Biden’s Rescue Plan Won’t Reduce Poverty
Imagine thinking the government can reduce poverty.
For most readers of this website, the thought is laughable. And for good reason. The government has no resources of its own. Every dollar it spends it must first either tax, borrow, or print. Taxing and borrowing redirect money from the voluntary, productive sector of the economy to the hands of politicians. Printing new money erodes the value of currency already held by citizens, harming low-income households disproportionately, while distorting important market signals like interest rates that are vital to coordinating the economy’s complex patterns of production and exchange.
Nevertheless, the Urban Institute—a highly influential and deep-pocketed left-leaning think tank—just released a report claiming that the recently passed American Rescue Plan will reduce the poverty rate by one-third in 2021.
The report’s methodologies and assumptions, however, are highly questionable and cast doubt on the legitimacy of its conclusions.
The Urban Institute’s study claims that the Rescue Plan will reduce the number of people in poverty in 2021 “by about 16 million, from over 44 million to 28 million.” This will be accomplished, according to the study, because the plan will increase “aggregate net resources” for households currently under the poverty line by $87 billion, or an average of about $3,850 per family.
The report, however, gives away the game early on. “Our analysis does not include the macroeconomic effects of the policy changes.” This is often referred to as a “static” analysis.
This admission alone should be enough to dismiss the Urban Institute’s findings. Assuming that the massive changes to the money supply, government debt, and incentives to work, spend, or save will have no effect on behavior or other “macroeconomic effects” like price inflation is wholly unrealistic.
For starters, how many households will fall back below the poverty level when price inflation pushes up the cost of living, especially the cost of common household needs like groceries, gas, and utilities?
In January, grocery prices were already up 3.7 percent year over year, the largest s
Article from Mises Wire