Why hurting the poor hurts the economy, explained

Moral persuasion is nice and all, but money talks

My day job, in part, is explaining capped-risk derivatives, binary options, to a wide audience in plain, interesting language. In my free time, I study economics, which is not known for plain, interesting explanations.

That’s why I collect well-written explanations of issues that affect all of us even as they confuse most of us. This essay by former Treasury Secretary Robert Rubin explains something important: things we do for moral reasons, like investing in poor people, are usually also good for the economy.

Anti-poverty programs such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP, often called food stamps) and other safety-net programs designed to assist low-income Americans are not only social and moral imperatives — they serve critically important economic purposes.

Even if you have contempt for the poor and think they aren’t worth investing in, even if you’re the most die-hard Ayn Rand follower and believe that selfishness is the only true morality and Jesus was either wrong or is being grossly misinterpreted, you have to accept that in a consumer-driven economy you need consumers.

Roughly 20 percent of U.S. children live in poverty. In the wealthiest country in the world, that’s not just a moral outrage — it’s a serious detriment to our economic future. For low-income children, Medicaid and SNAP are investments that significantly improve outcomes later in life. For example, one study found that children who received SNAP were less likely to experience stunted growth, heart disease and obesity as adults — and had graduation rates that were 18 percentage points higher. We need to do more, not less, to help these children — by providing early family intervention, better schools and housing, safer neighborhoods and much else.

What’s more, these programs serve as “automatic stabilizers” during an economic downturn: In a weak economy, as more people lose income and become eligible for federal benefits, the programs expand, putting more money in more people’s pockets. People then spend that money, increasing demand and helping the economy recover.

All this adds up to a clear but underappreciated reality: Anti-poverty programs are an economic imperative.

And that’s probably the better argument to make. Appealing to people’s moral sense is important, but if you come across as judgemental or preachy, you lose influence. But people pay attention when money is coming out of their wallets. Moral persuasion is nice and all, but money talks.

I spent a short time being poor and I know that, while you always feel grateful for the charity and kindness of others, it feels better to think that people are investing in you. It inspires you to be a good investment.

Charity feels like pity. Sometimes people do it out of obligation, not joy. Sometimes it’s about trying to win people’s approval or get into heaven. Investing is always about believing you’re going to get a good return.

Source: Why hurting the poor will hurt the economy – The Washington Post


By | 2017-07-31T05:49:28+00:00 July 31st, 2017|Profit|0 Comments