Poverty, Income, and Health Insurance: What to Expect and Why It Really Matters

Every year around this time, the Census Bureau releases one of the most important government reports: the annual status of poverty, household income, and health insurance coverage. The release is scheduled for the morning of August 26th at 10; you can usually watch the press conference over the web if that kind of thing turns you on as much as it does me.

With your approval, I'd like to take you on a pre-release tour of these data, discussing what to expect -- slightly lower poverty and higher median income; less health coverage -- and, more importantly, the context within which to interpret these results.

While 2007 probably seems just so last year, the release is uniquely important...even historical. That's because 2007 was almost certainly the last year of the 2000s recovery, and the Census release enables us, for the first time, to evaluate how the living standards of middle- and low-income families fared over this recovery. It's not likely to be pretty.

What's that? You already know how they/you did? Good point. But this makes it official, and the release, which generally gets front page status for a day or two, gives us a chance to reflect on an economic expansion that left most people behind. It also happens to be a presidential election year, with the economy front and center in precisely the manner invoked by these data. As I've said in this space before, the candidate who understands this disconnect between growth and living standards, and whose ideas are best crafted to reconnect them...that's the one who should win.

The first thing you should know about these data is that they refer to calendar year 2007, as the Census Bureau treats insurance coverage and poverty as annual concepts for this report: if your family income was below the official threshold last year, or you went without any kind of health coverage, public or private, for the whole year, they count you as poor or uninsured.

There are known glitches: the poverty concept is way outdated, and is generally agreed to understate the degree of actual material deprivation. In 2006, 12.3% of the population -- 36.5 million people -- were officially poor. But when a couple of statistical scholars put together a more comprehensive, alternative measure, they found a 2006 poverty rate of 17.7%, adding 16 million more persons to the poverty rolls compared to the official measure.

Also, the income measure is pretax, and since taxes have been cut a lot in recent years, a post-tax measure would show more income growth, though this is less important for the middle-class relative to the rich, whose taxes have been cut the most.

So, with all that throat-clearing out of the way, here's what to look for. Wait...one more caveat. When it comes to forecasting economic reports, econometricians are no better than weather-persons. So, if I get these right, tell everyone. If I'm way off, we never spoke.

• Poverty probably fell a bit, I'd say to 12.1% (from 12.3% in 2006).
• Median household income, adjusted for inflation, probably rose about 1%.
• There are likely more uninsured people, especially due to lost employer coverage.

If the economy's in the tank, why do I think things improved? Because for most of 2007, the economy wasn't in the shape it's in now, and usually -- not always -- in the last year of an expansion, poverty goes down. The key determinants tend to be jobs, wages, and inflation, and all were actually in decent territory until the last quarter of last year. However, things have of course deteriorated since -- we'll get to the 2008 story in a moment.

But here's the first contextual kicker: assuming I'm right about the direction of these results, before anyone uncorks the champagne over the first two of them, consider these facts. Compared to the peak of the last business cycle in the year 2000:
--a larger share of the population will be poor;
--real median household income will be lower;
--there will be millions more people without health coverage.

(I'm sure about #'s 1 and 3. I could be wrong re #2, but if real household income surpasses the 2000 level, it won't do so by much.)

Remember folks, over these years, productivity was up 19%, growing faster over the 2000s than in the 1990s (on a yearly basis, productivity was up 2.5%, 2000-07, vs. 2% per year in the 1990s; that little 0.5% difference actually means a lot over a few years). The mantra among economists is that as grows productivity, so shall living standards. But in the 2000s, most of the American workforce worked harder and smarter, yet ended up earning less. Looks like we need a new mantra.

Here's the second kicker: last year was as good as is gets for awhile. The historical precedent is extremely clear on this score. In recessions, poverty rises and median income falls. And it's not just recessions. The last few recoveries started out as jobless, meaning the economy as a whole was expanding, but employment was still contracting. Poverty rose and incomes fell for the first few years of the last two recoveries.

The reason for these weak-start recoveries is that labor market conditions are a primary determinant of working/middle-class living standards. These families depend on their paychecks, not their stock portfolios, and with jobs and real wages in decline all year so far, the clear expectation is that middle-class incomes are down in 2008, and poverty is up.

Plugging current conditions into the models, I get poverty back up to 12.4% in 2008, and real median household income down around 1%, a loss of about $600. (For those interested in the sausage-making process, this assumes inflation subsides in the second half of this year; if it stays elevated, that $600 loss could become a $1,000 loss).

Going back to the 1940s, we've never completed an economic expansion where the middle-class family income failed to regain its prior peak (note the subtle switch from 'household' to 'family' income -- the Census family series goes back to the mid-1940s; the household series only goes back to the mid-60s; the main difference is that families exclude one-person units). I can think of no more damning indictment of the current economy -- no better example of how it is broken.

That's why next Tuesday's release is such an important one. True, it's last year's news, but if I'm anywhere close regarding these forecasts, the results will shine a red-hot spotlight on the biggest challenge we face: the disconnect between growth and living standards.

Look for the candidates to release statements based on the findings. Both will distance themselves from the Bush policies that have surely played a role in the disconnect. The problem for McCain is that his economic agenda seems to have been formed by looking approvingly at results like these and deciding the best path forward was to double-down on Bushonomics. He extends the Bush cuts for the wealthy, and throws in a big corporate tax cut for a cherry on top. His health care plan will be much less effective in covering the uninsured.

Obama (for whom I'm an informal advisor) starts with tax relief targeted at the middle and lower income families. After-tax income grows most for the poor under Obama, and most for the rich under McCain (see figure 1 here). Obama offsets the disconnect; McCain exacerbates it.

But tax policy can only offset the disconnect; it can't repair it. For that you need robust job creation, restraints on capital excesses, deep infrastructure investment, single-payer health care, and long-term energy policy with job-creating investments in green tech and alternative energy sources.

So, I hope to join all of you on the Census Bureau website next Tuesday, August 26th. I recognize that my forecasting prowess is on the line, but somehow, I think the stakes are a little higher than that. The release and the analysis surrounding it should provide a close and critical look about where we've been and we're we need to go.

Comments

[robinhood2]

(end of prior post) ... So how large is $800,000? A lot more than the average 401K plan balance, that's for sure. At least we don't have a national sales tax on artery clogging Big Macs with Cheese, like Canada and Europe do. We certainly would not want to be accused of discriminating against fat members of the underclass who like cheap Big Macs! In California, we don't have a sales tax on candy bars and other snack foods. But we DO tax vitamins and other food supplements that come in pill or powder form. How's that for promoting good health?

[robinhood2]

An acquaintance of mine recently ran up medical bills of over $800,000 for heart by-pass surgery. Medicare paid for most of it, his supplementary insurance benefits paid for part of it and he had to pay a few thousand dollars out of pocket. I wonder what the billable costs would have been in Western Europe or Canada or Australia? The senior in question will probably rack up a few hundred thousand dollars more of Medicare bills before he goes to his reward. This system is plainly unsustainable but I don't hear the politicians talking much about it. Medicare funding problems may well swamp the entire US economy in a few years when the baby boomers start getting their Medicare cards. As a society, we will soon get to decide how much value we want to place on human life. Will we be willing to tax ourselves silly to pay for the right of old people to live as long as they want? So far, the right to lifers have also been the voters who elect politicians who most hate taxes. These same politicians are also the ones that refuse to reign in the cost of drugs with some sort of price controls, leaving the US with the highest prescription drug prices in the industrialized world. It's one thing to be in favor of the rights of the unborn. It's quite another to be willing to pay for the medical care of those already here.

[ProgressiveChange]

Harry & Louise are back. They haven't died for lack of health insurance. Others have.
http://www.cbsnews.com/stories/2008/08/18/ap/politics/main4360898.shtml

The insurance industry is doing a 'listening tour'.

None of the sponsors of these campaigns represent the public interest.

[RedSt8r]

This is outrageous!!!

Time for change!!!

Ouster the Do-Nothing Congress!!!

Drill Here, Drill Now!!!

Make our tax cuts permanent!!!

[speakingtruth2power]

The rich are getting richer and the middle class is shrinking?

I'm shocked at this news!!! (even if it did come 30 years late).

[Laserbeam]

If I hear anyone in the MSM talk about about it being time to tighten one's belt one more time, I'm going to scream. Some of us have been tightening our belts for the last ten years and now find ourselves in a place where the only belt tightening left to be found is in the areas of electricity, food, and gasoline - places that cannot be tightened further.

As a single mom who is owed 40K in back child support I will never see, paying about 40% of my monthly income to rent, and other factors too numerous to list I am FED UP. I work full-time for the State and still can't afford most things - dining out, for example? I've had dinner out once this year, and I didn't pay for it. Must be nice to be in a position where one CAN tighten one's belt further.

[Oldtimer]

The first Bush, George Herbert, announced we were entering "a new world order".
Through the Clinton and Bush 2 administrations the order has been transfering jobs
from the U.S. to places like China and India. The means of production continue to be
as transferable as capital. As a result America's job base is weakening just as costs
of everything is inflating. This double whammo is compounded by a wasteful oil war
that could have been avoided and massive tax credits to the wealthy. Until we get a
new administration that puts into effect a new NEW DEAL then America's decline will continue
at increasing speed. An FDR style presidency could save America. It requires
a massive Publc Works program to rebuild our infrastructure - particularly rail shipping and electric grids. The next item on the agenda should be rescinding Bush Tax cuts and announcing a
middle class tax cut - Clinton style. The next item after that is an Apollo program to make the
combustion engine obsolete and to build factories here as well as solar panel grids for the
Southwest . And last but not least is a single payer health system that removes both Wall Street
profit squeezing and pharma ads from TV. I'm sick of all the pills being pushed on TV.
A president that accomplishes this will be our greatest EVER.

[Danny]

Oldtimer -- I agree with your new FDR solution, and one more thing to your prescriptions -- in order to "save" Social Security, it makes sense to raise the income level at which one contributes. Obama has proposed doing that, and that would be a good thing. Young people keep being told that "social security won't be there for them" (to keep them servile), but that is a lie!! Social Security is already solvent through the baby boomers' retirements, by design!

[MourningDude]

No mention of the 10-20 million illegals living here, driving down wages across the board?

Illegal immigration hurts those on the bottom rungs of the economic ladder the most. The acceleration of illegal immigration over the last 5-10 years has being a significant factor in these calculations, but is rarely mentioned.

[Danny]

The loosening up of the borders these past decades was designed to do just what you said happened. Now as a plus to their ideology, the booshies are demonizing the immigrants that they wanted here in the first place. It's diabolical.

[Nofoolhere]

Jobs actually did increase,significantly. But these include our jobs that greed mongering corporations sent oversees. And lets not call them "jobs" anymore. Let's call them LIVELIHOODS! And they are livelihoods, not just for the betrayed American victims, but to the communities their work supported.

The myths of capitalism are DEAD! It's just that the public hasn't yet figured out were the stench is coming from. Perhaps a firm majority will figure it out before November.

[swift goat pet for truth]

Economists estimate the US needs 140K new jobs each month to keep up with population growth.

[Nofuzzydreams]

2000 or the late nineties as a base of comparison does not make sense. We were in a bubble driven by extradordinary progress of the internet. Productivity creates prosperity no matter how many nuts like this argue against that. Now everyone might not share in that prosperity which is matter of social policy and has nothing to do with productivity. As for lack of job growth, why then are so many Latinos crossing the border or even legal immigration is at an all time high? They are coming for jobs - low paying and high paying.

[hypnotoad72]

That explains why President Bush applauded that lady for saying she had to have 3 jobs just to make ends meet. (How does she have the time to raise her kids? Somebody isn't very family-values... could be both, but everybody's nuts these days.)

[harveyr2]

"For that you need ... single-payer health care"

This is an assertion that is FALSE. Why is it that doctors don't compete with other doctors based on quality and cost? Why do doctors, pharmacies, and hospitals have a retail price list and a negotiated price that insured folks are charged?

The US health care system is not transparent. Suggesting single-payer health care makes no more sense than suggesting that the US government should run the supermarkets and the gas stations.

[Shaddup]

The retail price and the negotiated insurance price are a byproduct of our lovely insurance industry. Perhaps with single-payer they could stop this insurance scam. Without single payer we're left to modify it ourselves; you ever try to comparison shop for a CAT-scan?

[Danny]

Shaddup --"Perhaps with single-payer they could stop this insurance scam". In the european countries, insurance is a minor player in health care delivery. Single-payer is the way to go, ASAP. If only this issue could be presented fairly so that the voters would not be swayed by (pro-insurance) propaganda.

[Soundofthunder]

A Nixon conference with John Ehrlichman tells you everything you need to know about our present HMO dominated system:

"Edgar Kaiser is running his Permanente deal for profit. ... All the incentives are toward less medical care," Ehrlichman says to Nixon, according to a transcript. "The less care they give them, the more money they make."

And, as predict, that is the state of healthcare in America. Hospitals and doctors and insurance companies are making huge profits on providing marginal healthcare and, whenever possible, no healthcare.

When will we all agree there are some things that capitalism wasn"t made for, like the police, fire departments, schools " and healthcare.

SOT

[Oldtimer]

Bullseye.

[swift goat pet for truth]

There are huge areas of the country that do not have adequate specialist care, like heart specialists, because the area cannot afford it. Single payer can do much to alleviate the situation, depending on the type of system chosen.

For profit health care just does not work.

[texastrixie]

What I don't understand - and the Democrats aren't talking enough about - is what this country will be like if people re-elect Bush-Cain! Bush-Cain has already said he will keep those stupid tax cuts. So America, exactly how much has that benefited you - the average guy? Don't feel rich? Not really interested in your 401(k) except for the fact that it's a pile of money you may need to rob if things get any worse?
Sure, Bush-Cain says he will up the child dependent credit on your income taxes, he also says he is determined to cut government spending. Do your kids go to an afternoon school program so you can work until 5 pm without paying childcare? What do you want to bet that after school programs are part of the pork Bush-Cain wants to kill? And what if you are older, or single or have no kids? That extra credit for dependents won't help you at all.
And if you're elderly - well, you are in real trouble. Bush-Cain wants to "fix" Social Security and it will probably end up hurting you just about as much as if he was having you fixed = lower benefits, higher fees, and if you're really lucky - you boomers - he'll try to raise the retirement age again. But hey, don't worry. He's not going to put any more taxes on rich people, and they're the only ones who count, now aren't they?

[AnneOlivia]

My after-school care (through the YWCA) is in danger of being cut, AND I pay for it, too. So I guess I'm doubly screwed.

[ibsteve2u]

In short, by the time enough people realize that the boat has a hole in it, there aren't enough buckets left to bail with...

[saibotchilizm]

All the government numbers are optimistically skewed by unrealistic computations of inflation. The Federal Government has a direct incentive to underestimate inflation-- namely, they would have to send out more in Social Security payments. Underestimating inflation by 1% translates to hundreds of millions of dollars saved. And it's easy to do, since inflation calculations are pretty convoluted.

So even Jared's condemnation of the 2000's "recovery" is probably optimistic, if you compare real dollars on the ground, to people like me. I don't even fit in the poverty bracket, and I've felt the crunch. It's much worse than anyone says, let alone the numbers reported by the Feds themselves.

Read my blog!
http://www.saibotchilizm.org

[bluff]

For the last five years, the inflation rate has been 5 percent not 2 percent as advertised by the gov. Again, reminds of the hedonic adjustment, a, to say the least unusual computation by which additional quality is attributed to a product or service - a clever and highly suspect device to lower the overall CPI. (think like an expensive wrist watch that costs x dollars AND affords its wearer a certain distinctive prestige - a 'prestige' not included in the actual price of the watch thereby making its cost quite low.)

[ubetchaiam]

A clearer, more concise and accurate statement of 'the shape we're in' I've not
come across. And the history provided is something not provided by the mass
media.
"ANDREW BACEVICH: Not going to happen - it's not going to happen because the
elements of continuity outweigh the elements of change. And it's not going to
happen because, ultimately, we the American people, refuse to look in that
mirror. And to see the extent to which the problems that we face really lie
within."
http://www.pbs.org/moyers/journal/08152008/transcript1.html
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