America: A Poor Country With A Declining Middle Class And Too Many Billionaires

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Bloomberg's Noah Smith argues that America needs a better way to define and address its poverty problem.

Well into the 21st Century, with technology rapidly advancing and income inequality ever widening, society’s current measures for gauging poverty are proving less useful and woefully inaccurate, Noah Smith argued in a recent Bloomberg op-ed.

Adding a third metric to the two traditionally used to measure poverty in the U.S. would not only provide a more realistic picture of just how many Americans are struggling financially but also shine light on better methods of addressing the issue.

How do we currently define poverty?

The first definition is absolute poverty — essentially, material destitution. Human beings need food, water and shelter, and if we can’t afford these things, life is pretty miserable. In the U.S., the federal government has poverty guidelines that are based on food consumption: If you make less than about three times the minimum amount people need to spend on food each year, you’re poor.

By this measure, a single adult living on $12,140 or less is considered poor as of 2018. For a family of four, the figure is $25,100. There is also a Supplemental Poverty Measure that includes not just food but clothing, shelter and utilities. Thanks in part to increased government assistance, U.S. poverty according to this measure has fallen, especially for children.

As inequality has grown in the U.S., critics argue these numbers are too low; in 1960, the federal poverty line was just about half the median income, but today it sits well below this level.

Moreover, as a country grows richer, hunger becomes less common, so using it as measure of poverty becomes less useful. When the middle class is defined by having “a chicken in every pot and a car in every backyard” (a campaign slogan from 1928), then simply having a chicken would seem to indicate that you’re not poor. But when your middle-class neighbors have several cars, several televisions and spacious homes, you might feel poor.

This brings Smith to the second measure: relative poverty.

The Organization for Economic Cooperation and Development defines poverty this way: If you earn less than half of the median income, you’re poor. By this measure, the U.S. is doing a bit worse than other rich countries.

Data from 2015 shows the U.S. topping the list of wealthy nations in the percentage of people earning incomes below 50 percent of the median:

Source: Statista.com

Why does this not solve the problem? Smith explains:

Imagine a future U.S. in which the median American is fabulously wealthy — with flying cars, robot servants, and multiple overseas vacations every year. Should someone with half as many flying cars, robot servants and overseas vacations be considered poor? That seems like a stretch.

But there is a third way of defining and evaluating poverty that is better suited for the current times, according to Smith.

Luckily, there is just such a concept: It’s called material security. Psychologist Abraham Maslow believed that safety ranked second only to food and shelter as a basic human need. Someone who has food and a roof over their head today, but doesn’t know whether they will tomorrow, should be considered poor.

Imagine a 55-year-old single woman with diabetes working a part-time job making close to minimum wage. Thanks to government assistance, her total income is $15,000 a year. But if she loses her job or has a medical emergency — both of which, as Matthew Desmond’s book “Evicted: Poverty and Profit in the American City” illustrates, are sadly common — she will probably become homeless. That in turn will make it very hard to get a new job, or to pay for her future health-care needs. In short, her situation is very precarious.

As Maslow would predict, this kind of insecurity causes extreme stress. And this precariousness exists along several dimensions — housing, health care, income, the risk of violence — which makes it hard to capture in a single measure. Still, there are some existing measures that could be used to help create a composite picture of security-based poverty.

Some of those measures include food insecurity, which is tracked by the U.S. Department of Agriculture; income volatility, which economists keep tabs on and “measures swings in earnings from year to year”; and housing insecurity, which can be estimated “by the percentage of people’s incomes that they spend on shelter each month” — in 2015, 17 percent of Americans were spending half or more of their income on housing, Smith noted.

This new measure might well show that poverty in the U.S. is worse than the current statistics say. But an accurate view of a problem is the first step toward addressing it. And eliminating poverty should be a priority of any wealthy society.

Read more here.

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