Things that I did not know about poverty statistics

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.

3 thoughts on “Things that I did not know about poverty statistics

  1. You might also be interested in NPR’s report on Social Security’s disability benefits program. It turns out 14 million Americans (4.5% of the total population) are on the disability program, receiving a minimal income (about $13K/yr) and free health benefits. It’s become the de-facto welfare system in the country.

  2. “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.”

    This argument feels disingenuous. The average temperature in Berlin in summer is in the 70s. The average temperature in New Orleans in summer is in the 90s, with many days breaking 100 degrees F. Of course there is a higher priority placed on getting an air conditioner among many American poor.

    Similarly, if you want to get to your minimum wage job in Europe, you can take their usually quite good public transportation. If you want to get to your job at Walmart in the States, you’ve typically got to drive there. If you want to go to the grocery store and use your food stamps, you’ve got to drive there. A car isn’t a luxury outside of a few major cities, it’s a necessity and a financial burden.

    This is sort of like saying, “There’s no poverty in Siberia! They own a higher number of parkas, per capita, than even the most elite Americans!”

  3. Todd,

    I lived in Germany as an ex-pat. There is no minimum wage in Germany. If you have a labor union behind you, you will be part of a collective bargaining agreement, you will do okay. If you have low skills, don’t speak German very well, you will be stuck in ‘minijobs’ which pay dirt (450 euro/mo when I left).
    If you don’t have a car, you will probably have to buy groceries and everything else from local markets which are very expensive, if they’re even open when you get out of work (stores close at 8 and on Sundays except at train stations). You have more spending power. Now, let’s take Southern Germany and Southern California. If there is a heat wave in Germany, you wait it out. Nobody sells cheap air conditioners, if they did, you couldn’t install it in your apartment. In California, you could just get your EBT card, and as long as you didn’t use an ATM at a strip club or massage parlor, you could withdraw money and drive to Costco or Fry’s and buy a cheap air conditioner. When you plug it in, don’t worry that the cheap model you bought isn’t efficient. Your electrical rates are subsidized. You have more consumption. German beer is better though!

Comments are closed.