Forum Post: 2009: income down, poverty up

Every September brings the release of the Census Bureau’s annual income, poverty, and health insurance figures. Even in the best of times, they can make for sad reading—but 2009 was a real bust for the American masses. Incomes were down, poverty was up, and millions fell off the insurance rolls. It’s not the worst performance surrounding a recession in modern history—that honor belongs to the downturn of the early 1980s. But that carnage was spread out over five years, by the official Census count. We’re only two years into this mess, and while the recession is formally over (for now), there’s little doubt that 2010 and 2011 will be miserable years.

Before proceeding, a few words on where the stats come from. They’re drawn from a special edition of the Bureau’s monthly Current Population Survey (CPS). The regular survey, which covers about 60,000 households, is what the monthly unemployment figures, among other things, are based on. This special survey, done every March, covers 100,000 households. This is a very large sample, and though it’s far from perfect, it provides an excellent view of monetary well-being. It’s different from the yearly American Community Survey (ACS), whose results were released in late September, which covers many similar topics in great detail, and is comparable to the decennial Census (the one done every ten years). The ACS’s history doesn’t go back anywhere near as far as the CPS, making it difficult to analyze long-term trends consistently. The right has it out for these surveys—ostensibly because, unlike the decennial Census, it’s not specifically authorized by the Constitution, but more likely because they’re ignorant dopes who hate the truth.

And now a closer look at 2009.

Incomes: flat to down

The median income of all households—the income level at middle of the distribution, meaning that half the population is richer, and half, poorer— fell by almost 1% last year, but the move was deemed not large enough to be statistically significant. That is, the likely error in the estimate is larger than the change itself. But the overall number was helped considerably by a near-6% rise in incomes for households headed by someone 65 or over. Under-65 households saw their income fall by 1.3%, and this did pass the test of statistical significance. Especially hard hit were the young, foreign born non-citizens, and blacks. So-called Hispanics held their own. For several reasons, the Census numbers understate incomes at the top. One is that the very rich can’t be bothered answering questionnaires from pesky enumerators. And another is that the Census Bureau treats all incomes over a certain amount—it rises over time, but it’s around a million dollars now—as if they were that amount. The stated reason for this is to protect confidentiality, since the records are available for public use. Maybe. But the effect is seriously to understate how well the very rich have done. That limitation can be overcome by looking at tax records (which also understate things, given the propensity of the rich to hide their income). The economists Thomas Piketty and Emmanuel Saez have done that in great detail, putting together a massive and wonderful history of income distribution in the U.S. going back to 1913.

The conclusion from comparing that work to the Census numbers: by missing the seriously rich, the Census understates things by almost 2/3: Piketty and Saez have the top 5% gaining almost 75% from 1989 to 2007, compared with 29% for the Census survey. (Sadly, 2007 is as far as their data goes, but it probably wouldn’t change much if you took it out another couple of years.) The reason for the difference is the intense action at the very high end. The top 1% was up more than 100% over those 18 years. Take them out of the top 5%, and look just at the 95th to 99th percentiles, and they were up a mere 38%—still well above the Census measure, but at least approaching life in the same universe.

Even within the top 1%, the real action was at the high end: the top 0.01%—our 12,000 richest households, with incomes averaging $35 million a year—were up 215%.That almost 30 times the increase that Piketty and Saez report for the bottom 90% of the population. In other words, an enormous portion of the gains of economic growth have gone to just a few thousand hyper-rich.

All that said, the Census numbers are a good measure of broad trends, even if they miss life in the stratosphere. The story they tell, supplemented with the Piketty-Saez numbers, is this. For the last two decades, the very rich have really raked it in, the merely rich have done quite well, the upper middle class has done more or less OK, the middle ranks have merely held their own, and the bottom 40% of the population has been lucky to tread water, if that. And there’s no sign that any of this is about to change.

Poverty: up.

Before discussing official penury, it’s important to say that the U.S. poverty line is an extremely stingy thing. It’s based on research done in the 1950s that showed that the average household spent a third of its income on food. So, the Johnson administration, eager for metrics in its war on poverty, decided that a poverty line would be three times the minimal food budget computed by the Agriculture Department. Never mind that that food budget was considered an emergency measure taken when a family hit a crisis, not something to live on indefinitely. No, they needed something in a hurry and went with that. And the Census Bureau just adjusted that line for inflation ever since, with no notice paid to rising GDP or average incomes, or the changing nature of household budgets (like the relentless rise in medical care and college tuition or a need for child care that didn’t exist in the days of the one-paycheck family).

So, conceptually, a poverty income today is exactly the same as it was almost 50 years ago, even though average incomes risen. For example, the poverty line for a family of three was 43% of median family income in 1959, the year the poverty stats begin; it was 29% in 2009—and that doesn’t even adjust for the fact that families are smaller now than they were 50 years ago. But since the average family’s income has grown far more slowly than GDP over the last fifty years, the gap between the poverty line and GDP is even sharper. In 1959, the poverty line for a family of three was 81% of per capita GDP; fifty years later, it was 37%. A more honest poverty line—like the one used by many academic researchers, half the median household’s income—would produce numbers nearly twice what officialdom reports.

Yet despite these undemanding standards, nearly 44 million, or 14.3% of Americans, were officially poor in 2009, up from 13.2% in 2008, the highest level since the early 1990s. It’s almost certainly up this year, since it tracks the unemployment rate pretty closely, and this 2010’s jobless rate is higher than 2009’s. The rate among white households was just over 9%; for black and Hispanic households, over 25%, or nearly three times the white rate. It was almost that high for households of any race with children under 6—yes, nearly one in four young kids in the USA is officially poor.

As with income, the elderly have done better than the rest of the population. In 2009, 20.1% of all people under 18 were officially poor, rising for the third consecutive year to a level at the high end of this demographic’s historical range. The poverty rate for those aged 18–64 rose for the second consecutive year to 12.9%, its highest level since the early mid-1960s. But the poverty rate for those over 65 fell sharply, to its lowest level in the fifty-year history of the series.

That must not be read, however, as a furtive call to generational warfare. It’s a very good thing that elderly poverty continues to decline even in a crappy economy—though the Austerity Party, which has it out for Social Security, wants you to believe otherwise. Austerians, as they say, love to cloak their meanness under a false sense of generational equity, but they shouldn’t be allowed to get away with it. Decent social policy could extend this trend to the rest of the population, but this isn’t on offer right now.