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Forget What You Think You Know About Poverty In America

March 2, 2012

Conventional wisdom (read: I heard it on the news) says since 1980ish the rich have gotten richer and the poor poorer. Fortunately, a couple of recent studies have shown this to be false.

On its face, the argument that the poor and middle class have seen no economic gains despite overall GDP growth over the last thirty years is hard to believe. For instance, in 1980 27% of US households had air conditioning. In 2007 that had risen to 69%. The computer you’re reading this on, the smart phone you’ll use to tweet this post all belie the reports of well-being stagnation. And, as it turns out, it’s things like your smart phone that have messed up the numbers.

Basically, the reason people believe they’re losing ground is inflation. In other words, you might be making more money, but things cost so much more nowadays that you’re actually worse off. Economist Bruce Meyer has discovered that our inflation measurements are wrong, and a big reason why are things like cell phones, which weren’t even included in the inflation index until they had been on the market for 15 years. Which means that the product improvements and price reductions that occurred after the time cell phones were things attached to a box you had to lug around were lost to the data. And that’s a big deal. Meyer claims inflation has been overstated by as much as 1% per year.

Another stat used to support media driven conventional wisdom doomsayers is that the poverty rate has been stagnant. In 1967 the poverty rate was 13.3%, and despite the United States seeing huge income gains since then, the poverty rate had barely crept downwards to 12.8% in 2003. In effect, the rising tide failed to raise all boats. But a closer look at the poverty data reveals a starkly different picture.

If you take that 12.8% and look at the various groups within it, you find that every single demographic group has seen their poverty level fall dramatically since 1980. Married with children – dropped from 11% to 8%. Single women, no children – from 25% to 18%. Any way you slice it, poverty rates have fallen.

So why has the overall rate stayed the same? Because we’ve blown a hole in the institution of the family.

Historically, and it remains so today, the group with the highest rate of poverty is single parent families. And while that rate has fallen dramatically just like all the other groups, it’s still a high 40.3% And tragically, the percentage of people living in families where the head of household is a single woman has doubled since 1967.

Again, we’ve blown a hole in the family, and our stagnant poverty rate is a result of that, not of any economic policy failure as so many would have us believe. In fact, without the dramatic across the board poverty reductions we’ve experienced, the overall poverty rate would be 17%, instead of our current 12%. Basically, we’re treading water because so many people are dumping the safe, rising boats in favor of a leaky one.

The reasons this is so important are political and public policy ones. The poverty and stagnation numbers we commonly hear and which have become part of our conventional wisdom are used to push a political meme – that the small government, low tax movement begun by President Reagan failed for the poor and middle class. This is clearly false.


From → Economy, Politics

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