Posts tagged with: Poverty threshold

consumptionWhat if told you that between 90-100 percent of Americans are living in “healthcare poverty.” You would probably object and say that while the country certainly has a healthcare crisis, my numbers are surely inflated. After all, most people in the U.S. have access to healthcare.

In reply, I explain that while it’s true most people are able to consume healthcare services, they are still in poverty since those services are paid for at least partially by the government or private insurance. You would probably respond that I seem very confused on this issue. And you’d be right.

Yet when we hear reports that between 14 and 16 percent of  Americans are living in poverty, few people bother to ask, “Are they talking about consumption or income?”

The reason it matters is the same reason that most Americans are not in “healthcare poverty”: they are able to consume more goods and services than they are able to pay for with their income. As James X. Sullivan, an economics professor at Notre Dame, has explained:

Blog author: jballor
Wednesday, November 23, 2011

Over at the Economix blog, University of Chicago economist Casey B. Mullin takes another look at some of the recent poverty numbers. He notes the traditional interpretation, that “the safety net did a great job: For every seven people who would have fallen into poverty, the social safety net caught six.”

But another interpretation might have a bit more going for it, actually, and fits in line with my previous analogy between a safety net as a trampoline vs. a foam pit:

Another interpretation is that the safety net has taken away incentives and serves as a penalty for earning incomes above the poverty line. For every seven persons who let their market income fall below the poverty line, only one of them will have to bear the consequence of a poverty living standard. The other six will have a living standard above poverty.

Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

The conclusion ought to be that policies that provide incentives for people to not seek out work as vigorously as they otherwise might, even if such incentives are unintended consequences, are morally suspect and economically questionable.