Friday, September 07, 2007

Poor thinking about poverty rates.

The most recent poverty rate figures for the US were released recently. Some wag at Huffington Post, which is so far Left they need crutches to stop from falling over, thinks he is witty to compare the US poverty rate to that of Iran. He then notes that since Iranian policies are to blame for the poverty rate there then George Bush’s policies are responsible here.

I long for the days of such simplistic thinking. Alas, I outgrew them somewhere around fifth grade. There are few people who hold Mr. Bush in as much contempt as I do, but this sort of statement is irrational. The poverty rate wasn’t much different under Bill Clinton. In fact it has been relatively steady for some decades, ranging in the 11% and 12% area for some years now. Apparently the Huffington Post writer used the wrong poverty figure for the US. He said it was 13.3% when the report, on page 11, says: “The official poverty rate in 2006 was 12.3 percent, down from 12.6 percent in 2005.” He got his number from an inaccurate summary -- it really does help to read the actual report before commenting on it.

Congressman John Rangle, always looking for an excuse to blow off hot air, claimed that the numbers show "poverty is higher" even though that is not what the numbers actually show. The Left-of-center Guardian newspaper in England went even further with falsifying the facts. One columnist there urged Democrats "to represent the swelling ranks of have-nots" and claimed "that since George Bush came to power the poverty rate had risen by 9%." As we shall see the ranks of the have-nots is not swelling at all but declining. And the report they cite says as much.

We should also note that America’s “poverty rates” are a far more complex thing than some recognize. Actually life is often far more complex than simplistic theories, Left or Right, generally accept.

One issue is that not all nation use the same formula to measure poverty rates. Change the formula and you change the outcome. Other nations discuss poverty only after all welfare payments of all kinds are added into the equation. So their poverty rate, as an example, might be 14% without the payments, but only 6% with the payments factored in. The US calculates the rate prior to the payment of any government benefits. Often when anti-Americans compare poverty rate figures they are unaware that they are comparing apples and oranges. This is regularly brought to their attention yet they persist in the false comparison for reasons of their own.

Also ignored is that the “poor” families are doing very well when it comes to the comforts of life. That is not to say some aren’t in terrible conditions. But most poor own their own car, own major appliances (which my grandparents never had in their middle class existence of 50 years ago). Poor families own color televisions, DVD players and so forth. If we look at the comforts of life alone the poor in America would be middle class in much of the world. This fact is ignored.

The Boston Globe editorialized that “poverty persists” and “only some people are doing better”. Income for white Americans, they say only increased by 1.1 percent while that for African-Americans, Asians and Hispanics there “has been no statistically significant change in income.”
This isn’t quite the case as this census chart shows. Consider the median household income in the US in constant dollars, meaning adjusted for inflation. It went from $36,847 in 1967 to $48,201 in 2006. The census report notes: “Compared with 1967, the first year for which household income statistics are available, real median household income has increased 30.8 percent.”

We should also look at the actual poverty rate, always remembering this is prior to any benefits. The first year it was calculated was 1959 when it appears to have been around 22.5%. As this chart from the report shows there is a drastic decrease throughout the Sixties, bottoming out around 1968/1969. Since then the rate has fluctuated within a very narrow range. Oddly what is ignored is that the most rapid decline in poverty numbers took place before the massive welfare programs of the Johnson/Nixon era.Even the total poverty rate of 12.3% is a bit misleading. Left of center economist Robert Samuelson looked at the numbers and concluded that things would be very different were it not for illegal immigration. Take illegals out of the equation and the poverty rate would have declined. From 1990 to 2006 the number of poor increased by 2.9 million people. Since population grew significantly during this period this meant a poverty reduction from 13.5% to 12.3%. But of the 2.9 million additional poor, “Hispanic accounted for all of the gain.” White Americans saw their poverty rates decline slightly. African Americans saw poverty rates cut dramatically.

Samuelson says that the issue of immigration and poverty can’t be ignored. He also says some people are being untruthful about the state of poverty in the US.
It's usually held that we've made little, if any, progress against poverty. That's simply untrue. Among non-Hispanic whites, the poverty rate may be approaching some irreducible minimum: people whose personal habits, poor skills, family relations or bad luck condemn them to a marginal existence. Among blacks, the poverty rate remains abysmally high, but it has dropped sharply since the 1980s. Moreover, taking into account federal benefits (food stamps, the earned-income tax credit) that aren't counted as cash income would further reduce reported poverty.
The reality is, that if we remove the newly arrived poor from the statistics, then poverty rates in the US have fallen. Unlike many wealthy nations the United States absorbs millions of poverty stricken, uneducated poor people each year. In spite of that the poverty rate has remained relatively steady for decades.

More importantly we need to consider whether a slight increase would actually mean things are getting worse. It all depends on where we see the increase. It would be regression if the poverty rate for native born, or naturalized citizens, increased. But that hasn’t happened. Their poverty rates have declined. So they aren’t worse off.

The only place where the overall number of poor has increased is among illegal immigrants. This is due to larger numbers of such immigrants in general. But are they worse off? No. These immigrants are also richer than they were before their arrival. Certainly if they are “worse off” they could return to their previous conditions with much less effort than it took to arrive where they are now.

In many ways the poverty rate is like the average height of a family. You really need to know what is going on before it holds any meaning. If you had a family with an average height of 71 inches in 2005, but only 53.5 inches tall in 2007 does that mean they shrunk? If you discovered that in 2006 they adopted two children each of whom was 36 inches tall that explains the decline. You needn’t conclude that there is some horrific medical problem.

Americans are not poorer but wealthier. In terms of steady dollars, income for the average family has increased at a relatively steady pace for decades. America’s poverty rate, for native born, is continuing to decline.

The average appears relatively stagnant only because of newly arrived poor people. The great miracle of America for generations is that poor people can arrive in vast numbers and become wealthier without making others worse off. The increased “poor” are people who have improved their lives significantly in recent years. If anything they are making even more rapid progress than everyone else. That is why they immigrated under such difficult conditions.

The poverty rate in the US, under natural market conditions, would probably be even much lower. But nativists and bigots have tampered with the market to prevent poverty alleviation for the newly arrived poor. There has been a concerted effort, mostly based on abysmal ignorance of how markets work, to legislate lower wages and worse working conditions for immigrants through legal sanction for hiring such individuals. This racist approach makes it more difficult for these immigrants to find work with decent pay and decent working conditions and makes them more vulnerable to exploitation. Absent this effort ,I suggest that the “poverty rate” (by US standards) for these people would be even lower than it is.

The US poverty rate is widely misunderstood and often intentionally so. By itself it tells us little until we break it down into individual components. When we do a more detailed analysis we find that all the groups represented within that average are generally better off than they were a few years ago. The native born and naturalized citizens saw incomes rise steadily over the years. And the illegal immigrants, who are poor in America today, are much wealthier than the were before their perilous journey to the United States. On a whole that number shows America at its best, not at its worst.

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