The Poverty Rate Is Vastly Understated

Very little to add to this story, other than the official definition of poverty by government statisticians borders on criminal. Either this figure has never been indexed to inflation, or government workers have never lived life in the real world paying for basics such as shelter or food. Obviously the true numbers (and percent) of Americans living in poverty is much higher than below - but whatever the actual number, this economy is not working for a great many.

While obviously people in the strata of income discussed in this piece won't be coming to visit the website for investing tips or as potential mutual fund investors, anyone talking about the American economy should not be dismissing (or ignoring) what is happening in a great (and growing) part of the population.

• The U.S. poverty rate rose to the highest level in 11 years in 2008 and household incomes declined as the first full year of the recession took its toll, government data showed.
• The poverty rate climbed to 13.2 percent from 12.5 percent, and the number of people classified as poor jumped by 2.6 million to 39.8 million, according to a Census Bureau report released today.
• Real per capita income for the U.S. as a whole declined by 3.1 percent last year to $26,964, the report showed.

This is why these numbers are dramatically understated; to government officials if a family of four brings in $23,000 they are not in poverty. I would define any single person making $22,025 as living in poverty, not to mention a family of four.

• The poverty threshold in 2008 was defined as $22,025 in income for a family of four.

If you are a newer reader, when I started the blog in 2007, the number on food stamps was 1 in 11 Americans, it has now reached 1 in 9. [Jun 8, 2009: 1 in 9 Americans on Food Stamps] Since food stamps is not considered "income" in the Census report, I suppose that's a green shoot - we are understating people's prosperity by the value of food stamps.

• The rise in poverty is putting a strain on social services and charities. At the Atlanta Community Food Bank, demand in August was up by about 20 percent from a year earlier, said Bill Bolling, the founder and executive director.
• “There are a lot of people who have never needed help that need it now,” he said. “It is quite a different environment.”

Family incomes in the poverty area do not include the value of food stamps, money received through tax credits or unreported income. On the other side, the poverty threshold has not been adjusted over the years to reflect the rising relative costs of housing and medical care and does not take account of large regional differences in the cost of living.

[Jun 22, 2009: WSJ - Numbers on Welfare See Sharp Increase]

[Feb 20, 2009: NYT - Newly Poor Swell Lines @ Food Banks Nationwide]

[Nov 14, 2008: Wall Street Journal - A Run on (Food) Banks]

Comments

[Pozzdonn:]

Our government's treatment of poverty is indeed criminal ol' Trader. The poverty level as defined by Census Bureau the has changed little since its adoption from the Social Security Administration in 1965. Poverty in the US is defined as an amount equal to three times the after-tax cost of food for a family of three or more.

Times have changed considerably over the past 40 odd years. Relative standards of living have increased, meal types, eating habits, and nutritional standards have changed. Moreover, housing, transportation, and energy costs have increased disproportionately to food prices, and it is simply more expensive to live in some areas of the country than others. Yet those factors are not considered when dealing with official poverty definitions. We must have a new and sound policy to deal with this issue or we will continue to see more and more children snared in a web of poverty, crime, and violence.

Sep 13 09:15 AM

[Gregman2:]

Not considered is the housing component.

Sep 13 01:51 PM

[Vuke:]

Statisticians need a word other than "poverty" to define the underclass income. There are so many variations in circumstances the word has lost its meaning.

Try living in a developing country on $1 a day to understand the real definition of poverty.

Sep 13 02:04 PM

[Donald Ingram:]

Good observation. One statistic that is frightening comes from Wal-Mart of all places! Tent sales are up 36% over last year. Tent cities are growing. Going on to public park sites (both state and national) the reports of people now living in the parks are expanding at an alarming rate.
Just the rate of food stamp growth is stunning.

A nation that can not provide the the three basic life staples to it's citizens of food, shelter and clothing - has it's days numbered.

On Sep 13 01:51 PM Gregman2 wrote:

> Not considered is the housing component.

Sep 13 02:20 PM

[ed233:]

Social anarchy is an undesirable consequence when infra-structure facilities are stretched to their limit. Mr. Obama can ill afford expensive policies such as cap and trade and a medical overhaul to expand into universal health coverage at the expense of increased taxes when 16% of the labor force is unemployed. There is a time and place for everything. Perhaps there are more pressing needs such as exorbitant deficits to address before a reform toward socialism is implemented. LOL Looking after your money.

Sep 13 03:32 PM

[TinyTim:]

John Lounsbury had an interesting comment this morning on inflation:
"If you don't eat, need medical attention, heat your home or drive to work, there is no inflation."

Sep 13 05:37 PM

[TraderMark:]

wrote about campgrounds becoming permanent addresses early this month

www.fundmymutualfund.c...


On Sep 13 02:20 PM Donald Ingram wrote:

> Good observation. One statistic that is frightening comes from Wal-Mart
> of all places! Tent sales are up 36% over last year. Tent cities
> are growing. Going on to public park sites (both state and national)
> the reports of people now living in the parks are expanding at an
> alarming rate.
> Just the rate of food stamp growth is stunning.
>
> A nation that can not provide the the three basic life staples to
> it's citizens of food, shelter and clothing - has it's days numbered.
>
>
> On Sep 13 01:51 PM Gregman2 wrote:

Sep 13 07:39 PM

[TraderMark:]

Certainly poverty in the US means something very different than poverty in say a sub Saharan African country.

But if this is your guide on what poverty is, there is just about no poverty in America.

Also cost of living among countries is very different.


On Sep 13 02:04 PM Vuke wrote:

> Statisticians need a word other than "poverty" to define the underclass
> income. There are so many variations in circumstances the word has
> lost its meaning.
>
> Try living in a developing country on $1 a day to understand the
> real definition of poverty.

Sep 13 07:40 PM

[socrateazz:]

What is poverty? A number does not really do it justice. I think that when 95% of your income after taxes goes to needed goods, housing, and services. And you have less than 5% left to do with what you want, you are in poverty. The lower class has less than 25% left over after needs are met for optional expenditures. The middle class has less than 40% left over for optional use. The upper middle class has between 40 and 60% left over. And the rich have greater than 60% of their wealth not needed for living expenses. If that could somehow be quantified, then the real positions of people would be evident. I think we are seeing more rich and more poor and lower middle class in the US. I wish I knew a real fair way to balance that so there are more middle class. But neither side really believes the others views are fair because they really are not.

Sep 13 11:05 PM

[Santa Fe Steve:]

Standard of living depends on circumstances. If you own your own home, annual income is much less important. If you grow some of your own food that can make a difference also. If you live in a large supportive family, that can make a difference. Where you live can determine costs of heating and cooling. If you know how to do home repairs and are not lazy that can make a difference. It is not so easy that a single number can describe poverty.

Some people like the author of this column just love to hear themselves talk.

Sep 14 12:55 AM

[TripleG:]

Nice article, TraderMark.

Now if we all gave a little of our income to help (as in a LifeLine, local food pantry, local family support program, etc), we could help chip away at poverty in America...... but who can do that when we are all occupied with building our McMansions?

Sep 14 08:07 AM

[John Galt:]

I don't like the stats for the "poverty rate". As you eluded to mark, if you have 23,001 you aren't in poverty, but if you have 22,999 you are. If you live in Montana 23K is different than NYC.

I'd agree the poverty rate is going up, but based on the horrible economic conditions, would you expect otherwise?

Sep 14 09:51 AM

[Hot Richard:]

"...we are all occupied with building our McMansions?"

Not me. I'm occupied with building super highways in West Virginia, studying beaver damns in Wyoming, giving money to children's wooden arrow companies, buying failing companies because they have a nice voting block, waging endless wars (the only way to peace and safety), and destroying people's lives for smoking a joint.

I just wish some genius on a financial website would tell me how I should be spending the money I earn in order to be a better human being.

Sep 14 10:13 AM

[Hot Richard:]

"Social anarchy is an undesirable consequence..."

You won't get it in America ever (by my definition), but the amazing thing is that social anarchy is a DESIRABLE consequence. Social lemming-chy is undesirable--which is what we have since, in spite of meaningless protests, there is no point at which the American people will say "Enough." In fact, I believe Americans are chanting "More!" Excuse me while I check on TARP, GM, C4C, Iraq, ObamaCare (er..."Public Option" I mean) and the national debt.

We talk of poverty as if we know what that word means.

I know I've made two posts that are out of line for SA, but at some point of any poverty discussion one must focus on the definition of poverty. This should be a long, long discussion which hopefully puts off the painful, painful, painful morality discussion associated with poverty. I've conceded that the all-problems-are-the-d... socialists will "win" and government will be the mechanism (by use of gun and confiscation) to "solve" poverty and ensure your morning muffin isn't too dry. Then, we'll all sing together and tie-dye our undies in the collective's wash tub and a very small percentage of us will later get back to work.

Sep 14 10:34 AM

[Pozzdonn:]

You can call it what you will, but its the ancillary repercussions of "poverty" that are costing us all much more than just a few cents of our earnings as payment for certain entitlement programs.

I've lived with the people in $1 a day poverty. But we're talking about America's poverty on this thread, and it's different. It means a mother of three who has to work two or three jobs to make enough for housing and expenses (forget the fact she was promiscuous and has three children - there are still three living, breathing children). She has no time to go back to school for educational or vocational instruction in order to better herself. She has no extra money to provide the children with leading-edge technology or exposure to culture and the arts. Then, very often, when the kids grow old enough to roam on their own, they quickly become indoctrinated to the dark ways of the street.

What happens next... Well, take out a long position in CCA or HI. There's a couple of growth companies for as long as we continue to ignore America's poor.


On Sep 13 02:04 PM Vuke wrote:

> Statisticians need a word other than "poverty" to define the underclass
> income. There are so many variations in circumstances the word has
> lost its meaning.
>
> Try living in a developing country on $1 a day to understand the
> real definition of poverty.

Sep 14 07:29 PM