I realize that this blog posting may offend some people, so I should probably begin with the disclaimers that have become so prevalent in today’s politically correct society. First, I understand that there are many families out there that are hurting right now, many at no fault of their own. I understand that almost seven million Americans have been unemployed for more than seven months. I also understand how extremely stressful that situation can be. After I graduated from business school, I went without a job for almost nine months. I thought that I would never find anything and that I had just wasted two years of my life and $50,000. I understand how completely demoralizing that situation can be – trust me.
Nevertheless, I cannot let Tuesday’s report, by the Census Bureau, on the U.S. poverty rate go without a response. I’m sure you’ve seen it all over the news by now; poverty at a 50-year high, 15.1% living in poverty etc…. There are two important points that you may not be hearing reported by the news media.
1) In 2010, the Obama administration announced a change in the way it calculates the nation’s poverty rate. For the previous 45 years, the nation’s poverty rate considered a person’s income level and the cost of food. Beginning with the 2009 report, the poverty rate began considering several other expenses including the cost of healthcare. I have no problem with this calculation change, as the typical American family has a much different budget now, in terms of what they purchase, than in 1965. However, this change should be made clear to the public because it has the effect of significantly increasing the number of people considered to be living in poverty. Also, the actual poverty rate, or percentage of working age population, is not at a 50-year high. As can be seen in the graph below, things were much worse in the early-1960s. The number being reported as a 50-year high, is the actual number of people living in poverty. Remember, however, that our population has grown significantly over the years, so it’s not surprising that the actual number of people living in poverty has increased as well.
2) The average person living in poverty, as calculated by the government, has a car, air conditioning, two color televisions, cable or satellite TV, DVD and VCR, video game system, refrigerator, oven and stove, washer and dryer, ceiling fan, cordless phone and a coffeemaker. In addition, 70% of those living in poverty report being able to meet all essential needs, including: mortgage, rent, utility bills and important medical care.
The problem with statistics is that you can get them to tell whatever story you want. The problem with government statistics is that the story will usually lead to more spending, higher debt and more class warfare. Remember, one of my goals for this blog is to get the average, small investor to dig beneath the headlines and see what is really going and not simply accepting what the government and the news media tell you. Given the two points I outlined above, it appears that a large part of the problem is that many Americans are still living above their means.
Real poverty can be seen by studying current conditions in Somolia, where parents are forced to leave their dying children along the roadside so that they can make it to a refugee camp for food and water to ensure their own survival. We are fortunate to live in a country where being poor means choosing between a big-screen TV and food, not between our children and food.