The Rise of Poverty in the US

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Table of Contents

Synopsis of the News Article
An analysis based on economic theory
Invisible Poverty
Inequality in Income Distribution
References

This paper is an analysis of the news article published in the magazine The Nation on increasing poverty, and inequality of income distribution in the US and government’s anti-poverty programs. Issues related to poverty are then analyzed using economic theories.

Synopsis of the News Article

The article sheds light on the rise of poverty in the US, especially after the 2010 financial crisis. Written in early 2012, the article clearly shows how poverty, inequality of distribution of income, and lack of social welfare has plagued many parts of the US, even those, which were once affluent. The article also demonstrates the reluctance of the government to deal with the issue of poverty directly, as most of the time policies target the middle class of America, grossly neglecting the poorer homeless classes.

The article begins with an exposition of the incidence of poverty in the US. The main issue that is portrayed in the article is the presence of the invisible poor and the homeless poor in the US. First, the author expresses the condition of the homeless destitute, and at times has to make do with the minimum state support through food stamps and unemployment pays from the government. However, their lives are not any better for they live in dire necessity of proper housing, for most of them are homeless, and destitute. The reason as pointed by Abramsky is that, the wealthy in America “flourish atop a sea of state subsidies” available to them, but seldom reach the target group it is intended for (Abramsky, 2012, p. 12). The number of people below poverty line in America is alarmingly high and it is constantly increasing.

Abramsky (2012) points out that even though there have been many social movements like the Occupy movement, none has actually been able to connect to the poor, who remained either ignorant or indifferent to its causes. The demand for food stamps has increased by 14 million since 2008 and has increased government spending on welfare activities by $65 billion (Abramsky, 2012). However, a research suggests that not all poor people receive government assistance. FRAC found that more than 40% of the poor in certain cities like San Diego, Los Angeles, and Denver do not receive government assistance. The increasing incidence of poverty in the US has increased with the rising pressure from the housing crisis and the prolonged recession. Recession has increased unemployment and has declining wages, reducing the purchasing power of the average American, which has affected the quality of life in the country.

On the other hand, are the invisible poor, who have an annual income above the poverty line set by the government, however, struggles to make ends meet. Abramsky (2012) points out that the incidence of poverty is increasing in the middle class of the country. The reason again is due to the prolonged recession and unemployment. Further, inequality in income distribution based on race shows that African-American and Hispanics are worst affected. The poverty line for an “individual is set at $11000 a year while it is $23000 for a family of four” (Abramsky, 2012, p. 14). Only 12 percent Asian-Americans and 10 percent whites are under poverty line. The article points out that 20 million people are living in “deep poverty” with their family income below 50 percent of the poverty line and an estimated number of 16 million children live in poverty (Abramsky, 2012).

Another issue pointed out in the article is of those people who do not qualify for the benefits but do not earn enough to cater to their needs. These people get a daily subsistence wage (called “living wage”) and almost no other benefits, and therefore, are at a risk of falling under an irreversible debt burden.

Many of the families living in poverty do not receive proper medical facility nor do have the basic requirements like heating in houses and fresh water. The situation is worse for migrants who have to queue even for water. The article further points out that even though the level of poverty in American shot up after the country was hit with the worst ever financial crisis, no anti-poverty measure has been taken up by the government. Poverty alleviation measures were not on the policy agenda of the government that concerned itself with the problems of the American middle-class. Further, corruption in the country diverted many of the food stamps to millionaires who were in no need for the subsidy.

Overall, the article starkly showed the rising poverty in the country and how there were various layers of present in it. First, there are people who live in extreme poverty with no work or place to live in. Second, are those who are temporary workers, and avail government subsidies; but even with that it is difficult for ends meet. The third kind of people are those who are just above the poverty line, receive no subsidies, but have to take loans in order to make ends meet. The fifth concern about the rising paucity is the increasing poverty among children and the older generation. The sixth issue related to poverty is the highly skewed income inequality of the African-American and Hispanics. The article points out that the inequality of income distribution based on race and the invisible poverty rising in the US are to growing concerns for rising poverty in the country.

The article clearly demonstrates three economic problems – poverty, inequality in income distribution, unemployment and government welfare spending, and anti-poverty policy of the government. Intuitively, the increase in the number of people above poverty line, are hurled in a debt-trap and are equally poor. Therefore, what needs attention is how the concept of poverty line is defined. What would determine who is below and above the poverty line and who would qualify for the government subsidies? Further, a clear understanding into the economic theory related to poverty, income inequality, and unemployment has to be understood from the point of view of the welfare economics.

An analysis based on economic theory

Class based poverty Measure

One of the major problems of poverty is its distinct nature of class/race specific incidence. In the US, most of the people below poverty line are African-American and Hispanics compared to whites or Asian-Americans. This stark inequality in the incidence of poverty with respect to race brings out the question is poverty alleviation measure should be framed specifically for the races afflicted with the issue. Research has been conducted to understand the influence of class distinction in measurement of poverty (Foster, Greer, & Thorbecke, 1984; Sen, 1992; Sen, 1976). Sen points out that poverty line, as a measure of poverty incidence, ignores the individual characteristics of humans, for he believes that “poverty varies parametrically with personal characteristics and circumstances.” (1992, p. 111).

He believes that a measure of poverty line is incapable of demonstrating and addressing the real concern under a poverty-stricken situation. A few categories that must be considered while measuring the incidence of poverty are “class, gender, occupational group, and employment status.” (Sen, 1992, p. 111) Foster et al. (1984) shows that it is important to undertake an understanding of certain household factors in measurement of poverty. Their research also shows that the incidence of poverty is higher among people who are “short-term residents” or migrants. Further, they also demonstrate that a difference in class or race that forms subgroups must be considered while studying poverty.

Sen, in his 1979 article, presents a model of measurement of poverty. Sen devised a qualitative measure of the poverty called the poverty gap index that considered many welfare measures in it and did not just count the number of poor below a pre-determined poverty line. Sen’s model considered three aspects of measuring poverty with the help of poverty gap index and Gini Coefficient. The former provided an ordinal axiomatic approach to measurement of poverty from the welfare economic point of view and not in just cardinal terms as is done by poverty line. Further incorporation of Gini Coefficient in the measurement of poverty helps in measuring inequality in income distribution.

Therefore, academic research into poverty measure demonstrates that a measure of poverty line in demarcating poverty is flawed in many ways. This has been observed in the news article. The article repeatedly talks of the poverty line as an annual income of $11000 per annum, however, it fails to show any other measure of poverty that is being used to demarcate the diverse inequality, and race based poverty in the US. The measure of poverty in the US must be based on some class-based sub-categorization of the poor. Further, their social conditions must also be considered as was in case of the elderly who have a rising medical costs while their income reduces with time. Therefore, if the same measure of poverty is applied in estimating poor in a country, it will definitely not-include many such households who can barely meet their daily requirements. In the US, there are no proper measure of poverty and understanding of the subgroup based incidence of poverty based on race, immigration status, age, gender, or family, condition is present.

Invisible Poverty

Another problem as demonstrated in the article is the presence of invisible poverty in the US. A research article on the rural youth in the US shows that the number of poor in the US has been constantly under the pressure of declining income (Hodgkinson & Obarakpor, 1994). This sect has very low income and/or no employment. Census reports suggest that the rural youth are poorer compared to the youth in the metropolitan areas. Substantial difference has been found between the two groups based on daily wages, jobs, and rate of unemployment. Further wealth and income distribution has also been found to be skewed among rural youths. The report suggests certain policy changes directed to the development of the rural youth. Another book talk of the people who work, but are poor in America demonstrates the same observation by Abramsky (2012) of a Wal-Mart employee in the article.

This person is employed; however, her job is low paid and mounting debt due to her medical bills or educational loan (Shipler, 2008). These people are working in low-paid or temporary jobs and are trapped just above the poverty line. Due to their financial adequacy, by virtue of being above poverty line, they do not qualify for any state subsidy. On the other hand, rising costs, and burden of loans, make their situation even more precarious. These people are caught in a poverty-like situation, for the state’s measurement does not count them as poor, due to their low wages. Therefore, one of the increasing groups of poor in America, as Abramsky (2012) identifies are the working poor.

Inequality in Income Distribution

The inequality of income distribution in America is very high as there are people who are rich enough to spend extravagantly on their daily necessities and again there are those who skip meals to make ends meet. Economic theory has earlier demonstrated that a rising income inequality is good for economic development however, once the economy develops, the inequality reduces (Clarke, Zou, & Xu, 2003). Their research on income distribution in 91 countries shows that inequality decreases as the economy develops is consistent with prior assertions by economists like Kuznets (Kuznets, 1955). Kuznets’s research shows that developed countries have shown a rising per capital income except when they have faced some form of catastrophe.

A recession in the US may be considered a form a catastrophe for the American economy. However, a measure of finding a ratio of the income of the people with high annual income and those with low annual income would show that if the ratio rose significantly with economic growth, the people with lower income was increasing at a higher rate with economic growth. Kuznets’s analysis definitely states that the distribution of income is directly related to economic growth. Since the American economy has been in recession since 2008, there is a definitive reason to believe that the income distribution has become unequal. However, a ratio of incomes of the rich and the poor would have demonstrated the nature of the inequality that America faces.

Further, Kuznets also suggests that a measure of inequality must exist based on the nature of industry. He exemplifies with the difference in income from agricultural and industrial sector and points out in order to understand inequality better a sector wise distinction must be made. Kuznets finds a positive relation between income distribution and economic growth in developed countries. He shows that the process of economic growth, demonstrated through changes in national income, unemployment rate, inflation, bank rates, etc., show that in the US, due to the increase in recessionary pressure, job-cuts, wage-cuts, and fall in realty prices, shows that an adverse effect on income distribution is imminent.

The analysis of the news article and the journal articles demonstrate that the incidence of poverty and its increase is positively related to the economic growth of the economy. However, better measures for poverty should be considered in order to identify people who are in poverty but are not counted as poor in America. Further, the working poor of America who have annual income just above the poverty line face a lot of problem, as they do not qualify for state support, neither can they meet the increasing prices in the economy, throwing them in a never-ending debt-trap. Further, the incidence of poverty has been found mostly in certain races such as African-Americans and Hispanics. However, no anti-poverty measure targets these minority groups.

References

Abramsky, S. (2012, May 14). The Other America 2012. The Nation, pp. 11-18. Web.

Clarke, G. R., Zou, H.-f., & Xu, L. C. (2003). Finance and Income Inequality: Test of Alternative Theories. Geneva: World Bank Publications.

Foster, J., Greer, J., & Thorbecke, E. (1984). A class of decomposable poverty measures. Econometrica, 52(3), 761-766.

Hodgkinson, H. L., & Obarakpor, A. M. (1994). The Invisible Poor: Rural Youth in America. Washington, DC: Institute for Educational Leadership, Incorporated, Center for Demographic Policy.

Kuznets, S. (1955). Economic Growth and Income Inequality. The American Economic Review, 45(1), 1-28.

Sen, A. (1976). Poverty: an ordinal approach to measurement. Econometrica, 44(2) , 219-231.

Sen, A. (1992). Inequality reexamined. London: Oxford University Press.

Shipler, D. K. (2008). The Working Poor: Invisible in America. New York: Knopf Doubleday Publishing Group.

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