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Middle Class Squeeze

Poverty or Inequality: Does It Matter?

Research & Commentary
January 28, 2015

by Peter Marcuse

Does it really matter whether we say “inequality,” “poverty,” or something else?

By Peter Marcuse

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If inequality rather than poverty is the focus, we are required to focus on both the rich and poor.

How Americans have described economic disparity varies widely. For instance, President Lyndon Johnson declared the “War on Poverty.” Mayor Bill de Blasio of New York in his inaugural address called on the city “ to put an end to economic and social inequalities.” President Obama before his second inaugural wanted to make inequality the “defining issue” of his second term, but his language shifted to creating “ladders of opportunity” last year in his State of the Union address.

Do these terms all mean the same thing? Does it even matter?

Yes. In fact, it matters a lot.

LBJ’s War on Poverty addressed the condition of the poor: lack of educational opportunities, weak family structure, discrimination in employment, residential segregation, gender discrimination, inadequate workplace safety, predatory ending. It contained an undercurrent focusing on encouraging the poor to help themselves, or “empowerment,” enabling the poor to pull themselves up by their bootstraps. Empowering the poor was never seen as reducing the power of the rich.

Today that undercurrent is dominant in the conservative Republic answer to poverty through education and job training of the poor. For instance, Republican Senator Tim Scott’s “Opportunity Agenda” focuses on enhancing opportunities for the poor by “making the workforce investment system more responsive to the needs of employers.”

“The ladder of opportunity” language to which President Obama turned last year at least permits the image of a ladder with both a bottom and as well a top. De Blasio’s language of inequality pushes that image to recognize the fact that those at the top are in fact responsible for the fact that others stay at the bottom. Recent research on upward income mobility similarly raises the question of the inability of the poor to improve their relative position compared to the rich over several generations. [pullquote] Inequality raises the question of the relationship between rich and poor—exactly the question that the War on Poverty and the “opportunity” approach conceals. [/pullquote]

If inequality rather than poverty is the focus, we are required to focus on both the rich and poor. The conservative argument that inequality per se doesn’t cause poverty is correct. But the conclusion that limiting the wealth of the rich won’t help the poor is incorrect. “Inequality” raises the question of the relationship between rich and poor, exactly the question that the War on Poverty and the opportunity approach conceals.

In fact, the way the rich obtain their wealth is what generates poverty. Here are a few specific mechanisms by which this happens:

  • Exploitation at the work place. Keeping the pay for workers as low as possible is an inherent part of running a business and making a profit: the lower wages are, the higher profits are. Employers are “job creators” only against their will; the fewer workers they need to produce a different product or service, the better off the employer is. High pay for business executives and dividends to shareholders are directly at the expense of the workers in their businesses.
  • Exploitation at the consumption end. Increasing the demand for ever more consumer goods—necessarily paid for out of wages—increases the profits of the producers of those goods and the wealth of the owners of the firms that produce them. Inducing demand artificially through advertising, making things disposable and requiring constant replacement, and through other means, supports the consumption exploitation of poor and middle-class consumers, to the benefit of the rich.
  • Exploitation at the financial end. Where, after all, do the extraordinary profits of hedge fund managers and bankers come from? [pullquote] The way the rich obtain their wealth is what generates poverty. [/pullquote] Ultimately, from the prices paid by the purchasers of the goods and services they are financing. The interest and dividend incomes and high salaries of the rich are really based on the profits of those making their money from more direct exploitation of the poor.
  • Exploitation of the benefits of land ownership. Property owners and developers are among the richest of the rich (think Donald Trump), in large part because they are able to benefit from the speculative increases in the price of land which they own.  Ultimately, those benefits are paid for in the prices consumers pay and the rents that tenants pay—a regressively distributive system enriching land owners at the expense of all others.
  • All four of these forms of exploitation are among the major causes of poverty and, centrally, inequality.

Digging deeper into what a war on poverty ought to be about would lead to examining not only how the poor might be directly helped, but also how the rich might be constrained in their actions that keep the poor in poverty. A real solution would include not only measuring income inequality and boosting the incomes at the bottom rungs of the ladder but also limiting how the rich get to the top of the ladder to begin with.

The dispute between Governor Cuomo and Mayor de Blasio over the financing of pre-kindergarten for poor children is a vivid example of this difference. Cuomo’s insistence on paying out of general funds does help to alleviate poverty, but it also avoids de Blasio’s proposal for  paying through a dedicated tax on incomes over $500,000. Cuomo’s proposal addresses poverty, de Blasio ’s also inequality. [pullquote] A real solution would include limiting how the rich get to the top of the ladder to begin with. [/pullquote]

The bottomline? Reducing poverty is much less controversial than reducing inequality, which confronts more basic vested interests. That’s exactly why we should talk about inequality as often as possible.

 Peter Marcuse is Professor Emeritus of Urban Planning at Columbia University in New York City. He holds a J.D. from Yale Law School and a Ph.D. in planning from the University of California at Berkeley.

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