Pacific Research Institute

Government Policies Perpetuate Poverty In California

Fox and Hounds

Anyone can see the road that they walk on
Is paved in gold
And it’s always summer
They’ll never get cold
They’ll never get hungry
They’ll never get old and gray
~ Fastball, “The Way,” 1998

Before California was officially christened the Golden State by the Legislature in 1968, it was also known as the Land of Milk and Honey. The California dream of prosperity was touched off by a gold rush, and there followed for decades a steady flow of millions seeking better lives. Fastball’s Tony Scalzo didn’t have California in mind when he wrote “The Way,” but for many, his description is the image they see in their heads when they think of migrating to California. That is the dream.

But that’s not the real California in 2017. This state has a poverty problem. It is arguably the poorest state in the country. The destination that attracted masses because of the opportunities it offered posted an average poverty rate of 14.9 percent from 2013 through 2015, the Census Bureau reports, ranking 17th among the states. Under this measure, 5.8 million Californians live in poverty.

But a more telling gauge from the Census Bureau shows the rate is actually 20.6 percent, highest in the nation. The Census Supplemental Poverty Measure “extends the official poverty measure by taking account of many of the government programs designed to assist low-income families and individuals that are not included in the current official poverty measure.” This means the true number of Californians living in poverty is nearly 8 million.

As troubling as those government numbers are, things might actually be worse. In 2013, Stanford’s California Poverty Measure found that “22 percent of all Californians are in poverty.”

Since 1970, California’s state and local governments have spent $1.66 trillion in 2009 dollars on poverty programs, not including Medicaid, according to data compiled by usgovernmentspending.com. But all those outlays have done nothing to alleviate the problem. When the spending binge began, the poverty rate in this state was less than 10 percent. Whether that’s being compared to the recent 14.9 percent three-year average or the 20.6 percent supplemental measure, the fact remains that California poverty has grown worse as the safety net has made poverty the safer place.

Rather than lift the poor, public policies have created perverse incentives that keep tens of millions mired in poverty. For instance, anti-poverty programs provide incentives for parents to remain unmarried. This has wrecked the two-parent family, which is hazardous because the data clearly show that California families headed by a single parent are more likely to be poor – nearly 40 percent live at or below the poverty level. That’s nearly three times the 14 percent rate for married couples.

Handing money to the able-bodied poor is not the proper response. It encourages dependency. Legendary economist Murray Rothbard warned policymakers in 1978 that “the easy availability of the welfare check obviously promotes present-mindedness, unwillingness to work, and irresponsibility among the recipients – thus perpetuating the vicious cycle of poverty-welfare.” Yet public funds are continually poured into this trap.

Another factor driving California’s poverty rate is the state’s steep housing costs. Research from Wendell Cox, senior fellow at the Center for Opportunity Urbanism, shows that the median home value in California is seven times the median annual household income. The U.S. average is half that. As public policies escalate housing costs, discretionary income shrinks, Cox says, leaving Californians with less to spend elsewhere, particularly on life’s other necessities.

California has an energy poverty problem, as well. A recent Pacific Research Institute report found that the simple act of paying electricity bills causes a financial hardship on the poor due to the high cost of energy in the state. The burden grows even heavier under the Obama administration’s Clean Power Plan.

The facts scream out for reform, particularly of CalWORKS, the state’s primary cash-assistance program. But Sacramento is stubborn. So rather than get bogged down on reform, forward-looking policymakers should demand expansion of enterprise zones, where tax and regulatory relief invigorate economically sclerotic neighborhoods.

In fact, make the entire state an enterprise zone, as PRI has suggested in the past. This market-oriented approach has a record of accomplishment. When state unemployment was spiking in 2010, the dozens of enterprise zones across California created or retained 118,000 jobs, according to the California Association of Enterprise Zones. Multiply this sort of success across the state and, using a Federal Reserve Bank study that found employment in California enterprise zones was 2 percent to 3 percent higher each year than in comparable non-enterprise zones, there should follow the eventual creation of millions of new jobs.

A fully free market, liberated of government restraints that hold back commerce and enterprise, would be the best anti-poverty program.

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