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Posts tagged ‘relative poverty’

What does it mean to be poor in America?

There are many ways of defining poverty. For most of recorded history, man’s basic needs were food, clothing and shelter. In recent generations, we have included access to clean water, sanitation, health care and education. Poverty can also mean a relative lack of material goods or money, so that in every “free society” (where inequality in income to some extent reflects inequality in ability and effort)  some portion of the population will be considered poor.

We can also define poverty in overtly economic terms. The federal poverty threshold is $11,722 in annual income for an individual, and $23,497 for a family of four, which is about 44% of mean income for an individual and 30% of the mean for a family of four. The economic definition of poverty has changed over time, but real wage growth in the 1960s caused the poverty rate to fall from about 20% in the 1950s to around 15% of our citizens today.

A hundred years ago, having enough food to eat meant that you weren’t poor in most places. In most wealthy countries, death by starvation is already very rare. Poor Americans today are not likely to be starving, though malnutrition remains a scourge. Many live in households that have a refrigerator, a washing machine, a high definition TV with cable , an XBox and a cellular phone. In fact, the electronic gadgets used by our poor are not substantially different than those employed by the wealthiest Americans. Overall, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past despite growing income disparities between the wealthy and the poor.

The inflation-adjusted hourly wage hasn’t changed much in 50 years. Still, it is unlikely that an average American, even one living in poverty, would trade his wages and benefits in 2013—along with access to the most affordable food, appliances, clothing and cars in history, plus today’s cornucopia of modern electronic goods—for the same real wages but with much lower benefits in the 1950s or 1970s, along with those era’s higher prices, more limited selection, and inferior products.

Is it better to be poor here than elsewhere?

Poverty tends to be defined in the relative sense. The poorest 5-10% of a population would probably be considered poor in any society, but to the extent that “fairness” in a society is defined as less disparity between rich and poor, a higher percent of US citizens would be considered poor than in most other developed countries. The OECD, a rich-country club, provides comparative figures for a poverty line of 40% of median household income after tax and transfer. On that basis America’s rate is 11%, well above the OECD average of 6%.

Another way to define poverty is in an absolute sense rather than a relative one. The World Bank estimates that “extreme absolute poverty” is living on somewhere between $1-2/day/person depending on where one lives. Few Americans are this unfortunate, but something like 20% of the world’s population are subject to these conditions, so most poor Americans could be considered “not poor” in most of the world.

Are federal anti-poverty programs working?

Federal programs to reduce poverty in America trace their origins to FDR and the New Deal in the 1930s, though what most Americans would identify as specific anti-poverty programs were begun in 1964 with LBJ’s Economic Opportunity Act which came to be known as the “war on poverty”. Today, there are more than 120 different federal anti-poverty programs. The major ones are Medicaid, unemployment insurance, food stamps and welfare, ans our government spends about as much on these programs as it does on defense. And yet, almost 50 years later, and despite about $13 trillion dollars spent, the rate of poverty and the total number of Americans living in poverty has not been significantly reduced.

“…the federal government spent more than $591 billion in 2009 on means-tested or anti-poverty programs, and will undoubtedly spend even more this year. That amounts to $14,849 for every poor man, woman and child in America. Given that the poverty line is just $10,830 (in 2009), we could have mailed every poor person in America a check big enough to lift them out of poverty – and still saved money.”  M.D.Tanner, NY Times, 9/16/2010

In general, the liberal left’s approach to social policy is to shield people from the American economy, while conservatives’ approach must be to enable them to enjoy its benefits—to enable people to move up rather than to make them more secure in poverty. Some call for a wholesale rethinking of antipoverty programs.

“The bottom 20% in America are not stuck because their welfare support is insufficient. It is because these cultural institutions are not helping them lead the lives they deserve. Volumes of research have shown that Great Society welfare policies—such as public housing and aid to families with dependent children—fueled family dissolution, community fragmentation, generational joblessness and government dependency. Many … welfare and redistribution policies are encouraging a return to these conditions.” Arthur Brooks, WSJ, 10/8/12

Some might argue that one of the causes of persistently large numbers of Americans living in poverty is that economic mobility constantly moves some of our citizens out of poverty even as others descend into poverty from the middle class. This notion of being able to move from rags to riches in a generation is a fundamental plank of the American Dream. Unfortunately, Americans’ perceptions about their likelihood of changing position in the income distribution may be exaggerated. Those within the three middle quintiles (the middle class) will, statistically, experience some economic mobility. But according to a study by the Pew Economic Mobility Project, 43 percent of children whose parents were born in the bottom quintile remained at the bottom when they became adults. In contrast, 40 percent of children born to parents at the top quintile were also at the top as adults. The study compared inter-generational mobility rates between 1984 to 1994 and 1994 to 2004. In addition, contrary to public perceptions, social mobility in the US is less than in Europe.

What to do?

As a nation, it is dangerous to our social fabric to have created a semi-permanent underclass living in poverty. Spending more on poverty programs does not appear realistic now, especially in fiscally austere times. We need to make sure the programs we do have create incentives to replace handouts with wages, even as we strive to close the opportunity gap through better education for all. The best solutions are complex and to be found through a mix of policies including education reforms and revamping the tax code.

Most Americans, regardless of their political leanings, desire a strong safety net for all citizens. Americans living in poverty do not have comfortable or easy lives, and taking advantage of available programs is incredibly time consuming, even as it is dispiriting. Permanent solutions are to be found not in more funding or more programs, but from economic growth that fuels demand for more employees at higher real wages.