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Wednesday, February 23, 2005

Considering poverty

My friends at Faithful Progressive and Orthodox Heresy have started a discussion on poverty and how to end it. FP started the discussion with this post, Orthdox Heresy followed with this response, and FP responded here.

Let's start with some basics. Christians in particular are obligated to help the poor. The reason I particularly want to discuss this issue from a Christian perspective is that many on the Left tend to view as either hypocrisy or apathy the attitudes of conservative evangelical Christians towards the poor.

There should be NO debate as to whether Christians should be helping the poor. The Bible is quite clear of our obligation. But I find it very disingenuous for many to claim that conservatives or evangelicals don't care about the poor. This claim flies in the face of too many facts.

Debunking a myth
There seems to be this myth that few evangelical churches ever talk or do anything about the poor. In my 30-something years in multiple churches, I have found this to not be the case. I did a little research into some of the more prominent evangelical churches to see what they are doing to assist the poor.

Saddleback Church - Rick Warren leads this mega-church in Southern California. Some of the ways that Saddleback reaches out to the poor include serving at the local Union Mission, Habitat for Humanity, and The New Life and Emergency Shelter.

World Changers- This mega-church in Atlanta is led by Creflo Dollar and is primarily attended by African-Americans. World Changers mentors low-income families, assists people in gaining employment, and assists elderly and handicapped people in getting their homes repaired.

Calvary Chapel Costa Mesa- Calvary Chapel is led by Chuck Smith. This church provides meals for the homeless in Southern California and helps with the rehabilitation of people in jail.

Willow Creek- This mega-church in the Chicago suburbs is led by Bill Hybels. Willow Creek has a food pantry for those in need, provides assistance to victims of domestic abuse, and provided direct financial assistance through its benevolence program.

Intown Community Church- This is my home church in Atlanta. Intown has for years manned a local soup kitchen for at least one week a month. Intown has also partnered at times with FCS Urban Ministries to bring about development in declining low-income inner city neighborhoods. Some members of the church have felt strongly enough about assisting low-income families that they have moved into inner city neighborhoods themselves.

I bring up these churches in particular because for the most part, but definitely not all, the members tend to vote Republican. While I recognize that not all churches have the same level of action to help the poor, I find this group to be a good cross-section.

There are two major problems I have with various government programs to help the poor, the first being that they usually do not work. The lack of efficacy is usually because of unintended consequences.

Basic Economics
I should first point out that an understanding of basic economics is very important in a discussion like that. I'm sure that some of my readers will find it crass to bring up economics. But that belies an ignorance of what economics is. Economics is, in very simple terms, the way in which finite resources are allocated. Those resources can be money, time, labor, the environment, or any number of things. Economics describes what is, not what we wish.

Let me provide an example that Thomas Sowell uses in his book, Basic Economics. (for those inclined to immediately dismiss Sowell, I ask that you read the book before critiquing it). Consider a scenario in which the state of California decided that everyone in the state should have the right to own beachfront property. After all, shouldn't everyone be able to enjoy the state's natural resources? So the state places a maximum price for beachfront property so that everyone has a chance to buy some.

Let's consider some problems with this scenario. We are first dealing with a finite resource. And not only is this resource finite, but the demand for it far outstrips the supply. In this case where a maximum price is mandated, the value is still going to manifest itself somewhere. A possible result of a program like this could be that only those with the right connections or those who have bribed officials will be able to purchase the beachfront property.

Rent control
Rent control is a similar issue. The goal behind rent control is very admirable. The idea is to ensure that housing costs do not go above a certain threshold. Under rent control, many rental units are given rent protection so that the rent remains the same. Many of you who have friends in New York City probably have heard of people who lived in great apartments in the city and had an amazingly low rent.

Unfortunately, little consideration was given to the unintended consequences of such a program. One of the major problems that rent control has is the inability to properly allocate resources. Let me explain. To this day, there are many wealthy older women on the Upper West Side of Manhattan living in three or four bedroom apartments that are under rent control. Because they have such a low rent, they have no incentive to use only that space that they need. As a result, they are using living space that others would gladly pay more for. At one point, ex-Mayor Ed Koch was paying less than $500 a month for an apartment that should have rented for around $1,200. Ed Koch is certainly not poor; so why is he benefitting from such a program?

Another problem with rent control is the incentives that it sets up. Or I should say, the incentives that it removes. Because in the 1960s and 1970s, many apartment buildings fell into a state of disrepair or were condemned. Because landlords were unable to increase their rent, they had no incentive to maintain these buildings. Many building owners simply abandoned their buldings so that they would not be financially ruined.

As a result of rent control, Manhatten is one of the most expensive places in the country to live and is seriously devoid of affordable housing. It is no coincidence that two of the other places in the country that still have rent control, San Francisco and Santa Monica, are also among the most expensive places to live. I wonder how proponents of rent control can justify the program anymore.

I found some very good consise points about the results of rent control from Dr. Mark Perry at the University of Michigan - Flint:

Results of Rent Controls:
1. Housing shortages will develop (Qd > Qs) and black markets will result. Example: Rent is $500 month, but the tenant pays a $2000 "key charge" as a way around the price control.

2. The future supply of housing will decline, since there is no incentive to build rental housing AT market prices if the rental income will be BELOW market prices.

3. The quality of rental housing will deteriorate. A seller can effectively raise prices by either a) raising the monetary price or b) reducing quality (or size). Example: Mars candy - raise price or reduce size (or quality) of candy bars. Landlords will respond to rent controls by reducing quality of rental housing, fewer repairs, less remodeling/painting, etc.

4. Nonprice methods (discrimination) of allocating housing will increase. Since rent controls result in housing shortages, there could easily be dozens of tenants trying to rent each available rent-controlled apartments when they become available. Faced with dozens of tenants desperate for the apartment, the landlord will find it much easier to discriminate against anyone they don't like - families, minorities, unconventional lifestyles, etc. Rent control lowers the cost of discrimination, resulting in more discrimination.

5. Inefficient use of housing. Rent control results in extremely low turnover of housing. Nobody wants to give up a rent-controlled apartment, it becomes a valuable asset. Example: Family with a 4BR apartment, kids grow up and move out, the parents don't need a 4BR apartment but won't move from their rent-controlled apartment.

6. Long term renters with rent-controlled apartments benefit at the expense of newcomers. If we move to NYC today, we may not be able to find housing because all affordable housing is already taken by the existing tenants. Example: Former NYC mayor Ed Koch lived for 12 years in Gracie Mansion, the official mayor's residence, but kept his $440/month rent controlled apartment.

Minimum Wage
Another issue often mentioned as a way to assist the poor is minimum, or a living, wage. Once again, it is a very admirable goal for all people to be able to earn enough money for their families. But once again we are left with a finite resource. That finite resource in this case happens to be money.

Consider the case of a small manufacturer that employees laborers on an assembly line. This manufacturer has a budget for compensation for its employees that includes salary, any benefits they may provide, Social Security payments, etc. So what possible results are there if the minimum wage is increased?

1. They can lay off some of their workers. This is a possible solution since the increase in salaries might be equal to the salaries of a handful of workers.
2. They can decrease or do away with company provided benefits.
3. They can raise prices. This passes on the pay increase to consumers. Depending upon what they sell, this might raise prices on items that low-income families buy because of low price. In most cases, it is simply not possible to pass cost-driven higher prices on to consumers and still sell your products.
4. They can reduce profits. Reducing profits can in some cases can have a deleterious effect on the long-term survival of the company. Contrary to popular opinion, there are few companies that have large profit margins. The average American company has a 6-8% profit margin.
5. They can cut salaries of other employees. However, this sort of action doesn't engender great feelings within a company and can cause a great amount of turnover. Also, it is not the norm for company presidents to have outrageously high salaries that have been seen in the past few years at companies like Enron, Tyco, etc. At the last company I worked for, there were salespeople who in a good year made more than the president.

I mention all these options to point out some of the possible results of increasing the minimum wage. My problem with minimum wage is that most proponents of minimum wage do not want to discuss any of these possible results and suggest which results should be encouraged. There is often a willful blindness to the fact that there is only so much money.

The De-Humanizing Effect
The other reason that I do not like government programs intended to help the poor is that they tend to be de-humanizing. Because of the large-scale nature of government programs, the poor have become numbers, statistics, and programs. It has become much easier for the average person to ignore the poor because the thought is "the government is taking care of them, why should I bother." It is far more comfortable for the average person to hand off their responsibilities to the government in this regard. And I don't think that Christians in particular are called to be comfortable.

Contrast this with churches, synogogues, and private groups taking an active role in caring for the poor. Private individuals and groups are much more likely to address a multitude of needs beyond the merely financial. Years ago I helped an inner city low-income familiy with a group from my church. We discovered that a large part of their problem wasn't that they weren't making enough money, but that they had no level of personal financial education that taught them to only spend what they earned. I question the ability of many government programs to make these discoveries and then be able to address them.

I do issue a challenge to my friends on the Right, particularly Christians. We should increase our efforts to aid the poor to the point that there is nothing left for the government to do. That is what would happen in an ideal world. The government has taken the role of providing a security net and we need to take that role back.

Competing Visions
Thomas Sowell has outlined a very compelling way of understanding the difference between many on the Right and Left regarding politics. Sowell explains is his book "The Vision of the Annointed" that the Left tends to view political issues as something for which to come up with an "all-encompassing" solution, whereas the Right looks for trade-offs that benefit society. It is this utopian bent which, while admirable in its hope, causes the Left to ignore the consequences.

I'm going to end on two quotes from Sowell that sum up my concerns with Left-wing proposals to end poverty.

"Crusaders for social justice seek to correct not merely the sins of man but the oversights of God or the accidents of history."- Thomas Sowell
"Those who preen themselves on their "compassion" for the poor, and who disdain wealth, are being inconsistent, if not hypocritical. Wealth is the only thing that can prevent poverty. However, if you are not trying to prevent poverty but to exploit it for political purposes, that is another story."- Thomas Sowell

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