143: Who Cares About Poverty and Equality?

Buck: Welcome back to show everyone. Today my guest on Wealth Formula Podcast is Michael Tanner. Mike is a senior fellow at the Cato Institute where he heads research into a variety of domestic policies with a particular emphasis on poverty and social welfare, healthcare reform and Social Security. Mike is a true thought leader, I mean he is the author of numerous books on public policy and his writings have been in nearly every American, at least American newspapers and New York Times and Washington Post, the Congressional quarterly named him one of the nation’s five most influential experts on Social Security and the New York Times refers to him as a lucid writer and skilled polemicist. Michael, welcome the program.

Michael: Well thank you. It’s a pleasure to be with you today.

Buck: Well listen, I want to start out I have to admit, being from the the Cato Institute which is a libertarian think-tank, I was somewhat surprised to see that as a libertarian you focused on issues of poverty and social welfare policy, it’s not typically what you think of when you think of a libertarian rhetoric per se. How’d you get interested in this topic?

Michael: Well I think it actually should be something that’s central to libertarian policy and libertarian rhetoric. Because the reason I’m a libertarian is that I believe in the equal worth and dignity of every person, and the reason I pursued libertarian policies is to enable basically what might be called human flourishing, the idea that society is better and that’s every person from those people at the top to those people at the very bottom. And libertarians happen to have solutions that will enable people at the bottom to become full economic participants and basically rise up the economic ladder.

Buck: Yeah absolutely I agree with that, fundamentally from a policy perspective, I’m just sort of contrasting it a little bit from what you typically kind of hear, right? You hear a little bit of different rhetoric sometimes with people at least who call themselves libertarians. Okay so let’s kind of focus in on why we should care about this. So I’m say I’m living an upper-middle class life working as a doctor or a lawyer, I’m doing fine, I’m living the quote unquote American dreams you know outside of the fact that I should care because I’m not an evil person who doesn’t care about anybody else, in practical terms, why should I care about income inequality and poverty?

Michael: Well in practical terms, aside from the simple fact that you should care about your fellow man, there’s the stability in society. We don’t want to end up being some sort of South American country where you have gated communities and then the great masses outside trying to get in and take your stuff. Basically we want people in our society who can, look you know who feel like they’re part of that society and feel like they have a stake in the stability of it and in moving forward. Plus you need those new folks who are educated hard-working willing to invest and take risks if you expect the economy to grow, and of course you’re not gonna get rich yourself unless they’re part of it.

Buck: Yeah in other words if you want society to flourish, you’ve got you have to address this issue and so we all stand to gain from it and sometimes I think that message gets lost a little bit. Give me some actual examples of libertarian policies on dealing with poverty and how specifically they might be different from some of the traditional Democratic and Republican policy agenda.

Michael: Sure well I think that first of all you have to look at why people are poor and I think that Republicans have generally indulged in some form of victim-blaming. They have basically said people are poor because they make poor decisions, they don’t work, they drop out of school, they get pregnant when they’re not married and so on. The Left says well that’s fine as far as it goes, but you have to look at why people make those bad decisions and that has a lot to do with racism and gender discrimination and economic dislocation. What I suggest is that both of those have something to them, but they also missed the larger point which is that government policies are often responsible for the problems regardless of which side of that debate you come down on and that means we need to look at things like criminal justice reform, a school’s choice and educational freedom, forming housing laws zoning and land use laws to bring down the cost of rent, banking laws and other ways they blocked the poor from participating in savings and investment, and finally we need to make any economic growth we have inclusive, that means get rid of occupational licensure, occupational zoning, the minimum wage, things that block the poor from getting in and starting up that economic ladder.

Buck: So let’s kind of drill down on some of those if you don’t mind, specifically let’s start with criminal justice reform. What’s wrong with the system now and how can we improve it?

Michael: Well we know that the criminal justice system as it is now heavily biased against the poor and people of color, but even leaving that aside, the general over-criminalization of our society means that you have large numbers of people particularly in low-income and minority communities who are in fact rendered outside the economic mainstream because they have a criminal record. If you get busted for having drugs let’s say when you’re in your 20s and later on in your 40s and you go to apply for a job, you still have to put down that you have a felony records and that can often prevent you from getting a job. It can prevent you from renting an apartment in many places or getting us into college or getting support for your college education. So we need to look at what the criminal record ultimately means to people. And in particular it also increases problems for women in the inner city because you’re basically taking their marriage partners out of the out of the pool. William Julius Wilson at Harvard has done a lot of work on this and talks about how you’re taking a million and a half young men out of the marriage pool in inner cities and then we’re surprised when you have large numbers of women giving birth outside of marriage. Scholars at Vanderbilt estimate that if we were to reform our criminal justice system we could reduce poverty by about 20 percent in this country by that one fact alone.

Buck: And when you say reform, are you’re talking about specifically, maybe some specific examples of that might be say for example you’re talking about over criminalization maybe some of the drug-related convictions, maybe some of those could be less stringent and maybe there could be some limitations in terms of how long a felony or something like that stays on your record.

Michael: Well absolutely. I think it starts top to bottom. Everything from the way we police our cities to the way what we’ve criminalized. It’s not just drugs, although that’s certainly part of it, but sex work and gambling, you know let’s remember that Eric Garner who was killed in New York City was committing the crime of selling an untaxed cigarette. So there’s a host of things that shouldn’t be crimes that are in our society, it has to do with the way we plea-bargain, it has to do with how we sentence people, once they’re there and then how we treat people once they’re in prison. So it’s basically a top-to-bottom change in the in the criminal justice system, one that’s designed to punish those small number of recidivist, how people commit serious crimes that harm other people and basically treats other people with a little bit of dignity.

Buck: So you also talk I know a little bit about some zoning laws and how those negatively impact the poor. Can you can you talk about why that is the case?

Michael: Sure. It hurts in several ways. First of all we know that rent takes up a large portion of income from low-income people, that they disproportionately pay a bigger share of their income in rent, it’s about 40% on average. And so anything that drives up the cost of housing or drives up rent is going to leave poor people at a disadvantage. And the evidence suggests that land use laws and zoning laws have a huge impact on rent. In some cases they can like Manhattan in San Francisco they can drive up the cost of rent by 50%. In other cities Washington Baltimore is 30 to 40 percent and so on across the board. That’s a huge impact that makes it much tougher for poor people to live. In addition, those high rents force poor people into certain low-income neighborhoods to prevent them from moving to areas that might have better schools, lower crime, or more jobs. You know if you have a skill and want to try to move into Silicon Valley, good luck, because the rents are simply unaffordable.

Buck: In practicality though, how would that work? I guess my question is, I was just thinking about, because you were saying that you know, I was in San Francisco around Thanksgiving and there was an area that my my wife used to live that area and she told me it was low income housing, which I was kind of surprised by because you know a block later we saw these multi-million dollar homes. If those areas weren’t zoned that way, wouldn’t those people living in those low-income areas have to move somewhere else entirely?

Michael: Well you’d have more housing available, you’d have more housing available for people with low income you don’t have to just build low-income housing as well if you build more high-density high income housing. People who are able to afford those but have been confined to lower cost areas because of the zoning laws and the added sort of zoning tax, they would then move up and that opens up their housing to other people and you get this sort of chain reaction moving up the housing scale. Basically what you want to do is have more high-density housing in certain areas, particularly around transportation hubs. What you want to do is be able to build in areas that don’t have all sorts of restrictions limiting and housing you know in San Francisco just say one example there’s restrictions on having to have more than one parking space per apartment in the city. Things like that and enormously to the cost of a house or an apartment.

Buck: Yeah absolutely so another thing that you mentioned a little bit was occupational licensing. Talk a little bit about the over-regulation perhaps in terms of occupational licensing and how that affects the situation.

Michael: Twenty-five to thirty percent of all jobs today require you to get a license from the state in order to be able to practice it, and I’m not talking about doctors and lawyers, I’m talking about things like beauticians and hair braiders and funeral attendants and interior designers and so on, a variety of jobs that people with low skills or families or simply entering the labor force for the first time, the type of jobs that they would take, they’re often blocked out of. And it’s not just that you have to get the license but that the procedures for getting those licenses are often onerous, such as one example in Louisiana. If you want to be a beautician, you have to take a course which is an expensive course and lasts a long time, then you have to take a test. That test is a two day test and it’s only given in Monroe Louisiana, which means that you have to be able to find transportation and a hotel room overnight, take the test, hope you pass it, pay to take the test of course. Now if you’re a low-income single mother trying to get a first job, that’s a real barrier for you.

Buck: Yeah absolutely. So what do you do instead? I mean yeah do you have some barriers, I mean where do you draw the line though, I guess that’s really kind of the question that comes up, I mean who determines whether or not you need to have a license or not?

Michael: How about the customer? Basically I mean I think if you went to beauty school cosmetology school and you got a certification and you want to put that in your windows so your customers know, great. But if I want to go to my next-door neighbor because she’s pretty good at cutting hair and I want to let her do it, why not?

Buck: Yeah here’s another example of how that can potentially open up economic opportunity and on a you know kind of on an enterprise level. You look at something like Uber which essentially democratized this you know what used to be a monopoly of taxi companies. Is that the kind of is that the kind of thing that you you kind of are looking as ways to increase economic growth and opportunity?

Michael: Oh absolutely. Uber has been a godsend for the poor. First of all in terms of jobs, because it enables them to work around our schedules, all you need is a car and basically a computer to be able to hook up to it so it’s provided a source of jobs for local people with few skills and entering the labor force, but it’s also enabled poor neighborhoods to get service that they often couldn’t get. Taxis were often reluctant to take people to low income high crime neighborhoods, Ubers been much more willing to do that sort of thing.

Buck: Yeah especially if a lot of the people are actually living in those neighborhoods it allows them that level of empowerment as well. Let’s talk a little bit about unemployment insurance. You know this is a this is a tricky one. So what what is the practical, first of all how do you feel about unemployment insurance, what’s the data, and what’s your take on it?

Michael: Well the evidence suggests that unemployment insurance in the short-term benefits the unemployed, but in the long-term it tends to hurt them, it actually keeps them out of the labor market longer. We know the evidence suggests that when somebody gets laid off for example in the first couple of months after they’re laid off, they spend a great deal of time looking for another job and then they go into a trough where they don’t spend a great deal of time looking and then as their unemployment benefits are about to run out they suddenly begin to look again. The problem is if that’s the year or two down the line, their skills may have atrophied to the point where they can no longer get the type of job that they want. So it does have an impact we know in terms of household income and it has an impact in terms of returning to the labor force. So there are some reasons to be concerned about it.

Buck: Yeah as an employer I’ve seen that happen as well, where literally people you know have asked to be fired rather than resigned in these type of situations because they know they have that option for unemployment. But the thing that I wonder though and is kind of what is the alternative? Because obviously I’m talking about some situations where people are looking to specifically take advantage of the system, but what are the alternatives if you have people out there who don’t have work and no money, I mean what else can you do?

Michael: Well ultimately in any society you’re going to have a limit to unemployment insurance. Denmark for example just cut back to two year maximum in terms of their unemployment insurance so even as sort of socialist Scandinavia, you’re seeing limits on how long unemployment insurance can last. I mean you can’t say that forever you lose a job in you’re 22 and when you’re 50 if you haven’t gotten a new job we’re still going to be carrying you. So it’s all a question of where you’re going to draw the line and what limits you’re going to have and I would suggest that probably shorter is better.

Buck: Is there any other programs or training or anything like that that you advocate for?

Michael: Well I mean I think in terms of government programs, we haven’t seen a huge amount of success. The government has a couple of dozen different job training programs and very few of them provide any evidence that they make people more employable. In fact there’s some suggestion that some of these programs actually hurts your job chances, what it is, is it keeps you out of the labor force while you’re doing the training, but you don’t actually learn any new skills so basically it just makes you less employable over the long term.

Buck: Yeah and that’s again the problem that you have is you you know you’ve got the government trying to, which is not terribly efficient and good at doing these kinds of things in the first place. So let me ask you this, these are these policy solutions that you offer, obviously I would say that a lot of people would listen to this and say, those are good ideas, why aren’t we hearing more about that? And in this political climate, you know with the increasing polarization between Democrats and Republicans and you know there’s not a lot of necessarily any significant political power from the actual libertarian side to the Libertarian Party, what do you think the likelihood is of an actual bipartisan effort to deal with any of these issues of poverty in the near future?

Michael: Well right now there’s very little possibility of bipartisan agreement on motherhood and apple pie in the flag. I mean people are so dug into their good the various corners on this that it’s going to be very difficult to get any agreement, however I do think the type of agenda that I’ve been laying out holds promise. There have been for example bipartisan efforts at criminal justice reform, you see the the SAFE Act in Congress right now is probably going to die this year but it’s been supported by liberals by conservatives, Democrats, Republicans, even the Trump administration has gotten behind it.

Buck: What is the SAFE Act?

Michael: It basically would change some of the federal rules as far as sentencing, limit the use of three strikes and magnitude laws and mandatory minimum laws, it would make it easier for people in prison to earn credit by education and job training while they’re in prison to get out or will if they sustain these programs they could get out a little bit earlier, it would go back and change some of the harshness and the sentencing laws to crack cocaine on a retroactive basis where crack was punishable by at six times the rate of powdered cocaine, so it would make a number of small reforms most of the efforts of these reforms are going to have to take place at the state level, not the federal level but certainly getting some federal momentum behind it’s a good thing.

Buck: Mike this has been really good stuff. Where can we learn more about your work?

Michael: Well you can certainly go to Cato.org and see check our website on this and of course I have a new book and it’s called The Inclusive Economy: How to bring wealth to America’s poor and it’s available on all the major of sale book websites and in a bookstore near you.

Buck: So is that basically covering a lot of the issues we talked about today, The Inclusive Economy

Michael: What we talked about today is basically a summary of it.

Buck: Exactly that’s great. We’ll definitely put a link to that in the show notes and Mike, thanks again for being in Wealth Formula Podcast.

Michael: Anytime. Thank you.

Buck: We’ll be right back.