Thursday, December 30, 2010


The interesting and well-written Nima provides this graph and the following remark:

It is notable that in post World War 2 America, the poverty rate was declining constantly every year, until in 1973 it hit a level of just below 8.8% from where it has since then bounced back to now around 11% and rising.

How can this be explained?

Nima goes on to say that "major welfare programs... keep the recipients in poverty, rather than motivating them to lift themselves out..."

But it isn't Nima's conclusion that interests me. What interests me is the turning point: 1973. The same year noted by Ross Perot and others. The last year before the 1974 recession.

My conclusion would be that the "golden age" growth (1947-1973) gets the credit for driving down the poverty rate. And that the economic recession which hit like a ton of bricks in 1974 explains the end of that decline.

The fact that poverty has not continued to decline, as the graph shows, would then be evidence that the economy never really recovered from that 1974 recession.

To complete the thought... It is certainly true that the poverty rate could not have fallen much below the 8.8% bottom it did reach. It could not fall below zero. It would have had to start tapering off, well before it hit zero.

Nima's graph shows that the downtrend from 1967-1973 was less rapid than in the years before 1967. This likely was part of that tapering off; but it was interrupted by the 1974 recession, or by major welfare programs or something.

In my view, the growing accumulation of private debt in the post-WWII period reached a breaking point in 1974. It resulted in recession, and the end of a golden age, and the end of the Keynesian consensus, and, among other things, the end of the decline of the poverty rate.

In Nima's view, the end of the decline of the poverty rate was brought on by major welfare programs. But I do not imagine that Nima can attribute our myriad other problems to those same welfare programs.

I wish to point out that my argument -- I don't even know how to say this -- my one central, causal factor is (for me) the cause of everything. By contrast, Nima and others require an endless series of explanations to cover those myriad problems.

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