Thursday, September 21, 2006

Poverty's Changing Faces

Bradley R. Schiller takes a look at who is poor and how long they stay poor.

Once again the U.S. Census Bureau tells us that 37 million people -- one of every 12 residents -- is living hand-to-mouth in the United States. The number of people living in poverty has been in a narrow range of 32 million to 37 million for the past 25 years. The 1991 recession briefly pushed the number of poor people up to 39 million; the 1995-99 economic boom shrank it to 31.6 million.

Although the size of the poverty population has been fairly stable, its composition has not been. The people who were poor in 1981 aren't poor now. Researchers have observed that three out of five families that fall into poverty in any one year are out of poverty the following year -- making poverty a highly transient state. A University of Michigan study discovered that one out of three U.S. households experienced poverty in at least one year of a 13-year stretch. But only one out of 20 families was poor in at least 10 years, and only one out of 60 stayed poor in all 13 years. Hence, the permanent poverty rate is less than 2 percent, even though the annual poverty rate is closer to 13 percent.
Interesting. Although 13% of Americans are poor in any given year, closer to 5% spend most of their years in poverty and less than 2% spend all of their time in poverty. Poverty in the US is very transitory.

Instead of looking at who is poor, maybe we should be looking at who becomes poor each year and who leaves poverty.
Well over a million immigrants -- both legal and illegal -- enter the country every year. Most come in at the lowest rungs of the economic ladder, working for the minimum wage or less. The household poverty rates among immigrants are twice as high as those of non-immigrants.

Then we've got 5 million or so low-achieving kids dropping out of high school every year. And more than a million births a year to single moms, about a third of whom are teenagers. On top of that, add more than a million divorces every year that often devastate someone's finances. Then there are the persistent scourges of death, disability and illness -- all of which throw families into poverty, often without warning. Finally, there's the economy, in which constantly shifting demands, costs and technology create a continuous profusion of winners and losers.
This reminds me of The Progress Paradox by Gregg Easterbrook where he states:
Statistics show that in order to avoid becoming poor in the United States, you must do three things: graduate from high school, marry after the age of twenty, and marry before having your first child. Only 8 percent of those who do these three things become poor as adults, whereas 79 percent of poor adults have failed to do these three things.
Looked at it that way, programs that promote higher graduation rates, reduce teenage marriage and pregnancy before marriage would all be effective anti-poverty programs.

Would raising the minimum wage help?
Within three years of joining the labor market, 85 percent of minimum-wage entrants (primarily teenagers and immigrants) earn significantly more than the federal minimum.
Maybe, but it doesn't appear that there are a significant number of people who continually work at minimum wage levels.

Another problem is that the definition of poverty used by the Census Bureau doesn't match the most people's definition. Most people would consider the government's Earned Income Tax Credit (EITC) a poverty reduction tool. But as Greg Mankiw points out the Wikipedia entry on poverty was incorrect as it stated: "Today, the EITC is one of the largest anti-poverty tools in the United States."
Because the Census omits the income from the EITC when computing the poverty rate. As a program to reduce measured poverty, the program is, by assumption, doomed to failure.
You can take a look at the Census Bureau's definition of poverty yourself to see if you agree. Food stamps, housing subsidies and the earned income tax credit are all ignored in the calculation. If you ask me, those should all be added back in. I am sure it would reduce the level of poverty, but I am not sure by how much.

via Washington Post


al fin said...

Nice analysis. You need to understand that poverty is a huge industry in the US. If not for poverty, a lot of people would be out of work and income. Ironic? Perverse? Of course.

Government programs at all levels, private foundations, church and private charities, university departments, elected officials from particular political parties, and so on--all are totally dependent on the presence of poverty in the US.

Poverty in the US is essential for maintaining these huge nationwide infrastructures, and power structures. A lot of people have vested interests in maintaining the image of poverty, if not the substance.

mping said...


Can't you make the same case for war, disease or crime? If any of them get worse, or if the perception does, there are those that will benefit. But, most soldiers, doctors, pharmaceutical researchers and police that I know are honorable people and would really like to see their particular issue eliminated, even if it meant losing their jobs.

I still think we have a poverty issue in the US. When I walk downtown or take the bus there are definitely a lot of poor and homeless people.

I just think that if we look at poverty different, we might come up with new and hopefully more effective solutions. I have always been impressed by what the NYPD was able to do when they started to deal with crime in a different way. Maybe the something can be done with poverty.

al fin said...

That is a fair analogy, but it leaves out a critical component--acountability.

If a drug company produces a bad drug, it can be sued into bankruptcy. If a doctor does bad surgery, she can be sued AND lose her license. If a sheriff or police chief allows crime to get too badly out of control he loses his job or gets lynched by vigilantes. Accountability.

There is no accountability for poverty fighters in the government, in the foundations, in the charities, in the private think tanks. Does the Bill and Melinda Gates Foundation get sued when they channel billions of dollars down a worthless rat hole? No, of course not. Do top level educational administrators and teachers' union officials get fired when their policies create new generations of minimum wage workers? No.

Accountability. If you can devise a way to introduce accountability to the people who spend other people's money, the nature of poverty--the image AND the substance--will change.

crush41 said...


The economist Walter Williams has made the astute point you did in your post about poverty factors, although I believe he includes a steady job (even at minimum wage).

It's mostly in the demographics. The best way to go about eliminating poverty is to eliminate the chronically impoverished.

How to cut into poverty? Find a way to incentize the wealthy to have more children and the impoverished to have fewer children. As the number of dependents necessarily increases the odds that a household falls below the poverty threshold (gotta feed the kid, take care of him, buy him clothes, etc), having fewer children (dependents) raises the per capita income and wealth of the household's remaining members.

Enticing the wealthy to have more children and the poor to have fewer also attenuates the wealth gap (Bill Gates spreads his wealth across ten kids and poor Joe devotes it all to his only child) and raises the wages the least skilled will receive for their labor (the children of wealthy parents going into skilled service sectors increasing the labor supply in these industries and thereby lowering the compensation while lowering the cost of these services to the unskilled. Conversely, fewer unskilled laborers raises the price each laborer can expect to receive for his work).

Unfortunately, our current immigration policies are accenuating the wealth gap ensuring that the war on poverty will be able to continue unsuccessfully into the future.

al fin said...

c41: If you assume that higher intelligence contributes to greater potential for wealth creation, then the idea of encouraging middle/upper income groups to have more children and discouraging multi-generationally impoverished people from having many children would have the incidental effect of both raising average wealth and raising average intelligence--given the high hereditability of intelligence.

Mping: Always keep in mind that in a private sector business, if too many people in an organisation loaf--the business fails. In government, almost everyone loafs and people accept the waste and inefficiency because there is no competitor government.

Regarding large foundations such as Gates' etc., large charitable foundations exist because of tax shelters and breaks. If foundations had to demonstrate results for their charitable spending to get the tax break, there would be far less frivolous and corrupt spending on the part of foundations and charities.

The billionaires who are risking large chunks of their fortunes on honestly developing renewable energies, industries for penetrating outer space, and other disruptive technologies are doing more for the human race than all the Gates, Buffetts, Ted Turners, Rock Concerts, etc. put together.

Unfortunately no one seems to be able to change the current government school curriculum that perpetuates the culture of failure.

The same thing goes for government bureaucracy. It simply gets bigger, more wasteful and corrupt, and less accountable.

crush41 said...

Right you are, Al. It's an argument I've been making for some time now.

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