Institute Notes: A Dialogue on Overcoming Hunger and Poverty

Food Prices, Energy and Fertilizer Efficiency

There’s been a great deal of publicity of late on the increasing conjunction of agriculture and energy – the use of corn for ethanol production has knock-on effects for food costs, with the actual impact of the ethanol mandate accounting for some 20 percent of the recent runup in food costs according to IFPRI, the International Food Policy Research Institute. However, there is another point of commonality between food and fuel, and that is fertilizer. Food prices will only be stabilized and eventually reduced through increased production, and that is heavily dependent on fertilizer use. But while corn has gone from $3.05/bu. to $4.28/bu. between January ’07 and January ’08, fertilizer prices have been increasing even faster: For example, the Arab Gulf price of urea – the most commonly used form of nitrogen fertilizer – went from $272 to $415 per ton over the same period – a 50 percent increase. (The main input for producing urea is natural gas – hence the Arab Gulf base price.) So the increase in energy costs directly affects the costs of producing the food needed the mediate the price increases.

Announcing Half in Ten

The Center for American Progress (CAP) is leading a new campaign to cut poverty in half within ten years. The campaign is called Half in Ten and the frontman for it is none other than John Edwards, former Democratic presidential candidate and senator from North Carolina. Edwards was also the only candidate in both parties to raise poverty to the top of his issues agenda.

The Half-in-Ten campaign is promoting four main solutions:

• Expanding the Earned Income Tax Credit and the Child Tax Credit;
• Raising both state and federal minimum wages;
• Increasing the number of low-income families receiving child care assistance;
• Increasing eligibility for unemployment insurance.

These are spot on and should be on anybody’s list of what to do to reduce poverty. We promoted these policies in Working Harder for Working Families, and I have used this blog recently to write about the importance of the Earned Income Tax Credit and the Child Tax Credit.

Official Aid -- Not the Only Game in Town

A recent article by Raj Desai and Homi Kharas of the Brookings Institution – The New Philanthropy and Development Aid -- serves to highlight some of the complexities and paradoxes of foreign aid in the 21st century. The writers point out that some 800 press credentials were issued for the April 12-13 meeting of the World Bank and IMF, which generated over 400 news articles, while a meeting a few days prior of the Global Philanthropy Forum in California’s Silicon Valley generated no news stories. Yet the amount of aid disbursed by American foundations, charities and philanthropies in 2006 for international causes – $34 billion, all in the form of grants -- is $10 billion greater than the total grant and loan disbursements by the Bank and IMF for that year.

Other studies point out that for the U.S., private philanthropy – i.e., not including remittances and private investment and lending -- surpasses Official Development Assistance (ODA). And while large “mega-charities” like Gates, Ford and Hewlett foundations garner most of the publicity, small foundations actually contribute twice as much and their role is growing more rapidly.

Living on $5 per day or less in the United States

We read stories about people in the developing world living on $1 or $2 a day and it's easy to think that's all happening somewhere else. But there is also extreme poverty in the United States, and I think many Americans would be shocked to learn there are actually families trying to get by on a few dollars per day right here in the United States.

Rebecca Blank, an economist at the University of Michigan and the Brookings Institution, studies this group and has recently published a report highlighting some new and disturbing trends. While this group has always existed, the numbers have been increasing since welfare reform legislation in 1996.

Blank describes these families as "disconnected," and by that she means those in which the parent does not work, or works only a small amount, and the family does not receive cash welfare payments as part of the national welfare program Temporary Assistance to Needy Families (TANF).

Blank's study focuses exclusively on families made up of single mothers. She estimates there are some 2.2 million single mothers, with an average of 1.8 children per mother, or about 4 million children, who are disconnected. The average annual income of this group is between $4,287 and $4,435. Using a simple calculation, I figure that comes to roughly $4 - $5 per day. Three people (single mother, two children), over 365 days, use up $4,435 at a rate of $4 - $5 per day. 

Families this poor are likely to have many problems. Some of the most common are as follows:

• Less education and more learning disabilities
• High levels of past or current levels of substance abuse
• High rates of depression and forms of mental illness as well as more physical health problems
• Young children or larger families and are more likely to be caring for someone with health issues
• A history of domestic violence or violence in a current relationship

The last thing I'm interested in here is assigning responsibility for any of these. The point I want to highlight is the current welfare system does a terrible job in making sure these families get the help they need. These families may be poor for the reasons above, but they are disconnected because the welfare system fails them. Blank explains, "[F]ederal requirements create a strong incentive for states to remove disadvantaged women from their caseload through time limits and sanctions: this may increase the number of disconnected women and their children who face serious poverty."

Welfare reform legislation in 1996 was intended to get welfare-dependent parents into the workforce and begin moving them towards self-sufficiency. For the majority of parents who have been on TANF, it has at least gotten them into the workforce. But for the hardest cases, meaning parents who face the greatest barriers to obtaining or maintaining a job, welfare reform has been a cruel reckoning. As Blank's research shows, this is not an insignificant number of families either. 

The Debtor's Dilemma

Last Saturday I attended a presentation on debt at a church by where I live. A friend of mine is a financial counselor and volunteers to speak at churches, at women's shelters and other venues where people who want professional advice on managing their money can't afford to pay for it.

Debt is a big problem in the United States, and not only at the household level. It's a problem for our government, presently running a record $9 trillion debt. Carrying that much debt makes it hard for government to invest in national assets like infrastructure (remember the bridge that collapsed in Minnesota last year) or our country's most important assets, its people. When individuals carry too much debt, it also makes it difficult to invest in productive assets (e.g. education) that in the long run would increase their economic security and self-sufficiency.

Of course not all debt is bad debt. You can't buy a house without accumulating lots of debt. If you don't have a record of paying down your debts, you have a lot harder time getting credit at reasonable interest rates. To some extent, we all need to carry some amount of debt.

One of the paradoxes about being poor is that you pay more for credit in the form of higher interest rates. When you think about it, if anyone needs credit at low interest it's poor people. Lending to the poor entails more risk to creditors, and this is why the credit industry says they have to charge poor people higher interest. The poor get into trouble paying down debt because that's the nature of being poor, living from paycheck to paycheck. It all seems like a self-fulfilling prophecy if you ask me, but hey I'm just a guy who works at a nonprofit.