GDP per capita vs. the federal poverty rate over the years (observation and discussion)
Fair warning, I'm a dummy trying to talk about stuff I don't fully understand, but I wanted to see others' thoughts on this.
In the 1960s, America's GDP (per capita) was $3,000.
Also, in 1960, the federal poverty limit was $3,000 for a family of four.
In 2023, the GDP (per capita) was $82,034.
The federal poverty limit for a family of four in 2023 was $30,000.
This can't be good for the American people. Unless I'm drawing comparisons between two completely unrelated things?
People who are barely in poverty today would have to earn ~2.7x the amount they earn to stay consistent with those who were barely in poverty in the 1960s if GDP and FPL were still equal to each other. So what about the families caught in the middle? Too high earnings to get help and too low to thrive? They just suffer, I guess.
Out of curiosity, I calculated what the thresholds would be if the percentages of GDP to FPL were swapped between 2023 and 1960.
1960s numbers adjusted if FPL matched 2023's percentage:
GDP=$3,000
FPL=$1,111
1960s numbers adjusted if GDP matched the percentage comparison of 2023:
GDP=$8,100
FPL=$3,000
Please let me know if it actually matters that the GDP per capita is 2.7x the federal poverty limit for a family of four. Also, let me know your thoughts.
It's two numbers that are only loosely connected. What you're trying to get at, I'm assuming, is that the federal poverty rate hasn't kept up as the years has gone by, but these aren't really the numbers you should be using.
For one, if you were to assume that the poverty rate is correctly set, it would be a good thing for GDP per capita to increase while the poverty rate stays back. It means the overall standard of living has gone up.
So in the end, there's too many confounding factors between these two numbers for their correlation to indicate anything meaningful.
Along similar lines, if the definition of the poverty level is linked directly to GDP, it suggests that the quality of life in poor countries is about the same as in rich countries and that poor countries shouldn't bother trying to increase economic opportunities for their populace.
I'd say it'd be good only if poverty rate tracks inflation AND the percentage of people in poverty goes down. Last I checked, that's not exactly happening, especially not since 1980 something for everyone but the elderly.
There's also something to be said about tracking poverty relative to your contemporaries. Are poor people in the USA better off today than 60 years ago courtesy of technological improvement? Yea. But 60 years ago the rich folks weren't having a private space race either.
I think what I'm saying is the "reply" to what you're saying. In other words, I'm pointing out how the FPL hasn't kept up due to it not keeping up with inflation.
And if I'm totally honest, I'm just not grasping the rest of what you're saying (this is a topic I'd likely need ELI5 to me). You said if GDP goes up, the FPL should stay the same, which means the quality of life has gone up. I don't understand this one. Or, my mind isn't in the same place at least.
I thought if GDP goes up, that means there's more money to go around for the people (ideally anyway... realistically, it's lining rich pockets). This would mean the overall threshold for anything dealing with money would also increase. Wages, poverty guidelines, prices, etc? But, since rich people gonna rich, it doesn't raise wages, but the prices do rise, and so people suffer. Then, the government is supposed to raise the threshold of the FPL to compensate.
I hope I made sense.
I think it might be better to adjust for inflation in some other way.
For GDP per capita, here is a graph in 2017 dollars. I didn’t find a similar graph for the federal poverty limit, but I suppose someone could make one?
Per capita is just dividing by population. It doesn’t correspond to anyone’s income. Another graph to look at might be real median household income. Note that “real” in the name means inflation-adjusted.
This is massively complex issue that's pretty much always a moving target.
Flat math doesn't work nearly as cleanly as one might think, although it does show problems. I don't think you'll find many people familiar with the subject who think things as they exist are fine, but at the same time you're going to find a LOT of differing opinions on where to start.
As an example of some factors that are hard to control for-
The cost to live in LA now vs the 60s is, frankly, fucking insane, and there's similar issues all across California, and plenty of other major city centers (New York and Hawaii being the other two MAJOR extremes).
If you wanted to have a family of 4 there 80k is absolutely poverty, maybe even assuming free housing. Compare that to much much lower cost of living states and 80k a year might actually support a family. How many people would be above the poverty line if we just relocated them to a cheaper state?
The bureaucracy is only so efficient. Some absolutely want the poverty line higher, but also recognize that doing so would just mean taking the few people they are helping and failing them along with the new ones added. People always say "pull money from here or there", but it's far from that simple. It's very much a logistics issue.
Cars cost more, but probably cost less than a similar car from the era would cost. The savings are from globalism and manufacturing breakthroughs, but the costs are from things like much much higher safety and emissions standards.
This is ALL OVER THE PLACE and affects just about any industry. If you look at what was allowed during the 60s, and how it was checked, vs today, you'll see probably trillions in cost over the years in proper safety standards and auditing that they're doing now.
In fact many of the "well we should make things safer/better" laws/taxes almost always wreck the poor. Increased taxes on cigarettes or New York's sodas come to mind. Companies pass these costs onward to the consumer, and a non poor consumer can usually make a couple of decisions on something like that, but those in poverty have much less choice. They aren't buying unhealthy food because they want to (although that's a whole other discussion), and god knows smokers in those scenarios are often stressed and looking for relief.
While women absolutely should've been allowed wherever they wanted in the workforce, it also meant you doubled the amount of workers, thus lowering demand, and splitting the profit. In an ideal world we'd still shoot for goals that achieve this, but at the same time there's a national competitive issue where countries really do not want to fall behind in productivity compared to others (as it can lead to massive problems that will affect the quality of life of everyone). Once that genie is out of the bottle there's really no putting it back in, and it's somewhat expected now that both adults in the family of 4 unit will be working. There's not really an easy way to adjust the economy to expect otherwise for a whole slew of intermingled reasons.
This more makes things a political issue, but poverty in the 60s vs today is...uhm...awkwardly different? The family of 4 living on 60k a year, almost certainly has at least 1 TV, and other such "unnecessary" amenities. This doesn't mean that they aren't worse off, but it's a sticky issue in discussing this at a larger level. Them not having a cheap TV probably doesn't shift the math importantly at all, but it's hard to say "please help my family is struggling" when someone can look around and say "ok but you can afford things like that?"
This is all off the top of my head stuff from the last time I looked into these things (more than a decade ago), and even still I think the conclusion is "yes it's bad that it's not higher", but i'm just touching on the simple stuff. There's much more complex conversations about this that I admit to not fully understanding, and thus have trouble separating the speeches from the science.
Elizabeth Warren wrote about this issue in her book The Two-Income Trap. Vox has a little summary.
In short, there are certain essential but scarce resources like housing and education. Now households are expected to bid over these resources with two incomes instead of one.
Before, if one person lost their job, their partner could pick up some part-time work to help make ends meet.
Now, both partners have to work full-time: there isn't 'slack' any more.
If I recall correctly, Warren's take away is: it's good that women can work and be economically independent, but it also created an exhausting economic arms race between households because two incomes are now the norm, and now everyone is working at max capacity competing for limited resources.
Thank you for this insightful response! I saw that poverty is considered not just that you can't afford food but also that you can't afford to enjoy life. Even to thrive, one article said. So that makes the definition of poverty VERY subjective and open to abuse.
When you said
And
I immediately thought about how I have to stay with my parents at 30 years old and I remember, ten-ish years ago, I was asking my parents if I could keep my favorite of our cats when I move out. Now, I have actually a negative amount of hope that I'll move out. I'm actually anxious we could lose the house, or that after I'm on my own, I will lose the house (since I'm aroace and won't be married). I wonder if the issue you mentioned will worsen as this becomes a trend among the next generations. I can't see employers lowering the amount of labor just because they have multiple employees that they pay pennies. I'd imagine it'd be more that there will be a ton more unemployed people, thus keeping the demand low, thus keeping the wages low, thus saving the companies money so they can buy up all the housing, forcing people to live in larger families, maybe even extended family members living together, or just two unrelated families... aaand downward spiral here we go. Something has to break. Something has to be done. But what? Legislation to ban companies from owning residential properties, maybe.
What also worries me about this is that if instead of two out of the four are working, maybe it'll be three or all four eventually working as conditions decline. Does the same wage get split among all four? Maybe with a small increase, but it's not likely going to be worth double what the family was bringing in when only two were working, especially since employers and companies have proven they aren't willing to keep wages up with inflation, and instead opt for price increases "due to inflation" despite their profits growing 3x the amount they grew the year prior. Regardless of that, now four people are stressed and tired with no extra time for chores or errands, instead of only two. And for what extra gain, right?
Keep in mind that the "American Dream" of owning your own house is a semi-mythologized goal everyone is supposed to aspire to, but according to our economic system not everyone is supposed to reach. There are some interesting stats on housing trends here. Indeed, it seems it's the "American Dream" and not the "American Guarantee" because for some reason some people want to keep it a "dream." The politics (and economics) of that are a sticky issue, but actually a lot more straight-forward if people would sit down and think things through.
I'm sure someone with a background in finance or economics will explain that. But I just want to say that people shouldn't feel bad about not owning their own home, or struggling with external economic consequences of things outside their control. Use that as leverage to educate yourself and vote accordingly, but don't let that suppress your ability to overcome obstacles (easier said than done, I know).
The reality is that multi-generational homes have been a thing in America since agrarian times, because it was a necessity. It also remained a necessity that single women (especially single mothers) would stay at home to take care of their parents until they married, found a job, or some opportunity arose. Due to financial and social necessity, multi-generational living has remained common throughout the U.S. and we need to stop looking down on this.
According to [this chart], multi-generational housing reached its lowest point after the end of WW2 and the Korean War. This time period roughly corresponds to improving economic strength in the US, American veterans utilizing the GI Bill (unless they were Black or other minority, of course), the post-war housing boom with favorable mortgage rates (the UK experienced their own housing boom, and the development of the modern suburbs complete with new highway systems. The whole thing was a big economic boom and there was enough inertia to carry many families through hard times and out the other side.
So take advantage of the systems that are in place to support you. In the case of an actual house, take advantage of housing subsidies; first-time buyer programs; and rural housing programs supporting the purchase or construction of single-family housing as well as repair of existing rural housing. There are programs for apartment rent assistance at federal and state levels, too.
I wouldn't say it's unrelated at all. At its core GDP is supposed to be a metric for all economic activity nationwide. While I'd expect a good portion of it to go into building capital (bigger companies, more factories, etc), a fair bit should also be distributed as income. A way to further test would be to compare it to median incomes.
A quick "napkin study": My hypothesis (before looking) is that median non-family income does not remain consistent as a percentage of GDP, in the same way FPL does not, however the median family income will remain much closer to the percentage it was in 1960. One potentially confounding factor is how much tax codes have changed over time. I also have not normalized against inflation and am assuming you haven't either, as we're comparing like for like percentages, rather than crossing years.
I'm adjusting to 1959 and 2022 because the data was more readily available.
1959 median family income: $5,600
1959 median non-family income: $2,600
1959 FPL for 4: 2,973
1959 GDP/capita: $3,007
So median family income was 186% of GPD/capita in 1959, while median nonfamily was 86%. FPL to GDP was 99%. FPL to median income was 53%. Lets see how 2022 fares.
2022 median family income: $95,450
2022 median non-family income: $45,440
2022 FPL for 4: $29,950
2022 GDP/capita: $76,330
Family income is 125%, non-family is 60%. FPL percentage is 39%. FPL relative to median family income is 31%
My takeaways are: Wage growth has not kept pace with GDP. There are numerous possible explanations for why, but my first guesses would be globalization resulting in some of that GDP "going elsewhere," as well as the huge relaxing of tax brackets resulting in median incomes stagnating while the top incomes capturing much more of the GDP (a later study). The most-interesting thing to me is how my hypothesis was inverted: family income slipped much more in relation to GDP compared to non-family income. I'll bet there some interesting nuggets of knowledge to be found by digging into that disparity more as part of a graduate economics thesis.
Poverty income guidelines have not kept pace, even within the scope of just income changes. Based on the poverty line/median income in 1959, the poverty line in 2022 should be $50,588, which is quite a stark contrast. This is almost more disturbing for a good number of reasons.
Thank you, yes. This is what I was trying to say. I didn't think to look at the median incomes of families and individuals, though. Interesting numbers. Not even my dad, who currently is the only one working in my family, earns only 31k, I believe? Maybe that is why I'm so curious about this topic. My family should fall within poverty guidelines but doesn't, so we suffer (although we do have a side business with selling Siamese kittens, but I don't know how much that brings in). Granted, I do have a smartphone, computer, car, etc, but I see these things as required in today's society, like having a coat is necessary. It's nice to feel all warm and fuzzy, but it's also "nice" not to freeze to death or get frostbite.
They have to be less related than you think, because I cannot imagine how someone making $82k a year is living in poverty unless they are trapped somewhere insanely expensive like San Francisco.