The Poverty of Marginalization: Can Free Market Capitalism Help?

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I have an embarassing confession to make……..

Due to my meager earnings these past three years, I officially meet the government’s threshold for poverty. Yep, you read that correctly: pure-on 100% original Made in America poverty.

Talk about being hard to swallow, after having been a middle-to-upper income earner almost all my life.

The main catalyst for my present circumstance was a divorce which left me with clothes and bare essentials. It’s been very humiliating at times because people do judge you. I never imagined waiting for a public bus while enduring weather extremes, couch surfing at the homes of strangers, or trolling networking events for free food.

For me, this face-plant-in-the-mud period of my life has delivered untold wisdom and perspective about the ugly financial truths that face so many Americans. I continue to be intrigued by the number of people I encounter daily who are deep in the trench of silent dispair, including small business owners, college students, baby boomers and even former top-level executives. In my opinion, none of this has to do with a lack of willingness to work hard or a desire to succeed. Rather, I believe it’s largely the result of systemic forces like unsustainable wages, public mandates, rising housing and food costs, and onerous government regulations that are quietly chipping away at our economic freedoms.

But despite my recent experiences, I remain an avowed advocate of free market capitalism. More on that in a bit. “

Prevailing Poverty Trends

According to statistics gathered at the time of writing from the U.S. Census Bureau, the 2014 U.S. poverty rate was 14.8%, essentially the same as it had been for the previous four years. The 2014 report also showed that household income fell nearly $1,000 to $53,657 between 2013 and 2014. Real household income has tanked 6.5% since 2007, December 2007 being generally acknowledged as the start of the Great Recession.

The official definition of poverty is largely predicated on family size, age and composition. Children and the elderly are the largest subsets of the roughly 47 million people in poverty, this figure representing the largest number of impoverished Americans in our country’s history.

By way of an example, a childless couple who are under 65 fall into the poverty bucket if their joint annual income is less than $15,853. For a couple with two children, that threshold rises to $24,008.

The nation’s lack of progress in mitigating the poverty level is reflected in the job market. Although the economy added 2.6 million jobs in 2014 – the biggest increase in more than a decade – this proved incapable of making a dent in the 47 million who are mired in poverty.

It is interesting to note that some of America’s most in-demand jobs, such as those in the retail sector, are having the effect of keeping workers right at or slightly above the poverty line. Even in the scorching hot health care job sector, home health aides and personal care aides only earn about $20,000 a year.

And despite assurances that Obamacare would provide cost-effective health insurance options for most Americans, this simply hasn’t been the case. For these and other reasons, I often hear people say that they feel like they’re working more, but are still barely able to keep their heads above water.

As an African-American trying to get to grips with all of this, perhaps the most alarming statistic is found in a study released by the Pew Research Center which indicates that the median net worth of white housholds in America ($141,000) is 13 times greater than that of African-Americans ($11,000). When I recite this compelling statistic, the most common response I receive is ‘Why would that matter to you, when you are an articulate individual with a Masters Degree?’

Yikes!

The Abyss and its Deep Consequences

From my own personal experience, I can tell you that once you’ve sunken into the abyss of poverty, it’s exponentially harder to gasp your way back up to the surface. Some well-intentioned friends have said that I’m the one largely to blame for my own mess, due to my lack of willingness whatsoever to accept any free government handouts. In a moment of weakness, it might seem like maybe they are right.

But setting aside quasi-parental exhortations for me to get my act together, the truth is that the broader ‘poverty’ theme gets largely ignored in society, and those with limited means quickly become marginalized. In a sense, this explains the recent media attention around income inequality, with grassroots efforts being centered on wealth redistribution, minimum wage increases and other hallowed policy fixes. For when the masses feel they are not being acknowledged and heard through legitimate channels, they will be tempted to pursue illegitimate means (rioting and mob action – think Ferguson and Occupy Wall Street) to create a collective voice that will be heard.

Many of my views on the consequences of poverty have been informed by a book I read earlier in the year called ‘The Divide: American Injustice in the Age of the Wealth Gap’. The author, Matt Taibbi, brings to light the gross disparities in how the rich and poor are treated in America, particularly by the police and the courts. He proposes that the problem with being broke is that it puts one in scenarios where any false move can result in a negative consequence; the shady-looking jaywalker with a single marijuana joint in his pocket gets locked away because he/she is unable to afford bail or adequate legal representation. This, he then juxtaposes with white-collar crime that largely goes unpunished; the bank executive who absconds with billions of dollars of consumer money and gets off scot-free.

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Ego Depletion and its Effect on the Poor

Talk to those who are treading water in deep poverty and they will tell you that the whole experience is mentally, emotionally, physically and spiritually depleting. Florida State University Professor of Psychology Roy Baumeister has coined the term ‘ego depletion’ to describe the state where the poor frequently engage in counter-productive behaviors – such as playing the lottery or borrowing at high interest rates – that mitigate their long-term prospects. Baumeister et al have argued that the immediacy of financial distress drains your time, energy and attention to the point to where you have fewer cognitive and physical resources available to devote to solving or proactively addressing your main problems.

This underscores the fact that poor people face constraints that hinder their ability to dig themselves out of the hole. An example of this is the single mom who uses public transportation (which has become surprisingly expensive in many cities) to get her kid to daycare before she heads off to work. Compare her to a lady of means who benefits from her wealth twofold; first by being able to afford a car that easily allows her to hop in and go and, secondly, by not having to devote cognitive resources to navigation routes, transport timetables and transfers in order to get to her intended destinations. In short, when it comes to both financial and emotional resources, it’s exponentially more costly to be poor than to be rich.

The Plight of One

For many years, a friend of mine – I’ll call her Nancy – enjoyed a middle-class lifestyle in the heart of Denver. Then, as a result of a divorce plus a real estate ponzi scheme into which she and sixty other unfortunates were lured, she lost around $400,000. “That was the beginning of a downward spiral from which I never really recovered,” she says. “Before all of this began to unravel, my financial situation was golden, with 25 years of perfect credit. Then I lost my house. And with attorney fees and other expenses, the burden just became overwhelming.”

While Nancy is grateful for her employment as a massage therapist, she notes that it has been incredibly challenging to keep up with Denver’s blistering housing costs and living increases. “Sure, there are some opportunities out there that might pay better, but being a woman of the baby boomer generation, I have found myself competing with millennials who seem to be able to just run out and get a job. I find it’s very competitive out there, and only the people with real money behind them can play. Sure, it’s frustrating at times, but I’m finding a way to make peace with it.”

According to Nancy, her greatest challenge involves getting around the city without a car. “I am constantly on the move, due to the time it takes me to walk or bike from one point to the next. And because I find myself constantly in motion, my feet get tired. Honestly, it has caused me to think about my body differently because I am my own mode of transportation. I often think that if something happens to my legs or feet, then I’m doomed.

Free Market Capitalism: Can it Save the Poor?

The title of John Hope Franklin’s book is ‘Can The Poor Save Capitalism?‘. I’ve often wondered whether the question should be reversed, to ask ‘Can Capitalism Save The Poor?’

Author and philanthropist Mark Victor Hanson once said that the “Greatest thing a person can do for the poor is not become one of them.” For me, this is the essence of free market capitalism, where everyone by virtue of birthright is afforded choices and opportunities to achieve economic success that they can then voluntarily use to help others. Sure, life can be difficult along the way, but each person has the ability to offer their unique talents, goods and services in a way that delivers value; and ultimately, creates the financial resources needed to enjoy life in a meaningful way.

Lest I ramble on endlessly, let me leave you with two quotes that in their own unique ways underscore the importance of freedom, liberty and a capitalistic spirit of service in creating a world that works for us all. I often turn to them as a measure of hope whenever my own burden becomes to heavy.

When you can give your full attention to serving the world, instead of the world giving you things, you will be so attractive that people will literally start throwing money at your feet.”

Russell Simmons, hip-hop mogul and author of the book ‘Super Rich’

 

Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. No one can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us.”

Ludwig von Mises, Austrian School Economist

 

Michael Scott is a Denver-based independent journalist focusing on the intersection between free markets and economic freedom. He can be found on Twitter @biz_michael

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