‘The Poverty Paradox’: What the U.S. gets wrong about poverty

“The traditional way of looking at poverty in the United States” focuses on those who are experiencing it, Rank said in an interview with MarketWatch. Most economists point out that people living in poverty may have less education and fewer skills, and some health problems, he said. “That certainly explains who tends to lose out at this ‘game’. But that’s only explaining who isn’t finding a chair. It doesn’t explain why there aren’t enough chairs in the first place.”

In his book, Rank writes: “The key is whether one chooses to analyze the losers of the game or the game itself.”

That “game” — which is influenced by American ideals of success that glorify rugged individualism and self-reliance, and therefore tends to place much of the blame on individuals — includes systemic and structural problems such as the quality of education tied to property taxes; an increasing number of low-wage jobs with no health benefits; and a weak safety net. All of those things, combined with America’s complicated relationship with race, are factors in cumulative inequality, Rank said.

This MarketWatch chat with the professor about the issues he explores in his book, which also mentions potential large-scale, systemic solutions, has been edited for length and clarity.

MarketWatch: In your book, you wrote about a “mismatch” between the number of jobs that can adequately support a family and the number of people who need those jobs. Will you elaborate?

Rank: We just don’t have enough jobs that pay enough and have decent benefits.

This is a long-term trend. Household income hit a high point around 1973. Since then, full-time workers’ earnings have been stagnant. And more and more jobs are low-paying jobs. If you’re earning $20 an hour in San Francisco, it’s impossible to survive.

Globalization really put pressure on wages. Companies were able to move jobs elsewhere. And that undercut unionization — in the 1950s, about 35% of all private jobs were unionized; today, it’s about 6%. Also, the government, starting with [President Ronald] Reagan, started attacking unions.

Another factor is during the last 50, 60, 70 years, the U.S. economy changed from a manufacturing economy to a service-oriented economy. Retail and fast-food jobs don’t pay very much. The jobs created in this new economy are low-paying. Then you get into issue of Uber
UBER,
+1.43%,
etc., [which has given rise to gig work that doesn’t typically include the full benefits of employment].

[Editor’s note: When asked to comment, an Uber spokesperson touted the company’s push for “a third way” — a model that exempts it from existing labor laws, and makes drivers eligible for some benefits but don’t classify them as employees.]

See: Actors, writers, hotel housekeepers and grad-student workers are all striking for the same reason

MarketWatch: With consumer appetite for low-cost goods and services and some people’s embrace of conveniences such as Uber and other on-demand apps, do you think people understand that we’re all contributing in some way to the way things are?

Rank: You’re right. This isn’t just random. A lot of us do benefit from poverty and low wages. Our products are cheaper, more convenient. That’s certainly a factor here. Who is benefited by low wages? Certainly not the folks who are in the low-wage jobs, but people like you and me.

Another way to look at it is, why do we have a safety net? It’s supposed to be to protect people. But another argument is that it placates people so they don’t revolt. You provide them with a little bit but you don’t want to provide very much.

MarketWatch: So what role should corporations play in possible solutions?

Rank: This is maybe pie-in-the-sky, but at one time, maybe in the ’40s and ’50s, there was a bargain or compact with workers. It goes back to Henry Ford. Pay people a reasonable wage, and as a result they’ll be good workers. They’ll reciprocate.

What has happened is that has been abandoned. People are treated as cannon fodder.

This gets to another important aspect. What is the cost of poverty? What is the economic cost? In my book, I mentioned that we did a [2018] study where we measured the actual cost of child poverty. It came out to a trillion dollars a year.

So not only is dealing with these issues a social-justice issue, it’s also smart economically. Corporations should treat people as human beings.

MarketWatch: Can you talk about how the ideals of American individualism contribute to poverty in our nation?

Rank: Our country has been based on idea of rugged individualism and self-reliance. People came to this country seeking a new frontier, with the idea of starting a new life. The idea is you do it on your own. Your well-being is dependent on you working hard and playing by the rules. America is seen as the land of opportunity, and if you’re not doing well, there must be something wrong with you.

It’s seen as an individual failing, that people aren’t pulling themselves up by their bootstraps. But poverty is a structural failing.

America is also an outlier in how it views poverty, and it has to do with race. In societies that are more homogenous, people are much more likely to be generous with each other because they look like each other and can relate to each other.

Here, poverty is a racial issue — a Black, white and brown issue.

MarketWatch: One of the possible solutions to inequality you mention in your book is reparations, the push to compensate Black Americans for the effects of slavery.

Rank: It’s a very tough sell. People will say, “I didn’t do anything. It happened more than 150 years ago. What do I have to do with that?” There’s also the idea of giving people something for “nothing.”

Reparations need to be framed more along the lines of, clearly there is all kinds of blatant discrimination. There’s no question about it, though some people are trying to rewrite history.

So why don’t we open up more things for people, in terms of making sure everyone gets a good education? It’s a tough sell, given our mindset.

But it’s more and more in the conversation, such as in California [which just completed a first-of-its-kind study of reparations], and in certain cities.

Another idea that has come on the radar is universal basic income, or minimum basic income. It’s become more and more part of the conversation. But again, you get this idea of we’re giving people something for nothing.

MarketWatch: What about the relationship of poverty to democracy? In your book you talk about how some people lack the opportunity to participate fully in our democracy.

Rank: Well, what is poverty? Many people would say it’s the lack of income, the lack of money. But then you get to the question of if it means something beyond that.

Nobel Prize-winning economist Amartya Sen describes poverty as a lack of freedom. In the United States we talk about freedom all the time. But when you’re poor you’re really constrained at what you can do. You lack freedom.

Think about this: Why do we have elections on a Tuesday? This is bizarre. Most countries have them on a weekend or make it a holiday. Here, if you’re working at a low-wage job, it’s hard to vote on a Tuesday.

MarketWatch: You also talked a lot about human capital and cumulative inequality in your book.

Rank: Human capital is the basket of goods in which we’re able to compete in the labor market. It’s our education, skills and experience.

People in the U.S. are not starting at the same starting point. Look at any community, and the quality of schooling varies widely. That carries forth in people’s lives.

If you look at “Monopoly,” who’s going to win that game? It’s going to be people with a lot of resources. That calls into question the idea of equality of opportunity, that everyone should have a fair chance.

This undermines that. It’s simply not fair and not right. If you’re growing up in inner-city St. Louis, your opportunities aren’t very good.

Cumulative inequality helps explain why poverty exists.

People focus on education as the key to people doing well and avoiding poverty. That’s a great individual strategy. But for an overall systemic strategy, if we increase everyone’s education but don’t increase the quality of jobs, we’ll just have Ph.D.s driving cabs in Massachusetts.

From the archives (December 2022): Unpredictable pay — for gig workers and high-income workers alike — is linked to health problems

From the archives (May 2023): Want to fight poverty? ‘Take a hard look’ at your own tax breaks, Princeton sociologist says