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By Christopher Lingle : BIO| 20 Mar 2007
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Newspapers around the world recently carried an item that seems to be a damning indictment of the US government and the American people. The 2005 US Census indicates that the percentage of poor Americans living in "severe" poverty is at a 32-year high. This put the proportion of poor people in deep poverty at 43 percent of the total of 37 million.
As such, the number of severely poor Americans grew by 26 percent from 2000 to 2005 so that 16 million Americans are living in deep or severe poverty. This is defined as a family of four with two children and an annual income of less than $9,903, or one-half of the federal poverty line.
On their face, these figures sound ominous and suggest that the US government and the American people have turned their backs on the weakest citizens. But truth and reality are much more complex than the raw data suggest.
The US government has spent close to $10 trillion (current dollars) on domestic welfare programs since President Johnson launched the "War on Poverty" in 1965. These include Aid to Families with Dependent Children (now Temporary Assistance to Needy Families—TANF); food stamps; Medicaid; the Special Supplemental Food Program for Women, Infants, and Children (WIC); utilities assistance under the Low-Income Home Energy Assistance Program (LIHEAP); housing assistance under a variety of programs, including public housing and Section 8 Rental Assistance; and the free commodities program. And then state and local governments engage in welfare spending that includes free medical care for the impoverished through charity hospitals.
Spending on all social programs is up by 22 percent (inflation-adjusted) since 2000. In 2004, total government spending on low-income families was $129 billion, or $9,058 per poor family.
Besides all this public-sector spending, private charities and religious organization offer considerable aid to the indigent ranging from soup kitchens to housing and so forth.
Now let's look at the official poverty rate for the US as estimated by the Census Bureau from data on poverty and income collected in an annual survey and defined according to household size and makeup. The average poverty threshold for a family of four was $18,392 in annual income in 2002.
The official rate combines the money income of individuals and families before taxes with cash assistance received from government programs that is compared with established poverty thresholds. These thresholds vary according to the size of the family and are adjusted annually to account for the effects of inflation.
But this official estimate does not include non-cash government benefits, like public housing, Medicaid, free or subsidized medical care, or food stamps.
In all events, it turns out that the financial resources of the poor in the US tend to be undercounted. For example, the poor tend to underreport income to the Census, perhaps because they fear it will be reported to the IRS. Consequently, Census figures on income relative to spending indicate that the poor spend $1.94 for every dollar of reported income.
Poverty measures ignore the value of household assets like housing. Consider the following facts about the poor in America. Data from 1995 indicate that 41% of all "poor" households owned their own homes with an average size of 3 bedrooms, 1 ½ bathrooms and most had a garage and a porch or patio. Among the poor, 750,000 owned homes worth over $150,000 (an amount that should be much greater given the US housing bubble).
The average poor American lives with 1/3 more living space than the average Japanese, 25% more than the average Frenchman, 40% more than the average Greek and 4 times more than average Russian. Among the poor of America, 70% of "poor" households owned a car and 27% had two or more cars.
Since the poor of America live better than many of the rich in most other countries and so much money has been spent to improve their condition, it is right to ask what must be done.
In the first instance, income is an inexact indicator of poverty. Consumption, or the lack of it, provides a far better picture of how well off people might be. Given that many of the poor in America tend to be obese is an indication that they are not deprived of sufficient food.
If absolute poverty is considered the lack of access to sufficient resources to satisfy basic needs, there is not much of this in the US. In the US, as in most countries, relative poverty is a bigger issue.
But relative poverty can never be fully resolved through incentive-destroying policies of everyone receiving the same income regardless of effort or talent. History provides little evidence that forced income redistribution through taxation can alleviate mass poverty.
Perhaps a better response to poverty would be to reduce the reliance upon governments. The slack could be made up by elements of civil society like private charities that are more effective than public welfare programs in serving the poor.
As it is, 85 million American households give a total $250 billion dollars to charities each year. Interestingly, private citizens in the US gave more to the victims of the Asian tsunami than the federal government provided in aid. It is wrong to think that Americans citizens are shirking their obligations to needy neighbors or that the US government should do more.
Christopher Lingle is Senior Fellow at the Centre for Civil Society in New Delhi and Visiting Professor of Economics at Universidad Francisco Marroquin in Guatemala.
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