Social Programs vs. Social Charity

Mike Konczal has some interesting thoughts about the dissonance of those who receive government benefits. His main view seems to be that there is a lot of support for programs that we both pay for and receive benefits from like Social Security and Medicare.

On the other hand, there is much less support for things that provide income support for the poor, like the EITC and SNAP. These programs go against our rugged individual American ethos.

I think that is correct. While I support these programs, I would be embarrassed if I were forced to use them (I don’t think we qualified for the EITC when I was a grad student, but it’s possible we did without knowing it). This is why it’s important for workers below the 80th percentile to experience wage growth equal to the increase in productivity.

Median household income has increased from about $43,000 in 1974 to just under $50,000 in 2009, a compound annual growth rate of only 0.5%. Meanwhile GDP per capita grew at about 2% over that time period. If household income had kept up with GDP per capita growth, that median household would be earning $87,000! Think about it. The typical household would have 74% more purchasing power than it currently does. There would be much less of a need for SNAP or the EITC.

Is it possible for median income to grow that fast? Household income numbers only go back to 1967, so I’m going to use family income which goes back to 1947 (family income is a little higher: it was $52,000 in 1974 and $60,000 in 2009 for a compound annual growth rate of 0.6%). Between 1947 and 1973 median family income 2.7% per year, approximately doubling. This tracked GDP per capita growth, which was 2.46% in that time period.

So while we need programs like the EITC and SNAP to keep people out of poverty, I’d rather live in a world in which median wages track the economy more closely. We don’t have a growth problem, we have a distribution problem.

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