Poor in America

U.S. Poverty Rates Higher, Safety Net Weaker than in Peer Countries (Issue Brief #339, July 24, 2012) argue Elise Gould and Hilary Wething of the Economic Policy Institute (EPI).

"Poverty rates in the United States increased over the 2000s, a trend exacerbated by the Great Recession and its aftermath. By 2010, just over 46 million people fell below the U.S. Census Bureau's official poverty line..."

When one compares American poverty to comparable and similar developed countries the U.S. is found wanting. American poor, characterized as the 10th percentile in income, fare poorly compared to the American median income, receiving less than half the income of the average worker, far below the international peer average of 62 percent. Secondly, "inequality in the United States is so severe that low-earning U.S. workers are actually worse off than low-earning workers in all but seven peer countries..." Third, in the late 2000s, "17.3 percent of the U.S. population lived in poverty--the highest relative poverty rate among OECD peers." (The relative poverty rate is defined here as the share of individuals living in households with income below half of house-hold size-adjusted median income. Poverty rates are based on income after taxes and transfers.)

The extent of child poverty is even more severe. In "2009 the United States had the highest rate of child poverty among peer countries at 23.1 percent..." and the child poverty gap, the difference between those in poverty to those with median income, is 37.5 percent, again, the highest among peer countries. Thus American poor kids face high relative deprivation compared to the rest of American society.

Lastly, the United States, through taxes and transfer programs, spends little compared with its peers to reduce child poverty. Child poverty is not merely about who can afford a burger and fries. It also affects educational achievement. David Berliner argues that targeted " economic and social policies have more potential to improve the nation's schools than almost anything currently being proposed by either political party at federal, state or local levels" (quoted in American Teacher, January/February, 2013).

So how have things changed during the last two years? The U.K.'s Mail Online reported recently (April 2, 2013) the headline: U.S. sees highest poverty spike since the 1960s, leaving 50 million Americans poor as government cuts billions in spending... so does that mean there's no way out? 

The article states:

As President Barack Obama began his second term in January, nearly 50 million Americans — one in six — were living below the income line that defines poverty, according to the [U.S. Census] bureau. A family of four that earns less than $23,021 a year is listed as living in poverty. The bureau said 20 percent of the country's children are poor.

 Notice that we have grown the number of poor from 46 million to nearly 50 million and child poverty has decreased from 23 to 20 percent (though I suspect a rounding error). The Mail Online claims that the level of poverty is the worst since Lyndon Johnson's Great Society programs started. Who's to blame? Liberals that say budget cuts are at fault and conservatives that say budget deficits and policies anathema to capitalism are to blame.

Lastly, the Wall Street Journal writes "the number of recipients in the food stamp program, formally known as the Supplemental Nutrition Assistance Program (SNAP), reached 47.3 million, or nearly one in seven Americans" in January, 2013. "Though annual growth continues, the pace has slowed since the depths of the recession."

Examining the SNAP website myself, the participation level in January, 2013 was 47.7 million, only 20,000 less than the record the month before and three million more than fiscal year 2011. The poor seem left out of the recovery.

Poverty Increasing--Education is the Answer

News from the Census Bureau is a must read. Half the people of this country are in poverty or are approaching poverty. Really? In America, the land of opportunity? Something must be done, but what? The Census Bureau states:

About 97.3 million Americans fall into a low-income category, commonly defined as those earning between 100 and 199 percent of the poverty level, based on a new supplemental measure by the Census Bureau that is designed to provide a fuller picture of poverty. Together with the 49.1 million who fall below the poverty line and are counted as poor, they number 146.4 million, or 48 percent of the U.S. population. That's up by 4 million from 2009, the earliest numbers for the newly developed poverty measure....The new measure of poverty takes into account medical, commuting and other living costs. Doing that helped push the number of people below 200 percent of the poverty level up from 104 million, or 1 in 3 Americans, that was officially reported in September.

So the Bureau has made it easier to be considered poor or near-poor. If you own a home, a car or two, and have heat in the winter and air conditioning in the summer you still qualify. If you make $45,000 a year and have four kids you qualify. That's a far cry from the third world. When one realizes what the poor look like in Manilla, Cairo, Nairobi, or Port-au-Prince, all the developing world, really, this report makes you want to laugh (or cry). Those unfortunates would love to be an American poor person. See what a typical American poor person owns here.

Still, the long-term news is not good.

Paychecks for low-income families are shrinking. The inflation-adjusted average earnings for the bottom 20 percent of families have fallen from $16,788 in 1979 to just under $15,000, and earnings for the next 20 percent have remained flat at $37,000. In contrast, higher-income brackets had significant wage growth since 1979, with earnings for the top 5 percent of families climbing 64 percent to more than $313,000. 

 It has become harder over time to make a good living with just a high school education. The trades (carpentry, plumbing, electrical), energy and, of course, starting your own business, are what still works well for those without a college degree--69 percent of the workforce. The surefire way to expand your earnings potential is to increase your education. (See http://gregmankiw.blogspot.com/) Pollster Gallup writes:

Apart from their bank accounts, Gallup finds education to be the greatest difference between the wealthiest 1% of Americans and everyone else. The Gallup analysis reveals that 72% of the wealthiest Americans have a college degree, compared with 31% of those in the lower 99 percentiles. Furthermore, nearly half of those in the wealthiest group have postgraduate education, versus 16% of all others.

For further proof, see the chart below.

 

Ethical Issues Raised by Detroit’s Free Lunch Program

The National Review recently criticized Detroit’s free lunch program. All Detroit kids, not just those under the poverty line, are awarded a free lunch under the federal government’s $4.5 billion expansion of the Healthy Hunger-Free Kids Act. I’ve seen these meals, and calling them healthy is a bit of a stretch, but what’s wrong with more free lunches, often the best meal of the day for some of these kids? “(Detroit is one of three pilot programs starting this month for a free-for-all that will ultimately cover similar districts nationwide.)”

The government justifies giving wealthy kids the same deal as the poor kids. The National Review quotes the Detroit News: “We’ve worked very hard to reduce the stigma,” according to Aaron Lavallee, a U.S. Department of Agriculture spokesman. In other words, the federal government does not want to stigmatize poor kids by singling them out for free lunches. Instead, give everyone free lunches. Well, we could, of course, end the stigmatization problem by giving no one free lunches, but that defeats the purpose of the Healthy Hunger-Free Kids Act. Giving everyone free lunches, however, raises ethical issues that need to be addressed.

Taxpayers desire a safety net or welfare programs, because they don’t want their cities to look like Nairobi or Cairo, multitudes of desperately poor begging for survival and offering their children to strangers for a few dollars. Taxpayers are willing to support county hospitals, state welfare payments, food stamps, college scholarships, affirmative action, housing projects, and school lunches as long as they believe that the poor (and therefore, society) benefit. When taxpayers no longer trust that the government’s transfer payments are helping the needy, support for those programs will end. Government officials that give everyone the same benefit in order to spare deserved recipients’ feelings erode support for an otherwise worthwhile program.

Second, the money wasted on middle class patrons could be better spent helping the target population. Instead of feeding middle class kids, the Healthy Hunger-Free Kids Act could spend that money on the needy, giving away free breakfasts or after-school snacks at a homework club.

Third, expanding the recipients to the middle class in order to spare the poor kids’ feelings is a waste of taxpayers’ money. Governments are obligated to spend the people’s money as carefully and parsimoniously as possible. Anything short of this standard is theft.

Lastly, economists explain that people do not efficiently use resources that are incorrectly priced. In the former Soviet Union, bread was kept artificially cheap by government edict. It was under priced, selling for pennies, and loaves were wasted and used for soccer balls. (See Jim Rogers’ Investment Biker for this and other examples.) When schools give lunches away, much of the food ends up on the ground or in the garbage. I saw this with my own eyes while student teaching at an inner-city school. Large amounts of free food littered the school yard after every lunch. Why? Some kids didn’t like what was offered and some, despite their poverty, still managed to buy something else to take the place of the free and unappreciated food. The mess attracted seagulls and other pests. I can only imagine how much food will be wasted if the Detroit pilot program becomes popular.

Students at my school punch in a number at the food service station. No one watching knows if the food is discounted. Cards can also be used. How is it done at your school?