Economy & Budget

The Truth About Poverty

From 1993 to 2000, when Bill Clinton was president, the poverty rate averaged 19.7 percent. From 2001 to 2004, when George Bush was president, the poverty rate averaged 17.1 percent. At 17.8 percent last year — the third year after a recession — the poverty rate was still well below the 18.9 percent poverty rate of 1998, which was the seventh year after a recession. In other words, recent poverty rates are comparatively low.

How do you suppose a New York Times journalist would spin that? "For liberal economists," concludes Daniel Gross, "the data prove that supply-side economics has failed to deliver under Mr. Bush, just as it did when President Ronald Reagan applied it in the 1980s." Huh?

Why is a 17.8 percent poverty rate now considered so much worse than a 19.7 percent poverty rate from 1993 to 2000? And what do poverty rates have to do with whether or not tax policy affects the pace of economic growth? Economic growth was indeed sluggish until the highest tax rates were belatedly reduced in June 2003. But the economy has since grown at an annual rate of 4.1 percent over nine quarters, despite soaring global energy prices. The unemployment rate, at 4.9 percent, is already well below the 1960-2004 average of 5.9 percent.

Some critics cite poverty rates to suggest President Kennedy was wrong when he said, "A rising tide lifts all boats." But economic growth alone could never help those who either cannot or will not get into a boat and grab an oar.

Following a recent radio debate with Robert Reich about poverty statistics, an angry listener sent me an alleged fact from www.springforward.org, claiming that, "70 percent of people in the United States living below the poverty line … are working." Whenever facts don’t fit the liberal ideology, it is becoming quite acceptable to just make them up. Among those below the poverty line in 2002, only 2.6 percent of those ages 18 to 64 worked full-time year-round — according to Table 687 of the Statistical Abstract of the United States.

It is impossible to talk intelligently about poverty without mentioning marriage and immigration. The 2004 poverty rate was 5.5 percent among married couples, for example, but 28.4 percent among single mothers. Unmarried women accounted for 5.3 percent of all births in 1960, 18.4 percent in 1980 and 34.6 percent in 2003. According to Gross, this may have demonstrated some failure of supply-side economics.

If we import millions of poor people, we should expect more poverty. The poverty rate in 2004 was 21.6 percent among non-citizen immigrants, but 9.8 percent among foreign-born citizens. A Pew Hispanic Center survey shows that recent Hispanic immigrants had median weekly earnings of $320 last year — far below the second quarter median of $584 for Americans with only a high school degree.

Adding a million or so low-skilled workers each year may be beneficial for them and us, but it obviously increases measured poverty and depresses all measures of average earnings. Whenever such low-wage workers get fired, however, "average hourly earnings" go up.

Why? Because those with low wages are no longer included in the average. Conversely, when the economy picks up and thousands more low-wage workers get hired, average earnings may go down — because adding more low wages to the mix dilutes the average. When more part-timers find work, that dilutes "average weekly wages."

Average earnings is an inherently misleading figure because it is an arithmetic, or "mean," average, but median wages or incomes can also be pulled down by more low-wage workers being able to find work. The median is that point at which half earn more and half earn less. If employers hire thousands more people who earn less than normal (including new immigrants), that lowers the bar we call the median.

This leads us to the second complaint of Gross and his "liberal economists" — namely, that "for the second straight year pre-tax real median household income failed to grow." By alluding to pre-tax income, he hopes to deny Bush credit for lower taxes, and to deny Clinton any blame for higher taxes.

Yet even by that pre-tax criterion, it is impossible to claim President Reagan "failed to deliver." When it comes to longer-term comparisons of "household" income or poverty, however, it is important to realize the word "household" does not mean what it used to. A new Census Bureau report begins by saying, "Householders living alone had become the most common specific household structure in 2000, replacing the 1990 combination of householder, spouse and natural and/or adopted children."

That happened in just 10 years. To compare median incomes among today’s "householders living alone" with incomes of multi-person families 20 or 30 years ago is not just comparing apples with oranges. It is more like comparing today’s apples with yesterday’s watermelons, and then pretending to be outraged by the shrinkage of fruit.

Even putting aside the changed meaning of "household" and "median," the median household income data still give liberal economists no excuse to throw stones. Measured in 2004 dollars, median household income was $38,453 in 1980, the last year of the Carter presidency. That was actually lower than it had been seven years earlier.

From 1980 to 1989, the last year of the Reagan presidency, median pre-tax income rose 10.6 percent to $42,524. And the highest tax rate fell from 70 percent to 28 percent. This was failure?

Pre-tax median income reached $46,058 in 2000, before the economy slipped into recession in March 2001. At $44,389 in 2004, median income was 3.6 percent lower than it was before the recession, yet that was a smaller cyclical dip than the 5.4 percent drop between 1989 and 2003.

It takes time to get back to previous cyclical peaks, and last year was just three years after a recession. It was not until six years after the 1990 recession, during the third year of President Clinton’s first term, that median income finally climbed back to the 1989 level, reaching $42,544 in 1996 in pretax terms. Yet that $20 increase did not go very far toward paying for Clinton’s increased taxes on incomes, Social Security benefits and gasoline.

"For liberal economists," we’re told, "the data prove that supply-side economics has failed to deliver under Mr. Bush, just as it did when President Ronald Reagan applied it in the 1980s." For competent economists, by contrast, the data prove liberal economists remain just as confused about simple facts as they were when President Reagan accomplished undeniable economic miracles their quaint theories could neither predict or explain.


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