Feb 19th 2026|5 min read
Listen to this story
In the mid-1960s President Lyndon Johnson declared “unconditional war on poverty” and created the modern American welfare state. A nationwide programme of food stamps began in 1964. Two big public health-insurance schemes, Medicare (for the old) and Medicaid (for the poor) started in 1965. Over the following decade, welfare payments grew at an annualised rate of more than 15%. Today, one in eight Americans receives food stamps. All in, America’s welfare state offers help worth about 15% of gdp a year.
Conservatives have long argued that Johnson’s programmes were a failure. Funnelling money to the poor, in their telling, blunted the incentive to work, ultimately trapping people in penury. In 1988 President Ronald Reagan argued that “the federal government declared a war on poverty, and poverty won”. Thomas Sowell, a 95-year-old economist at the Hoover Institution and social-media sensation, has argued that programmes created in the name of compassion ended up rewarding behaviour that kept people poor. For a long time most economists dismissed Mr Sowell’s arguments as the ravings of a right-wing ideologue. But on certain points, Mr Sowell is right.
A new paper by Richard Burkhauser, of Cornell University, and Kevin Corinth of the American Enterprise Institute, a free-market think-tank, presents remarkable evidence on trends in poverty since the 1930s. It is the result of dedicated scholarship using data from old censuses to estimate family incomes. Some of the number-crunching is dizzyingly complicated, with the authors totting up monetary values for everything from farm labourers’ room-and-board in 1939 to veterans’ payments in 1959. The paper has two messages—one encouraging and one troubling.
The good news is that America has many fewer poor people than it used to. This overturns the conventional wisdom, derived from the official poverty measure (opm), which in 2024 counted an individual as poor if their income was less than about $16,000 a year. The opm has been more or less constant for 50 years, at around 12% of the population. Right-wing types hold this up as proof that the welfare state creates behavioural pathologies. Left-wingers think it shows that America’s welfare system is insufficiently redistributive. In truth the OPM is flawed: it fails to account for taxes, non-cash handouts and much else.
Messrs Burkhauser and Corinth use a different measure for poverty that accounts for taxes, transfers and some perks. Someone counts as poor if their real income would have ranked them among the poorest 20% of Americans in 1963. Today that would mean earning less than around $12,000 a year. By this standard, 49% of Americans were poor in 1939; by 2023 only 4% were. Include health insurance in the calculation and progress looks even more impressive, with poverty having fallen from an even higher rate in 1939 to just 1.6%.
Perhaps the most heartening figures in the paper concern black children. Going by the authors’ measure, the poverty rate for this group has fallen from more than 90% in 1939 to less than 10% today. A depressing notion often believed on the left—that America is a rich country full of poor people—is simply incorrect.
Johnson’s war on poverty might therefore look like a success. But the second part of the paper questions this conclusion. Was his welfare state necessary, or would poverty have fallen anyway? Mr Sowell has repeatedly argued that the drop began before the mid-1960s. In other words, all that is needed to reduce deprivation is the magic of free-market capitalism.
The paper’s authors show that Mr Sowell is correct on the data, finding that “the pace of poverty reduction was no faster after the War on Poverty was declared than before”. That may be an understatement: from 1939 to 1963 the poverty rate fell by about 29 percentage points. Over the following 60 years it only dropped by around 16 more. Moreover, the authors go on to examine the causes of America’s shrinking cohort of poor people. Before the 1960s, they find, poverty fell because people earned more money, while few got more from the state. None of this is slam-dunk proof that welfare was unnecessary, but it is suggestive.
From the mid-1960s onwards, things changed. Poverty continued to fall, but only because government benefits became more generous. Improvements in market income were far less important. And welfare dependency rose. By the 1970s close to 30% of black Americans were dependent on the government for at least half of their income, for instance. A country that had once enabled its citizens to escape poverty by working hard turned into one that reduced poverty by writing them cheques.
It is possible that growth in market incomes would have stalled after the 1960s regardless of Johnson’s actions. After all, the post-war boom was never going to last for ever. Perhaps, too, some people would never have earned enough to escape poverty, owing to low educational attainment or disability. If so, then a bigger welfare state might have been the only way to keep poverty falling. This conclusion, however, seems too defeatist. After the welfare reforms of the 1990s, both poverty and welfare dependency dropped, with growth in market incomes taking up the slack.
Ultimately, it is impossible to know the counterfactual: what would have happened to poverty if Johnson had never been president. What seems likely, though, is that the war on poverty involved a gigantic trade-off. Trillions of dollars of federal money may have reduced deprivation while also blunting individuals’ incentives to better their own lot. The funds could also have been spent elsewhere—on medical research, for instance. Reasonable people can differ over whether the risks and opportunity cost were worth it. Happily, they will now have many more facts to hand. ■
Subscribers to The Economist can sign up to our Opinion newsletter, which brings together the best of our leaders, columns, guest essays and reader correspondence.
This article appeared in the Finance & economics section of the print edition under the headline “Bureaucrats v bootstraps”
Discover stories from this section and more in the list of contents