The poverty debate

With each poverty report we're told that our socioeconomic gaps are among the worst in the West.

January 25, 2006 01:35
3 minute read.
poverty garbage 298 88

poverty garbage 224.88. (photo credit: Ariel Jerozolimski)

The National Insurance Institute's Poverty Report, published Monday, immediately and as expected became a political football in the campaigns for the upcoming elections. As usual, the report stimulated a spate of attention to the real suffering of those attempting to live off miniscule salaries or those who depend on state support. And again, as usual, within a day or so poverty is forgotten again until the next report, when the same slogans and pictures are trotted out. Yet each report seems to paint a bleaker picture. Thus this week's asserts the country's economic growth has failed to improve the lot of its poor, that their numbers burgeoned, that 738,000 youngsters now subsist below the poverty line and that 2,000 additional children fall below that demarcation each month. With each report, we're again told that our socioeconomic gaps are among the worst in the Western world. Such news, as difficult as it is to bear, was expected during the recent years of recession. But Acting Prime Minister Ehud Olmert just pointed out that the economy grew by more than 5 percent in 2005, and that unemployment, though still too high, has dropped from 11% to 9%. If the economy is improving, why is the number of poor growing? While much real poverty certainly exists, a misleading impression is given not just by the surrounding alarmism, but by how the "poverty report" itself defines its terms. As the Bank of Israel has noted, the criteria the NII uses to draw its poverty line are such that the more things improve economically, it will often be the case that, paradoxically, more people will fall below that line. The reason for this is that the poverty line is a moving target. It does not really tell us if the living standards of the poor are rising or not, but whether they are rising as fast as those of other economic sectors. The poverty line is defined as 50% of the median income; anyone falling below that line is considered poor. Hence, if the living standards of all Israelis - including the poor - rise equally and significantly, the NII will dutifully report that no progress has been made in reducing poverty, as the number of Israelis who fall below the new (higher) poverty line has not changed. Accordingly, the "poverty line" tracks inequality more than it tracks poverty. Income gaps, particularly if they are growing, are bad enough, but it is important to differentiate between this problem and the implication that the already impossible situation of so many poor people is worsening rather than improving. The confusion over terminology, moreover, is exacerbated by the shallowness of the debate that swirls around the issue of poverty. During each brief spasm of attention to the subject, an accusing finger is first pointed at the government for cutting welfare benefits, with the favored solution being to increase government spending or address the problem by fiat, say by raising the minimum wage. Here a distinction must be made between assistance for the elderly or incapacitated, who cannot join the workforce and genuinely deserve assistance, and the young and able-bodied, who are actually harmed when the government helps create a debilitating culture of dependence. It is also not clear that the NII has succeeded in preventing some people who work completely on a cash basis and give no receipts from, in addition to avoiding taxes, claiming unemployment and other welfare benefits. A marked distinction needs be enforced between those who work and the jobless-by-choice or outright swindlers. A negative income tax would go a long way to right social injustices by subsidizing meager earnings. It would make a tangible difference in the lives of 40% of Israel's poor, who are categorized as "working poor" - people who work hard but still earn too little. Another method of achieving the same end would be an employer tax credit to subsidize low-wage jobs. In his speech at Herzliya, Olmert suggested that he would not reverse successful economic reforms or reintroduce failed policies, but that he would make greater efforts to ensure that even a growing economy not leave some behind. This is a worthy goal, but to achieve it we must move beyond the usual demagoguery surrounding poverty headlines and focus on policies that give everyone a chance to benefit from economic growth.

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