The Key to the Brexit Backstory
How did Britain’s wealthy take the end of the British empire? Not well — and the rest of us are still paying the price.
In America politicians and the press talk endlessly about the declining middle class. Indeed, as the latest data show, middle America has been shrinking since the 1970s. Yet while the plight of the middle became a major issue in the 2012 Presidential race, the much worse situation facing the poor was rarely mentioned. During the election, the Republican candidate Mitt Romney went so far as to say that he was “not concerned about the very poor.”
Yet, according to research published in the late 1990s, more than two-thirds of all Americans experience poverty at some point in their lives. Since then the situation has deteriorated further. The latest sociological research on poverty concludes that “poverty has become a routine and unfortunate part of the American life course.”
Even this research dramatically understates the prevalence of poverty in America today, because it is based on a definition that is now almost half a century out of date.
In the United States the official definition of poverty is derived from a decision made in 1969 by the Bureau of the Budget to select a uniform set of poverty thresholds . The Bureau of the Budget was the precursor to today’s Office of Management and Budget, an executive branch agency that reports directly to the President. Its 1969 intervention in the poverty measurement debate effectively froze official efforts to define poverty for all time.
As a result, today’s thresholds are essentially unchanged from 1969, aside from minor technical adjustments and updating for inflation.
In effect, poverty in the United States is still measured according to a four decade old standard of living. It represents what government officials in 1969 considered the minimum necessary to respectably support families of different size. The US measures poverty today on the basis of, in effect, an absolute 1960s standard.
Half a century on, you might expect that few Americans would be living below the 1960s poverty level. You would be wrong.
The proportion in poverty in 1969 stood at 12.1%. By 2011 it had risen to 15.0%. A larger proportion of Americans lived in official absolute poverty in 2011 than 42 years earlier.
The situation is even worse for American children. Among children, the 2011 poverty rate was 21.9%, up from 14.0% in 1969. The disproportionate increase in child poverty has been due to the proliferation of single parent households. The poverty rate for households headed by single mothers is 34.2%.
[pullquote]Among children, the 2011 poverty rate was 21.9%, up from 14.0% in 1969.[/pullquote]
Today’s poverty thresholds derive from an estimate of the minimum cost of feeding a poor family in 1963, times three. The multiplier was based on 1955 survey evidence that a typical family spent about one-third of income on food. From 1963 to 1969 the thresholds were updated each year according to changes in the estimated cost of the food budget. From 1969 they have been updated for inflation. (see Social Security Bulletin).
These figures are even more remarkable given that US real national income per capita has more than doubled since 1969. Literally none of that growth has benefited the poor. On the contrary, the absolute incomes of the poor have actually declined over the last four decades, while their relative incomes have shrunk catastrophically.
The official US poverty line for a family of four was $22,350 in 2011. Updating that figure for growth in real US national income per capita since 1969 would yield a 2011 poverty line of $46,651. By that standard, about 28 percent of American families of four are now living in poverty, almost twice the official poverty rate.
In contrast to the United States, most rich countries today link their poverty thresholds to their median income levels, so that poverty thresholds rise with income. For European Union countries, the “at risk of poverty” threshold is set at 60% of median income. By this measure the US poverty rate is 23.9%, higher than that of any European country according to data from the OECD.
While the European-style measure of “relative poverty” is now increasingly widely accepted, it has its critics. Some claim it is difficult to distinguish from the broader idea of economic inequality. In fact, the correlation between relative poverty and income inequality is measured at around 0.95 on a scale from 0 (no relationship) to 1 (a perfect correlation).
A potential advantage of the US “absolute poverty” approach — poverty defined as living below an absolute minimum acceptable standard in a given society — is that, in principle, it is possible to eradicate poverty. The elimination of poverty thus becomes a realistic social policy goal, though as a society grows and develops, its threshold for absolute poverty should be increased in line with new expectations for minimum acceptable living standards.
The United States has failed to eradicate — or even reduce — its levels of absolute poverty based on 1960s expectations of minimum standards of living. By any reasonable 21st Century standard, poverty in America would be even higher than the officially recorded 15%. America has a long way to go before it achieves the ideal of a society free of poverty.