Poverty in America: Myth and reality

US Poverty
Photo Credit Infowars.com

Official statistics from the U.S. government and international organizations show the United States has the highest rate of child poverty of any developed country, more people in poverty than Indonesia and a higher poverty rate than Europe.

Is any of this true?

Whatever your current beliefs about poverty in America, be prepared to shed them like so much jetsam.

The Census Bureau computes two measures: absolute poverty and relative poverty. They use something called the Orshansky method to compute absolute poverty. This is a complex, deeply flawed and convoluted method that vastly overstates poverty.

According to the Orshansky method, 40 percent of Americans are in poverty in any given 10-year period and nearly 60 percent spend at least one year in poverty between ages 25 and 75. This fails the basic smell test.

Nevertheless, we plow ahead with Census Bureau data based on Orshansky which defines the poverty line as “the resources necessary to meet the basic needs for healthy living: having sufficient income to provide the food, shelter and clothing needed to preserve health.”

This official measure places about 15 percent of the population, or 46 million Americans, in poverty.

Of those classified in poverty, 70 percent report they suffer no material hardships and can meet all their essential needs for food, shelter, clothing and health care. When we subtract this 70 percent from the 46 million and further subtract the 6 million illegal aliens included, the actual number of Americans experiencing material poverty is about 8 million, or between 2 percent and 3 percent.

This is largely the same cohort as the 2 percent to 3 percent of Americans with very low mental acuity, i.e. those who struggle to fill out a simple form. There are very few Americans in poverty other than those with severe cognitive challenges.

Arguably, the issue is not even one of poverty “per se.”

Those in Poverty Spend $1.75 for Each $1.00 of Income

The Census Bureau, the same folks who created the Orshansky monster, reports those below the poverty threshold spend $1.75 for every dollar of reported income. In what must be a giant disconnect of which only government is capable, the Census Bureau bases poverty on income and not spending, even though they know of the vast gulf between the two metrics.

One is left to wonder what the true rate of poverty would be if computed on spending rather than income.

All measures of inequality in America are based on income. What might inequality look like based on spending instead? We have the answer; the Bureau of Labor Statistics (BLS) did a study in 2008 that shows spending for goods and services (excluding only taxes) by income cohort.

The poorest quintile spent $13,000 per person; the second poorest $14,170; the middle cohort spent $16,250; the second richest spent $19,700 while the richest spent $26,600.

Thus, the richest Americans spend only twice as much as the poorest – a tiny disparity indeed.

Where Everyone is Poor, No One is Relatively Poor

The second metric government and international organizations use to measure poverty is relative poverty; it is defined as having significantly less access to income than other members of society.

Per this measure, a family is in poverty if they have less than 50 percent of the median income (spending is ignored). Hence, the US has a higher relative poverty rate than Europe and has more people in poverty than Indonesia, the country with the next highest population.

A country uniformly and utterly destitute would have less relative poverty than America because in a place (think: Haiti, Congo, Guinea) where everyone is dirt poor, no one is relatively poor.

Reality gives the lie to relative poverty. The bottom decile (by income), i.e. the poorest 10 percent of Americans has a real income equal to or better than in most European countries. Americans in poverty have 1,230 square feet per household compared to 980 SF for the average of all European households, not just those in poverty.

As for the dismal US metric for child poverty, it is based on relative data with poverty defined as 50 percent of median income, i.e. it is bogus.

Take away points:

(1) There are about 8 million Americans living in material poverty, not 46 million; the true rate is about 2.5 percent, not 15 percent;

(2) The 8 million living in poverty are there mainly because of severe cognitive issues and not poverty per se:

(3) poverty is measured using income rather than spending despite spending of $1.75 for every $1.00 of reported income;

(4) when inequality is measured using spending, the difference between the richest and poorest Americans evaporates; and

(5) relative poverty (including child poverty) is a fraud. Conventional ways of looking at poverty must be jettisoned, i.e. become jetsam.


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George Noga
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