Government also provides many kinds of help to businesses and individuals. It offers low-interest loans and
technical assistance to small businesses, and it provides loans to help students attend college.
Government-sponsored enterprises buy home mortgages from lenders and turn them into securities that can be
bought and sold by investors, thereby encouraging home lending. Government also actively promotes exports and
seeks to prevent foreign countries from maintaining trade barriers that restrict imports.
Government supports individuals who cannot adequately care for themselves. Social
Security, which is financed by a tax on employers and employees, accounts for the largest portion of Americans'
retirement income. The Medicare program pays for many of the medical costs of the elderly. The Medicaid program
finances medical care for low-income families. In many states, government maintains institutions for the mentally
ill or people with severe disabilities. The federal government provides Food Stamps to help poor families obtain
food, and the federal and state governments jointly provide welfare grants to support low-income parents with
Many of these programs, including Social Security, trace their roots to the "New
Deal" programs of Franklin D. Roosevelt, who served as the U.S. president from 1933 to 1945. Key to Roosevelt's
reforms was a belief that poverty usually resulted from social and economic causes rather than from failed personal
morals. This view repudiated a common notion whose roots lay in New England Puritanism that success was a sign of
God's favor and failure a sign of God's displeasure. This was an important transformation in American social and
economic thought. Even today, however, echoes of the older notions are still heard in debates around certain
issues, especially welfare.
Many other assistance programs for individuals and families, including Medicare and
Medicaid, were begun in the 1960s during President Lyndon Johnson's (1963-1969) "War on Poverty." Although some of
these programs encountered financial difficulties in the 1990s and various reforms were proposed, they continued to
have strong support from both of the United States' major political parties. Critics argued, however, that
providing welfare to unemployed but healthy individuals actually created dependency rather than solving problems.
Welfare reform legislation enacted in 1996 under President Bill Clinton (1993-2001) requires people to work as a
condition of receiving benefits and imposes limits on how long individuals may receive payments.
Americans are proud of their economic system, believing it provides opportunities for all citizens
to have good lives. Their faith is clouded, however, by the fact that poverty persists in many parts of the
country. Government anti-poverty efforts have made some progress but have not eradicated the problem. Similarly,
periods of strong economic growth, which bring more jobs and higher wages, have helped reduce poverty but have not
eliminated it entirely.
The federal government defines a minimum amount of income necessary for basic
maintenance of a family of four. This amount may fluctuate depending on the cost of living and the location of the
family. In 1998, a family of four with an annual income below $16,530 was classified as living in poverty.
The percentage of people living below the poverty level dropped from 22.4 percent in
1959 to 11.4 percent in 1978. But since then, it has fluctuated in a fairly narrow range. In 1998, it stood at 12.7
percent. What is more, the overall figures mask much more severe
pockets of poverty. In 1998, more than one-quarter of all African-Americans (26.1 percent) lived in poverty; though
distressingly high, that figure did represent an improvement from 1979, when 31 percent of blacks were officially
classified as poor, and it was the lowest poverty rate for this group since 1959. Families headed by single mothers
are particularly susceptible to poverty. Partly as a result of this phenomenon, almost one in five children (18.9
percent) was poor in 1997. The poverty rate was 36.7 percent among African-American children and 34.4 percent among
Some analysts have suggested that the official poverty figures overstate the real
extent of poverty because they measure only cash income and exclude certain government assistance programs such as
Food Stamps, health care, and public housing. Others point out, however, that these programs rarely cover all of a
family's food or health care needs and that there is a shortage of public housing. Some argue that even families
whose incomes are above the official poverty level sometimes go hungry, skimping on food to pay for such things as
housing, medical care, and clothing. Still others point out that people at the poverty level sometimes receive cash
income from casual work and in the "underground" sector of the economy, which is never recorded in official
In any event, it is clear that the American economic system does not apportion its
rewards equally. In 1997, the wealthiest one-fifth of American families accounted for 47.2 percent of the nation's
income, according to the Economic Policy Institute, a Washington-based research organization. In contrast, the
poorest one-fifth earned just 4.2 percent of the nation's income, and the poorest 40 percent accounted for only 14
percent of income.
Despite the generally prosperous American economy as a whole, concerns about
inequality continued during the 1980s and 1990s. Increasing global competition threatened workers in many
traditional manufacturing industries, and their wages stagnated. At the same time, the federal government edged
away from tax policies that sought to favor lower-income families at the expense of wealthier ones, and it also cut
spending on a number of domestic social programs intended to help the disadvantaged. Meanwhile, wealthier families
reaped most of the gains from the booming stock market.
In the late 1990s, there were some signs these patterns were reversing, as wage gains
accelerated -- especially among poorer workers. But at the end of the decade, it was still too early to determine
whether this trend would continue.