What If We Just Gave Poor People Money?

Platypus Economics with Justin Wolfers

The episode explores the complexities of measuring poverty in the United States, contrasting the official poverty rate with the supplemental

Key takeaways

• The official poverty rate fell to 10.2%, but this figure relies on a threshold formula developed by Molly Orshansky in the mid-20th century.
• The Supplemental Poverty Measure (SPM) provides a more accurate picture by including resources like SNAP and child support.

Main topics

• Official vs. Supplemental Poverty Measures
• History of poverty statistics

Notable quotes

Poverty is a word, not a measurement.

Conclusion

Evaluating the true effectiveness of social policy requires looking be

Transcript preview

Speaker 2 (0:00) The latest poverty numbers just came out. The federal government puts these out every year and they inform all sorts of policy and give us a snapshot about who has what in this country. So today we're going to talk about them. I'm Augusta. I'm a producer here at Platypus Economics. Speaker 1 (0:13) And I'm Justin Wolffers. I'm an economics professor and I'm here to help you make sense of the world around you today talking about poverty. Speaker 2 (0:22) This is the Platypus Economics Podcast. Let's dive in. First, we're going to talk about the numbers. Poverty is a word, not a measurement. Then, how we measure poverty at all, which turns out not to be as simple as it sounds. Third, who's in poverty and how people end up there. Fourth, what actually works, which programs have made a real dent. And last, the question underneath all of this, which is, who do we think deserves help? Okay, Justin. So official poverty fell from 10.2 % down 0.5 points. That's the third consecutive annual decline and one of the lowest rates on record. First, can you give me a sense of 10.2 % of what? I mean, how many people are we talking about here? What does this mean? Speaker 1 (1:07) Today's an exciting day for social policy wonks because we just got the latest poverty statistics. That's what we're talking about just to set the table. And then you'd be like, well, Shouldn't that be easy? We just go and measure poverty. To which I say, how do I figure out who's in poverty? And then you realize poverty is just a word, not a measurement. So briefly, the way we do this is the Census Bureau has a number called the poverty threshold. It basically says, given the number of people who live in your household, what income do you need for me to define you as being not poor? If your income is above the threshold or below it, we're going to say that you're in poverty. So the official number is that 10.2 % of Americans are in a household whose household income is below the income threshold. I want to obsess on a tiny detail there. So my son, he's 13. His annual income is about $7 and it all goes on Pokemon cards. But he's not in poverty because he lives in my household. And so that's why all of these calculations are done at the household level. They're basically thinking about people as being in, jargon alert, income sharing units. You might call them families. Some families are complicated and have modern forms, so we use the word households. Let's put a more human face on this. The poverty threshold is really low. And 10.2 % may disguise the magnitude. We've got 34.5 million Americans in the richest country in the richest year of its existence. 34.5 million Americans are in poverty. Speaker 2 (2:43) It's Speaker 1 (2:44) a Speaker 2 (2:44) huge number and there's a second measure here, right? So there's official poverty, but then I was looking through this report and there's also the supplemental poverty measure. Can you tell me about that and how those two numbers differ? Speaker 1 (2:53) Yeah. So it just starts from just the very simple recognition that measuring poverty is hard. If you said to me how many people are six foot, I'd just go out with a ruler and measure how tall people were. Speaker 1 (3:06) That's what I do. I'm a very literal person. If you tell me people are in poverty, I'm going to ask you a bunch of questions instead. How different is it to live in a household with multiple people? Is an income of $20,000 in a very rich country poverty, or is it actually a reasonable standard of living? Should we take account of the fact that, Augusta, you're coming to me from New York where the cost of living is very high. I'm coming to you from Ann Arbor, Michigan, where it's much, much lower. Should we think about that as the cost of living or as a way that you're choosing to spend your income? And then there are questions, what do we mean by income? Should we count food stamps as income? Well, they're not money. You can't use them for everything, but they are useful. Should we do this pre-tax or post-tax? You can see the complexities just multiply. The so-called official poverty statistics, really funny story, really interesting story, really useful story. So way back in the 50s or 60s, Molly Oshansky was a senior public servant, said, I'm going to go and measure poverty. She needed to figure out how much money would you need to get by in society and say everyone below that is in poverty. Well, she figured out what the amount of money you needed to feed a family of four, a healthy diet. And then she said families. tend to spend a third of their income on food. So I'm just going to take that diet and triple it. Speaker 1 (4:31) And then every year we say the cost of living has risen, so we're going to adjust for that only. So that's what we call an absolute poverty measure. Now, there's a million things wrong with it. For instance, it doesn't count tax cuts. The earned incomes tax credit has been one of the most important ways in which we've tried to raise up the well-being of low-income families. So if you work but you don't earn a living wage, basically the government writes you a little bit of a check to help you get by. that's not counted. Food stamps aren't counted. We don't account for the fact that you live in Brooklyn and I live in Ann Arbor, on and on and on it goes. So this was a brave attempt that made sense for 50 years ago. Then the government said, I know what's better than that. Let's appoint a bunch of nerds, poverty nerds. And these nice people, there was a National Academy report. They all flew in on planes and yelled at each other about what poverty would actually mean and thought more broadly about what a poverty measure should do. And that's called the supplemental poverty measure. Almost anyone who studies poverty would say this makes a lot more sense. One of the important things is they talk about not just income. but also resources more broadly. So now resources includes things like child support. It includes food stamps, now known as SNAP. It thinks about differences in the cost of living. Over the last 40 years, the official poverty measure has barely moved. And that leads a lot of people to be kind of depressed and say, economic growth and all of our attempts to help the poor have done nothing. Let's give up. Nothing matters. Actually, Speaker 1 (6:12) It's