September 9, 2005
HERE'S THE ONLY YARDSTICK YOU NEED...:
Broken Yardstick (NICHOLAS EBERSTADT, 9/09/05, NY Times)
The soundings from the poverty rate are further belied by information on actual living standards for low-income Americans. In 1972-73, for example, just 42 percent of the bottom fifth of American households owned a car; in 2003, almost three-quarters of "poverty households" had one. By 2001, only 6 percent of "poverty households" lived in "crowded" homes (more than one person per room) - down from 26 percent in 1970. By 2003, the fraction of poverty households with central air-conditioning (45 percent) was much higher than the 1980 level for the non-poor (29 percent).Besides these living trends, there are what we might call the "dying trends": that is to say, America's health and mortality patterns. All strata of America - including the disadvantaged - are markedly healthier today than three decades ago. Though the officially calculated poverty rate for children was higher in 2004 than 1974 (17.8 percent versus 15.4 percent), the infant mortality rate - that most telling measure of wellbeing - fell by almost three-fifths over those same years, to 6.7 per 1,000 births from 16.7 per 1,000.
The poverty rate is out of step with all these other readings about deprivation in modern America because it was designed to measure the wrong thing. The poverty rate has always been derived from reported household income. (Exigency played a role here: at the start of the war on poverty 40 years ago, those income numbers were already available from the Census Bureau.) But a better gauge of a household's material deprivation is not what it earns, but what it spends. When we look at spending patterns, we immediately see a huge discrepancy between reported incomes and reported expenditures for low-income Americans.
In the Labor Department's latest Consumer Expenditure Survey (2003), the average reported income for the bottom fifth of households was $8,201, while reported outlays came to $18,492 - well over twice that amount. Over the past generation, that discrepancy widened significantly: back in the early 1970's, the poorest fifth's reported spending exceeded income by 40 percent.
Unfortunately, economists and statisticians have yet to come up with a clear explanation for this gap (which is not explained by in-kind payments like food stamps or other assistance). The divergence may be in part a measurement problem: partly a matter of income under-reporting, partly a consequence of increasing income variability in our more "globalized" economy. But whatever its cause, it does drive home the unreliability of using reported household income as a benchmark for poverty.
...ask your Dad if he'd take the economy of 1974 over this one. Posted by Orrin Judd at September 9, 2005 12:00 AM
If I'm unemployed for a year, my unemployment insurance runs out, my income may be near zero, and, as a result, I would be considered to be under the poverty line, no?
Yet, at the same time, I might have $100,000 in assets, which would allow me to live reasonably well (not what you might think of as poor), while I continued my job search.
Wouldn't that explain most of the divergence between income and outlays?
Posted by: Bret at September 9, 2005 11:08 AMBret: been there, done that.
A self-employed person needs to learn to manage money so that the outflow is proportioned to the inflow, and sufficient reserves are kept to keep that outflow at a minimum level. Simple hydraulics. (And don't forget easy and cheap credit. You can be unemployed for a year and still get new card offers (and even better deals) if you make those payments on time.)
Posted by: Raoul Ortega at September 9, 2005 1:00 PM