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Poverty And Power - Exam Exam –

POVERTY& POWER THE PROBLEM OF STRUCTURAL INEQUALITY

EDWARD ROYCE

POVERTY & POW ER

R OYCE

ROW M

AN & LITTLEFIELD

ISBN-13: 978-0-7425-6443-5 ISBN-10: 0-7425-6443-6

9 780742 564435

9 0 0 0 0

SOCIOLOGY • AMERICAN STUDIES

“Poverty and Power is the single most comprehensive exploration of structural

inequality I have ever read. Brilliantly conceived, clearly written, and exhaus-

tively documented, the book systematically excoriates our prevailing belief that

poverty and inequality result from individuals’ bad decisions or bad personal

attributes. Poverty and Power will quickly become the ‘go-to book’ in under-

graduate classes, graduate seminars, and (hopefully) policy debates. The man-

uscript is spectacular. Can’t wait to use the book in class”

—Rick Eckstein, Villanova University

“Edward Royce’s Poverty and Power provides a comprehensive look at the rea-

sons why poverty persists in the United States and why it is taken for granted

by many Americans. Royce’s compelling argument identifi es the cause of pov-

erty as rooted in inequalities in power and politics and shows the inadequacies

of individualistic, cultural, and human capital theories of poverty.”

—Ellen Reese, University of California, Riverside

Poverty and Power suggests that today’s poverty results from deep-rooted dis-

parities in income, wealth, and power. The rate and severity of poverty remain

high, because millions of Americans are trapped in low-wage jobs, inadequately

served by government policy, excluded from mainstream policy debates, and

victimized by discrimination and social exclusion.

EDWARD ROYCE is associate professor of sociology at Rollins College.

For orders and information please contact the publisher Rowman & Littlefi eld Publishers, Inc. A wholly owned subsidiary of The Rowman & Littlefi eld Publishing Group, Inc. 4501 Forbes Boulevard, Suite 200 Lanham, Maryland 20706 1-800-462-6420 www.rowmanlittlefi eld.com

PovPowerMECH.indd 1PovPowerMECH.indd 1 9/25/08 10:11:37 AM9/25/08 10:11:37 AM

Poverty and Power

Poverty and Power A Structural Perspective on American Inequality

Edward Royce

R O W M A N & L I T T L E F I E L D P U B L I S H E R S , I N C . Lanham • Boulder • New York • Toronto • Plymouth, UK

ROWMAN & LITTLEFIELD PUBLISHERS, INC.

Published in the United States of America by Rowman & Littlefield Publishers, Inc. A wholly owned subsidiary of The Rowman & Littlefield Publishing Group, Inc. 4501 Forbes Boulevard, Suite 200, Lanham, Maryland 20706 www.rowmanlittlefield.com

Estover Road, Plymouth PL6 7PY, United Kingdom

Copyright © 2009 by Rowman & Littlefield Publishers, Inc.

All rights reserved. No part of this publication may be reproduced, stored in a re- trieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the pub- lisher.

British Library Cataloguing in Publication Information Available

Library of Congress Cataloging-in-Publication Data Royce, Edward Cary.

Poverty and power : a structural perspective on American inequality / Edward Royce.

p. cm. Includes bibliographical references and index. ISBN-13: 978-0-7425-6443-5 (cloth : alk. paper) ISBN-10: 0-7425-6443-6 (cloth : alk. paper) eISBN-13: 978-0-7425-5679-1 eISBN-10: 0-7425-6579-3

1. Poverty—United States. 2. Equality—United States. I. Title. HC110.P6R696 2009 339.4’60973—dc22

2008023463

Printed in the United States of America

�™ The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.

To my parents, Dick Royce and Phyllis Royce

Acknowledgments xi

1 Poverty as a Social Problem 1 The Problem of Poverty 2 The Individualistic Perspective and the Structural Perspective 13 Organization of the Book 15 Appendix 24

Part I: Individualistic Theories of Poverty and Inequality 27

2 The Biogenetic Theory of Poverty and Inequality 29 Our Fate Is in Our Genes 29 Genes, IQ, and Intelligence 31 Is It Better to Be Born Smart or Born Rich? 33 Genes, IQ, and Poverty 35 Conclusion 40

3 The Cultural Theory of Poverty and Inequality 47 Poverty as Deviance 47 The Origins and Development of the Cultural Theory 48 The Culture of the Poor 49 The Sources of the Cultural Deviance of the Poor 51 The Cultural Solution to the Problem of Poverty 53 Is the Cultural Theory Plausible? 55 How Well Does the Cultural Theory Know the Poor? 57 Do the Poor Differ from the Nonpoor, and If So How

and Why? 58 Conclusion 63

vii

Contents

4 The Human Capital Theory of Poverty and Inequality 71 Education Is the Key to Success 71 Acquiring Human Capital 73 Converting Human Capital 75 What You Know or Who You Are? 76 What You Know or Who You Know? 79 What You Know or Where You Work? 81 Skills Deficit or Jobs Deficit? 82 Conclusion 84

Part II: A Structural Perspective on Poverty—Four Systems 89

5 The Economic System and Poverty 91 The Economics of Poverty 91 Poverty and Economic Growth 93 Skill-Biased Technological Change 94 A Shift in the Balance of Economic Power 97 Deindustrialization 100 Globalization 103 Corporate Restructuring 107 A Shortage of Jobs 110 Conclusion 112

6 The Political System and Poverty 123 The Politics of Poverty 123 We’re Number One: The United States in Comparative

Perspective 124 The Structure of the American Political System 127 The Political Mobilization of Business 131 The Political Marginalization of the Working Class and

the Poor 132 The Synergy of Money and Power 136 Policy Consequences of the Power Shift: Robin Hood

in Reverse 139 Conclusion 146

7 The Cultural System and Poverty 157 Hearts and Minds 157 The American Dream and the Ideology of Individualism 159 Beliefs about Poverty and the Poor 161 Strong Individualism, Weak Structuralism 162 The News Media 165 The Right-Wing Ideology Machine 172 The Rightward Turn in Poverty Discourse 175 Conclusion 178

viii Contents

8 The Social System and Poverty 187 We Are Not Alone 187 Group Memberships 189 Neighborhood Effects 192 Social Networks and Social Capital 196 Conclusion 204

Part III: A Structural Perspective on Poverty—Ten Obstacles 215

9 Structural Obstacles and the Persistence of Poverty (I) 217 Racial and Ethnic Discrimination 218 Residential Segregation 222 Housing 226 Education 230 Transportation 234

10 Structural Obstacles and the Persistence of Poverty (II) 249 Sex Discrimination 249 Child Care 253 Health and Health Care 256 Retirement Insecurity 260 Legal Deprivation 264 Conclusion 268

11 Conclusion 283 Poverty and Power 283 Programs and Power 285 Movements and Power 289

Selected Bibliography 295

Index 317

About the Author 327

Contents ix

I could not have completed this book without the help I received from Doug Amy, Fran Deutsch, Eric Schutz, and Larry Van Sickle. These four friends kept me going, reading chapters as I wrote them and providing in- valuable feedback and encouragement all along the way. I am extremely grateful for all the time and effort they devoted to this project. Several other people commented on parts of the manuscript, advised me on the book proposal, and let me bounce ideas off them. For their generosity, support, and criticism, I would like to thank Wendy Brandon, Dan Czitrom, Rick Eckstein, Michele Ethier, Meryl Fingrutd, Susan Libby, Shannon Mariotti, Ellen Pader, Lisa Tillmann, Dave Walsh, and Tom Wartenberg. I would also like to thank Alan McClare and all the folks at Rowman & Littlefield.

xi

Acknowledgments

The most telling fact about poverty in the United States is how thoroughly it is ignored. The problem of poverty is rarely depicted on television shows or in the movies, receives only passing coverage from the news media, and is largely absent from the political agenda. Poverty has not always been so invisible. In the early 1960s, in the wake of the civil rights movement, politicians and the press discovered the poor, and in 1964, President Lyn- don Johnson declared an “unconditional war on poverty.”1 Martin Luther King Jr., along with other political and civil rights activists, kept the issue of poverty alive throughout most of the 1960s. Frustrated by the timidity and inadequate funding of Johnson’s antipoverty program, King put forward a more radical vision. He called upon the country to live up to its democratic ideals and moral principles: “The time has come for us to civilize ourselves by the total, direct and immediate abolition of poverty.”2

More than four decades later, not only have we failed to eradicate poverty, but the very idea of such an undertaking is barely contemplated in the mainstream public discourse. At best, poverty is considered a low-priority issue. The poor in the United States, so it is imagined, do not really have it so bad and their poverty, in any case, is due primarily to their own self-de- structive behaviors. On occasion, elected officials and political pundits do reflect on the plight of the poor, but mainly to worry about how to reduce “welfare dependency” or how members of the “underclass” might be per- suaded to conform to conventional norms.3 In 2005, Hurricane Katrina brought into public view the harsh realities of class and racial inequality in the United States, fueling speculation that a renewed war on poverty might be on the horizon, but the shocking images from New Orleans quickly faded, and the subsequent promise of “bold action” from the government

1

1 Poverty as a Social Problem

remains unfulfilled.4 After a rare and fleeting appearance center stage, poverty has once again slipped away behind the curtains.5

Why does it take a category-four hurricane to draw attention to problems of poverty and inequality? Why are these not matters of more urgent pub- lic discussion and more effective government policy? Why have we not heeded Martin Luther King’s appeal to rid our society of poverty once and for all? One reason is this: for many Americans, and most policy makers, the real problem is not poverty at all; the real problem is the poor.6 They have bad genes, poor work habits, and inadequate skills. Poverty is just a symp- tom, a regrettable by-product of individual failings. The hardships experi- enced by the poor stem from their own shortcomings, not from any dys- functions of the system, thus grand schemes to alleviate poverty are inherently misguided. It might be appropriate, according to this view, for government to lend a modest helping hand, aiding the poor in overcoming their defects, but in the end, self-improvement, not social reform, is the only credible remedy.

This book argues that we need to abandon the simplistic idea that poverty results from the moral weaknesses, bad behaviors, and inferior abil- ities of the poor. This way of thinking about poverty misrepresents the na- ture of the problem, obscuring its root causes and tragic consequences, and it constitutes a powerful barrier to a workable solution. What we need in- stead is an alternative structural perspective, what Alice O’Connor calls a “new poverty knowledge.”7 We need to recognize that the problems of poverty and inequality are inextricably bound to power-laden economic and political structures. These determine the allocation of resources and op- portunities, who gets what and how much. Theories attributing poverty to the failings of the poor neglect the big picture: the severity of the poverty problem ultimately depends on the availability of decent-paying jobs and the responsiveness of government to the needs of less-advantaged citizens.

THE PROBLEM OF POVERTY

The problem of poverty in the United States is far more serious than is com- monly imagined. Millions of Americans are denied equitable access to op- portunities for a quality education, a good job, a healthy living environ- ment, and a decent life. Poverty is hard on the poor. It is also inconsistent with the principles of equality and fairness to which most Americans sub- scribe. Can we be the kind of society we want to be while millions of Amer- icans suffer an inadequate standard of living? Indeed, one important reason for investigating poverty is precisely to determine what kind of a society we really are. To study American poverty is simultaneously to study American society.

2 Chapter 1

In the first section of this chapter, I set the stage by briefly examining sev- eral key aspects of the poverty problem in the United States.8 My objective in this discussion is to provide readers with an overview of certain disturb- ing facts about poverty and inequality and to show that poverty in the United States is a social problem deserving far more serious public atten- tion and political commitment than it currently receives. I then begin mak- ing the case for a structural perspective on poverty by comparing this ap- proach to the more conventional individualistic perspective. I conclude this chapter by explaining how this book is organized and by describing the framework I use to communicate a structural understanding of American poverty.

The Official Rate of Poverty in the United States Is Very High

The amount of poverty in the United States is substantial by any measure. In 2005, according to the calculations of the U.S. Census Bureau, nearly 37 million Americans were poor, 12.6 percent of the population. The rate of poverty is even higher for selected subgroups: 17.6 percent for children, 24.9 percent for African Americans, 34.5 percent for black children, 21.8 percent for Hispanics, 28.3 percent for Hispanic children, and 28.7 percent for female-headed households.9 Millions of other individuals and families live on the edge of poverty, barely scraping by, the American Dream well out of reach.10 Approximately 50 million people reside in households with in- comes below 125 percent of the poverty line; over 90 million, close to a third of the country, have incomes below twice the poverty line, less than $40,000 a year for a family of four.11 Many millions of Americans, these fig- ures reveal, are doing poorly in today’s economy, struggling just to eke out a living.

The Real Rate of Poverty in the United States Is Even Higher

In 2005, according to the official poverty measure, a four-person family with two children was counted as poor if its yearly pre-tax income totaled less than $19,806.12 Opinion polls show that the majority of Americans be- lieve this is not nearly enough money to make ends meet. The current poverty threshold, in the judgment of the U.S. public, is too low by several thousand dollars. To most Americans, the real poverty population is sub- stantially larger than the official poverty population.13

Many experts agree.14 As one alternative to the existing poverty measure, Heather Boushey and her colleagues estimate “basic family budgets,” ad- justed for family size and residential location. These budgets, which tabu- late the cost of essential goods and services, are designed to “determine the number of working families with incomes too low for a safe and decent

Poverty as a Social Problem 3

living standard.”15 The size of the poverty population in the United States according to this family budget measure is more than twice the official count.16 The United States has a serious poverty problem even according to the current measure, but in the assessment of the American public and many policy specialists as well, the level of real poverty is much greater than the official numbers indicate.

Poverty in the United States Is Worse than in Other Developed Countries

The rate of poverty in the United States is very high, and it looks even higher, extraordinarily so in fact, when contrasted with the rate of poverty in other industrialized countries. The United States may be falling behind on some counts, but when it comes to producing poor people, we outper- form our chief competitors by a wide margin. In the mid-1990s, the United States had the highest rate of poverty among nineteen rich nations, more than twice the average of these countries.17 In a more recent study of eight developed nations from circa 2000, using a “relative poverty line” set at 50 percent of median income, the United States once again comes out on top with a poverty rate of 17 percent, beating out our closest rivals, the United Kingdom with 12.3 percent and Canada with 11.9 percent.18 The real pur- chasing power of poor families in the United States is also lower than in other advanced economies, and the income gap between the rich and the poor is greater.19 The poor in the United States are worse off in absolute terms than are the poor in most other industrialized nations, and they are worse off relative to their fellow citizens as well.20 Based on a careful exam- ination of the cross-national data, Alberto Alesina and Edward Glaeser con- clude that, compared to the poor in European countries, the “American poor are really poor.”21

The rate of poverty among children in the United States is also particu- larly high by international standards. In the 1990s, according to Lee Rain- water and Timothy Smeeding, the United States ranked number one in child poverty among developed nations, with a rate more than twice that of most other wealthy countries.22 In a detailed comparison of the United States and Germany, they find that American children not only have a higher incidence of poverty, they are also poor for longer periods of time and more likely, if poor as children, to fall into poverty as adults.23 A 2005 UNICEF report reveals the same pattern. With the exception of Mexico, it found the United States has by far the greatest level of child poverty among fifteen industrialized countries. The number of children below a poverty line defined as 50 percent of median income exceeds 20 percent in the United States, while in seven of the fifteen countries studied fewer than 10 percent of children are poor—only 2.8 percent in Finland, 3.4 in Norway,

4 Chapter 1

and 4.2 in Sweden.24 A subsequent UNICEF “report card,” which used forty separate indicators to assess child well-being, ranked the United States and the United Kingdom last among twenty-one rich countries.25 Poverty is a common occurrence for American children, much more so than for chil- dren in other wealthy countries, and child poverty in the United States is an uncommonly harsh experience as well, with lasting social and economic consequences.

Poverty in the United States Is a Persistent Problem

Not only is there a lot of poverty in the United States today, but the rate of poverty has remained persistently high over the past three decades. The official poverty rate declined substantially during the 1960s, from 22.4 per- cent in 1959 to a historic low of 11.1 percent in 1973. The level of poverty remained relatively stable during the 1970s, increased during the 1980s, and stayed at a high level throughout most of the next decade. As the em- ployment picture improved in the late 1990s, poverty too began to decline, falling to a near-record low of 11.3 percent in 2000. Since then, however, even though the economy has recovered from the 2001 recession, the rate of poverty has once again crept upward, rising to 12.6 percent in 2005.26

While the size of the poverty population fluctuates from year to year, the longer-term trend line is sobering: despite continued economic growth and rising per capita income there has been no large or lasting reduction in the rate of poverty since the 1960s.27 It is remarkable to consider, moreover, that at no point since the government began collecting data on poverty have fewer than one in ten Americans been poor.

The Relative Deprivation and Social Exclusion of the Poor

The official poverty measure in the United States, devised in the early 1960s, is based on an “absolute” standard.28 The poverty line is set at a fixed level of income, just enough to meet basic subsistence needs, and it is ad- justed only for family size, number of children, and the rate of inflation. It is not revised to take into account changes in patterns of consumption or in customary notions about what people need to live a minimally decent life. The definition of poverty stays constant over time; the criterion for counting someone as poor is the same today as it was in the 1960s.29

While the poverty threshold remains unchanged, the standard of living for average Americans has improved over the past several decades. The gap between the income of those officially regarded as poor and the income of households at the median has widened, and so has the distance between how they live their lives. In 2005, the poverty line for a family of four was only 29 percent of median family income, down from 48 percent in 1960.30

Poverty as a Social Problem 5

The poor in the 2000s, compared to the poor in the early 1960s, can less af- ford the life of the typical American where, for example, cable television, cell phones, computers, and Internet access are the norm. The poor today are less financially able than in the past to participate as equal and full- fledged members of society. The bar has been raised for entry into the so- cial and economic mainstream, leaving poorer Americans more vulnerable to “social exclusion.”31 The deprivation endured by poor families is greater nowadays because they are worse off relative to middle-class American households than the poor of earlier decades and because they are much worse off relative to the rich.

More of Today’s Poor Are Severely Poor

The poor in the 2000s are also more deeply poor than in previous decades.32 One way to calculate the depth of poverty is to measure the “poverty gap”: how far the average poor person or poor family falls below its respective poverty threshold. Between 1959 and 1973, the average poverty gap for families declined from $7,126 to $6,373. The extremity of poverty has increased significantly since the early 1970s, however, growing even during the boom years of the late 1990s. In 2000, the income of the average poor family fell $7,732 short of the poverty line, and by 2005, the poverty gap or “income deficit” of families in poverty had risen to $8,125.33

Today’s poor are more severely poor than in the past, with a longer climb to get out of poverty.

Another way to assess the depth of poverty is to calculate the percentage of the poverty population that is very poor: those persons whose income puts them below 50 percent of the poverty threshold. Poverty has become more extreme over time according to this measure as well. The size of the very poor population, as a percentage of the total poverty population, has increased significantly, rising from less than 30 percent in the mid-1970s to more than 43 percent in 2005, with an especially rapid rise during the 1980s. In 2005, 15.9 million people had incomes less than half the poverty line.34 This is the highest level recorded since 1975, when the government first began measuring “deep poverty.”35

More of Today’s Poor Are Stuck in Poverty

Poverty has become more of a trap in recent decades, both for adults and for their children. It is more difficult today for a poor family to get out of poverty and stay out of poverty. And children born into poverty are more likely in the current era to inherit their parents’ economic status. Along with slower economic growth, the United States since the 1970s has experienced both rising inequality and declining social mobility. This combination, sig-

6 Chapter 1

nifying the emergence of a more polarized and rigid class structure, threat- ens the principle of equality of opportunity and the ideal of the American Dream.

Many people who experience a year or two of poverty never entirely es- cape it; they tend to fall back into poverty periodically throughout the course of their lives.36 Since the 1980s, poverty has become even more of an enduring condition. Low-income families today are more likely to remain low-income families and are less likely to escape poverty permanently.37 As Annette Bernhardt and her colleagues show, this is due especially to the proliferation of low-wage jobs and the conversion of low-wage work into a lifetime career. They compare two cohorts of male workers, the first tracked from 1966 to 1981 and the second from 1979 to 1994. Over these two pe- riods, they find, “wage growth has both stagnated and grown more un- equal,” “there has been a marked deterioration in upward mobility,” the percentage of workers who are stuck in low-wage jobs has more than dou- bled, and workers at the bottom of the wage distribution are especially li- able to fall into the “bad-job trap.”38 Economic mobility is harder to attain in today’s economy. A job is not enough, hard work does not necessarily pay, and few individuals are able to pull themselves up by their own boot- straps.39

There is also much less intergenerational social mobility than implied by the American Dream ideology, and some studies show declining mobility since 1980.40 Contrary to the Horatio Alger tale, it is quite rare for a poor child to become a rich adult or for a rich child to become a poor adult. The economic status of the family into which a child is born exerts a powerful influence on later life outcomes, especially at the extreme ends of the class structure. In one revealing study, Tom Hertz finds that a child born into the bottom income decile has a 31.5 percent chance of remaining in that decile as an adult and a meager 1.3 percent chance of reaching the top decile. A child born into the top decile has a 29.6 percent chance of staying in that decile and only a 1.5 percent chance of falling into the poorest decile.41 The rich and the poor have at least one thing in common: they both tend to pass along their economic standing to their children. And this is true in the United States more so than just about anywhere else in the developed world. We do indeed stand out from other countries: not because we have more mobility, but because we have less.42

The United States is unique especially in the tendency for poverty to be passed along from generation to generation. A child born into a poor fam- ily in the United States is more likely than in most other industrialized na- tions to end up poor as an adult.43 The persistence of poverty across gener- ations is particularly strong for African Americans. Hertz’s research shows more than 40 percent of black children born into the bottom income decile between 1942 and 1972 were still stuck in that decile as adults, and more

Poverty as a Social Problem 7

than 60 percent of those born into the bottom income quartile remained in that quartile as adults.44 The image of the United States as an exception among modern societies, a unique land of opportunity where, regardless of race or ethnicity, the children of the poor can rise to the top is far from true.

The Shredding of the Safety Net

In 1996, Congress overhauled the welfare system, creating the new Tem- porary Assistance for Needy Families (TANF) program. Since then, and de- spite a steady increase in the rate and severity of poverty in the 2000s, the number of families receiving cash welfare benefits has dropped substan- tially, to approximately 2 million, less than half the number in 1996. At the same time, because payment levels are not indexed to the rate of inflation, the real value of welfare benefits has diminished. The percentage of poor children on welfare has declined as well, from more than 50 percent in 1996 to less than a third. And the percentage of families who do not receive welfare benefits despite meeting eligibility requirements has increased from less than 20 percent in the early 1990s to more than 50 percent in 2002.45

Although low-income households may still benefit from a variety of so- cial programs, including food stamps and tax credits for low-wage workers, many of the poor, as the figures in the previous paragraph suggest, have fallen through the cracks. The reformed welfare system provides cash assis- tance to a shrinking number of families, even as the size of the needy pop- ulation continues to expand. Government policies in recent years have made life harder for low-income households in other respects as well: by el- igibility rules restricting access to unemployment insurance, by the reluc- tance of legislators to raise the federal minimum wage, by tax policies that overwhelmingly benefit the rich, and by cutbacks in funding for child care assistance, housing programs, health care, and college scholarship aid for low-income students.46 Poverty is an especially serious problem in the United States today because the poor have less recourse than in the past to government assistance and a reliable safety net.

Poverty Touches the Lives of Most Americans

In any particular year since the 1970s, somewhere between approxi- mately 11 and 15 percent of the population has been poor. This is a lot of poverty, especially for a country with such great wealth. But on the brighter side, these numbers might leave the impression that only a relatively small minority of Americans is economically vulnerable. The reality is quite the opposite, however, as the research of Mark Rank demonstrates.47 Calculat- ing the likelihood that people during their adult years will undergo a period of economic hardship, he discovers that poverty is a widespread phenome-

8 Chapter 1

non. In fact, the majority of Americans, and the majority of white Ameri- cans as well, experience at least a year of poverty during their adult lives, and about a third experience four years or more.48 The likelihood that an adult will spend at least a year in poverty, moreover, is much greater today than it was in the 1970s.49 Of course, poverty hits racial minorities harder and more frequently. Relatively few African Americans manage to stay above the poverty line over the entire course of their lives: over 90 percent endure at least one year of adult poverty. But even for non-Hispanic whites, poverty is an ordinary occurrence. Poverty in the United States is not a par- adox or an anomaly, and it is not something that happens only to inner-city minorities, teenage mothers, or other “marginalized groups.” American poverty, Rank emphasizes, is “endemic to our economic structure”; it is “as American as apple pie.”50

Living Without an Economic Cushion

In the 1990s, a number of studies, including Michael Sherraden’s Assets and the Poor, Melvin Oliver and Thomas Shapiro’s Black Wealth/White Wealth, and Dalton Conley’s Being Black, Living in the Red, drew attention to a critical limitation of most indicators of economic well-being: they con- sider income only, to the neglect of wealth.51 Income consists of a periodic stream or flow of revenue, including wage earnings, private pension bene- fits, and government transfers—welfare, unemployment, and social security payments, for example. Wealth consists of an accumulated stock or reserve of resources, including savings, home equity, business assets, stocks, bonds, and real estate.

The distribution of wealth is far more unequal than the distribution of in- come. In 1997, the richest 1 percent of American families received 16.6 per- cent of the nation’s total income, but owned 38.1 percent of the nation’s to- tal wealth. The bottom 40 percent, on the other hand, received 10.5 percent of total income and possessed a miniscule 0.2 percent of total wealth. In 1998, 18 percent of American families had zero or negative net worth, and more than 25 percent had zero or negative “financial” or “liquid” wealth (net worth minus home equity), the sort of wealth that can be readily con- verted into cash to pay for current expenses.52

Families possessing a sizeable asset cushion have something to fall back on during hard times. They also have access to capital and credit that can be invested in housing, education, retirement, and a secure economic future for themselves and their children. Assets help families to both avoid down- ward mobility and achieve upward mobility. Households are usually con- sidered “asset poor” if their wealth holdings are insufficient to cover the cost of basic needs for a period of three months.53 Such households do not have a reserve of funds they can use to pay the bills and put food on the

Poverty as a Social Problem 9

table should they experience a job loss or some other interruption in their flow of income. To get through costly emergencies and even to cover ordi- nary day-to-day expenses, they are often forced to borrow money or max out their credit cards, and are then left weighed down by exorbitant interest payments.

The level of asset poverty in the United States is substantially greater than the level of income poverty. In 2001, the rate of asset poverty reached 24.5 percent based on a measure of net worth and 37.5 percent based on a nar- rower measure of liquid assets.54 More than a third of American households do not have enough cash or near-cash resources to survive above the poverty line for three months without a paycheck. For African-American and Hispanic households, the rate of asset poverty is much higher, over 40 percent measured by net worth and over 60 percent measured by liquid wealth.55 The problem of asset poverty has worsened since the early 1980s—despite a growing economy, despite the tremendous wealth accu- mulation of the 1990s, and despite the decline in income poverty toward the end of that decade.56

Millions of American families do not make enough money to enjoy a minimally decent standard of living. An even greater number are asset poor. They live on the edge, from paycheck to paycheck, often deep in debt, and “persistently vulnerable to adversities.”57 Even if their income puts them above the poverty line, they have little or nothing in reserve to smooth out the ups and downs that have become commonplace for working families in today’s economy. And they do not have a nest egg they can draw upon to build a better future for themselves and their children.

Economic Growth Is Not the Cure for Today’s Poverty

The level of economic inequality remained stable for the first quarter cen- tury after World War II, but it has increased dramatically since the 1970s. Nowadays the rich are taking a much bigger slice of the economic pie, at the expense of everyone else, especially those toward the bottom of the income distribution. The real earnings of low-end workers declined throughout the 1980s and into the 1990s, increasing only with the tightening of the labor market during the final years of that decade.58 An astonishing 99 percent of the gains from economic growth between 1979 and 1994 went to the top 5 percent of American families.59 In today’s economy, with the brief exception of the late 1990s, the benefits of increasing productivity and wealth cre- ation, rather than tricking down to the poor, gush up to the rich instead.60

Between 1979 and 2003, average after-tax income increased by only 4 per- cent for the bottom income quintile and by a whopping 129 percent for the top 1 percent of households.61 The economy expands, corporate profits grow, the rich get richer, and the poor get poorer. And things are not getting