January 14, 2008

Poverty and Inequality

By Benjamin Artz

The economy is always at the core of presidential debates and campaigns.  How can we reverse the Dollar’s slide?  How can we keep jobs from going overseas?  How can we make income in the US more equal across classes?  The last question refers to income inequality in America, which by strict standards has increased steadily for over three decades.  Simply put, the rich have been getting richer and the poor have been getting poorer.  However, it is not that simple.

            The most commonly used metric to gauge whether a person is “poor” is called the poverty line.  For instance, in 2005 a family of four was considered in poverty if their combined household income was less than $19,971.  By this measure, the US Census Bureau estimates that roughly one-third of all children in the Milwaukee School District were living in poverty in 2005.  This placed Milwaukee in sixth place out of the 70 largest school districts for most children in poverty.  Of course this is unacceptable, but in reality it is also misleading.

            What the poverty measures fail to report is that government aid helps those in poverty.  These families are not left to fend for themselves with incomes less than $20,000 per year.  Many receive Medicare, Medicaid and other government aid to help them.  Food stamps, subsidized housing and other in-kind transfers reduce the impact of having low-income jobs or no jobs at all. 

            Moreover, while income inequality has widened, material equality of Americans has converged during the 20^th century.  Prices of basic quality goods have dropped while the prices of luxury goods have increased.  In addition, conveniences, goods and services that people experience every day are more similar now between rich and poor.  For example, rich and poor alike will be watching the Packers in the NFC Championship game.  The only difference will be what size TV they will watch it on.  I am certain we would be hard-pressed to find a family without a TV, including even those in poverty.  Likewise, the difference between driving a used Buick Century and a Chevy Corvette is negligible compared to the inconvenience of not having a car at all, and the vast majority of Americans own cars.  In fact, over 70% of Americans in poverty own a car. 

            Although inequality is indeed overestimated, there are still many people well below the poverty line that need help from the government.  Political campaigns seem to be overlooking the needs of these people.  Still the best solution for Americans to get out of poverty and for the politicians to tout is education.  One area of improvement has been the education of women.  In the 20^th century, more women began going to college and getting degrees.  Now there are more females in college than males.  The US Census reports that 33% of women between the ages of 25 and 29 hold college degrees while only 26% of men hold degrees.  A more educated female workforce can only be a good thing since in 2005, 31% of female led households were in poverty. 

            Although the income distribution is widening in America, it does not automatically mean that happiness between the classes is also widening.  According to researchers of overall life satisfaction, this gap narrowed over the course of the 20^th century due to, in part, reasons noted above.  It may be that money does not, in fact, buy happiness.