Poverty Rises, Will Rise Further

The recession seems to have taken a toll on the rich and poor alike, but the rich can usually afford housing. The nation’s poverty rate climbed to 13.2%, up from 12.5% in 2007. That is almost certainly a sign the economy has decimated the earning power of millions of Americans.  The number of people living in poverty is likely to be closer to 14% next year because unemployment is so high now.

The poverty line has an artificial definition “households with four members with incomes under $22.025”. That income level may go far in North Dakota but not in a major city like New York, so “poverty” is certainly much worse in some areas of the country even for people who make $30,000 a year, although the government does not officially acknowledge that.

The problem of lower wages has affected more than the poor as the median family income fell to $50,300 in 2008 from $52,200 in 2007.

These figures are sterile when people look at them in the paper or on TV, but, in detail, they are alarming and point to problems in 2010 and 2011 and that seems to be lost in all of the talk about an economic recovery.

The problems of the aged may always be with the country but in a recession they get much worse. People over 65 had average incomes of only $29,744 last year. That not only indicates that the misery among these people is high, but also that the government’s need to supply them with a social safety net is growing. As the population ages, this trouble only becomes more acute.

People who live inside major cities bring in much less income than the average American—only $44,197. The burden on local governments to aid the poor is already great and the recession is likely to make it much greater. Municipalities do not have the tax bases to handle this problem, and neither do the states. That leaves the federal government to assist a large number of the urban poor just as the deficit is growing to record figures. Deficit estimates may not be tied to the number of people who live in poverty, but they are probably closely linked in reality. The poor need help. They pay little or nothing in taxes. The recession is swelling their ranks.

The US Census Bureau does not have an axe to grind and neither does the nature of the figures it reports. There is no warning about the American future in its new 2008 report “Income, Poverty, and Health Insurance Coverage in the United States.” It does not require one for intelligent economists to see what the future looks like.

The Budget’s greatest flaw is not that it overestimates government spending, but that it underestimates government receipts. Business tax collections are being affected by decreasing profits caused by the recession. Personal income tax receipts are being undermined by rising unemployment, and, as the Census report shows, falling family incomes. The buttress for the Budget’s income figures is supposed to be the $787 billion stimulus package. The Budget forecasts become grossly inaccurate if the stimulus programs do not quickly add jobs and improve wages. There is almost no evidence that these positive changes are happening now.

The poverty numbers and the average income figures are signs of the inescapable problems that the government faces with the deficit. The 2008 Census figures are not entirely negative, perhaps not next to the 2007 figures, but put next to the likely numbers for 2009 they look unmanageable for a country that is trying to pull itself out of a nearly bottomless economic pit. America may believe it can stand more poverty from a moral standpoint, but it cannot from a financial one.

Douglas A. McIntyre