All Time Record Level of Severe Poverty

Robert Waldmann

The Census Bureau has released estimates of poverty in 2009. Coverage focused on the headline poverty rate which is horrible enough. Much worse, 6.3% of people in the USA suffered severe poverty, that is lived in households with income less than half the poverty line. This is the highest severe poverty rate on record (the series only goes back to 1975 — I don’t know why).

Look at Table Five.

That means that over 19 million people in the USA live in households with income less than half the poverty line (severe poverty implies income significantly less than $ 11,000 yr for a family of four)

I blame welfare reform.

Like the poverty rate, the severe poverty rate goes up in recessions, goes up when inequality increases and goes down when per capita income grows. However, the pattern is very different with a long term trend of increasing severe poverty and no correspond trend of the headline poverty rate.

I think it is clear that this can be explained with two acronyms AFDC and TANF. In 1975 the economy was in bad shape, the poverty rate was 12.3 % which is not that much lower than the 2009 poverty rate of 14.3%. The severe poverty rate was 3.7 % less than 60% of the current rate. The fraction of people in poverty but not severe poverty was actually lower in 1975 than it is now.

During the period of high inflation, the real value of welfare benefits declined. This explains at least part of the increase in severe poverty. In 1983 the poverty rate peaked at 15.2% and the severe poverty rate peaked at 5.9%. Compared to 1983 a smaller fraction of people are in poverty but a larger fraction of people are in severe poverty. I think that welfare reform is the only plausible explanation.

If the ratio of number in severe poverty to number in poverty were the same as in 1983 the severe poverty rate would be less than 5.6%. In other words the number of severely poor people in the USA would be lower by more than 2,250,000.

It is basically universally agreed that welfare reform was a great success (as argued for example by Barack Obama in “The Audacity of Hope”). I think this conclusion is based on two gross and obvious errors.

First the matter was considered to have been decided by 2000. Only specialists reconsidered the analysis of welfare reform with any data not collected during the amazing boom of the late 90s.

Second a huge amount of attention is focused on the poverty rate and almost no one ever looks at the severe poverty rate. It is as if people think that it doesn’t matter how poor one is once one is under the poverty line. This is more extreme than not caring about income distribution.

But it is accepted as a fact that welfare reform worked like a charm. Evidence which isn’t less than 10 years old and the fact that $11,000
It’s almost as if most people had no clue what it is like to be poor so that they don’t even know that the poor are much poorer than they used to be.