Views of Poverty – Optimism and Stinginess

February 25, 2011
Posted by Jay Livingston

Ask Americans how much income a family needs to “just get by” – to be not poor – and the answers will generally be a number that’s 50-55% of the median income. That’s not how we compute the official poverty line, though. That number is based the price of food. The poverty line is three times the amount a family would need to spend to provide the minimum adequate nutrition.

In European countries, as Daniel Hamemersh at Freakonomics has learned, the poverty line is based on relative income, usually about 50% of the median. (When the US poverty formula was created, that three-times-food formula did work out to about 55% of the national median. Now it’s closer to 40% of the national median. The family at the poverty line can still feed itself, just as it could fifty years ago. But it’s much farther away from the average US family.)

Hamemersh says that this choice of how to calculate poverty reflects two American characteristics:

• optimism – if low incomes go up just a little, and food prices remain stable, nobody will be “poor.”
• lack of concern about inequality

Hamermesh contrasts this with the view from across the pond.

In Europe, even with income growth, unless inequality decreases, the fraction of households in poverty won’t change. How pessimistic, yet how concerned about equality!

Optimism goes with stinginess towards the poor; pessimism with generosity.

Here are some charts that I used in a post last month about the belief in the the efficacy of work (the first two bars). But the last two questions support Hamermesh’s ideas about the difference between the US and other countries on the question of inequality and welfare. (The data come from a Brookings survey.)

(Click on the chart for a larger, readable view.)