For years, students have been told that fiscal policy is an ineffective policy tool, unable to adjust for fluctuations in national income caused by changes in spending and saving decisions by the non-government sector. This narrative is a testament to the austerity purges we’ve grown accustomed to pre-pandemic. Raising fiscal surpluses to some desired target has been instilled in our minds, and we vote for governments that record these surpluses because we think they are fiscally responsible. The global financial crisis, and the recent pandemic, have helped to undermine this narrative, as people have come to realize that the only thing they have to do with hunger is government spending. The “market” didn’t help them. The evidence that government spending reduces poverty and creates opportunities for households that were previously impossible is strong. One of these measures is— Supplementary poverty measures (SPM) – First published in 2011 by the US Census Bureau. This blog post documents my published notes on this data.
The U.S. government began publishing official poverty estimates in the 1960s, and the topic led to numerous papers, studies, and conferences.
The problem with the early measures was that they did not explicitly take into account the impact of “many government programs designed to help low-income families and individuals.”
Launched in 2011 to address this shortcoming, SPM has given us a better guide to the benefits that those at the bottom of the income and wealth distribution reap from well-designed government spending.
Poverty in America in 2020
Latest data (2020) – Table B-1.Poverty by specific characteristics: 2019 and 2020 – Indicates:
1. The poverty rate rose from 10.5% in 2019 to 11.4% in 2020 (an additional 1% of Americans fell into poverty during this period). This equates to 37.2 million Americans living in poverty.
2. 2020 – 19.5% Black; 17% Hispanic; 8.2% White (non-Hispanic); 8.1% Asian.
3. 12.6% female, 10.2% male.
4. 28.8% of those who do not work; 1.6% of those who work full-time.
5. 16.1% under 18, 10.4% 18-64 and 9% over 65.
6. 24.7% no high school diploma; 13.2% high school, no college; 8.4% some college; 4% bachelor degree or above.
Thus, these features point to behavior and circumstances under given constraints, which would indicate poverty.
Of course, they are all systematically linked through family environment, education level, labor market opportunities, etc.
You can find more detailed information and discussions in the publication – Income and Poverty in America: 2020 (Published September 14, 2021).
What is the impact of government spending programs on U.S. recorded poverty?
Newest – Supplemental Poverty Measures: 2020 (Published September 14, 2021) – Provides an estimate of how the original poverty data will change after taking into account government programs.
This table from the 2020 SPM report shows how official poverty measures differ from SPM in what, how and when they are measured.
One of the important differences is that official measures include “cash benefits from the government (eg, Social Security, Unemployment Insurance benefits, public assistance benefits, and workers’ compensation benefits)” but ignore “designed to improve the economic well-being of the population.”
The SPM includes all income components and subtracts expenses such as “taxes, medical expenses, and work-related expenses.”
Therefore, typically, SPM poverty measures are higher than official measures due to non-discretionary taxes that individuals have to bear.
In 2020, something different happened.
I put together the table below to help me understand the difference between the official poverty estimates (by characteristics) and the 2019 and 2020 SPM estimates.
There’s a lot of detail in the table, but just be patient and you’ll start to understand what happened in the first year of the pandemic as government aid shifts.
The main findings using SPM are:
1. Using the official poverty measure (not adjusted for government programs), the poverty rate increased from 10.5% in 2019 to 11.4% in 2020, while the 2020 poverty rate as measured by SPM fell sharply from 11.8% in 2019 to 9.1% %.
2. Poverty declined across all major age groups after using SPM.
3. “The 2020 SPM rate of 9.1% is the lowest since the estimates were originally published in 2009”. So, even as the pandemic rages on, mostly affecting low-income individuals and households (especially because who is sick and who is most vulnerable to restrictions and lockdowns), poverty has fallen due to fiscal intervention.
4. “Social security remains the most important anti-poverty program, lifting 26.5 million people out of poverty.”
5. “Stimulus payments enacted as part of economic relief legislation related to the COVID-19 pandemic lifted 11.7 million people out of poverty. Unemployment insurance benefits also expanded in 2020, keeping 5.5 million people out of poverty.” Again Read it.
This graph (Figure 8 in the 2020 SPM report) shows the change in the number of people living in poverty in 2020 due to different government programs in the United States.
The 2020 SPM report states:
…shows the effect of various additions and subtractions on the number of people considered poor in 2020, holding all
Other things being equal and assuming no change in behavior…this allows us to examine the impact of government transfers on poverty estimates…allows us to compare the impact of transfers (cash and non-cash) and non-discretionary spending on the number of poor, other Same conditions…When the stimulus payments were included in the resources, the number of poor fell by 11.7 million, other things remaining the same. On the other hand, when SPM subtracts child support payments, income and payroll taxes, work-related expenses, and medical expenses, the amount and percentage of poverty is higher.
Therefore, we have a very clear picture of how government spending and taxes and tax-type tariffs affect poverty rates in the non-government sector.
It is instructive and provides guidance on the most effective ways for the U.S. government to further reduce poverty.
Note the damage done by medical bills – among other considerations, this is one reason why we have a universal healthcare system in Australia (almost everywhere – except the US (totally stupid)).
Looking back at my table, the reason the SPM poverty rate is higher than the official poverty rate in 2019 is because
The Census Bureau concluded that given the scale of stimulus interventions in response to the Covid-19 pandemic:
…In 2020, for the first time in SPM history, the estimated poverty rate using SPM is lower than using the official definition of poverty.
This is a convincing result.
So while official poverty indicators have risen in 2020 due to difficulties caused by the pandemic (loss of income, etc.), SPM has fallen as lost private incomes are offset by stimulus measures.
That push includes expanding the Social Security safety net, as well as other income payments that are more than enough to make up for lost wages due to unemployment.
in conclusion
The lesson is very clear.
Given enough real resources, poverty is largely a political choice. It reflects the uneven distribution of these resources, and money-issuing governments can always change this uneven distribution, as evidence from the United States in 2020 clearly shows.
Poverty reduction programs involving various supply-side job tests and policies make it more difficult to obtain income support—a hallmark of neoliberal activating policies (designed to “motivate” people) because they don’t understand the foundations of poverty.
Poverty is a lack of income, and for most people of working age, it’s due to a lack of work.
The introduction of job security that offers socially inclusive wages (above the poverty line) would virtually eliminate poverty in developed countries and significantly reduce poverty in poorer countries struggling with overall resource deficits.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
