I’m listening to some of the lectures within “Modern Economic Issues”, a course by Robert Whaples (to demonstrate my economic skills, I borrowed this from the library rather than paying $270). Lecture 19 talks about poverty statistics and much was new to me. It answers to some extent the question “Why is the poverty rate still so high 50 years after Lyndon Johnson started the War on Poverty?”
It turns out that poverty statistics don’t take into account spending power or consumption. A household is classified as “poor” based on earnings in the labor market. If that household were to receive $10 million in cash from the government every year, e.g., from a turbocharged Earned Income Tax Credit, the millionaires would still be considered “poor”.
How many American households suffer in poverty? It might be twice as many as you think. If a man and a woman live in the same crummy apartment with their two biological children, a layperson would walk by and count one poor household. The expert economists at the Census Bureau, however, upon finding that the man and woman are not married, count two households. The father is one household. The mother and the children are a second household. Both are “living in poverty”. What if the man and woman each had a low-wage job and they were to get married? Now the two “poor” households would become one “not in poverty” household. And although the government would say that these individuals are now much better off, having escaped from official “poverty”, they would in fact have much less spending power because they would suffer at least a 16 percent drop in total income (earned plus government assistance) plus a catastrophic drop in economic welfare if they were to lose eligibility for Medicaid (since private health insurance for a family costs more than an average American’s after-tax wage).
Measured by spending power and consumption, very few of America’s “poor” are poor by European standards. Our poor families enjoy more square feet per person of indoor space than the average for all families in France and Germany. Similarly, car and air conditioner ownership rates among the poor are much higher than among all Americans in the 1970s and oftentimes are above present-day Europeans.
Basically the government agencies responsible for alleviating poverty have set up a statistic that ensures that poverty can never be eliminated.