The other day we took a look at an essay by Michael Green that sought to redefine how we think about poverty in the US. Green worked through a process that arrives at $140,000 being a more accurate or updated number that accounts for the way life has evolved with respect to skyrocketing of certain costs far in excess of the increase in reported price inflation and the addition of new expenses that didn't exist when the framework for poverty (as the government tries to calculate it) was derived.
A lot of different outlets took up the essay and several other posts went after Green's premise pretty hard. Scott Winship wrote about "debunking the worst poverty analysis I've ever seen" and the National Review included the phrase 'good grief' in trying to pick apart the Green commentary.
The Green essay is an interesting read because it challenges conventional thinking and I think it is useful to try to look at things differently versus some sort of consensus. If you read my first post on it, hopefully it was clear I wasn't trying to agree or disagree with Green so much as explore what if he's right and if so, how to try to start solving it from the bottom up. Like most of us, I have no top down ideas for issues of this scope.
Both rebuttal articles really went after the minutia of the food computation part of the poverty formula which seems to really miss the point. Winship especially went on and on. I'm just going to assume the guy is orders of magnitude smarter than me but the amount of time he spent on why the food portion is "wrong" seems like a first level-thinking festival. I took Green's comments about the food to be background context or maybe a starting point for his thesis, not his thesis.
Some numbers from Copilot that I would say get into the conclusions Green is drawing. In 2005 child daycare cost $39 per week per child, today it is $343 per week per child which is very close to the current $32,000 that Green came up with for a family of four. And as Green noted, there was a point further back than 2005 where child daycare wasn't an common expense for young families. Health insurance was $2585 out of pocket in 2005 versus $6850 out of pocket now. The $6850 seems light to me but it assumes most of the cost is being covered by the employer. Inflation was 2.5% per year, cumulatively 64% versus 150% for the premiums.
Has home insurance gone up dramatically where you live? We very recently used to pay less than $1000/yr. This year we are paying $3000 after getting quoted $5400 a year ago before shopping around. We're grandfathered in for some period of time but the company charging us $3000 is writing new policies here for $5000-$10,000 and I've seen other people here get quoted $15,000. The risk we're being penalized for is wildland fires. In other places it is hurricanes or tornadoes.
The average cost of a new car in 2005 was $28,000 versus $49,000 now which is slightly ahead of the rate of price inflation in that time. Yes the safety features are vastly improved but cost has gone up at a rate greater than the reported inflation rate by the government. Citing new car data is a little different because there is an element of discretion over what type of vehicle to drive. We have one pretty new care and one very old one. While most people probably don't drive 20 year old cars (our Tundra is a 2006), what about driving ten year old cars? No payments (hopefully) on those.
All of these items and others I am probably overlooking reasonably change the math on poverty even if $140,000 is not the correct number. In the past, I've laid out one definition of success as being able to pay the bills and save for the future with a little left over to have some fun.
A two-earner family of four making $100,000-$120,000 isn't paying a lot of federal income tax but they have to pay the employee half of Social Security tax which would be $7500-$9000. Assume a $1500 mortgage implying they bought a few years ago (the current average is $2300) and that's $18,000, health insurance at $6800, only one child needs day care for $17,000. Home insurance for $2000 (no expensive perils in this example). Can we assume one car payment? That could be $800 ($45,000 loan for five years) or $9600 for the year which gets us to almost $45,000 in expenses.
We've taken up 37-45% of this couple's gross income with out buying any food, meeting any of the kids' needs, paying any monthly bills or saving for retirement. Poverty might not be the best adjective for this scenario but it's very difficult to see these folks getting ahead. How many places would $100,000 not be considered middle class? There are a few according to Copilot but not many. The DC area, Massachusetts, New Hampshire and a few others but it is unlikely that someone bought a house in any of those areas just a few years ago and only has a $1500 mortgage payment.
The various expenses that Green cited and that I tried to capture in my example are certainly not going to go down in price but will the rate of increases slow down? If yes, then maybe people can start to catch up if not then the problem that Green is actually talking about will only get worse.
Another point that was either ignored or given very little attention in the rebuttals that Green really harped on was potentially being worse off financially moving up into the lower end of the middle class as eligibility for government assistance for housing, food and health insurance is lost. It's sort of like a Freakonomics sort of unintended consequence. I am not a fan of government support while at the same time realizing that people need it and I don't know how to reconcile those two opinions.
A quick pivot to an essay by aging expert Ken Stern titled I'm 62, Stop Telling Me I'm Old. The essay covers ground we've looked at including people being old at some random age or being young at that same random age. I think habits are a huge driver here but Stern didn't go too far down that road. He did mention the importance of retaining the ability to walk fast and maintain grip strength. Odds are you know people your age who can no longer walk fast and cannot give a firm handshake. Do whatever you need to in order to maintain both.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
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