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Author Topic: Poverty, taxation, government and the economy
Daruma28
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Interesting analysis of a study...once again, courtesy of QandO.

It speaks directly to the many debates we've already had on the related topic about the huge difference in opinion as to what is or is not effective policy on combating poverty and what is or is not "compassionate" or "caring" about political platforms and support of which model is most effective.

If the study is accurate, than the results are now in, it appears that those of us that advocate smaller government, more free market capitalism as the answer are right, and if we so choose, we can then turn the tables by saying all of you that advocate the DemocratPartyLiberalProgressive of "tax the rich" to pay for the "programs to combat poverty" approach actually encourages poverty.

So if you want to say that I and my like minded libertarian/conservative supporters are "heartless" or "uncaring" or "selfish" or "greedy" for wanting to get rid of government programs...it is YOU who is actually encouraging poverty by your well-intentioned but, now proven failure of a political platform.

Nevertheless, I bring this to your attention so that we can have an open and honest debate on the topic...so please...PLEASE...if you disagree or find fault with the study, it's conclusions or methodology, please stick to relevant criticism's of the study, rather than what one recent troll has done and resort to simply attacking the messenger rather than seriously debating the message.

From the Goldwater Institute:

How to Win the War on Poverty: An Analysis of State Poverty Trends

quote:
In modern politics, many believe that the government plays the role of Robin Hood. Th rough progressive taxation and spending, proponents believe that government reduces poverty while making everyone pay their fair share. The pages that follow will empirically evaluate the effectiveness of state government as Robin Hood.

In the mid-1990s, the federal government eliminated the largest welfare program, replacing it with a system of block grants to the states. In essence, the federal government admitted its failure in administering welfare and looked
to the states to serve as “laboratories of reform” in the effort to reduce welfare and poverty. The results have exceeded proponents’ hopes.

Likewise, states also serve as laboratories of democracy in fiscal policy. Some states maintain relatively low levels of taxation and spending, while others have much larger and ambitious state governments. Empirical evidence indicates
that these varying policies have had real, measurable impacts on state poverty rates. Nationwide, both general and childhood poverty rates dropped during the 1990s. Some states reduced poverty much more than others did; however, there are other states that in fact suff ered increases in poverty rates during the 1990s, despite the booming national economy and the general success of welfare reform.

Myriad individual-level and state policy decisions infl uence the number of people living below the poverty line in a given state. Nevertheless, this paper addresses the broad question: which are better at reducing poverty⎯biggovernment
states or small-government states?

Using data from the U.S. Census Bureau, the pages that follow demonstrate that low-tax and -spending states enjoyed sizable decreases in poverty rates during the 1990s. High-tax and -spending states, meanwhile, suffered increases in poverty rates. This study grades each state with regard to reducing both general and childhood poverty
rates during the 1990s.

Private-sector job growth is the most eff ective antipoverty program. Citizens and policymakers who seek to reduce poverty and improve the lot of the poor should embrace policies promoting as much private-sector growth as possible.


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DonaldD
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The messenger is full of cr@p!

(sorry, I couldn't resist) [Wink]

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Daruma28
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vapid, shameful, red herring, ad hominem, fallacy , vapid!

[LOL]

[ December 15, 2006, 06:20 PM: Message edited by: Daruma28 ]

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kenmeer livermaile
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In necessarily that order!!!

For what it's worth, I don't much identify with the DemocratPartyLiberalProgressive of "tax the rich" to pay for the "programs to combat poverty" bubble.

I think it's sad that the whole government finance/social infrastructure is shoved through this dichotomy of small government-low taxes/big government-high taxes. I suspect that this century will see far more creative syntheses of these and other models for enhancing prospects for opportunity and maximizing access and level of benefits to the broadest spectrum of society's members.

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DonaldD
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Isn't it nice that, every once in a while, something comes along (even 2 things!) to so unite the board, crossing political divides, that even Daruma and I can agree on something (heck even throw in Everard, Adam and EDanaII for good measure)

It does bring a tear to my eye... sniff.

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kenmeer livermaile
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Drinks on me!!!
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Tom Curtis
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Looking at this study, it is obviously of the type intended for propoganda rather than serious analysis. I say that because it uses such loose, shoddy statistical methods. No where can we find a calculated correlation between state taxation and poverty rates. We can't even find a calculated correlation between poverty rates and state taxation rankings. Nor can we find any statements about statistical significance, or variance.

Instead of these accurate, informative measures which should be calculable by any economist, we just have a comparison of the reduction in poverty rate amongst the ten worst, and ten best states by taxation ranking. (We are not even informed of the actual ranking, just which states lie within the top and bottom ten.) For all we know from this article, the difference in taxation rates may be as little as 1 or 2%. We don't know enough to know whether it is consequential or not.

What is more, if look closely at the state data, you find that of the ten states that gained the most improvement in poverty rates, only three (bold) are among the 10 least taxing states. One of them is amongst the 10 most taxing states (italics).

  • Minnesota -22.5 A+
  • Mississippi -21.0 A+
  • Iowa -20.9 A
  • Colorado -20.5 A
  • Michigan -19.8 A
  • Wisconsin -18.7 A
  • Utah -17.5 A
  • North Dakota -17.4 A
  • Arkansas -17.3 A
  • South Dakota -17.0 A

That hardly presents a case that low taxation is the key to poverty reduction. Rather, it suggests that other factors are as important, or more important in reducing poverty.

The case is better if we look at the ten worst performing states, of which five are amongst the highest taxing. But never-the-less, the strength of the apparent argument in this study lies in the way the data is presented rather than the data itself.

  • New Jersey -2.0 D
  • Wyoming -0.6 D
  • Delaware -0.5 D
  • New Hampshire 5.2 F+
  • Nevada 5.4 F+
  • New York 5.5 F
  • Alaska 7.1 F
  • California 7.4 F
  • Hawaii 22.5 F
  • Rhode Island 26.6 F

You still might think the study shows that, while possibly not the most important factor, tax rates are a factor in poverty reduction. In fact, the data might support that, but we don't know. To find out you need to do a correlation between state taxation rates, and reduction in poverty levels; a similar correlation for other factors; and then produce a weighted correlation to see the effect of taxation rates once the effect of the other major factors have been eliminated. No such work is done in this study.

Rather than do the hard statistical work, the authors merely pick some data which might suport their case, present it selectively. Laughably, they then say that this study should actually be a guide to policy makers. (I suspect such an effect might still survive proper analysis. I also believe it would be entirely the product of capital flight, proof that mobile, large concentrations of capital can be used to black mail governments into policies that are not in the long term interests of their citizens more than anything else.)

Anybody prepared to be as cavalier with statistics as has the author of this study could simply point to the far more rapid decline in poverty rates from 1948 to 1978, when overall taxation burdens were steadilly increasing, as proof that welfare programs work. If glib interpretations are in vogue, then the national data shows that decreasing taxation rates with reduced poverty reduction measures reduces the rate at which economic growth is turned into a reduction in poverty.

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Godot
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Wow Tom!

Makes me wish I paid more attention in my statistics class.

My main quibbles with the argument put forth by the article is that:

(A) even if they could prove a correlation between low taxes and low poverty, there may be other factors involved in the reduction of poverty, and,

(B) (I only had time to skim the article so flame me if it's deserved) I saw no mention of the amount of tax money per capita that was spent in each state.

Admittedly, my statistical skills are... let's just charitably say, low, so my benefit to this discussion may be of an equal scale but this thread raises an important question about how best to address the issue of helping those in our society most in need.

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Automath
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I've always been under the impression that trade, not the level of taxation, is the main cause of poverty reduction. Look at France for instance. Trade liberalisation in Asia.

[ December 16, 2006, 12:20 PM: Message edited by: Automath ]

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Daruma28
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Funny Tom, how you picked and chose your arguments to try and discredit the study because you disagree with it's premise.

One PART of the study was on tax rates, but that was not the sole point of the study. You didn't even mention the other part: GOVERNMENT SPENDING TO REDUCE POVERTY.

quote:

Although there are doubtlessly some
who benefit from high state government
spending, the poor do not seem to be among
them. The 10 states with the lowest per
capita spending enjoyed a sizable reduction
in overall poverty rates, approaching twice
the national average. However, the top
10 big spenders not only failed to reduce
poverty rates, but they actually suffered
an increase in poverty rates of 7.3 percent.

Often, advocates justify high government spending on behalf of children. In Arizona, for example, the Children’s Action Alliance implicitly
imbeds this theory directly into the name
of its organization. The Children’s Action
Alliance opposes cuts in Arizona taxes and
favors increased state spending as a part of its
stated mission to promote “the well-being
of all of Arizona’s families and children.”

It is hard to imagine anyone disagreeing with the goal of promoting the well-being of children and families. The advocated means to achieving the
goal, however, seem quite suspect. Figure
3 examines childhood poverty rates
between states for the 1990-2000 period,
again comparing the 10 highest-spending
states with the 10 lowest-spending states.
As Figure 3 demonstrates, low-spending
states experienced substantial declines in
childhood poverty rates. Meanwhile, the
highest spending states suffered an actual
increase in childhood poverty. During this
period, the average state saw childhood
poverty decline by 8.4 percent, but in the 10
highest-spending states, childhood poverty
increased by 4.5 percent. Meanwhile, the
average reduction in childhood poverty
in the states with the lowest state and
local spending per capita was 45 percent
greater than the average state’s spending.

Does it follow then that state
government spending directly causes
poverty? Not necessarily. Government
spending ultimately derives from taxes. The
American federal system presents a variety
of choices for individuals and businesses
in terms of where they wish to live and
do business. States with relatively high
tax rates suffer greatly from the process of
emigration...that is, people and businesses
leave high-tax states for low-tax states.

I don't see anything wrong with comparing the top 10 states that spend the most on poverty programs versus the bottom 10 in spending, and than actually comparing how effective they were in actually reducing poverty.

Perhaps the study doesn't go out of it's way to show the link between correlation and causation...but than, in my book, they don't have to.

Why?

Because the tax and spend policies that Politicians always campaign and sell their programs to the masses always CLAIM to be the answer to poverty.

So when a state implements high taxes and spend liberally on programs that are supposed to reduce poverty..and poverty actually INCREASES, it's quite obvious that the policies are not working.

So split hairs all you want, or talk about other statistics that were not addressed in the report or not, the fact remains: the top 10 states in terms of spending on programs to "fight poverty" actually overall fail miserably in achieving the supposed goals, which should lead people to question the assumptions behind the tax and spend policies in the first place.

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MattP
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quote:
So split hairs all you want, or talk about other statistics that were not addressed in the report or not, the fact remains: the top 10 states in terms of spending on programs to "fight poverty" actually overall fail miserably in achieving the supposed goals, which should lead people to question the assumptions behind the tax and spend policies in the first place.
Or maybe poverty in those areas would be much much worse without these programs.

It's like the old argument that police don't reduce crime based on the fact that Los Angeles has more police than most cities AND more crime. Since they spend more money on police than most other cities, and yet still have a higher crime rate, their "hire and patrol" policies are obviously failing.

The study doesn't really tell us anything.

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LetterRip
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I haven't had time to look at the paper, might have time later this week... will give some comments then...

LetterRip

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Adam Masterman
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Thank you, Matt, I was just about to point that out. In my experience it is the most common form of logical fallacy: thinking that correlation equal causation. Rape and ice cream, people! (google it)

Adam

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Tom Curtis
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Daruma:
quote:
Funny Tom, how you picked and chose your arguments to try and discredit the study because you disagree with it's premise.

One PART of the study was on tax rates, but that was not the sole point of the study. You didn't even mention the other part: GOVERNMENT SPENDING TO REDUCE POVERTY.

Funny? Well certainly not as laughable as your attempt to evade my critique. Afterall, it was not necessary to pick apart every figure mentioned to show that as a study, this study is pathetic. I could as easilly have, as you suggest, pointed out that if you compare the ten best and ten worst states at poverty reduction, only two of the lowest spending states (bold) are top performers, with one of the ten lowest spending states being one of the ten worst at poverty reduction. Again the case is better for the argument if you look at the worst performed states at poverty reduction, with seven out of ten also being amongst the top ten spenders (italics). But this is still sufficient to show that statistically, this study is a joke.

With regard to your accusation that I was selective in which sections of the study to critique, this shows that on the contrary, while I did not critique the entire study, the flaws I pointed to were typical. They are to be found in the analyses which I did not study, as much as in those I did.

  • Minnesota -22.5 A+
  • Mississippi -21.0 A+
  • Iowa -20.9 A
  • Colorado -20.5 A
  • Michigan -19.8 A
  • Wisconsin -18.7 A
  • Utah -17.5 A
  • North Dakota -17.4 A
  • Arkansas -17.3 A
  • South Dakota -17.0 A

  • New Jersey -2.0 D
  • Wyoming -0.6 D
  • Delaware -0.5 D
  • New Hampshire 5.2 F+
  • Nevada 5.4 F+
  • New York 5.5 F
  • Alaska 7.1 F
  • California 7.4 F
  • Hawaii 22.5 F
  • Rhode Island 26.6 F

Of course, I could not expect you to have realised that. Apparently you could not bother noticing that they analyse the top and bottom 10 spending states; not as you claim the states with the top and bottom expenditures on poverty reduction. What portion of each states expenditure goes on poverty reduction, we are not informed. We are also not informed if the change in Federal policy has also resulted in a change in Federal funding within each state for poverty reduction (surely a germain point).

Were you into a considered analysis of the article (rather than its use as intended, ie, as propoganda) it would scarely have escaped your notice that the average poverty reduction for the middle 30 states (those with neither high, nor low expenditure) was 12.53 percent, 1.33% better than the ten least spending states. In other words, the data does not support the notion that having a low government expenditure helps reduce poverty. Of course, we would not expect the Goldwater Institute's selective analysis to point that out.

A further example of selective analysis is the comparison of Texas with Hawaii. Both these states suffered major economic blows from external causes in the lead up to the study. The studies authors use Texas (which did well) to argue that the economic downturn in Hawaii is not the relevant factor in its extremely poor performance. The neglect to point out that the impact of Texas' economic blow would have given Texas an enhanced poverty level at the start of the study, while Hawaii, just exiting a boom, would have a reduced poverty level compared to normal years at the start of the study.

Any meaningfull comparison between Texas and Hawaii would compare their poverty levels at standard time intervals before and after their respective down turns. That is very basic stuff. What this study does is equivalent to comparing the employment growth of one state between 1930 and 1940 (ie, starting one year after an economic downturn) with that of another state from 1933 to 1943 (ie, starting four years after an economic downturn). Look at this graph to see what a difference that makes. IMO, no competent economist could honestly make this mistake. That is because it is such a basic consideration.

quote:
Perhaps the study doesn't go out of it's way to show the link between correlation and causation...but than, in my book, they don't have to.

Why?

Because the tax and spend policies that Politicians always campaign and sell their programs to the masses always CLAIM to be the answer to poverty.

So when a state implements high taxes and spend liberally on programs that are supposed to reduce poverty..and poverty actually INCREASES, it's quite obvious that the policies are not working.

Again, it is quite possible that a detailed study would show this effect. However, it is not at all clear why. The pattern evident in the data suggests that a major cause of increased poverty in high taxing states is capital flight. That being the case, it tells us nothing about the best tactic for reducing poverty. If a company flees one state, with consequent increase in unemployment and poverty, and sets up in another, with consequent increase in employemnt and reduction in poverty; then nationaly poverty reduction has made no gains. If this is the cause of the effect shown, then it shows the disadvantage of competitive federalism in economic affairs rather than the advantage of low taxation regimes in fighting poverty.

Finally, in introducing this topic you asked for an open and honest debate targeting the studies methodology and conclusions. That is exactly what I provided. Rather than take that on board, or seek supporting data, you immediately resorted to an ad hominen. I think that is rather telling.

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Daruma28
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quote:
Again, it is quite possible that a detailed study would show this effect. However, it is not at all clear why. The pattern evident in the data suggests that a major cause of increased poverty in high taxing states is capital flight. That being the case, it tells us nothing about the best tactic for reducing poverty. If a company flees one state, with consequent increase in unemployment and poverty, and sets up in another, with consequent increase in employemnt and reduction in poverty; then nationaly poverty reduction has made no gains.
But is that not the entire point of the study? To compare States to each other and NOT the "national poverty level?" Doesn't this in fact make the very point the study is trying to make? That one State raising taxes to spend on poverty programs causes capital flight which is much more detrimental to fighting poverty than if they were to simply lower the tax burden and encourage capital investment?

quote:
Finally, in introducing this topic you asked for an open and honest debate targeting the studies methodology and conclusions. That is exactly what I provided. Rather than take that on board, or seek supporting data, you immediately resorted to an ad hominen. I think that is rather telling.
I concede this point and apologize for doing to you what I asked others not to do. Let's just say I was in a rather combative mood due to matters in real life when I read your response, and I reacted unreasonbly when you in fact acted exactly as I requested.
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Tom Curtis
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quote:
But is that not the entire point of the study? To compare States to each other and NOT the "national poverty level?" Doesn't this in fact make the very point the study is trying to make? That one State raising taxes to spend on poverty programs causes capital flight which is much more detrimental to fighting poverty than if they were to simply lower the tax burden and encourage capital investment?
No, the entire point of the study is to show that private sector driven economic growth is the best means to combat poverty. If that effect were just the consequence of capital flight, then their point would remain unproven. To see this, consider the consequences if all states were to lower taxes to the same level, or raise them to the same level. If capital flight were the reason for increased poverty, then if all states had the same tax rate there would be no flight, and no consequent increase of poverty. In other words, there would be no reason to preffer the low tax to the high tax if all states adopted the same rate.

What Matthew Ladner is trying to convince you of is that all states reducing taxes would be a good thing. As such, the effects of capital flight constitute noise which disguise the genuine effects of the two alternatives he wishes to compare.

quote:
I concede this point and apologize for doing to you what I asked others not to do. Let's just say I was in a rather combative mood due to matters in real life when I read your response, and I reacted unreasonbly when you in fact acted exactly as I requested.
No worries. We all make mistakes, me probably more than most [Wink]
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Tom Curtis
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Daruma:

quote:
So split hairs all you want, or talk about other statistics that were not addressed in the report or not, the fact remains: the top 10 states in terms of spending on programs to "fight poverty" actually overall fail miserably in achieving the supposed goals, which should lead people to question the assumptions behind the tax and spend policies in the first place.
I want to return to this comment because it is, I believe, clearly inconsistent. It is inconsistent in that, if a similarly flawed study was presented as evidence in the opposite direction, you would dismiss it (IMO, rightly) because of the very types of flaws that I have pointed out in this one, and which you have dismissed as "hair splitting".

Of course, I don't have to conjecture about this. Here is a study which does purport to show the opposite, ie, that high social spending is the best path to poverty reduction. Rather than studying US states, this one studies OECD nations, and finds emphatically that low government expenditure is the route to high childhood poverty.

In many respects, this study is superior to the one you have cited. In particular, it does not just study one parameter as it effects poverty, but several. What is more, it shows graphically the entire data set that it uses.

Never-the-less, I still consider this "study" to be directed more at "propoganda rather than serious analysis". It does not tabulate the data, and hence give the reader access to the base data in its most accurate form. It does not calculate the correlation between variables which are depicted graphically, nor indicate the slope nor quality of fit of the best fit curves on the data. Most tellingly, it does not provide an analysis of correlation with 'absolute poverty' for comparison with the analyses using 'relative poverty'. As such, it is more usefull for PR than policy.

Despite this, it does show graphically a strong corelation between poverty and the proportion of full time wages lower than 2/3rds of median annual income (Figure 7), and a (not quite so) strong negative correlation between Social expenditure and child poverty (Figure 8). Unlike the Goldwater study, these are actual correlations. Nations with high social expenditures have low childhood poverty. Nations with middling social expenditures have middling childhood poverty. Nations with low social expenditures have low childhood poverty.

Despite this, and despite the fact that this study is more thorough than the one you presented, I do not doubt that you will dismiss its conclusions. You will be right to do so because the level of analysis is not sufficient to support the conclusions (though I suspect it is far more likely to do so in this case, if carried through rigourously).

In fact, I'll see your one study, and raise you another. This is a follow on study, ten years later than the first, and it draws similar conclusions (and has similar methodological flaws). None-the-less, it correctly shows that:

quote:
It is immediately obvious that the greater the proportion of GDP devoted to these purposes the lower the risk of growing up in poverty. No OECD country devoting 10 per
cent or more of GDP to social spending, so defined, has a child poverty rate higher than 10 per cent. And no country devoting less than 5 per cent of GDP to such benefits has a child poverty rate of less than 15 per cent. (The exception is Japan, where the transfers are in practice likely to be considerably higher as social support is in some cases provided by employers.)

(See Figure 10)

Feel free to reject that conclusion. The study is nowhere near rigourous to sustain it. It is at best suggestive (despite, again, being methodologically superior to the Goldwater study). But you should at least be aware that when you are influenced by the Goldwater study, and reject the UNICEF studies, you are doing so because they suite, or do not suite your ideological proclivities.

The simple fact is that the methodological flaws of the Goldwater study are so great that, as evidence, they are not better than anecdote. It's great for pegging prejudices on, but not suitable for serious analysis. Of course, the same, though less so, is true of the UNICEF studies.

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TomDavidson
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quote:
That one State raising taxes to spend on poverty programs causes capital flight which is much more detrimental to fighting poverty than if they were to simply lower the tax burden and encourage capital investment?
One thing worth noting, speaking as someone living in Wisconsin, is that as the state has cut programs in response to our governor's desperate attempt to respond to federal funding cuts, our poor -- suddenly no longer able to stay in shelters for more than two days a week, get more than five meals a week at soup kitchens, etc. -- are moving elsewhere. If the study addressed mobility, I didn't see it.

And if they didn't, they're going to have methodology problems -- because certainly those states with the fewest social programs for the poor are going to be less attractive places for the poor to live.

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