No Empirical Measure Truly Illustrates the Reality of Being Poor

No Empirical Measure Truly Illustrates the Reality of Being Poor

No Empirical Measure Truly Illustrates the Reality of Being Poor

Donald Trump is technically correct when he says almost 4 in 10 black American youths live in poverty.

According to the official poverty measure, 36% of African-Americans under the age of 18 fell below the poverty mark in Y 2014.

The problem with that statistic is that the official poverty line is a flawed measurement. It does not take into account benefits like food stamps and tax credits, so unlike the more recent supplemental poverty measure, it cannot account for the fact that earned income and child tax give-backs lower the poverty rate by 3.1%, and food stamps, SNAPS (Supplemental Nutrition Assistance Program) benefits cut it by 1.5%.

Though no empirical measure can truly illustrate the day-to-day reality of being poor, the reduced number of poor children under the supplemental poverty measure is good news.

There is though a darker side to this more accurate accounting: When including out-of-pocket healthcare costs, more elderly Americans are classified as living in poverty.

According to Y 2014 census data, 10% of those 65 and older fell below the official poverty line. That number rose to 14.4% using the supplemental measure. A big reason for this is that older people are more likely to use costly services like staying overnight in a hospital or in a skilled nurse facility.

The official poverty measure is based on a Y 1963 formula.

It defines the poverty line as the USD equivalent of 3X the cost of feeding a family of 4 based on the Y 1955 Household Consumption Survey, a formula adjusted for inflation each year.

The formula is still used because it’s tied to several public funding streams such as cost assistance for insurance and tax credits, and is uniform nationwide. This remains the case despite the supplemental measure’s poverty line being consistently 0.5 to 1% above the official measure.

Looking at all age groups, a family of 4’s current official poverty line is about $24,000. According to census data, 14.9% of people were below that compared with 15.3% under the supplemental measure.

The supplemental measure, which groups individuals based on housing, found a poverty line of $25,844 for owners with a mortgage, $21,380 for owners without a mortgage, and $25,460 for renters.

Going further back by accounting for deflation, the supplemental poverty rate would have been about 25% in Y 1967, when the official measure was about 15%. That difference could have been significant, the US had 198.7-M people at the time in measuring the war on poverty, which had just begun.

Regardless of the measure used, analysis shows just how far the country has to go. Using an interactive that looks at historical rates for different age groups,  if the same poverty rate that existed between Y’s 2000 and 2010 were in place today, 11-M fewer people would be considered poor.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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