America's Invisible Poor

There is an increasing sense of foreboding among the poor in the United States. These feelings of impending doom are entirely justified. A comment on yesterday's post by sharonsj spoke to these fears—

Are we addressing our problems? No. But I'm tired of hearing yet another wealthy fucker [Howard Davidowitz] say us old folks will have to learn to live on even less. I challenge him to live on an average of $11,000 a year (that's about what somebody on Social Security gets).

If you think we have tent cities now, just wait until the clowns in Congress (and in your state legislatures) cut back on social programs. Those programs are the only reason you don't see bread lines...or riots in the streets. But it's all part of the plan to privatize profits and socialize the losses.

I agree entirely. What is the situation? The debt ceiling must be raised beyond the $14,292 trillion limit now required by law. The CBO estimates this year's deficit will be nearly 1.5 trillion dollars. It is only a matter of time before the mounting debt blows up in America's face. Spending cuts must be made, or they will be forced upon us. Entitlements spending (Social Security, Medicare) and other government transfers (e.g. welfare, food stamps) will be under intense pressure.

Sacred cows like the Defense budget are unlikely to be touched. War spending will continue. The ultimate cost of Iraq exceeds $3 trillion. The government will continue to prop up Fannie Mae and Freddie Mac, which is a covert bank bail-out. The losses there could ultimately amount to $800 billion.  Mysteriously, these last two items—war spending and covering GSE losses—are "off-budget."

In the context of our bankruptcy, the failure of our Democracy and rampant corruption in the Congress ensure that transfer payments to the poor will be reduced in the future. This will be accomplished in the name of reducing big, intrusive government. Among the thousands of registered lobbyists in Washington, and the many thousands more who work behind the scenes to help our elected officials "craft" legislation, few represent poor Americans. For all intents and purposes, America's poor are invisible on Capitol Hill.

If it weren't for government transfer payments, the poor would be even more destitute and desperate, which was sharonsj's point. Lane Kenworthy studies these questions at the University of Arizona. Consider his recent article Has rising inequality been bad for the poor?

Income inequality has risen sharply in the United States and some other affluent countries since late 1970s, with much of the increase consisting of growing separation between the top 1% and the rest of the population.

Has this been bad for the incomes of the poor?

In a relative sense, the answer is yes, at least in the United States. According to the best available U.S. data, from the Congressional Budget Office, the share of income going to households at the bottom has decreased.

What about in an absolute sense? Would the incomes of low-end households have grown more rapidly in the absence of the top-heavy rise in inequality? If we look across the rich nations, it turns out that there is no relationship between changes in income inequality and changes in the absolute incomes of low-end households.

The reason is that income growth for poor households has come almost entirely via increases in net government transfers, and the degree to which governments have increased transfers seems to have been unaffected by changes in income inequality. For more detail, see my piece in the November-December issue of Challenge.

Among nations with sharp increases in top-heavy inequality, we observe a similar disjunction. Here the U.S. and the U.K. offer an especially revealing contrast. The top 1%’s income share soared in both countries, and through the mid-1990s poor households made little progress, as the chart [above] shows. But over the next decade low-end American households advanced only slightly, whereas their British counterparts experienced sizable gains...

The chart clearly shows that for people in the 10^th percentile (P10) of the income distribution, post-transfer real (inflation-adjusted) income after taxes hasn't budged since 1979. But what would we expect? The poor are invisible in the United States. Most policy-driven "transfer payments" ultimately go to the rich. But those in the P10 are the poorest of the poor. We should bear in mind that government transfer payments greatly aid those in the 20^th income percentile (P20) as well. How have they been doing?

From Lane Kenworthy's The Best Inequality Graph. "Between the late 1940s and the mid-1970s incomes increased at roughly the same pace throughout the distribution; they doubled for each group. Since the 1970s the story has been quite different. At the 95th percentile, incomes have continued to rise. At the upper-middle levels (the 80th and 60th percentiles), they’ve increased at a moderate pace. In the bottom half of the distribution (the 40th and 20th percentiles), they’ve been fairly stagnant."

Inflation-adjusted pre-tax incomes for those in the P20 have been essentially flat for a long, long time. As Kenworthy notes, "this chart makes it clearer that a defining feature of rising inequality in the United States is the stagnation of incomes in the lower half of the distribution." No kidding.

Only the government's safety net stands between millions of Americans and starvation. Some time in the next five years budget austerity will be forced upon the government of the United States. When push comes to shove, who do you think will pay the price? It won't be Citigroup or Boeing.

Comments

[Bill Sadler]

This all comes down to media. What other explanation can there be for people voting against their best interests. The median income in the US is about 50K. Either the people below that level do not vote or they believe gay marriage and the war are more important than their personal share of the pie.

Fox is geared to lower incomes. Car racing, Cops, and most of the other brain dead programming on that network provide a universe which someone not living in the Hamptons can believe those living in the Hamptons are not responsible for them living paycheck to paycheck. The "free" MSM is paid for by advertising, so the message is controlled by corporate america (the top 95%). The media is the message as we were warned about decades ago. We did not listen and now anything is possible in this "great" country.