Thursday, September 15, 2011

Understanding Poverty – The Poor are not Poor, Only Statistics

 Poverty is a Wonderful Life, Except for the Lack of Money

The Census Bureau report on poverty in the United States has resulted in the usual reactions.  They are

  1. No one really pays attention, poverty, particularly child poverty is not something anyone wants to acknowledge.  Besides, how can there be poverty in the greatest country on Earth?

  1. Poverty is really not poverty, the poor have plenty of income, possessions and lead the life of envy of people in other countries.

The Dismal Political Economist commented earlier on a Conservative group’s report on poverty that tried to show how the poor were not really poor.  Now we have a report on how the measurement of poverty is flawed, so that we cannot even determine that the poor are poor.  Tim Worstall writing in Forbes observes

How the Poor Live After All Those
Government Programs

we do not include in that household’s income all of the other things we do to alleviate poverty. We don’t include free medical care, or maybe help with the rent of an apartment or house. We don’t include any help that comes through the tax system nor do we include any vouchers: like Food Stamps for example.

Mr. Worstall’s point is that because of changes in programs over the decades it is impossible to compare poverty statistics over time, but his real point seems to be that poverty is not poverty because we do not count in income all the wonderful programs that make the poor not poor.

He goes on to say

How on earth can the US be spending hundreds of billions of dollars a year on beating poverty without actually beating poverty? Simple, we spend the money but don’t measure how much poverty we’ve beaten by spending it.

So let’s take a look at poverty.  A family of four is considered “poor” if their income is about $1,900.00 per month (Note: figures in the following text are rounded for ease of understanding and are very conservative).  Now that doesn’t sound too bad, but take a look at their expenses.

Taxes:  Assuming this is earned income, FICA takes about $150.00.  What you thought the poor didn’t pay taxes?  Well that only referred to income taxes.  This leaves disposable income of $1,750.00.

Housing:  This is difficult to assess.  A slum house might cost as little as $600.00 a month, if the family owns the house then mortgage payments plus taxes and insurance could be as much as $1,200.00 a month or more.  Assume housing costs $750.00 a month.  This leaves $1,000.00 per month on expenses.

Food:  Try to feed a family of four on less than $100.00 a week?  Ok, assume it can be done and allow $400.00 for food, this leaves $600.00 a month for other living expenses.

Automobile:  Transportation is vital in the U. S.  The lowest costs possible for a car including payments, gasoline, and maintenance is $300.00 per month.  Gas alone can be $150.00 a month.  This leaves $300.00 a month to spend on other things.

Utilities:  A family really does need heating, electricity and telecommunication.  A minimum would be $200.00 per month.

At the end of the month this family of four has $100.00 left over.  That’s $100.00 per month for medical care, clothing, credit card payments, school supplies, repairs  and every other thing that a family of four would need other than housing, food, transportation and basic utilities.  So yes, they do need the food banks, the free medical care, the food stamps, the EITC and the other programs, and with them they are still poor. 

 Without them they are destitute.

And anyone who believes that $1,900.00 per month is not poverty for a family of four, well go ahead and live on that income for a couple of years and then come back and see us.  Sorry Mr. Worstall, the War on Poverty is not over, but so far Poverty is winning big time.


  1. Tim Worstall is not only an economics ignoramus but also a sociophat. Which qualifies him to write for the Adam Smith Institute. Which is in urgent need for some rebranding. Von Mises Institute would be more fitting.

  2. Excellent post and commentary about an excellent idiot!

  3. "but his real point seems to be that poverty is not poverty because we do not count in income all the wonderful programs that make the poor not poor."

    No, that isn't my point at all.

    "So yes, they do need the food banks, the free medical care, the food stamps, the EITC and the other programs,"

    I agree, they're all wonderful things as is the alleviation of poverty itself.

    As I do point out:

    "Perhaps we should measure poverty as the number of people who need our help not to be living in poverty? It’s a noble and valid goal to help them after all."

    My point is encapsulated here:

    "Although it might be worth noting that the John Edwards plan for poverty reduction, more Section 8 vouchers, more Medicaid and more EITC, would have alleviated a lot of poverty: and changed the numbers under the poverty line by not one single person at all.

    Because, today, we are no longer counting those who are in poverty after we’ve helped them. Today we are counting the number who are in poverty before we’ve helped them."

    My argument is purely about the measurement of poverty as a statistical artefact.

    And the reason we should not compare past and present poverty rates is because we've changed the way that we alleviate poverty but not the way that we measure poverty. Thus our measurement has changed from being a measure of poverty unalleviated to a measure of poverty before alleviation.

    Come along now, you're bright enough to see that that's what I actually said so why the distortions here?