americans steadily increased, educational gains have stagnated. Nonmarital childbearing has grown more common, a seemingly self-reinforcing development in which the diminished economic prospects for less-skilled men make them less attractive as partners, and the sons of single mothers find it exceptionally difficult to stay in school.

Recognizing the complexity of the problems facing poor Americans, Rubio doesn’t propose a single silver bullet for fighting poverty. Rather, he calls for a two-pronged approach that rewards those who step on the first rungs of the economic ladder by taking low-wage jobs, and gives state and local governments more flexibility in meeting the needs of their most vulnerable citizens.

Though there are major details to be ironed out, Rubio’s basic idea is to consolidate anti-poverty programs into a single Flex Fund, which would be disbursed to state governments to design and fund their own anti-poverty initiatives. At the same time, he calls for replacing the earned income tax credit with a federal wage enhancement designed to raise the effective hourly wage for low-wage jobs. Rubio states that whereas the EITC offers very little to single workers without children, his wage enhancement would help increase disposable income. And whereas the EITC arrives in the form of a lump sum payment, the wage enhancement would come with every paycheck.

In the question and answer session that followed the speech, Rubio noted that the idea for the Flex Fund and the new wage enhancement came from Oren Cass, Mitt Romney’s former domestic policy director and the author of “The Height of the Net,” a National Review article that outlined a very similar proposal. The most noteworthy difference between Cass’s proposal and Rubio’s is that while Rubio presents the Flex Fund and the wage enhancement as separate programs, Cass sees them as part of a seamless whole. It remains to be seen if Rubio is thinking along the same lines.

Essentially, Cass’s goal is to make work, including low-wage work, more attractive than non-work. At the same time, he recognizes that the most straightforward way of achieving this goal — stripping the non-working poor of the in-kind transfers, like food stamps and Medicaid, that help them lead decent lives — is not an acceptable option. And so he envisions a system in which the working poor receive cash transfers, in the form of a federal wage subsidy, while the non-working poor would take part in a state-administered safety net, financed by the federal Flex Fund, state funds, and public-private partnerships. The idea builds on the logic of the welfare reforms of the 1990s. In that era, the goal was to ensure that families wouldn’t lose food stamps, Medicaid, and housing assistance just because they started to earn a modest income. Cass’s goal is to see to it that families don’t lose their purchasing power as they earn more, but that they can free themselves from the strictures, and perhaps the stigma, of in-kind transfers.

In Cass’s proposal, the funding formula for Flex Funds would be pegged to the size of the population deemed to be in need and it would grow at the same rate as the federal poverty threshold. States would have complete freedom to spend the money as they see fit, provided they use it to meet the needs of their poor residents. As people transition from the non-working poor to the working poor, Flex Funds would shrink and money would be shifted to the new federal wage subsidy.

By design, the state-administered safety net will “feel” different for its beneficiaries. Assistance that flows to the non-working poor will come with strings attached. The working poor, in contrast, will receive funds that they can spend as they please. Cass offers a scenario in which two households, one working, one non-working, would under the present system be offered $3,000 in nutritional support. Under his system, the non-working household might still receive food stamps while the working household will receive cash via the federal wage subsidy. It is easy to see why cash would be more attractive — for one thing, it would allow working poor families to set their own priorities. Cass’s wage subsidy would also be relatively easy to administer, as it would essentially function as a reverse payroll tax.

You could say that Cass’s proposal has a moralistic dimension. It explicitly differentiates between those who work and those who don’t. Those who work are entitled to help without hassle, as their decision to work represents a first step towards economic independence that deserves to be honored. Those who do not work are given a combination of help and hassle from state programs designed to nudge those who are capable of economic independence in that direction, while also meeting the needs of those who are incapable of making the leap.

Not everyone is taken with Rubio’s call for a Flex Fund. Robert Rector, an expert on anti-poverty programs at the Heritage Foundation, condemned the proposal in an interview with McKay Coppins of Buzzfeed on the grounds that it isn’t likely to produce conservative policies, particularly in liberal states. Rector’s skepticism about granting states autonomy in running federally-funded safety net programs runs deep. But it must be said that if Rubio’s proposal mirrors Cass’s, the availability of the federal wage enhancement, with its promise of a substantial effective increase in disposable income, will be a powerful inducement for people to enter the labor force.

Others on the right object to the idea of wage subsidies on the grounds that they are welfare by another name, and that poor Americans, whether they work or not, should rely first and foremost on charity and state and local government. What is clear is that Rubio has injected new life into the debate about how to get Americans stuck in worklessness and poverty out of it, and for that he deserves praise.

PHOTO: A man pushes a cart up the road while scavenging for bottles and cans during a winter nor’easter snowstorm in Lynn, Massachusetts January 2, 2014. REUTERS/Brian Snyder 

14 comments

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These ideas are certainly worth further exploration and development. Some pilot programs would seem worthwhile.

We certainly shouldn’t just keep doing what we’re doing and expecting different results. Been there, done that; doesn’t work.

Posted by OneOfTheSheep | Report as abusive

This plan by Marco Rubio is just the same-old-same-old. It is certainly nothing new.

The most fundamental factor destroying the American middle class is GLOBALIZATION. The closing of tens of thousands of American factories is completely ignored by this stale old scheme of Rubio’s.

Why have all the American factories been closing? Because America’s wealthy elite made the decision that they could make even more profits if America were to drop its permanent protective-tariff system, built by Alexander Hamilton at the behest of George Washington, and send those jobs to China, India, and Indonesia. America became a great nation under its protective tariff system, to protect American jobs.

In most industries, labor is the biggest expense. If a company can reduce wage rates even a little bit, profits go way up. Thus even since biblical times employers have sought assiduously to reduce the wage rate. That is capitalism. Who would do otherwise?

Thus America’s wealthy elite leaped at the chance to drop enforcement of American immigration laws, thus flooding the American labor markets on an unprecedented scale, sharply driving down American wage rates. (Immigration today dwarfs the famous German, Irish and Italian immigrations.)

It’s simple case of supply and demand, as taught in Economics 101 class. If Demand for labor is constant, and you increase the Supply of available workers, wage rates go down. If you restrict the Supply of workers, wage rates go up.

America’s situation today is even worse, because Demand for labor is not constant, but rather falling. Thus the increased supply of labor from current, unprecedented levels of massive immigration into the United States forces wage rates sharply downward, and throws millions of Americans out of work, replaced by immigrants who will work for almost nothing.

Rubio’s same-old-same-old scheme does nothing to address this. His scheme simply makes everything much worse for American citizens because he allows unfettered mass immigration, legal and illegal, which is music to the ears of America’s wealthy elite, but is the death knell of America’s middle class.

Posted by AdamSmith | Report as abusive

@AdamSmith, your assessment of WHY things are the way they are is very accurate. Globalization and automation, mixed with the US corporate system and weak government. But your answers to it are not. We can’t turn time back and use 20th century tariffs and protectionist measures. They won’t work. We need to implement new ideas. Start with reversing the biggest problem. We need strong government and eliminate the mega-corporations that run our government now.

Posted by tmc | Report as abusive

The weirdest idea I have ever heard: to re-direct poor people assisting to the states.
Another weird idea: to cash poverty assistance. It is understandable: more cash flow will be going through GDP numbers and business revenues.

Posted by OUTPOST2012.NET | Report as abusive

Rubio’s idea operates under the assumption that the unemployed don’t work because of lack of desire. Providing incentives to acquire a job is pointless when there are few to be had in the first place. We should be trying to either create jobs outright, or provide education that allows those in poverty to gain skills that will make them valuable to potential employers. Let’s please bury the condescending social Darwinism.

Posted by minderbinder | Report as abusive

@minderbinder,

“Rubio’s idea operates under the assumption that the unemployed don’t work because of lack of desire.” No so. It presumes those that receive payments for being unemployed have an incentive to remain unemployed “with pay” indefinitely, particularly when good jobs are both difficult to get and difficult to keep.

How would YOU propose to “create jobs outright”? From where comes the money for wages. What purpose is the purchased “service” intended to accomplish? Is it “real” work or “make” work?

You speak of providing “…education that allows those in poverty to gain skills…” as if it’s a new idea. This nation has been doing this since the eighteen hundreds, when a distinct majority of Americans lived in conditions that would be termed today “extreme poverty”.

They had one-room school houses with little heat in winter and no air conditioning in summer. One teacher (that unions would not allow to teach today) with sufficient dedication could bring literacy to a majority of a small town.

Today we have people with both basic and advanced college degrees flipping burgers for minimum wage. Precisely what skill do YOU believe would magically convey value “…to potential employers…”, oh wise one?

Skill does not typically transfer in the classroom. For those with talent, it emerges over time from “hands-on” experience.

Get used to social Darwinism. Competition between the best and the brightest will increasingly determine who is hired and at what rate in a society that needs fewer and fewer to do what must be done.

Those who do not speak or read or write or do basic math with good functionality will have no paid place in tomorrow’s society. “Dead-enders” with visible tattoos, body piercings, poor teeth and poor hygiene are already on society’s periphery today. Choices have consequences. Choose wisely.

Posted by OneOfTheSheep | Report as abusive

OOTS — It is time for radical rethinking of how we make knowledge available to people with little or no resources. I’m not sure how familiar folks here are with the TED Talks, but the 2013 winner in that series was Sugata Mitra, who relates a set of (very entertaining!) stories about his novel way of providing opportunity to impoverished children in his native India, and the astonishing things those kids learned in a day’s time, a month’s time.

I’m not saying he has THE exact solution … only that we need new and radical thinking around offering knowledge and training to poor people if we’re ever to give them hope of doing some of the future’s jobs that require both knowledge and real innovation.

Separately, for those of you who have access to such things, it is eye-opening to go back and look at writings from the World War II years. Patriotism was expected not just of the American people but from American businesses. The danger in today’s globalistic view by American capitalists is that when they empower another country by employing its people with what were American jobs, they seem to forget that they are inevitably weakening our own country. It is a literal transfer of wealth. Perhaps the idea is to come full circle – create a wealthy middle class in China and India, so that those people will then one day use poor America to set up factories in and hire Americans at a cheap rate to make products for them to purchase….

Posted by SunAndRain | Report as abusive

Reading Rubio and our OOTS, I am coming to the conclusion that the idea of Unconditional Basic Income should be considered seriously.
We have started this discussion at our international forum:
http://outpost2012.net/discussion/130/ne w-economic-theories#Item_4

Posted by OUTPOST2012.NET | Report as abusive

@SunAndRain,

I would go even further and call for “…radical rethinking of how we make knowledge available to…” ALL, both here in the U.S. and across the world. But even as we “teach them to fish”, it is incumbent upon us to overlay appropriate perspective and responsibility.

With SEVEN BILLION humans (plus many, more “buns in the oven”) the world’s future is increasingly bleak. There are simply not enough fish in the oceans to sustain those already present through a reasonable “old age”. The single hope is that, to date, capitalism magically creates a bigger pie from finite resources to divide.

It is simply untrue that prosperous economies cannot help those less fortunate without “transferring wealth” and thus weakening themselves. Only if we were transferring RESULTS (“transferring the fish”) instead of enabling success (transferring the fishing pole and how to use it) would such concern be valid.

Few seem aware that between 1975 and 2012 the economic activity of a distinct minority of increasingly capitalist world societies has produced a fivefold increase in GWP (gross world product, total of all goods and services produced). Such unprecedented worldwide economic progress has required relatively little “giveback” here in America. We have seen primarily a temporary slowdown in the growth of widespread existing prosperity.

All with the incredible windfall of luck to be born an American receive a birthright of incredible advantage. Too many of us do not recognize opportunity when it knocks at our door because opportunity most often looks like WORK! Nobody promised easy.
.

Posted by OneOfTheSheep | Report as abusive

@OUTPOST2012.NET,

Such talk is as smoke, without substance. “Unconditional Basic Income” is Utopia. Please explain how you would finance Utopia today? Why would anyone actually work if the money necessary for sustenance came without effort by mail?

Who would grow or harvest the food. Who would deliver it? From where would come refrigerators, stoves, cutlery, pans, dishes? Who would collect the garbade and why? Who would set the price for all of these things?

The immediate result would be monetary inflation such that the “”Unconditional Basic Income” would almost instantly have NO value. You could not print money fast enough to compensate for such inflation. Read up on the Weimar Republic and the Black market. People ate RATS!

A society in which everyone has money and there is nothing to buy should trigger not-so-fond memories of the planned economy of Cold War Soviet Russia. If man’s future were to bring about such creative starvation, the ghost of the Marque de Sade would be proud!

The day may well come when man has EARNED a “Star Trek Economy” by some means. That day is most certainly not today, or a day yet foreseeable.

Posted by OneOfTheSheep | Report as abusive

@OOTS, the Basic Income theories are just some of the ideas that are beginning to be though out in earnest. Heck, Switzerland is voting on a basic income now. You have laid the case very well for why we need to discuss these types of theories. In many post too. You just seem to stop short of actual solutions and piss on anyone that tries to raise one. You have pointed out that the standard, “better education” and “Work Hard” just don’t measure up anymore in this 21st century economy. So please, zip up and help find solutions. We need intelligent people like yourself to help.

Posted by tmc | Report as abusive

@tmc,

Postulating theories and testing the logic and utility implicit in each is an inseparable part of “thinking them out.

It’s like someone saying Gee, if we’re running short of dry land, let’s start moving and building underwater. Yes, that can, and ultimately will be done, but it isn’t the best, most efficient manner of resolving the problems of today that MOST be resolved if there is to be a tomorrow. I believe there are solutions to our problems, but they are not yet apparent (at least to me).

To paraphrase Sherlock Holmes, if you eliminate the obvious chaff from the wheat and obviously worthless from the possibly worthwhile it is likely time invested in serious thought and speculation will be more productive.

Posted by OneOfTheSheep | Report as abusive

Hillary Clinton already ushered this in, it is called Wal-Mart and we already subsides the low end jobs. Nothing new here. Just more scamming tax dollars to keep CEO corporate profits up.

Posted by 2Borknot2B | Report as abusive

So Rubio’s idea to fight poverty is to give some federal money to the states and tell them to figure out a way to fight poverty?

Brilliant!?

Posted by breezinthru | Report as abusive