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How high is the U.S. poverty rate?
Here is some wisdom, from the non-libertarian, non-right-wing, never-asked-to-contribute-to-the-WSJ-Op-Ed-page Lane Kenworthy:
Poverty comparisons across affluent nations typically use a “relative” measure of poverty. For each country the poverty line — the amount of income below which a household is defined as poor — is set at 50% (sometimes 60%) of that country’s median income. In a country with a high median, such as the United States, the poverty line thus will be comparatively high, making a high poverty rate more likely...
Using a relative measure, the U.S. poverty rate is higher than Romania’s and only slightly lower than Mexico’s (see here). Similarly, Mississippi’s relative poverty rate is the same as Connecticut’s.
So when you hear that the U.S. poverty rate is about 20 percent, keep this in mind. Here is more, including links to research. Here is a response from Paul Krugman. Note that Krugman's initial Op-Ed stresses how the measured rate has not fallen over (some periods of) time, but his response simply cites a ranking of the U.S. among other wealthy nations, based on an absolute poverty rate. Have the time series comparisons been jettisoned or should we stand by them?
Here is more useful information. It's also worth noting that poverty rate numbers do not take into account food stamps, housing subsidies, the Earned Income Tax Credit, and Medicaid, among other benefits. Not to mention black market income and underreported income (often for EITC reasons); yes it is worth referring back to consumption data which show that the poor do quite a bit better than income data alone would indicate. That said, a very good case can be made that we overinvest in fighting the poverty of the elderly and underinvest in fighting the poverty of children.
The bottom line: Be very suspicious when you hear talk about the poverty rate. The real question, as stressed by James Heckman, is what rate of return we can hope to achieve from feasible interventions in favor of poor, young children. That's a much harder question to argue. Heckman of course finds a high rate of return, so I suspect the key question centers around what is "feasible" given the imperfections of politics. It's worth noting that many federal anti-poverty programs have in fact failed, or so changed that we don't even call them anti-poverty programs any more. At the end of the day that calls for "better action" rather than inaction, but softening people up with overly pessimistic and uncritically presented numbers will probably make a good program less rather than more likely.
Posted by Tyler Cowen on February 21, 2008 at 06:08 AM in Data Source | Permalink
Comments
There is nowhere in Finland that comes close in terms of poverty to the poorest areas of the US. The daycares and schools in the worst areas here are just fine and you never feel scared. Everyone can meet their basic needs (flat, food, healthcare etc) and even the drunks seem to do okay. One reason is that Finland does not allow the ghettoisation of poor areas. They tend to plonk quite a bit of public housing in with the wealthier areas, which I think has a moderating effect.
Posted by: Finnsense at Feb 21, 2008 6:59:17 AM
'Relative' measures of poverty are no surprise. If a loaf of bread costs $2 one place, and $1 in another place, then being 'in poverty' is different in the two places. Taking into account the cost of living in different places is the only accurate way to measure poverty.
It's also worth noting that the article cited by Steve Kraus is calling for a relative measure of poverty. Such a measure would probably revise the estimate of poverty rates in the U.S. *upward* - because of the subsidies to food production, and the relative increases in other expenses (especially housing). And the author concludes, tellingly:
"A recent long-term study of Head Start, which began in 1964, as one of the original 'war on poverty' initiatives, found that poor children who participated in the program were more likely to finish high school and less likely to be arrested for committing crimes than those who did not."
Too bad any effort to reduce poverty has essentially been abandoned over the last eight years.
Posted by: Stephen Downes at Feb 21, 2008 7:19:56 AM
I absolutely agree that a poverty rate based on an arbitrary fraction of median income is BS.
On the other hand, a number without taking account climate is BS too. Is it nicer to be poor in NY or in Miami this winter?
(I can't shake my tour of Malaysia, in which a native observer talked about how hard it was to get people to work seriously. I looked at the palm trees, the beaches, and wondered how hard I'd work.)
Good luck finding a real poverty rate ...
Posted by: odograph at Feb 21, 2008 7:39:09 AM
Relative poverty isn't about differences in the cost of living, but about differences in income, essentially redefining poverty as the absence of equality of income. An absolute poverty standard calculates whether a household earns enough to support some arbitrary standard of living, while a relative poverty standard simply measures the income of a household relative to its neighbors.
A relative measure of poverty can revise poverty rates upward or downward, it just depends on where you want to draw the line. 40% of median income? 30%? 20%? You can get any poverty rate you want, but you're not really talking about poverty at all -- again, you're talking about inequality.
The federal budget for Head Start for fiscal 2007 was $6,888,571,000. In fiscal 2000 it was $5,267,000,000.
Posted by: Don at Feb 21, 2008 8:07:53 AM
These are all reasonable points, but I'm surprised no one has suggested that a relative rate of poverty or inequality in a country remains a useful piece of policy information. A sizable amount of evidence suggests that life, liberty and happiness are each a function of relative not absolute material well-being.
Would an absolute level of poverty measure be helpful? Most certainly yes, and indeed such measures do exist. Most well-known internationally are the $1 and $2 purchasing power parity cutoffs, but absolute measures exist that are more relevant to developed countries. As with unemployment rates, the statistical agencies in question have simply not spent time or money developing a measure that is consistently measured across countries.
Short story: be suspicious as well when you hear talk about the absolute poverty rate.
Posted by: Chris Blattman at Feb 21, 2008 8:46:20 AM
Don and Chris are both right. This isn't a measure of impoverishment but a measure of resource disparity.
It should be quite obvious that 'the poor' here are much better off than 'the poor' in India.
Posted by: meter at Feb 21, 2008 8:54:17 AM
There is actually at least one study out there by a left-leaning think tank that sort of addresses this (though not exactly). The study first shows US and European income of the bottom 10 percentile vs. the median income of that country. Not surprisingly, since US median income is so high, the bottom 10 percentile have a low share. BUT, they then do the numbers a second, time, showing the bottom 10 percentile income in each country all compared to US median income, ie all with the same denominator, here, the US poor do at least as well as most European countries. The comparison shows clearly that while the US has more income inequality, it is not because our poor are poorer but because our rich and middle class are richer. Here is that second study: (If the comments won't show the image, see the link above)
Posted by: coyote at Feb 21, 2008 9:02:22 AM
That said, a very good case can be made that we overinvest in fighting the poverty of the elderly and underinvest in fighting the poverty of children.
Do old people vote at higher rates because they get so much from Government or do they get so much from Government because they vote at higher rates?
If people are poor and we want them to be less poor we should give them money. Now if you limit this to within the USA that would likely cause Americans to be even more anti-immigration than they already are so perhaps we should pay poor people to stay out of the USA. So that could perhaps lead to end of the greatest anti poverty program. It is a difficult problem.
(BTW that is what I like to do with my charity, mostly to people living outside the USA).
I think that many people’s problem with relative poverty is that it is ugly (a negative externality). Show people a poor but quaint white washed village in Mexico and that is picturesque. Show people a sloppy neighborhood in the USA and they say we need a program.
The worst thing about being poor in the USA is that you have to live near poor people.
Finnsense wrote: There is nowhere in Finland that comes close in terms of poverty to the poorest areas of the US.
I sometimes work in Fargo ND where the great majority of the people are from Scandinavian decent. I am struck by lack of poverty in ND. What is poverty anyway? Sloppiness is not poverty. If you look around in a poor area in the USA how can you tell that the people are. It is not because they are skinny. I live in Honduras and there the poor people are thin and by a certain age have many missing teeth.
Steven Downes wrote:
A recent long-term study of Head Start, which began in 1964, as one of the original 'war on poverty' initiatives, found that poor children who participated in the program were more likely to finish high school and less likely to be arrested for committing crimes than those who did not."
A study, by I think the university of Wisconsin and reported on NPR, showed that Head Start after the 3rd grade showed no benefit. The study also said the other studies that showed benefits compared people, who though their children where eligible, did not bother to put their children in Head Start with those who did and so did not give an accurate picture.
Steven Downes although I have a high regard for education I do not share your enthusiasm schooling which IMO is more about grading humans that teaching people what they need to know to live better lives.
The below is related. It is a post on Medicare.
http://un-thought.blogspot.com/2008/01/old-age-is-mostly-not-treatable.html
Old Age is Mostly not Treatable - Medicare is the Stupidest Program Imaginable!
Medical care for the elderly yields the least bang for the buck of any medical care.
Since it is only part of the market the program has little ability to control costs.
Free care for mothers and infants would make far more sense.
I believe that the program started because the medical establishment was taking to much of the inheritance of the American people but the program did not address the problem, it just shifted the payment to the tax paying population.
Posted by: Floccina at Feb 21, 2008 9:44:39 AM
the budget number for head start you gave work out to be a 4.4% growth rate, a
modest increase in real terms using the CPI. But if you deflated by teachers wages this would appear to be a flat to slight reduction in real terms.
What point are you trying to make with this data -- that for a program that seems to generate positive results we are spending too much or too little?
For most of Europe if you use PPP terms the average real income in the major western countries ranks them in the bottom third of US states. but the bottom quintile in those countries generally receive about twice as much of GDP as they do in the US so the bottom of the income scale in western Europe seem to be much better off then the bottom quintile in the US even though the average is higher in the US.
Posted by: spencer at Feb 21, 2008 9:47:39 AM
Since plenty food, cars, video games, TVs, Cable and even air conditioning and heath contribute to people being fat perhaps to measure poverty across many countries we should just weigh people. The fattest poor people are most likely the richest.
Posted by: Floccina at Feb 21, 2008 9:49:42 AM
The claim made by Coyote that the Heritage Foundation is a "left-leaning think tank" is utterly laughable. I´ll give him/her the benefit of the doubt and assume that it was an innocent mistake.
Posted by: Charles at Feb 21, 2008 9:57:52 AM
The claim made by Coyote that the Heritage Foundation is a "left-leaning think tank" is utterly laughable. I´ll give him/her the benefit of the doubt and assume that it was an innocent mistake.
Posted by: Charles at Feb 21, 2008 9:58:48 AM
"Too bad any effort to reduce poverty has essentially been abandoned over the last eight years."
Oh please! I drive by two Headstart schools daily. They are full of little kids. My wife is a pre-K teacher in a federally funded program that did not exist eight years ago. The same kids that qualify for Headstart qualify for the pre-K program.
Posted by: Macquechoux at Feb 21, 2008 9:59:17 AM
Don notes:
"The federal budget for Head Start for fiscal 2007 was $6,888,571,000. In fiscal 2000 it was $5,267,000,000."
Which is a 3.91% annualized rate of increase, flat to slight below the current inflation rate, but well above the inflation rate that prevailed in the early 2000s.
Hard for me to shed tears about cuts.
Posted by: Mister Bascomb at Feb 21, 2008 10:04:14 AM
The US poverty rate bottomed out in 1973.
This means that we have made zero progress in the past 23 years (last year available is 2006) in reducing poverty in the US despite reams of "antipoverty"* programs at the federal, state and local level.
Or is the word despite the correct one? Perhaps the problem is those very "antipoverty"* programs since they collectively impose a marginal tax rate of over 100%.
It seems to me we have three choices. One, we could extend "antipoverty"* programs to the middle class even more than we do now so as to avoid our current 100+% marginal tax rates on the poor. Two, we could eliminate means testing for various programs. Three, we could cut back, or even eliminate, some or all government "antipoverty"* programs.
All three should work to radically reduce poverty in the US, all three have major political obstacles.
There is also a fourth option, which is complemenary to any or all of the other three options. Namely, universal urban school vouchers, preferably combined with privatisation of all urban public schools. In the absence of perverse "antipoverty"* programs, poverty is basically a way of saying that one doesn't have the skills to earn a much better income. Improving the productivity of US K-12 schools (as opposed to wasting yet more money doing the same thing) to European levels would do wonders to reduce (absolute) US poverty rates over time.
*Looking at effects, not intentions, it seems clear that collectively that "antipoverty" programs hurt more than they help.
Posted by: happyjuggler0 at Feb 21, 2008 10:59:49 AM
Tyler, this doesn't make sense. The US specifically doesn't use a relative to median income standard to measure poverty, though many European countries do so. It is true that even absolute poverty standards have the potential flaw that richer countries have higher poverty rates than poorer countries- it's probably not really an absolute standard.
One more thing to note: counting only income, the 10th percentile worker in many comparable European countries has quite a bit higher income in absolute levels than the 10th percentile worked in the US, even though the US is a richer country overall. This is excluding government transfers and provided social services (like health care), which would only make the US look comparatively worse.
Posted by: J at Feb 21, 2008 11:03:23 AM
Intellectuals come up with various schemes to address poverty - but the only ones that actually get adopted are typically those which aim to help the poor secondarily to creating vast and expensive new middle class bureaucracies. The bureaucracies happen OK. But then maybe the programs don't help the poor at all.
Why? Probably because the poverty programs are really about vote-buying, and vote-buying is about making people feel good when they vote; and when a program creates a new bureaucracy as well as making people feel good about helping the poor, then it is more likely to happen than a program that also makes people feel good but doesn't create a powerful new interest group.
Posted by: BGC at Feb 21, 2008 11:22:00 AM
Finnsense: "One reason is that Finland does not allow the ghettoisation of poor areas. They tend to plonk quite a bit of public housing in with the wealthier areas, which I think has a moderating effect. "
Thomas Sowell has researched poverty all over the world. Sowell's conclusion is that cultural differences between ethnic groups is the major determininant of relative poverty levels.
Finnsense, one finding of Professor Sowell was that living in ghettos does not predestine any group to remain in poverty. He showed that the exact same ghettos in New York had over successive generations been occupied by impoverished Jewish-Americans, impoverished Irish-Americans, and impoverished African-Americans. Sowell questioned why almost all Jews and Irish were able to rise out of such poverty and yet most Africans-Americans were not. He lists as causes of black underachievement in the U.S.:
1. the legacy of slavery, which acts as a psychological barrier preventing blacks from taking menial jobs and gradually developing work habits that would allow them to succeed;
2. Lyndon Johnson's War on Poverty, which led African-Americans to believe they were entitled to success and which removed the link between productive work and survival;
3. urban redevelopment (public housing) which eliminated the ownership links to residences and allowed the black minority to view maintenance of housing and neighborhoods as a collective national problem rather than an individual or even neighborhood responsibility;
4. large differences in reproductive rates of low income and middle income blacks - meaning that blacks who achieved economic success were not reproducing themselves while unsuccessful blacks were multiplying.
Posted by: John Dewey at Feb 21, 2008 11:27:02 AM
I'm surprised no one has brought up the role of immigration and the presence on our border of a third world country. Immigrants may have many virtues but the majority of them do not show up with bags full of money.
Posted by: Colin at Feb 21, 2008 12:04:46 PM
In Italy, because of the difficulty obtaining housing, the average man stays in his parents home until he is over 30. Now that is some real poverty! I hate mobile homes, but over 30 and still in his parents home, they need some mobile homes.
BTW My wife and I lived in mobile home when we were low income.
Posted by: Floccina at Feb 21, 2008 12:23:56 PM
According to the report, Italian Finance Minister Tommaso Padoa-Schioppa said the program is intended to spur more young men to move out on their own at an earlier age.
Click here to read about "Big Mummy's Boys" on the Daily Telegraph Web site.
http://www.foxnews.com/story/0,2933,299836,00.html
According to the report, Italian Finance Minister Tommaso Padoa-Schioppa said the program is intended to spur more young men to move out on their own at an earlier age.
Click here to read about "Big Mummy's Boys" on the Daily Telegraph Web site.
Eight out of 10 Italians under age 30 still live at home with their folks, with the average move-out age 36. Some experts said the trend is costing Italy in growth and innovation.
"Let's get these big babies out of the house," Padoa-Schioppa, who left home at 19, told the Telegraph. "If young people stay with their parents, they do not get married or have any independence."
Some economists cited the rising cost of living and lack of work as a major factor in why young men aren't able to strike out on their own earlier, according to the report. Recent research seems to indicate that clingy parents may also play a role.
Posted by: Floccina at Feb 21, 2008 12:37:10 PM
Since the same thresholds are used throughout the United States(do not vary geographically), isn't the idea of one poverty rate for a country as diverse as the US an absurd idea? Certainly it costs more to live in some areas of the country than others.
Since the rate doesn't include benefits or entitlements, it gives us a meaningless number that can either be trumped up or dismissed based on your political persuasion.
Posted by: Mike at Feb 21, 2008 1:53:02 PM
One ratio is meaning less. Poverty is related to job skills and wealth accumulation, aka property rights. Without knowing the job skills and literacy of the poor, how can you make any kind of conclusion? What is the poverty rate among skilled and unskilled wokers? If you can't accumulate wealth, there is no econommic growth. Also, what about the immigration policies of other countries? It is much easier for unskilled workers to get into the US than say Mexico. Just ask Guatemalans.
In Finland, if you don't work, you starve. They have much better incentives there. Immigration, of course, is next to nil.
Posted by: jorod at Feb 21, 2008 2:24:31 PM
Charles,
I believe coyote was referring to this study,
http://www.stateofworkingamerica.org/swa06_ch08_international.pdf
referenced halfway down his post, and not the Heritage Foundation study that was referenced at the top.
Posted by: mobile at Feb 21, 2008 3:06:06 PM
1. Relative poverty is not a measure of inequality, it is a measure of relative low income. These are related concepts, but different: it is perfectly possible to have a country with high inequality and zero relative poverty defined as 60% of median income. I'm surprised how many people don't seem to understand this.
2. People's idea of what a suitable 'absolute' poverty line is tends to rise over time roughly proportionally to incomes - that is, absolute poverty times are relative in the long run.
3. When making international comparisons, it is clearly highly disingenuous to complain (incorrectly, in fact) only that figures for the US leave out some laundry list of benefits, when a list of similar benefits in many European countries is most likely longer and more generous.
4. I am puzzled that Tyler seems somehow comforted by Lane Kenworthy's remarks, since Lane goes on to point out in his next post that Switzerland, Norway, Denmark, Australia, Canada, Netherlands, Germany and Belgium all have lower levels of absolute poverty than the US. I look forward to Tyler bringing this post to the attention of his readers.
5. According to Lane's numbers, the United States has high levels of relative poverty compared to other countries roughly categorised as 'developed', and middling levels of absolute poverty. If you only care about absolute poverty then you have to admit that the US has remarkably high levels of it for a very rich country.
Posted by: Jim at Feb 21, 2008 3:25:05 PM
