Wednesday, September 22, 2010

New Poverty and Income Figures for 2009

Last week the Census Bureau released poverty estimates for 2009. We also learned in the same report that median household incomes are holding nearly steady ($49,777 real median household income). The earnings for full-time, year-round workers are also about the same ($47,127 for men, and $36,278 for women). Adjusting for inflation, household incomes now are almost the same as they were in 2002-2004 and 1997. Household incomes were highest in 1998-1999 and 2007. Basically, median American households have been getting about $50,000 for their income for the past 14 years, give or take a few hundred (in inflation-adjusted 2010 dollars). But household incomes are influenced by how many people live in a household and how many people work in a typical household. The full-time, year-round worker earnings are the more interesting figure to see how much people earn. Earnings of men peaked around 1973-1974, when they earned almost $50,000 in inflation-adjusted 2010 dollars. Men’s median full-time, year-round wages have had highs and lows since then (with a slump from 1989-1995 when earnings were below $45,000), but have never crossed the $50,000 milestone. Women’s year-round, full-time incomes have been climbing very slowly all along back to 1960, with only a few short and shallow dips, and their current rate is about the same as their highest rate ever, which was measured in 2007.

Poverty statistics go back to 1959. There was a steady and steep drop in poverty (beginning before the War on Poverty of the mid-1960s), with poverty levels hitting their lowest rates (just under 11%) in 1973. Poverty rates have been highest (around 15%) during the early 1980s recession, and then again around 1992. There was steady decline in poverty between 1993 and 1999, so that just before the short recession in 2000 we had almost matched the low rates of poverty last seen in 1973, but since then we’ve had level poverty or growing poverty, and the current rate of 14.3% for 2009 is the highest we’ve had since around 1995-1996. Actually, I had been thinking poverty figures would show a rate around 15% for 2009, so the actual figure of 14.3% seems better than I had hoped for. Childhood poverty is back up above 20%, with 20.7% of American children living in poverty.

One thing about the poverty figures is that they tell us the poverty people experienced when we just consider their earnings. In fact, we have a fairly good welfare system in America, and between cash assistance (Earned Income Tax Credit, Temporary Aid To Needy Families, etc.), in-kind assistance (Supplemental Nutrition Assistance Program, Housing Vouchers and Public Housing, Medicaid, School Lunch Programs, etc.) most of America’s persons in poverty end up consuming at levels well above the official poverty line. Still, I estimate somewhere between 2.5% and 4.5% of Americans really experience deep and harmful deprivation, even after all benefits (as is suggested by USDA’s food security surveys, studies of the homeless, and case studies of some of the poorest of the poor). Some conservatives have pointed out that if we just took the total spending on our welfare system and divided it up among the poor, we could give each poor person in America enough money to get them out of poverty, and that would be more efficient. Well, yes it would, and a negative income tax to remove all Americans from poverty is probably a good idea, but it’s politically unfeasible, because studies show that such a program would create disincentives for people to marry, and Americans in general hate the idea of single parents living off of welfare.

On the other hand, a negative income tax to eliminate poverty among Americans over the age of 60 or 65 seems like a great idea to me, and I can’t see any downside to that. I’d even suggest dramatically reducing Social Security benefits while creating a new income floor for all Americans over 64. We would guarantee all elderly Americans an income of at least 105% of the poverty level, and add on top of that some sort of reduced Social Security pension for Americans whose incomes after age 64 are already near or above poverty levels.

Are the poor lazy, dishonest, and are many of them welfare cheats? Certainly not. In the Survey of Income and Program Participation we have monthly data about labor force participation for thousands of Americans, and we can say that between 2004 and 2008 about 31.6% of the population experienced a period of at least two months in which their monthly income dipped below poverty. One can’t argue that over 30% of Americans are lazy, dishonest, or welfare cheats, I think.

There is also significant upward mobility out of the bottom of the income distribution. About 30.9% of the households with incomes in the bottom fifth (quintile) of the income distribution moved up out of the bottom quintile (which, logically means that they were replaced by persons falling down into the bottom quintile). All this just goes to show that about 14% of Americans are moving out of or into the bottom of the distribution in a four-year period. That seems to me like significant mobility. Also, that Survey of Income and Program Participation shows us that only 2.2% of those who live in poverty remained in poverty over the whole 4-year period. And that seems about right, that we have only 2%-4% of the population that is stuck more-or-less permanently in poverty.

When we consider that only 2%-4% of Americans are stuck in poverty, we can consider some other statistics that might help us understand who these people are. First of all, how many Americans have an intellectual disability (mild mental retardation, for example), or nearly have one? That would be about 1%. How many Americans have chronic health problems that make it difficult for them to get and hold a job? Again, that is a figure that must exceed 1% (since over 12% of Americans are labeled as having a disability). How many Americans have personality disorders, and can you imagine wanting to hire or work with colleagues who have personality disorders? Again, we have a figure of 1%-2%. And what about persons with serious, severe, chronic mental health disorders, like severe depression, severe bipolar mood disorders, psychotic disorders, and the like? Again, we’re looking at a figure exceeding 2% here. And then again, there are addictions, where nearly 10% of Americans suffer from an addiction, and surely over 2% have serious addictions that would make it nearly impossible for them to hold a job and earn income. So, when you add up these troubled and disabled populations, it’s really a wonder that we have only 2-4% of Americans in persistent and deep poverty (pre-welfare benefit poverty).

But what about the people who scam the system? I personally think that perhaps 0.25% to 0.5% of Americans are merely lazy, incompetent, dishonest, scheming poor people who would rather game the system than work themselves out of poverty. With 310 million people I’m talking about as many as 1.6 million Americans, which is a high number, but people who think they can balance state or federal budgets by cutting welfare benefits to those who don’t deserve them are either ignorant or else dishonest. If you could magically cut all welfare benefits to undeserving cheats and lazy welfare scammers without adding any administrative costs to the system, you might save, at the very most, $7-$10 billion. Probably the savings would be more along the lines of $2-$3 billion. That’s significant, but it’s not going to make much of a dent in an $400-$800 billion deficit (that would a range for a deficit when we get out of the recession and restore tax levels to pre-Bush tax cuts and stop stimulus spending). But to actually get the $2 billion to $10 billion savings by finding and cutting off the undeserving poor from the welfare benefits they unjustly take, you would need to spend hundreds of millions of dollars to have investigators and social workers intrude into the lives of everyone who receives welfare benefits, and that would cost billions of dollars in itself, possibly even more than the savings you would get.

Another point to remember is that many of those who have poverty incomes have friends who are not poor, and those friends or family members probably help out. In fact, we know that they generally do help out. So, a family of four that earns $14,000 per year (very poor), may get something like $12,000 in welfare benefits (including the value of having their children on Medicaid), and might get an additional $3,000-$4,000 in gifts from wealthier family members who help out. Thus, their consumption could be at a level of nearly $30,000 after benefits and gifts. If you're in a family of four and earning slightly above $30,000, it may annoy you that neighbors in front of you at the grocery store are affording better food than you can purchase, yet you know they receive welfare benefits. It may be that gifts from generous family members are what get them up to the level of consumption where they can afford things that you don't.