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September 06, 2005

Poor Reasoning

The US federal poverty line is not a good measure of real life poverty. Most researchers agree that the standard method of computing poverty is outdated, overly simplistic, and probably drastically undercounts the number of poor. (Here's a quick summary from Dan Staley; here's the longer version of the same story.) Still, despite its glaring flaws, the poverty rate remains the most widely reported gauge of how many poor people there are.

Enter a new report from the Economic Policy Institute (EPI). The report develops a more meaningful poverty rate--they call it a "basic family budget." EPI adjusts for geographic differences in prices--a huge oversight in the federal poverty calcuations--and makes realistic but frugal cost estimates for housing, food, transportation, child care, health care, other necessities, and taxes. Based on these costs, EPI calculates how much money families need to earn just to get by (assuming they don't save money, go on vacation, or even have renter's insurance). 

You can play with EPI's handy calculator to get a sense of what their basic family budget is like. A family of 2 parents and 2 children in the Seattle metro area, for instance, needs to earn $45,516 to make ends meet. On the other hand, a family of 1 parent and 1 child in rural Idaho needs just $26,988 per year.

EPI's report gives an entirely different sense of poverty--and not just because the numbers are much, much higher.

According to the Census Bureau, for example, Idaho has the lowest poverty in the three Northwest states (WA, OR, ID), with just 9.9 percent. But EPI's more detailed and accurate assessment of economic conditions, makes Idaho by far the worst with fully 37.5 percent of people living in families without enough money for a basic budget. 

So not only is Idaho's "true" poverty situation 3 to 4 times worse than federal estimate suggests, it's skewed with relation to its nearest neighbors. What's the explanation here? Does Idaho have a smaller share of very poor people (below the federal poverty line), but a larger share of people who can't really make ends meet? Or is there something else going on?

Whatever the explanation, I find the comparison troubling, partly because poverty rates are often used to allocate scarce resources.

Washington, on the other hand, has an undistinguished poverty rate for the Northwest, but boasts the smallest share of people unable to earn a basic family budget (see table below). Could this have something to do with Washington's most-generous-in-the-nation minimum wage?

Here's a fuller account of federal poverty rates compared to basic family budgets in the Northwest.

Federal poverty rate, 2004

Percent below basic family budget



















United States



Posted by Eric de Place | Permalink


While I agree that the federal poverty level is kept artificially low, I have to question the assumptions being made by EPI in this report. EPI's numbers seem well in line with a solidly middle class lifestyle. A family living on $50,000 in Seattle may not be able to live as well as folks on TV do, but that hardly constitutes poverty.

If we are serious about sustainability, then we need to be talking about voluntary simplicity. So many of the costs that are assumed in EPI's reckoning could be reduced by families willing to live more simply, occupy smaller dwellings, drive less, and own less stuff. So long as we regard our current norms of consumption as our yardstick of what a 'good life' looks like, we will never achieve a sustainable society. (I know this is an unpopular thing to say, but that doesn't make it any less true.)

Now, I'm not saying that we shouldn't help people who are facing real poverty. The truly poor certainly need more resources. But equally important--and likely part of any serious solution to the problem of global poverty--we need to reduce the consumption of the rich (which, in global terms, includes the American middle class).

Posted by: Sam | Sep 6, 2005 3:36:45 PM

Interesting point, Sam.

Voluntary simplicity is important from a sustainability perspective, but what's really worrisome (to me, anyway) about the EPI study is that the budget they develop is actually pretty bare bones. They assume that a 4 person family in Seattle lives in a 2 bedroom apartment, for instance.

EPI's budget allows for zero savings (not for emergencies, education, nor retirement), no vacations or travel, and no restaraunt meals. When you really crunch the numbers, it turns out that the $45,516 figure really isn't all that generous for a family of 4 living in an expensive metro area.

The meaning of the word "poverty" may be debatable, but I suspect that EPI's estimates of a basic family budget are, if anything, too conservative.

I've copied in EPI's methodology below, if you're interested...

Housing. Housing costs are based on the Department of Housing and Urban Development's fair market rents (FMRs). FMRs represent 40th percentile rents (shelter rent plus utilities) for privately owned, decent, structurally safe, and sanitary rental housing of a modest (non-luxury) nature with suitable amenities. Rents for two-bedroom apartments were used for families with one or two children, and rents for three-bedroom apartments were used for families with three children (these assumptions were based on HUD guidelines).

Food. Food costs are based on the "low-cost plan" taken from the Department of Agriculture's report, "Official USDA Food Plans: Cost of Food at Home at Four Levels." The USDA food plans represent the amount families need to spend to achieve nutritionally adequate diets.

Transportation. Transportation expenses are based on the costs of owning and operating a car for work and other necessary trips. The National Travel Household Survey is used to derive costs that are based on average miles driven per month by size of the metropolitan statistical or rural area multiplied by the cost-per-mile.

Child care. Child care expenses are based on center-based child care or family child care centers for four and eight year olds, as reported by the Children's Defense Fund.

Health care. Health care expenses are based on an amount that recognizes that not all families receive employer-provided health care. We use a weighted average of the employee share of the premium for employer-sponsored health insurance and non-group premium costs from an online insurance quote, plus the cost of out-of-pocket medical expenses.

Other necessities. The cost of other necessities includes the cost of clothing, personal care expenses, household supplies, reading materials, school supplies, and other miscellaneous items of necessity from the Consumer Expenditure Survey.

Taxes. Citizens for Tax Justice (CTJ) computed the taxes for tax year 2004. The six line items from above represent after-tax budgets. CTJ determined the amount of tax liability that each after-tax budget would incur. Therefore, the after-tax budget along with the additional tax burden represents the total pre-tax budget. Taxes included federal personal income taxes, federal Social Security and Medicare payroll taxes (direct worker payments only), and state income taxes. Local income or wage taxes were also included. Included in the calculation are federal tax credits for children and the earned-income tax credit.

Posted by: Eric de Place | Sep 6, 2005 4:08:33 PM


Thanks for providing more detail. But I must continue to quibble. My argument is that the levels chosen by EPI only represent poverty as seen through the lens of American middle class norms, which are ultimately unsustainable, at least when extended to the global level.

Leaving aside the broader issues, here are a few observations about the assumptions EPI used:

1. Housing. 40th-percentile housing is, by definition, middle class. While rents in Seattle are admittedly astronomical (which is a systemic problem we can hardly ignore), one can go a lot cheaper than the 40th percentile of rent and get adequate housing. It is only by American middle class standards within the last generation that we assume every child should get their own bedroom. A typical Seattle two bedroom apartment for a family of four would seem palatial to most of the world's residents, and would have seemed ample to most Americans not so very long ago. We are also assuming that nuclear families need to have their own unique dwelling. In most places around the world, a larger extended family shares a single space--with enormous reductions in cost and labor requirements, and built-in labor-sharing options, such as childcare and elder care.

2. Food. According to the USDA, there is another category below the "low cost plan," called the "thrifty plan," which is substantially cheaper than the low cost plan and also includes necessary nutrition. The low cost plan includes a substantial quantity of meat as well as sodas and fruit drinks. These are expensive items whose nutritional value, if any, can be replaced more cheaply by other foods.

3. Transportation. EPI assumes everyone owns a car and drives an average amount. We should *not* solve the poverty problem by making sure everyone can afford to drive. Instead, we should build better cities that enable lower-income folks to live, work and shop in close proximity, with ample mass transit options.

4. Healthcare. I suspect it's an infinite black hole to try to raise income levels to meet healthcare expenses. Everyone knows that the system is entirely broken, and healthcare costs are entirely out of control. The solution here is to fix the healthcare system, and soon.

5. Necessities. The necessities of the Consumer Expenditure Survey are based on average consumption at various income levels, as far as I can tell. This involves no analysis of what people *need* only what they actually spend.

In all these categories, then, poverty seems to be defined as "less than we are accustomed to as middle class Americans." But that isn't what poverty is, and it's a set-up to drive our society toward ecological ruin.

We need to shift the larger paradigm. Poverty is the condition of not being able to meet basic material and spiritual needs (like love, companionship and a sense of meaning in life). As Americans it is imperative that we learn to distinguish such needs from the patterns of consumption we have wrongly come to think of as needs.

Unless we gracefully modify our way if life and our expectations now, we (or more likely our grandchildren) will be *forced* to live more simply. And that won't be very pretty.

Posted by: Sam | Sep 6, 2005 5:34:33 PM

Interesting. I've spent roughly equal parts of my life living in Oregon, Alaska and Washington. I'm surprised by the Alaska number. Having worked for many years in rural Alaska I have to think the poverty number must be higher than other nearby states. Many rural Alaskans, especially natives live what is essentially a subsistance lifestyle. To the point that if they don't get their moose the kids will go hungry. And absolutely everything but salmon costs more in Alaska.

Perhaps it is Alaska's famous permanent fund that diminishes the poverty statistics. During good years, a family of four will pull in $6 grand just from the permanent fund alone as even infants get their check.

Posted by: Kent | Sep 6, 2005 9:30:37 PM

I think the undertone of the difference between what Eric and Sam are saying is the heart of the matter.

A key to sustainability is to figger out how to cut the consumerism without harming the house of cards our economy is built upon.

But, two generations have been raised (and we're raising a third now) on an expectation that abundance is the norm, big house good, and that recreational shopping is an option.

Eric is perfectly correct in stating the numbers as they are presented. And Sam is perfectly correct in stating the levels assumed in the EPI study are high, relatively, and that's bad.

But, you can't just take away things from people and expect them to like it. Things being: lifestyle, expectations of needs being easily met, lives being led such that land gets sold so old age can be lived comfortably, having a house in the suburbs.

Many people see our current consumptive patterns are unsustainable. Many people know that compact development is the way to develop. Many people see the personal, environmental and societal issues with poverty (and likely many more do from recent events).

What we need is a good dialogue for the gap between what Eric and Sam are saying - how do we get from here to there?

Posted by: Dan Staley | Sep 7, 2005 12:49:56 PM

Quite honestly I don't think we need to be asking people struggling to make ends meet to embrace voluntary simplicity. They're dealing with forced simplicity.

While I understand the rationale behind your points, Sam, I find it a bit troubling. I think there's plenty of room for upper middle class Americans to try to make do with less. Let the richest of Americans cut down on their consumption, don't rewrite the rules and suggest that the poorest aren't doing all that bad compared with others across the globe.

Posted by: Rachel | Sep 7, 2005 1:12:25 PM

Rachel, I think we are mostly in agreement. But I don't think I've rewritten any rules by stating what is a perfectly evident fact: folks making $40,000 a year in Seattle aren't doing all that bad compared with, say, the more than one billion of the world's poor who live on less than $1 a day.

But, more to the point, the $40,000 per year lifestyle is not globally sustainable anyway. I am not suggesting we shouldn't help people who are struggling--especially those who are closest to the bottom of the income ladder. I am suggesting a more nuanced strategy than simply trying to make everybody middle class. That, I maintain, is a recipe for disaster.

And Dan is right. It's not going to come easy. Part of the reason I felt compelled to make these comments is because I want to help stimulate the very conversation to which Dan was alluding.

Posted by: Sam | Sep 7, 2005 4:05:42 PM

Kent, I agree, the poverty rate for Alaska is surprisingly low. I'm not sure what the explanation is, but it could be that the permanent fund helps. The sky high cost of living in Alaska is a perfect example of the silliness of current poverty measurement's one-size-fits-all approach to geography. (A single person must earn less than $9,827 per year to be poor regardless of location.) In fairness, however, the US Dept of Health and Human Services uses poverty "guidelines" that adjust the poverty line higher for Hawaii and Alaska, thus effectively counting more people in poverty and thereby making them eligible for assistance. But the poverty guidelines are not used for calculating the stats I provided in the post.

Posted by: Eric de Place | Sep 7, 2005 4:52:46 PM

Sam, thanks for getting this debate started -- it's a good one. I have a lot of complicated and probably ill-formed thoughts on the matter, which I'll skip for now. Mostly.

$40k a year is, admittedly, unsustainable for 6 billion people given current habits of consumption and current global population. I don't think, however, that those things--consumption habits and population--are immutable. My belief is that we must work toward both reducing population and consumption (which is different than income) if we are to avoid a critical draw-down of natural resources. It's not as simple as saying $40k is too much money.

Plus, the sad fact is that health care and decent housing are simply out of reach for more Americans than the official poverty rate would have us believe. I think Sam's right that our economy and perhaps culture need to be structurally altered, but until then a family of four in Seattle will need about $40k to afford, say, health care and decent housing.

(Also, to quibble a bit, I don't think it's fair to suggest that poor people in Seattle are doing okay because they aren't living in the grinding subsistence poverty of less than $1 a day. That kind of severe poverty is awful, but it's existence doesn't mean that the poor in America--where costs and social norms are much different--are not also poor.)

So while we're working on changing the structure of our economy and culture and alleviating severe povert in the global south, we should also work on reducing the population (especially in high-consuming places) and reducing global consumption of resources.

Posted by: Eric de Place | Sep 7, 2005 5:23:34 PM

*Caveat*: some folk find it convenient to fly off the handle and build a straw man out of any hint that someone is advocating having fewer people around, and it's not long before they say: "these green nazis want us to return to pre-industrial times too", then there's a snicker, and the marginalization is complete.

Far better to advocate for reducing the population _growth rate_ than for advocating reducing the population. I know it's picayune, but you can't give these folks any ammunition at all.


Posted by: Dan Staley | Sep 7, 2005 7:01:34 PM

If only we had an acronym to idolize, like 'NAIRU'.

Posted by: clew | Sep 8, 2005 7:47:35 PM

Great discussion! To paraphrase what I'm hearing: since modern "social norms" in the U.S. would indicate that the average American household has multiple TVs (3-4?), do we call it "poverty" if a family has only one TV?

I'm with Sam. Having "less than average" does not equal poverty. I once had the privilege of briefly living with a Chilean Mapuche family who had five members in a two-room (NOT two "bedroom"), dirt floor house with no electricity. If this discussion is about "lifting all boats" then we better think carefully about our world's capacity to lift boats, whose boats need lifting the most or most immediately, and how best to lift those boats. Getting all Americans to some middle-class ideal, no matter how comforting that might be from a liberal guilt perspective, won't do diddly-squat for the world as a whole. And it might make things even worse (which, I believe, was Sam's original point).

P.S. Any "poverty index" that assumes the necessity of a car is bogus, imho.

Posted by: Dave | Sep 12, 2005 5:37:26 PM