The Hindu Business Line : Poverty in the US: Fact and fiction

ONE of the most popular indictments of capitalism is that even in the US, the richest country in the world, about 7 per cent of families and 12 per cent of individuals lived below the officially determined poverty line in 2002.

In fact, the figure was higher in 2002 compared to 1973 when the poverty ratio was 11 per cent of individuals. This rise in poverty ratio occurred over a period when the per capita income, adjusted for inflation, went up by 35 per cent.

These statistics imply that the effects of the rise in average standard of living did not reach the poorest sections of society.

The poverty line is determined by the income which an individual or a family needs to purchase a minimum requirement of calorie through food intake plus some minimum standard of clothing and housing. Some think this is not the correct measure. A better measure would be consumption of goods and services by households, not their income. A person is poor not because he does not have income but basically because he cannot have the goods he needs.

The reason why a substantial difference arises between these two measures is that most poor American families get free food (through food stamps scheme), free medical care (through Medicaid) and heavily subsidised public housing.

Moreover, many of the individuals who earn less than the poverty line income are retirees living on past savings and full time students depending on parental incomes.

Therefore, by current income standards, they would be `poor' but not so by consumption standards. Further, the number of poor households in the US swells every year simply because of the immigration (often illegal) of low-skill people into the country.

These people earn less than the poverty line income yet they come in — sometimes putting their lives at risk — with the hope of earning several times more than what they did in their home country. It is a sad fact that the prospect of living in poverty by American standards is a dream for many people from other parts of the word.

What is the condition of America's poor? Are they as poor as those in the Third World countries?

Certainly not. Consider a few other statistics. The most conspicuous symptom of poverty in the Third World countries is under-nourishment that gets reflected in underweight.

By contrast, 26 per cent of people below the poverty line in the US are obese. According to the 2004 Heritage Foundation Report, 46 per cent of households classified as `poor' have their own homes. On an average, these units have three bedrooms, one and a half baths, a garage and a porch or patio.

These provide more square foot of space per person than what is available to a typical (that is, non-poor) individual in Paris, London or Tokyo. (To clarify, this is the average picture among the `poor'. This does not negate the fact that there are homeless people in the US.) Elementary and high school education is free in the US but college education is very costly.

However, students from poor families going for college education received need-based scholarships to the tune of $3.5 billion through the state universities in 2000-01.

Who are primarily these poor people? Data suggest that the statistical chances of being poor in the US are negligible if one finishes college education, marries and stays married and takes a full-time job, even at minimum wages. Why is getting and staying married important? If you marry, then you do not have children out of wedlock. A large section of such children — born out of wedlock or having single mom as the only parent — are poor. What is more, the chances of such children moving above poverty through proper education are much lower compared to children from `normal' families.

According to the US Census data, only about one-third of the people below the poverty line at any given time will stay there for two years or more. The rest escape poverty earlier. According to a Michigan University research study, only 5 per cent of those belonging to the poorest 20 per cent of the population in 1975 were still there in 1991, whereas 30 per cent moved to the highest 20 per cent income group. All these imply an upwardly mobile society.

The reason is that most of the people in the lowest 20 per cent income bracket are young people entering the workforce for the first time at low entry-level wages (like taking up the job of a hamburger flipper at McDonald's) from which they graduate soon. Most people hit their peak incomes in their 40s and 50s (after changing jobs several times) and, finally, retire in their 60s. After that, their incomes drop.

Given that most poor people in the US have a good chance of moving to the middle-class soon, what is the state of living of an average American? According to a Federal Reserve survey for 2001, 86 per cent of American families own a car.

Sixty-eight per cent own their personal residence; 52 per cent own stock or mutual fund portfolios with an average value of $34,000. The average (median or 50th percentile) family has a net worth (assets minus liabilities) of $86,000.

That a huge inequality exists in the distribution of wealth can be seen from the fact that the average net worth for all families taken together is a staggering $395,000.

In terms of per capita income, in 2002, the position of the UK was 70 per cent of the US, that of France and Germany was 65 per cent, Italy's was 57 per cent.

So, then, what is so bad about being poor in US? The answer can best be summed up in the words of Prof Herbert Prof Stein, a noted economist.

He says: "What makes poverty in America unlovely to me is not only a low level of income. It is the association of that condition with a high probability of being either a crime victim or a criminal, of attending an unsafe and disorderly school, of living in an atmosphere of drug and alcohol abuse and most of all, of not having a supportive spouse or two caring parents.

All people with low incomes do not have these problems, and some with highest incomes do have them. But the association of these problems with lowness of income is close enough to describe the condition of poverty that I find unlovely. That condition deserves our most intensive care. I believe that the present focus on inequality of income diverts national attention from it."

What Stein said about the US is true for the poor children growing up in crime-prone and uncaring neighbourhoods in most other countries, irrespective of whether the level of poverty in the US is different from that in other countries. It is the atmosphere which makes it all the more difficult for such children to escape a life of poverty, abuse and crime.

(The author, Professor of Economics at IIM Calcutta, is now a visiting Professor of Economics at University of Rochester, US.)

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