Poverty and the Real Median Income
by cactus
Poverty and the Real Median Income
I want to take a break from my usual taxes and economic growth beat, and I figured why not look at poverty and income. Normally I’d pull the data from the Census site, but for some reason it was down when I went looking (that’s right, folks, around here we get our data is fresh from the tree) so I settled for the offerings from the Statistical Abstract of the United States. (Yes, I know, it is compiled by the Census, but for some reason that site was up.) All that means is that I don’t have the latest year of data, so y’all have my apologies now.
The following graph shows the percentage of people below 125% of the poverty line on the left y-axis and the real median income in 2007 for males and for females on the right y-axis.
The correlation between female real median income and the percentage of people living in poverty (OK, 125% of poverty) is about -64%, but the correlation between the male real median income and the percentage of people living (grumble) within 125% of poverty is about -92%. Given that the real female median income is about $21K a year, one figures a substantial number of women are making so little that there isn’t much that is going to boost them into the ranks of the well-to-do despite what the folks at Cato or Heritage peddle.
So let’s drop the female median income, and focus in on male real median income and poverty. They seem to be inversely, as the graph below shows:
I took the liberty of color coding a few periods. There are three periods where income grew and poverty fell:
1. very rapid improvement through 1973
2. so-so improvement from 1982 to 1989
3. pretty good growth from 1993 to 2000
The data doesn’t stretch back far enough to say precisely when the first period began, but it seems to be running out of gas after the political transition in 1969, and completely dies with the disastrous year of 1973. The third period definitely seems to begin and end with Clinton. In both instances, there was a strong commitment to doing something about poverty (from JFK, LBJ, and Clinton).
So what’s up with the second period? 82 is when Volker finally killed inflation, and good things started (finally) to happen in the economy again. But 1989 or thereabouts did not mark the end of Reaganomics (Bush Sr. tried to continue it) or the Volker administration. So what changed? Is it possible the real median income and poverty reduction benefits observed from 82 to 87 just kind of along for the ride that resulted from the death of inflation, and that by itself could only produce so much benefit? Or did Bush Sr. really change something major around 1989? cdThoughts?
—
Next week – more on taxes and economic growth, guaranteed to be contentious!!!
Cactus
cactus,
This one is easy. 1973? OPEC anyone?
And before that the coming-of-age (full productivity) of the WWII Vets into the labor markets and the completion of the bi-partisan Highway network. And don’t forget the ramp-up in ilsm’s dreaded military as part of the Dem involvment in Vietnam.
Another period of growth after the disaterous Carter years (kudos for picking Volker), ending in a mild recession as part of the normal business cycle and drawdown of the US military. Then we hit the information age during the ’90s and the subsequent growth – then the eventual popping of the Clinton Dot-Com bubble and another recession (plus 9/11).
So was Clinton just along for the ride during the US entry into the information age and a Rep congress forcing fiscal sanity after 1994?
I am glad you hailed Clinton for his Welfare Reform act that helped fight poverty….
Islam will change
Since the inception of the minimum wage in 1938, the longest period not to raise this minimum was from 1998 to 2006. This seems odd considering that those who believe that “a rising tide lifts all boats” were under the illusion that this was a period of prosperity. We now of course know differently and we also know that military recruitment was problematic?
The best way to see what is going on with incomes, I think, is via the Gini Index that gives in one figure the degree of “inequality” in income. Or to use percent of total income received by fifths of the population. That way one can compare the % the top fifth gets compared to the % going to the bottom. The Gini Index has been rising (more inequality) ever since 1968, more during some period than during others. But the rise in inequality has been steady.
You can get the info here:
http://www.census.gov/hhes/www/income/histinc/ineqtoc.html
Try table H-2 All races.
You can see that during the Shrubby administration the top 5 % reached its highest level while the bottom 5 % reached its lowest level. No question but that during his administration income shifted from the poor to the rich. I would guess his tax “reform” had a lot to do with that.
Buff
while i am in some sympathy with you here, i think your ability to reach into your bag of rationalizations and find the reasons that make you feel better is kind of killing your credibility.
as for the Dem involvement in Vietnam, let LBJ take full responsibility etc, but I was there then and I have to tell you there were more Republicans in favor of Vietnam than Democrats.
as for the republicans forcing fiscal sanity on Clinton, I remember that Republicans voted against, to a man, raising taxes to balance the budget.
and weren’t those vets on a Democrat GI Bill?
Margery
In fact I agree with what you are getting at here, but “inequality of income” as a concept sets my teeth on edge. It sounds to much like “envy” to me. Suppose that everyone in America had a job he loved, a nice house and home, the best food and the best cooking, enough time to do the things that mean something to him, a happy wife and good children. Now suppose into this happy country comes … oh, say a Bill Gates, who invents something everyone wants and he sells it to them cheap enough, and makes a billion dollars for himself. Does the country automatically become worse, or the people less happy, because the “inequality of income” has increased?
i know that’s not exactly what is happening, but unless you phrase the problem better that’s what you end up saying.
Oh for heaven’s sake. You apparently have no knowledge of sociological and demographic research. “Income inequality” is a term that has been used for ages, is used by the Census Bureau and sociologists who deal with the phenomenon. It is purely factual. Your attitude, I fear, is the kind of, dare I say, unsophsticated ignorance so common to Americans who get all nervous nelly at the idea of some having more than others. Your fear that not having enough income or as much as others might make people “unhappy” is probably justified. There is plenty of evidence that poor people resent those who are better off. Perfectly logical. Americans need to face up to the FACTS about American society. It is highly unequal, very “unjust”, devoid to a large degree of any moral sense and especially of any compassion or charity. PS Bill Gates doesn’t need all the money he has. Not at all. He tries to compensate to a degree via his charitable foundation, etc., which he publcizes but his lavish house is an example of gross self indulgence. Whether everyone wants Windows is open to debate. So far unless you go the Apple route you pretty much HAVE to take windows. Don’t you know he runs a monopoly? Really!!!
Here are the “most recent?” Gini indices from the CIA factbook for the world. Whether those with the low indices are “happier” than those with high indices nobody can tell since the whole matter is subjective. Some of the ex-Communist nations of Eastern Europe still have relatively low numbers still due to the “leveling” of the Communist regimes. A number of the highest Ginis belong to very poor third world countries. You might also want to learn more about the Gini Index. Look at Wikipedia.
Sorry forgot the link:
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2172rank.html?countryName=Argentina&countryCode=ar®ionCode=sa&rank=27#ar
I hate to throw a giant tub of water on this whole discussion but — is not the poverty line in question the official formula of three times the price of an emergency diet (dried beans only; no canned please — to expensive) which started out presumably accurate in the mid-fifties but is off by more than half now (real poverty line for family of three is $45,000 by my calculations* (inflation adjusted from the book “Raise the Floor”) if they have to pay for their own medical insurance), not the official figure of $18,000.
Real family poverty figure by my calc*: 30% if gov helps not counted (like off fig) — 18% if gov help counted I think according to Economic Policy Institute (am sure I saw that fig of theirs; unable to track it down not being a maven).
* http://ontodayspage.blogspot.com/2008/02/are-38-of-american-families-living.html
Couldn’t we do some kind of running adjustment of the official poverty line to the real line?
In both instances, there was a strong commitment to doing something about poverty (from JFK, LBJ, and Clinton).
It seem that the policies under JFK and LBJ pulled more people into poverty then they lifted out. Clinton was the one that finally reversed JFK and LBJ’s welfare policy. So I don’t see how you can make a list of JFK, LBJ, and Clinton and not mention their radical different appoach to policy. I don’t remember any significant welfare reforms during the 70s, 80s, or 2000s. So again like with other economic policy these periods inherited the policies of previous ones.
Cantab,
Are you sure that you want to stick with that position? Take a look at pdf pages 35-36 of this 1970 US Government document:
http://www.census.gov/hhes/www/poverty/prevcps/p60-76.pdf
A thought provoking post, thank you! I have a couple questions/comments.
First, why the choice of 125% of the poverty line and not the poverty line itself (or some other multiple of that line)? How robust are these results using different multiples (percentages?) of the poverty line?
Second, you sugges a causality between the observed correlation between median real income (men) and % pop below 125% of poverty line in stating In both instances, there was a strong commitment to doing something about poverty (from JFK, LBJ, and Clinton). The mechanism of this path of causality is not particularly clear to me.
While I’ll accept that both JFK-LBJ and Clinton had an interest in reducing poverty, it’s not clear that poverty reduction policies would increase the median real income for men as much as what was observed, particularly in the Clinton years. Estimating from your second chart, approximately 5% of the people below the 125% poverty line in 1992 moved above that line by 2000 AND the median real income for men increased by approximately $5,000 to $35,000 in those 8 years. If poverty-reduction commitments are a cause of the correlation between these two results, then the movement of 5% of people above the poverty line would cause the increase in median real income. For this to happen, a signficant proportion of the 5% will have had to increase their incomes ABOVE the median real income (we are talking about medians after all, not means). It’s hard to imagine that poverty-reduction policies would actually increased the earnings of the low-income group above the median real income as compared to above the poverty line but below the median.
A potentially more viable mechanism for accounting for the correlation between the poverty line and real income might be to consider the policies of JFK-LBJ and Clinton which increased the income of both the mid- and low-income groups, rather than focusing on the poverty-reduction policies only. The policies in both the 1960’s and the 1990’s appear to have resulted in the increase in income for broad segments of the population with the resulting effect of reducing the number of people below the 125% poverty line. It would seem this was accomplished by increasing the income of the mid-income group and bringing low-income earners into the the mid-income group.
Basically, in all three periods, taxes were raised on the rich, in some cases cut on the poor and middle class, and subsidies of the very poor were increased. Net effect: decreased inequality and increased economic activity.
The way I see it is the rich lock up too much cash, velocity drops off, and they starve the economy of working capital. Routing more of it from the top down to the bottom makes everyone better off. The rich are very expensive pets, and they eat us out of house and home if allowed to proliferate. 😛
MG,
You need to make an argument and not just post a link. Also, the period you need the cover is the entire period covered by the policy and not arbitrarily cut it off at some point. If you want to advance the ball show how policies under Nixon, Ford, Carter, Reagan, and Bush #41 were materially different then under JFK/LBJ. And also explain the reason why Clinton reversed the JFK/LBJ policy but then had such good numbers afterward.
Zapster,
Routing more of it from the top down to the bottom makes everyone better off.
Does your routing theme explain the 1990s? I thought the government raised taxes and kept most of the money due to the stalemate between the democrat executive branch and republican congress. Clinton said the era of big government had ended not the dawn of new social welfare had begun.
Cantab,
You’re plain nuts if you look at the graphs I posted and state that poverty increased under JFK and LBJ – that was the period with the biggest reduction in poverty since the Census started keeping the data.
As to Clinton… welfare reform came in 1997, and started kicking in in 1998. Notice that the good stuff on poverty ended in 2000. Maybe that says something about reversing LBJ’s position.
Sorry… in one heck of a hurry… 125% of poverty because that’s what they have in the Statistical Abstract. Normally I’d have pulled the poverty data straight from the Census and gone with poverty itself.
buff,
Come on. You’ve been reading this blog since I looked at the surplus and deficits by President… you have to remember how the data showed that the financial sanity a) started before the Republican Revolution class took over in 1995, and b) improvement slowed down once Newt and the boys took over.
Umm, ah, no, sorry, but you’re not allowed to do that. The reason you’re not allowed to do that is because of the way that poverty is measured in the US. Uniquely amongst all the industrialised nations poverty in the US is measured *before* the effects of what we do to try and alleviate poverty.
So, numbers below the poverty line (or 125% whatever) are in fact the number that *would be* in poverty if we didn’t do something about it. They do not include Section 8 housing vouchers, the EITC, food stamps, Medicaid or Medicare or any other forms of assistance that come through either the tax system or in kind. The *only* poverty alleviation method that is counted is direct cash welfare. What used to be called TANF.
Now we might think that this is just some trivial nitpicking but I’m afraid it isn’t. Most especially when you try to look at the poverty rate over time. For pre 1973/4 most poverty alleviation was indeed counted: cash welfare. But since then there’s been a concerted (and bipartisan) move to aid in kind and through the tax system. The EITC was passed in 1975 for example. So we’ve moved from a system whereby we measured what we were doing to alleviate poverty when calculating those in poverty to a system where we do not count what we do to alleviate poverty when we count those in poverty.
Now there are all sorts of other things we can say about the US poverty measure (it’s an absolute level of poverty, upgraded for inflation, not like every other country a measure of relative poverty) but this one is important.
Because, now, we do not measure most of what we do to try and alleviate poverty whereas before 1974 we did we cannot glibly compare poverty rates pre and post 1974.
Just as an example of how screwed this is according to Wikipedia (I know, not the best of sources) the EITC raises some 5 million families out of living in poverty. But because of the way we count it they are listed as still being in poverty. But if they got that same money as cash welfare they would not be listed as in poverty.
To which I must repeat:
I hate to throw a giant tub of water on this whole discussion but — is not the poverty line in question the official formula of three times the price of an emergency diet (dried beans only; no canned please — to expensive) which started out presumably accurate in the mid-fifties but is off by more than half now (real poverty line for family of three is $45,000 by my calculations* (inflation adjusted from the book “Raise the Floor”) if they have to pay for their own medical insurance), not the official figure of $18,000.
Real family poverty figure by my calc*: 30% if gov helps not counted (like off fig) — 18% if gov help counted I think according to Economic Policy Institute (am sure I saw that fig of theirs; unable to track it down not being a maven).
* http://ontodayspage.blogspot.com/2008/02/are-38-of-american-families-living.html
Couldn’t we do some kind of running [reality] adjustment of the official poverty line to the real line?
Poverty in this country is caused mostly by BARGAINING WEAKNESS IN THE LABOR MARKET!!!!!!!!!!!!!! [pardon me for jumping up on the table and screaming while throwing dishes out the window].
You can blame said BARGAINING WEAKNESS!!!!!!!!! on what you want but…
…as of two years ago (just before the minimum wage was “raised” to 75 cents short of President Eisenhower’s 1956 minimum wage) 25% of our workforce was being paid less than LBJ’s minimum wage of 1968. IOW while population went up 50% the minimum wage dropped almost 50%. Under Malthusian theory the minimum should have dropped only 33% when population grew 50% (assuming no per captia income growth as Maluths did).
Since 1973, 15% of overall income shifted from the bottom 90% to a tiny top fraction of top 1% of earners — not your family doctor; she did not earn anything like the $1.2 million average for top 1% households (2006). The top 90-97% earners kept up with the doubling of average income since 1968. Since the top 90-97% presumably represent (along with your family doctor) the bulk of the high IQ, highly trained workforce in this economy and they only just kept pace with average income growth I take it that it was not a higher tech economy that sucked the pay and benefits from lower skilled workers to the top (linebackers, TV anchors, are CEOs 25X! more productive). The bulk of the top brains and effort makers, repeat, just kept up with growth.
As a poor working American who has been personally crushed under this bargaining power squeeze I immediately recognized SECTOR-WIDE labor agreements — the labor bargaining practice all over the better paid OECD world except for labot strangled Japan — as the perfect solution to America’s killing labor market. Too bad the high IQ progressive economists between the oceans are not as desperately need of such a perfect solution or they might recognize same as instantly as I did.
Good Morning Tim:
I am not sure it is the way you believe it to be in interpretation. Here are a couple of charts from the US Census Bureaus on Poverty and Transfers of Income. The official rate is 13.2% in 2008. If all Tranfer payments are backed out, the poverty rate goes to 21.4% as show here: http://www.census.gov/hhes/www/cpstables/032009/rdcall/2_001.htm “Percent Below Poverty, Definition 1, Column 1 with Transfers, Column 2 without Transfers, and before Taxes”
“Definition 1 is: Definition 1 less government cash transfers. Government cash transfers include nonmeans-tested transfers such as social security payments, unemployment compensation, and government educational assistance (e.g., Pell Grants), as well as means-tested transfers such as aid to families with dependent children (AFDC, ADC), temporary assistance to needy families (TANF), and supplemental security income (SSI). (For a complete listing of transfer income, see definitions 9 and 12.)” http://www.census.gov/population/www/cps/cpsdef.html Scroll down for definitions.
Definition 1: Money income excluding capital gains before taxes. This is the official definition used in Census Bureau reports.
a. Money income after taxes (without earned income credit (EIC)). This is definition 1 minus federal and state income taxes exclusive of the EIC, minus payroll taxes, plus capital gains, and minus capital losses.
b. Money income after taxes (including EIC). This is definition 1a plus the EIC.
Defintion 1.b adds in the impact of the EIC and results in a decrease in poverty of ~ 1.1% bringing it to 12.1%.
Not sure why the US Census does the definitions this way as they certainly confuse the issue. Column 1 of the chart represents Poverty Rate after government transfers. Column 2 represents Poverty Rate without Government Transfers. As you can see, without government transfers, the poverty rate goes up dramatically.
You are correct that the government transfers do lift people out of poverty (barely); but, the 13.2% Poverty Rate -2008) appears to be a true number after most government transfers. I guess we could argue about Medical programs and whether this is something that raises them out of poverty. I tend to believe it is a right the same as access to food, housing, education, and work.
anyhoo, my $.02
Cactus,
Look at the trend lines leading up to the mid sixties. Poverty is plummeting even before the legislation is passed. Also, you need to look more at the charts you post and do some analysis for once. Under Clinton welfare roles were dramatically cut. People were pushed off welfare and the result was that poverty fell in this country.
Also, it seems to me we need to have a better defintions of what the poverty level is. Make the definition and then you are either in poverty or you are not. Therefore, you should not be using a measure such as 125 percent of the povery level.
cactus,
The financial sanity started under Bush Sr. It cost him the election. Clinton was never a fiscal saint until the 1994 election brought the come to Jesus moment. Or do you guys really forget Hillery-Care?
I like Clinton – voted for him. But you continue to say he was responsible for the economic growth of the 90s. That’s not either supported by his actions nor your data. He got elected becuase of Perot (the people who hated the tax hikes). The budget was going to get balanced (or close to it, the deficit would continue to increase during every year of his Presidency) due to the fall of the Soviet Union causing the “Peace Dividend” and the dawn of the information age and the resultant productivity growth. Niether of witch he had anything to do with, at all.
And if you REALLY believe that the party of the Presidency matters that much to US economic growth AND you beleive Bush Jr failed miserably then you can only conclude that Clinton failed miserably also. (Or simalarly both did well with the cards handed to them).
coberly – The Reps voted against the expansion of government – just like todays attempt to stop the current Dems from nationalizing 16% of teh US economy….
Islam will change
Thanks for the explanation of where 125% of poverty came from. My robustness query likely isn’t that important.
Most civilized nations believe in transfers via taxation and government programs from the “have too muches” to the “have to littles”. In most of them this is a given, although the degree might vary. Only, I think, in the USA are there people who think nothing of this sort should be done. Sweden that is at one extreme here (about 50% of GDP is taken by government taxation) and the US probably the other. The results are reflected in the respective Gini indices.
To which I can only repeat (padon my one-note tune):
Poverty in this country is caused mostly by BARGAINING WEAKNESS IN THE LABOR MARKET!!!!!!!!!!!!!! [pardon me for jumping up on the table and screaming while throwing dishes out the window].
You can blame said BARGAINING WEAKNESS!!!!!!!!! on what you want but…
…as of two years ago (just before the minimum wage was “raised” to 75 cents short of President Eisenhower’s 1956 minimum wage) 25% of our workforce was being paid less than LBJ’s minimum wage of 1968. IOW while population went up 50% the minimum wage dropped almost 50%. Under Malthusian theory the minimum should have dropped only 33% when population grew 50% (assuming no per captia income growth as Maluths did).
Since 1973, 15% of overall income shifted from the bottom 90% to a tiny top fraction of top 1% of earners — not your family doctor; she did not earn anything like the $1.2 million average for top 1% households (2006). The top 90-97% earners kept up with the doubling of average income since 1968. Since the top 90-97% presumably represent (along with your family doctor) the bulk of the high IQ, highly trained workforce in this economy and they only just kept pace with average income growth I take it that it was not a higher tech economy that sucked the pay and benefits from lower skilled workers to the top (linebackers, TV anchors, are CEOs 25X! more productive). The bulk of the top brains and effort makers, repeat, just kept up with growth.
As a poor working American who has been personally crushed under this bargaining power squeeze I immediately recognized SECTOR-WIDE labor agreements — the labor bargaining practice all over the better paid OECD world except for labot strangled Japan — as the perfect solution to America’s killing labor market. Too bad the high IQ progressive economists between the oceans are not as desperately need of such a perfect solution or they might recognize same as instantly as I did.
THE LABOR MARKET; THE LABOR MARKET; THE AMERICAN LABOR MARKET IS THE CULPRIT: too bad nobody in the educated progressive economic wing seems to have any telling experience with the degradation there.
Cactus,
The chart below from 1959 onward shows most of the reduction in poverty happened before the great society programs were enacted.
http://en.wikipedia.org/wiki/File:US_poverty_rate_timeline.gif
MM,
“PS Bill Gates doesn’t need all the money he has. Not at all. “
And who gets to decide how much he needs commissar? Where is the line?
Islam will change
MM,
Yes and luckily, now that the ex-communist countries are no-longer police state hell-holes they can start growing into vibrant democratic capitalist free countries. Cuba I bet has a lower Gini indices than the US – but why in the world would I want to live under Cuba’s tyrrany?
Your carping about income disperaty sounds so much like elitist envy. Go out and build a company like Bill Gates did and you can pay yourself the median US wage and donate the rest to the US Treasury…until then you just sound jealous of others success…
Islam will change
cactus-This is another interesting post. But, looking at your graph raises a question. Why, after trillions spent over the decades, has the poverty threshold never broken the 12-13% floor? Is it the labor market? Tax policy? Welfare reform? I’ll offer a theory…nobody knows! Not economists, psychologists, sociologists, Marxists, capitalists, or even professors.
drew:
Read my response to Tim below
little John:
If you follow then ratesof poverty (even though it keep changing), it was at ~22.5% during Eisenhower. It has decreased because of programs; however, we have a government that is more concerned about capital (Dems included) as opposed to Labor.
little John:
If you follow the rates of poverty (even though it keep changing), it was at ~22.5% during the Eisenhower administration. It has decreased because of programs; however, we have a government that is more concerned about capital (Dems included) as opposed to Labor. If you want to break the back of poverty, it is more than just welfare.
Umm, yes, that’s what I said. The poverty rate is calcuated using direct cash transfers but not those that work through either the tax system or are delivered in kind.
We spend $36 billion a year on the EITC (Feds alone, there’s also a number of additional State programs) alone. This is not counted as alleviating poverty. So we’re not getting a true picture of poverty alleviation.
And, as I say above, we deliberately changed the system of poverty alleviation, from direct cash transfers to more tax and in kind, around 1974. So we really can’t derive much value from comparing pre 1974 with post 1974 withõut adjusting for that.
When it really becomes important of course is in planning what to do about poverty alleviation. John Edwards for example was proposing more Section 8 vouchers, more Medicaid and a rise in the EITC (that last I think happened under both Clinton and Bush II I think). Now all three of those will alleviate poverty and I think they’re pretty good ideas. However, they won’t change the number of poeple defined as being in poverty by one single person or family.
Allow me to put this the other way around. Lots of people run around saying that while we’re spending ever more on poverty alleviation we seem to have the same amount of poverty. Thus spending money on poverty alleviation doesn’t alleviate poverty. So we should stop.
Now neither you nor I would be happy with that conclusion: for of course giving money to poor people makes them less poor. But the only way that we can make our case is by pointing out the problem with the method of calculating poverty, as above.
This is a “pro do something about poverty” point. Poverty alleviation does alleviate poverty. But the current system doesn’t count it that way.