Review of Twenty-First Century Poverty Trap: The Great Society Promised to End Poverty in America. Here is Why It Did Not Work, and How to Launch the Poor into Middle Incomes, James T. Moodey (CreateSpace Independent Publishing Platform, 2016), 118 pages, ISBN-13: 978-1523213665; $13.95 on Amazon.com
Sometimes, an author spends many pages to say very little about small topics. This book, with a deceptively long title, does the opposite.
James Moodey, an author and former California business owner, covers a wide range of economic and social topics in just over 100 pages, exciting readers with explanations of the true cause of the 2008 financial crisis, the effects of well-intentioned liberal policies on struggling Americans’ everyday lives, and how federal entitlement reforms, such as the promotion of private retirement accounts, can literally save the nation.
On the Shoulders of Giants
Moodey provides a history of the United States’ path to exceptionalism and explains how the nation’s early manufacturers launched the country beyond the European countries from which America descended. For example, Moodey explains how Eli Whitney’s milling machines capitalized on developing the production of replacement parts for machinery.
Cyrus McCormick is known as the inventor of the reaper, but Moodey explains why McCormick’s real gift to the world was the creation of the modern supply chain, sharing his company’s profits with the network of distributors owned by other businessmen.
Andrew Carnegie’s steel empire facilitated the rise of American factories as economic powerhouses, and it led to Henry Ford’s innovative assembly-line and mass-production paradigms.
Past Is Prologue
Twenty-First Century Poverty Trap is not just a trip through modern history viewed through the lens of American economic strength. Moodey’s book explains how the policies enacted in recent decades have hobbled the United States’ power and continue to do so to this day.
Moodey says for the past 80 years, liberal lawmakers have grown to hate our industries and businesses, viewing these institutions as obstacles to helping the needy. Instead of enabling job creation, lawmakers have used laws and regulations to prevent business owners from helping the poor get jobs and sustain themselves through gainful employment.
Show Your Work
One government policy whose flaws Moodey highlights with precise thinking and a concise explanation is the elaborate and expensive web of entitlement spending created by President Franklin Delano Roosevelt, known to many simply as Social Security.
Detailing the point with original research and calculations, Moodey explains why individual private retirement investment plans are empirically better for consumers than redistributing employed people’s tax money to retired individuals.
Using Chile—a country whose national government oversees private retirement investment plans receiving an average annual return of 5 percent—as an example, Moodey demonstrates how a 21-year-old worker starting out with $12,000 in annual earnings and working his or her way up to a $46,000-per-year job by age 65 could end up with $79,000 per year in retirement investment income for the first 20 years after retirement.
This relatively comfortable payout, conducted with realistic private investment strategies, is nearly an order of magnitude more generous than the Social Security program’s payouts.
By allowing people to invest their hard-earned money as they see fit and allowing the free market to work as Chile does, the United States could practically eliminate poverty among the nation’s senior citizens, Moodey says.
History is an excellent guide to explain the causes of today’s problems, and Moodey uses his trim writing style to explain how long-forgotten government mandates bore poisoned fruit in the form of the 2008 financial crisis.
Although Moodey spends only 17 pages on the topic, Twenty-First Century Poverty Trap teaches readers more about economics than entire college courses accomplish. For example, Moodey’s exploration of how government interventions into the economy, such as the Federal National Mortgage Association (Fanny Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), have failed to achieve their stated goals by putting politics before common sense.
Moodey spins a revealing tale of how these two government-sponsored enterprises (GSEs) were created with the stated goal of increasing liquidity in the mortgage market, to make it easier for people to get loans for purchasing housing.
Fannie Mae was established to support large banks offering mortgages, and Freddie Mac was intended to support smaller banks. For a time, Moodey writes, the system worked, but that all changed in the 2000s, when Fannie Mae Chairman Franklin Raines was essentially forced to support providing loans to consumers with lower creditworthiness in response to political pressure to increase homeownership rates.
Predictably, these high-risk individuals did not keep up their payments, because they could not afford them. All of this happened because banks and other mortgage providers, spurred by GSEs and Washington, DC politicians, relaxed their loan standards in order to increase the proportion of minority homeowners. These policies effectively transformed a normal economic downturn into a historic recession.
Covering a wide array of topics both economic and social, Twenty-First Century Poverty Trap is a fascinating tour through American history. It examines the problems of today and boldly identifies the historical root causes and instigators of those problems. After finishing the book, readers will be thirsty to learn more about our nation’s economic and social conditions, and they will be more aware of the deceptions permeating many current political debates.
Jay Lehr, Ph.D. ([email protected]) is science director of The Heartland Institute.