That 'Official' Poverty Rate? It's Much Worse than You Think

The shocking poverty statistics released last week tell only part of the story.

While the shocking new poverty statistics from the Census Bureau indicating that a record 43.6 million Americans lived in poverty in 2009 emphatically demonstrates the severity of the economic crisis, the Census is drastically undercounting this demographic. Apparently the government's poverty statistics are as accurate as its unemployment statistics.

I have read many reports that simply restate what the government has said without questioning the fact that the metrics it uses to calculate poverty are extremely outdated.

News reports say that in 2009 the poverty rate “skyrocketed” to 43.6 million -- up from 39.8 million in 2008, which is the largest year-to-year increase, and the highest number since statistics have been recorded -- putting the poverty rate for 2009 at 14.3 percent. This is obviously a tragedy and horrific news. However, this is also the result of lazy reporting.

Let’s revisit the 2008 Census total stating that 39.8 million Americans lived in poverty. It turns out that the National Academy of Science did its own study and found that 47.4 million Americans actually lived in poverty in 2008. The Census missed 7.6 million Americans living in poverty that year.

How did that happen? The Census Bureau uses a long outdated method to calculate the poverty rate. The Census is measuring poverty based on costs of living metrics established back in 1955 -- 55 years ago! They ignore many key factors, such as the increased costs of medical care, child care, education, transportation, and many other basic costs of living. They also don’t factor geographically based costs of living. For example, try finding a place to live in New York that costs the same as a place in Florida.

So the Census poverty rate increase of 3.8 million people will put the 2009 National Academy of Science (NAS) number at a minimum of 51.2 million Americans. And if the margin of discrepancy is equivalent to the 7.6 million of 2008, we are looking at a NAS number of at least 52 million people for 2009.

Let’s also consider the fact that more than 20 million people were on unemployment benefits last year. A Center on Budget and Policy Priorities analysis concluded that unemployment insurance temporarily kept 3.3 million people out of poverty. Food stamp assistance kept another 2.3 million people out of poverty. If we were to include all of these people, we'd be looking at almost 60 million Americans living in poverty. Which means the government number doesn't account for over 14.1 million Americans in poverty.

Now let’s look at the poverty line these numbers are based on: $22,050 for a family of four. Let me repeat that: $22,050 for a family of four. That breaks down to $5,513 per person, per year. I don’t know about you, but I can’t imagine living in the United States on $459 per month. That amount will barely get you a good health insurance policy, never mind food, clothes and a roof over your head. No wonder why a record 50.7 million Americans do not have health insurance. (Beware: 50.7 million Americans without health insurance is a government-based number. If you had health insurance for only one day last year, you are not counted in this total.)

Clearly, the Census is setting the income level for its poverty measurement extremely low. If we were to increase that measure by just a small increment, to $25,000 for a family of four, I estimate that the National Academy of Science would come up with a number of nearly 100 million Americans in poverty.

Let’s also consider the staggering amount of Americans -- 52 million, roughly 17 percent of the population -- who are currently enrolled in “anti-poverty” programs. Over 50 million are on Medicaid, 41 million on food stamps, 10 million on unemployment, 4.4 million receive welfare. Not counted in this “anti-poverty” total are 30 million children enrolled in the National School Lunch Program. Another metric: if it wasn’t for Social Security -- note to deficit hawks -- 20 million more would be added to the poverty total.

The effect of people moving in with family members instead of living on their own has further masked the severity of the poverty crisis. Foreclosures, unemployment, increased cost of education and health insurance have led the average household to grow in size. As Patrick Martin reports:

The number of multifamily households increased by 11.6 percent from 2008 to 2010, and the proportion of adults 25-34 living with their parents rose from 12.7 percent in 2008 to 13.4 percent in 2010. The poverty rate for these young adults was 8.5 percent when they were considered part of their parents’ household, but would have been 43 percent if they had been living on their own.

This trend is currently increasing. Although it is terribly under-reported, foreclosure rates continue to rise. We just experienced the worst month of foreclosures in history; the generation just graduating from college is carrying record levels of student-loan debt, and they are being forced into much lower income levels than anticipated, if they can even find employment.

Another glaring factor clouding our view of poverty in America is that the Census does not calculate a person’s assets and liabilities. Considering the massive debts most Americans are carrying, this would make the poverty rate explode. Stephen Crawford and Shawn Fremstad from Reuters concisely summed up this point:

As Nobel laureates Joseph Stiglitz and Amartya Sen, along with economist Jean-Paul Fitoussi, write in their new book Mis-measuring Our Lives, "Income and consumption are crucial for assessing living standards, but in the end they can only be gauged in conjunction with information on wealth." This point is just as relevant to poverty measurement as it is to other measures of living standards.

To understand why this is the case, consider two families: one had an income that puts them a few thousand dollars below the poverty line, which was $22,050 for a family of four in 2009; the other has an income a few thousand dollars above the line. Looking only at income, the first family is worse off than the second.

Now add what the family owns and owes into the mix. Let’s say the first family has substantial net equity in its home and moderate liquid savings for a "rainy day," while the latter has no liquid savings or, as is becoming too common these days, has liabilities that dwarf their assets such as an "underwater" mortgage. Using this more comprehensive method, the latter family, despite a modestly higher income, is actually the poorer one.

In my analysis, a key metric to judge the overall economic security and hardship level of a country is the percentage of the population living paycheck to paycheck. Anyone who lives paycheck to paycheck can tell you about the stress and psychological impact it has on you when you know your family is one sickness, injury or downsizing away from economic ruin. The employment company CareerBuilder, in partnership with Harris Interactive, conducts an annual survey to determine the percentage of Americans currently living paycheck to paycheck. In 2007, 43 percent fell into this category. In 2008, the number increased to 49 percent. In 2009, the number skyrocketed up to 61 percent.

In their most recent survey, this number exploded to a mind-shattering 77 percent. Yes, 77 percent of Americans are now living paycheck to paycheck. This means in our nation of 310 million citizens, 239 million Americans are one setback away from economic ruin.

So when I hear the government and media tell me that 43.6 million Americans lived in poverty in 2009, while that is horrifying enough, I get extraordinarily frustrated knowing that even that sad statistic is putting a major positive spin on this economic disaster that is still far from over. While the economic top half of 1 percent now fears a “double-dip,” the overwhelming majority of Americans are still in the same downward spiral they’ve been on.

For one last missing piece to this equation, corporate profits are soaring while all this is devastation is occurring. Despite this economic crisis, it’s not like our country doesn’t have the money. A recent study done by Capgemini and Merrill Lynch Wealth Management found that a mere 1 percent of Americans are hoarding $13 trillion in “investible wealth.” Yep, 1 percent of Americans are hoarding $13 TRILLION in “investible wealth,” and that doesn’t even factor in all the money they have hidden in offshore accounts.

As American philosopher John Dewey once said, “There is no such thing as the liberty or effective power of an individual, group, or class, except in relation to the liberties, the effective powers, of other individuals, groups or classes.”

The United States now has the highest inequality of wealth in our nation’s history. Tens of millions of Americans are wondering how they are going to pay their bills, while the people who caused this crisis are rolling around in $13 trillion. The robber barons have been displaced as America’s most despotic and depraved ruling class.