Mr. anderson has taught social studies in Junior high school and currently is enrolled at Clemson University in the master’s program In economics.

If the New Deal was experimentation and improvisation on a grand scale, the Great Society was a forehanded attempt to solve economic and social problems before they became critical. Thus, 1965 was a time of “preventative reform.” It involved not only the problem of persuading a prosperous people to anticipate trouble, but also experimentation with new economic theories.^[3]

And what were the theories that would lead America to become the Great Society? The theories of John Maynard Keynes. In other words, inflation through deficit spending was to be the key to the program’s success and to pave the way for the blizzard of new “purchasing power,” Congress removed the 25 per cent gold cover on commercial bank deposits held by the Federal Reserve Banks and the U.S. Treasury stopped making dimes and quarters of silver, substituting instead, nickle-copper “sandwich coins.” By 1966, America was ready to fight this “war to end wars” against poverty.

The Situation in 1966

Just how poor was this nation in 19667 Had we not, since the days of the Great Depression, eliminated poverty in vast amounts simply by allowing relatively free markets to operate within the United States? Or, as the liberal critics had charged, was capitalism actually creating more poverty?

In 1959, according to the U.S. Census Bureau, about 22 per cent of all Americans had incomes which made them officially poor (of course, as any expert on poverty will tell you, there are far more factors in determining poverty than just money income). Among white families, the figure was about 18 per cent, while among blacks it was about 56 per cent.

But by 1966, before the vast majority of poverty-fighting programs had been implemented, the number of officially-poor whites had dropped to 11 per cent, while black poverty declined to about 42 per cent, with an overall estimate of all Americans at about 15 per cent.^[4] Within three years the totals had dropped again, this time to 9.7 per cent for whites, 32.2 per cent for blacks and 12.1 per cent overall.

To the government-paid soldiers in the poverty war, such figures were cause for rejoicing, since they held the assumption that these newly-created federal programs were working. For many persons involved in this Great Crusade, the preliminary statistics to them were proof that by “redistributing” income, organizing neighborhoods and restricting the legal ability of some Americans to discriminate against others, poverty could be eliminated. They had hope in the future; within the next decade poverty could be abolished from this land forever.

But the years from 1966 to 1970 were not peaceful ones in this country. The Vietnam War became increasingly unpopular, especially on college and university campuses, and no doubt that conflict served to raise levels of national tension. The real paradox, however, came in the ghettos and inner cities of Los Angeles, Detroit, Chicago and other metropolises where thousands of black Americans took to the streets in bloody riots. Talk of abolishing poverty did not ease the despair; in fact, as James Reston wrote, it served to heighten it.

It was not that the housing, sanitation, education, and employment of urban Negroes were worse in 1966 than in 1965. They were better; but they were still bad. The difference was that the Negro had been made more aware of his unequal situation. He had been told by his government and his own leaders that poor housing, inferior education, and unemployment were not inevitable, but correctable. Yet they were not corrected; at least not rapidly enough to meet rising Negro expectations. The government’s promises of equality, opportunity, a War on Poverty leading to a Great Society, exceeded the performance. The Negro was made aware of his inequality without being relieved of it. Though he was better off than in 1965, “the full and equal life” the President talked about was now part of the Negro’s expectation without being part of his reality.^[5]

Seventeen years after Reston wrote those words, the end of poverty in America is not in sight. According to Census Bureau statistics, the percentage of blacks below poverty levels in 1982 was 32.5 per cent, an increase from the levels measured in 1969 and, according to those same figures, the white poverty level stands about the same as it did in 1969. Since 1969 the halls of Congress have echoed with calls for “social justice,” “redistribution” and the like. “Concerned” citizens have taken to the streets in marches and demonstrations, politicians have passed law after law “guaranteeing” equal opportunities for white and black and the poor, government has subsidized more than half the citizens of the United States with transfer payments. But still Leviathan refuses to be tamed and there is every indication that it is growing larger each year.

A Call for More

The new growth of poverty in America has led some to call for even more federal largess, with the reasoning that the need for government aid is even greater today than in the past. Free markets, they declare, cannot meet the growing human need. On the other hand, the realization that, in the past 13 years, massive federal spending has failed to even budge real poverty levels has forced many former advocates of the Great Society programs to rethink their approaches to the subject.

Explanations for this tragedy abound from blaming indifferent bureaucrats to military spending (which, in reality, dropped in real dollars during this period) to recent budget cuts. What few persons have said is that the original plans were flawed at the foundations. For nearly two decades the government of the United States has attempted to alleviate poverty by destroying this nation’s basis of wealth, or at least undermining it, and the ominous results should be a warning to future generations on how not to help the poor.

As written earlier, the government tried to attack poverty in three ways, the first being transfer payments, the second social activism and the third being passage of equal opportunity laws. An examination of each leg of the triad reveals their fallacies and the problems they cause.

Transfer Payments

Under the concept of transfer payments, which first appeared in this country in the late 1930s in the form of Social Security, poverty was to be alleviated by taking from the haves and giving to the have nots. In fact, it was argued by some economists that the disparity between rich and poor was the cause of poverty. Therefore, they argued, a systematic plan of transfers to counter this “injustice” was needed if the War on Poverty was to be successful.^[6]

In the past 20 years our legislators have attempted to do just that. The Census Bureau reports that roughly half of all Americans receive transfer payments from the federal government, some in forms of welfare and food stamp payments, others in form of social security, education grants and the like. In 1960, about 22 per cent of the federal budget was earmarked for payments to individuals. Twenty years later, that percentage had more than doubled to 48 per cent (more than half of that figure went to social security payments). If transfer payments could, as many economists and social planners had insisted, eliminate poverty, then one would have expected to see a drastic fall in poverty levels, not a slight rise as actually occurred between 1969 and 1982.

What, then, is the problem of redistributing income? The first objection is this: transfer payments do not transfer wealth; they only transfer claims to wealth. Nor do transfer payments increase actual wealth itself; they can only increase monetary demand. Under Keynesian orthodoxy, increased demand spurred on by transfers or by inflation (which also acts as a transfer of wealth) will automatically increase the supply of wealth. As we have seen, such a rise in the claim on wealth does not increase supply; it only increases prices. And to make matters worse, those receiving transfer payments fall under the “fixed income” category, which places them at a disadvantage in a period of inflation. Wrote Murray Rothbard:

Inflation, then, confers no general social benefit; instead, it redistributes the wealth in favor of the firstcomers at the expense of the laggards in the race. And inflation is, in effect, a race—to see who can get the new money earliest. The late-comers—the ones stuck with the loss—are often called “fixed-income groups.”^[7]

Perhaps to a disinterested observer, it would seem that transfer payments are an effective way to fight poverty. After all, when one adds up the dollar value of cash, in-kind payments, subsidies and services available to those in low-in-come categories, the figures look impressive. When all the “free” benefits are totaled, a family of four may have an income (cash plus available services and subsidies) of more than $20,000 per year. But beyond all that, one must examine the quality of services available to poverty-aid recipients. A person spending an afternoon waiting at a dilapidated health clinic to seek medical service from a transitory staff of doctors who can’t wait for their two-year public health stint to end so they can practice medicine on their own is not likely to obtain the quality of care that a person seeing a private physician will have. On paper one sees that a poor person has available medical care; the reality, while not officially sub standard, shows a different picture.

At Terrible Cost

On paper, the influx of transfer payments to the poor increased their income. Noted one writer: “Startling progress has been made toward eliminating poverty in this country-but at an equally startling cost to taxpayers.”^[8] Subsidies were raised, public housing was constructed (using some of the most unattractive and disfunctional architecture available) and cash payments were increased. But, in all of this, wealth was not created. Income was taken from some and given to others and, when no tax funds were available, government inflated or siphoned funds from capital markets, thus devouring the seed corn of future wealth. In short, the nation overall was becoming poorer (or at least wealthier at a much slower rate of growth) while being deceived by the growing incomes which have been severely eroded by inflation.

The figures bear this out. Until the advent of the Great Society programs and the escalation of the Vietnam War (or “guns and butter”), inflation in the United States was running at an annual rate of between one and two per cent. By 1966 the rate had climbed above three per cent, a seemingly low figure in this present age of inflation, but certainly a scandal at the time. Prices shot up, housewives picketed supermarkets and unions demanded cost of living allowances (COLA’s) in their contracts.

But the domestic price rise was only part of the inflationary tragedy. First, in order to be able to pay for “guns and butter” (guns dominated the headlines but butter dominated the budget) the government debased the dollar by removing the 25 per cent gold cover on bank deposits held by the Federal Reserve. That was bad enough, (in a sense, an admission of bankruptcy) but wishing to preserve the illusion abroad that the Great Society did not imply the Great Debasement, the U.S. Treasury still permitted foreign governments the privilege to buy U.S. gold at the 1933 price of $35 per ounce. The result, as any monetary expert can recall, was an unprecedented outflow of gold from this country into the treasuries of nations like France who declined to believe the U.S. claim that the dollar was as “good as gold.” By August, 1971, claims against our gold far outnumbered our reserves, leading President Richard Nixon to suspend U.S. gold payments and impose wage and price controls here and devalue the dollar overseas.

At this point, in terms of real money, the U.S. Treasury was bankrupt. The message in the marketplace was this: “The U.S. Government cannot afford its welfare system or its vast subsidies given to nearly every special interest group that asked for federal largess.”

The “New Economics”

Keynesian theories, known to Americans as the “New Economics,” had proven a failure. Like miners who vacate a deep shaft when their caged canary succumbs to the odorless methane gases, so should have Congress and the President abandoned their spending schemes when the dollar collapsed. Instead, the dollar’s collapse ignited an unprecedented orgy of federal welfare spending. In constant dollars, federal spending for individuals increased by more than 60 per cent in the decade following the monetary disasters of 1971. While inflation increased at unprecedented levels following the 1971 devaluation, Congress continually voted to increase spending at rates above inflation, “so the poor won’t be hurt by rising prices.”

But the poor were hurt by inflation and, in fact, suffered far more than the well-paid civil servants who administered the poverty programs. And the poor suffered in other ways as well, ways which were invisible to most other Americans. Many of America’s poor, and especially poor blacks, became underclass victims of federal dependency. Welfare advocates had assumed that by simply giving the poor more money, medical care and housing services, the government could eliminate not only the results of poverty but the causes as well.

However, there is a time-honored principle one must follow in dealing with cultures and subcultures: One cannot simply change one aspect of a society, for traditions (and markets) have a way of filling the void.^[9] So it was with America’s poor. Social planners had eliminated some of the stigma of being poor by providing tax-supported benefits to the needy, but in the process of eliminating one incentive to climb from the depths of poverty, the bureaucrats eliminated the “carrot” as well. As many poor persons have discovered, one can do better financially by receiving federal benefits for not working than by accepting low-wage, entry-level jobs that in the long run may train workers for better careers in the future but in the short term do not pay much above subsistence. Under this country’s welfare system, it is to the short-term advantage of the poor not to work. However, they, not to mention taxpaying Americans, must bear the brunt of such policies in the long run.

For example, housing projects that seemed clean and bright 20 years ago are dirty and rundown today. Three and four generations of families dependent upon transfer payments like AFDC and food stamps crowd into these tax-supported slums where rates of crime, divorce and teenage pregnancy are at historic highs. On the outside restrictive government policies like minimum wage and licensing prevent many poor persons from moving into entry-level jobs that might promise them a successful future.^[10] In short, the causes of poverty not only remain under the welfare system; they are nurtured by it as well.

An Overwhelming Bloc of Voters

But transfers have not confined their damage to only the poor. As with many other government programs, many middle-class Americans have found their way onto the dole. In fact, if one includes social security as welfare, it can be argued that more transfer and subsidy money actually finds its way to the middle and upper-classes of the United States than to the needy and destitute. After all, the poor may have their housing subsidies in the form of grimy, rundown projects while the middle class receiving government housing money can spend it on a private home or a nice penthouse in a highrise.

The net result of so much federal largess to so many people is that a large political constituency (that votes in great numbers) of persons on the government dole now has a substantial say in the governing of America. In short, the transfer-receiving majority can dictate to the tax-paying minority what kind of benefits it wants and how much is to be paid them.

When Congress first approved transfer payments en masse in the mid-1960s, few of the pro- welfare legislators imagined that transfers would grow to a point of crowding out other priorities in the budget process, like paying for needed road and bridge repair. Transfers were to be a temporary bridge to the Great Society; instead, they have gyrated out of control and their constituency is so strong that it is doubtful American politicians can muster the needed courage to bring them into line.

Social Activism

Spending money in the form of vast transfer payments was not the only high-level strategy in Washington’s poverty war. By organizing the nation’s poor into active political cells, the poverty fighters assumed that poor persons—and especially the blacks—would acquire a new awareness of their social, political and economic “rights” and demand proper treatment from businessmen and politicians. Within a few years of the passage of social legislation like the Civil Rights Act and the Voting Rights Act federal funds found their way into the coffers of such organizations as the Black Panthers and revolutionary factions under the umbrella of the National Council of Churches. At the same time, VISTA “volunteers” (actually they were paid a small stipend) were organizing demonstrations against strip mining in the Kentucky hills while consumer groups and social engineering organizations like Family Planning and Legal Services Corporation, all receiving taxpayer funds, initiated an avalanche of litigation to enlist the court system as the vehicle for changing the “priorities” of this nation.

But, as the census figures point out, poverty is still as prevalent as ever. The Black Panthers may have garnered attention for themselves and the black community they supposedly represented; they may have been successful in providing free breakfasts for black children in Oakland (along with giving them a dose of revolutionary rhetoric); they may have been successful in inciting riots in which people lost their homes, businesses—and some their lives.

But the Panthers, who as an organization deteriorated into a horror story of murders and prison terms,^[11] could not make a real dent into black poverty rates. The problem with their approach—and it is the approach of nearly every left-of-center social organization—is that they view the poor, and especially poor blacks, simply as victims of rich, white male oppressors. Overthrow (or at least inconvenience) the oppressors, and the poor can have the high standard of living that is rightfully theirs.

Yet, when analyzed, the rhetoric of these activists is simply this: ‘°Fake away the wealth of the rich (or, more likely, destroy it) and the poor will have a better standard of living.” But is this logical? Does a society in general become richer when its production of wealth remains static or declines? The obvious reply is no.

Nor did these social activist groups create much wealth on their own, for their efforts were mostly aimed at organizing poor people into a political constituency that would seek benefits from Congress through the transfer process. A few VISTA employees might have painted some houses in the ghetto while some other groups might have taught some illiterate poor persons how to read, but the main thrust of the social activism was to change the U.S. economy from one based on private property and economic freedom to one based upon government fiat. In this, they were partially successful; this “success,” however, failed to lift the poor en masse from their destitution.

The third leg of the Great Society was the passage of numerous laws that would supposedly gain equal social, political and economic opportunities for the poor and minorities. And, in one sense, some of these laws had a minimum of success. For example, the obvious facets of racial discrimination such as segregated restrooms, lunch counters and the like have largely disappeared from the national scene. Those persons who believe in the concept of “created equal,” and desire individual freedom for all, no doubt can be heartened by this fact.

Equal Opportunity Laws

But the flurry of civil rights and equal opportunity legislation also increased the power of the federal government not only over state and local governments but over the individual as well. Property rights, which are an important aspect of an order of political and economic freedom, were targeted as a major stumbling block to equality.

And with the power of the government to interfere with the private property order increased by equal rights legislation, it became easier for other laws restricting one’s property rights to be passed by Congress. For example, in my state of Tennessee a few years ago the federal government deprived numerous landowners of their property rights in order to construct a dam and surrounding industrial park (ostensibly to help the free enterprise system), along with building a planned town from scratch. Nearly five years after completion of the project, and after many of the landowners were either financially ruined or severely inconvenienced by the government’s actions, the lake lies by itself. There is no industrial park and the planned town was abandoned before the first brick was laid. The net cost to both taxpayers and consumers has been calculated in the hundreds of millions of dollars.

Because the lines between property rights and government power were blurred during the Great Society era, fiscal fiascos like the one described above have become commonplace in our nation. Because one group of people may receive certain benefits from government action (in the case above, people in surrounding areas were given a “free” recreational lake) it is assumed that everyone benefits.

That assumption, however, is false. Even in the area of equal opportunity laws, there are winners and losers. Take affirmative action and quota regulations, for example. It is commonly assumed that such laws benefit minorities as a whole, but on closer analysis, it is discovered that while quotas may abound for blacks, Hispanics and women in higher-skilled professions that are highly-visible in our society, they are effectively non-existent in the low-skilled industries. This is not because there is more racial or sex discrimination in those low-skilled occupations, but rather because it is virtually impossible for government bureaucrats to supervise every job opening that occurs in this nation. Affirmative action laws, then, benefit those persons who already have the skills and opportunities to compete for the more visible, higher-paying jobs. Those same laws do nothing for the poor but give empty promises.

And, to study the bottom line in alleviating poverty, the equal opportunity legislation failed to increase overall wealth in this nation. Instead, the laws depended on the wealth- and job- destroying transfer process while providing employment opportunities for middle- and upper- class persons involved in promoting and implementing such laws. When the transfer process failed, all that remained were tax-supported jobs for the rich and despair for the poor.

Conclusion

Since the advent of the Great Society two decades ago, we have seen enough money spent to make every poor man, woman and child in this nation an independently wealthy person, yet poverty remains. We are no closer to abolishing destitution today than when President Johnson told that cheering crowd of Congressmen that he had declared “unconditional war” on poverty.

The collective efforts of millions of poverty fighters and activists and millions of dollars spent failed because the majority of Congressmen and social planners did not understand that poverty is eliminated only when wealth is created, not when it is destroyed. Nor did they understand that people do not rise from poverty en masse. In this century we witnessed the rise of destitute immigrants to a status of wealth in this nation, from the impoverished Scandinavians (like my own ancestors) who came to the Midwest and built great farms and cities to the Jews who at the turn of the century were crowded into the tenement districts of New York City but later built great financial empires, even in the midst of abuse and discrimination. They left poverty not all at once but individual by individual, family by family. There was no poverty program to ease their sufferings (which were many); they had only the right to go into business and make a profit if they could so manage or to work for others at mutually agreed-upon wages.

That story has not changed. George Gilder in his popular Wealth and Poverty points out the paths different immigrant families took in this nation in the past 15 years that led them from being poor to financial security. The vehicle was economic freedom and it is the best anti-poverty program available to the poor today. []

1. One can lay this figure directly at the feet of government, which has undercut job prospects for black youths by minimum wage laws and has driven businesses from the inner city by punitive taxes and regulations.

2. See James B. Reston, “Focus on the Nation,” The World Book Yearbook, 1966, pp. 22-27.

3. Reston, pp. 25-26.

4. All Census material is taken from the Statistical Abstract of the United States—1980.

5. James B. Reston, “Focus on the Nation,” The World Book Yearbook, 1967, p. 22.

6. In this case, economists have neatly inverted cause and effect.

7. Murray N. Rothbard, What Has Government Done to Our Money? (Colorado Springs, 1964), p. 28.

8. Kenneth Y. Tomlinson, “We Can Clean Up the Welfare Mess,” Reader’s Digest, April, 1980, p. 83.

9. See Gary North, “Cut-Throat Opportunities,” The Freeman, June, 1982, pp. 354-356.

10. For more detailed study on this problem, read Walter Williams, The State Against Blacks (McGraw-Hill).

11. For an exposé of Panther violence, see Kate Coleman and Paul Avery, “The Party’s Over,” New Times, July 10, 1978, pp. 22-47.