An alien beamed down to Earth, especially to such bastions of global capitalism as London and New York, might be forgiven for thinking that we are in the midst of some sort of a catastrophe.Call it the paradox of western prosperity - as absolute poverty declines, social spending goes up.
Emerging from the New York Subway or London’s Tube, our interplanetary traveler would have to make it past an army of charity workers raising money to house the homeless, save the children, feed the hungry, etc. “Why,” the visitor might wonder, “are so many Earthlings in need of help?”
Logic dictates that, as societies become richer, social spending should decline. Not so in the contemporary West, where social spending increases alongside rising incomes.
In his 2014 paper “Inequality, Mobility, and Being Poor in America," Horwitz found that in 1984, 83 percent of all households in the United States owned a refrigerator. By 2005, 99 percent of poor American households owned a refrigerator. Surely, similar trends can be observed in Great Britain, France, and Germany.On all but one of these indices, the poor in 2005 had more of the item than did the middle class in 1971. The only exception might be the percentage of households with one or more cars and it is a close call based on older data.
Even compared to the middle class in 2005, the poor in 2005 have just about the same consumption of durable goods as the middle class on six of the thirteen items.
That's 2005. In 2017, the numbers are probably even larger. The prosperity surge is even greater than appears at first glance. All these index items are consumer durable goods. The TQM revolution occurred in this era so that the quality of goods in 2005 are dramatically higher than they were in 1971. Goods last longer, function more reliably, require less cost to maintain, and are safer.
For example, in terms of direct transportation quality, there is, in 2017, little difference between a mid-range family sedan and a top end luxury brand. The engine is going to last 250,000 miles and, with regular maintenance, there will be exceptionally few breakdowns. All the differences between the two are consumption differences, luxury if you will. Sound systems, sun roofs, entertainment systems, self-driving features, etc.
So why is it that social spending continues to rise even as everyone becomes better off and materially there is virtually nobody in material poverty? I suspect two reasons. The first is that we do aspire for some level of reasonable equality in material terms and there are seven of those indices where the gap is still large.
A second reason might be that mere consumer durable good ownership is not an adequate measure of poverty. I suspect that there are two elements in play here. If you are in the bottom twenty percentile, your life is both more unstable and more fragile. It is easy for things to go wrong and when they do go wrong, it is harder to bounce back than for someone in the middle.
The second element might have to do with relative control. The more social programs there are to equalize things, the more boundaries there are on those at the bottom. I suspect that there is a reasonable chance that some or many of these well intentioned programs have unintended consequences that might reduce the opportunities to escape poverty. Think of how much easier it is to take out loans for higher education now. On the other hand, those at greatest risk of defaulting on those loans and not completing a degree are the poorest. With a non-forgivable debt and without a degree, they are now in worse position than had they not started a degree program.
So while their material well-being might be improving, perhaps their capacity for escape from poverty has declined and that might be why we are continuing to spend more on social programs.