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There are known glitches: the poverty concept is way outdated, and is generally agreed to understate the degree of actual material deprivation.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

[Chavez08]

Read "Das Capital" and everything will become clear.

[larry278]

Is the old book HOW TO LIE WITH NUMBERS still in print?

[leduck]

you can also tell the truth with numbers

btw, anyone who thinks that the poor and lower middle class in california are better off then they were in the 50s, 60s, or 70s, is either too young, too stupid, or too busy lying.

[UnbiasView]

Really?

I think people are much better off now.

[Danny]

Larry -- There was a popular book in the late 1960s-early 1970s "How to lie with statistics". I'm sure it's on Karl Rove's bookshelf.

[Chavez08]

It's too bad "economists" aren't held accountable for results like, say, a mechanic or a plumber.

Economists can throw around intangible theories, speculation, excuses instead of diagnosis. Capitalism is failing for 95+% of this planet and economists offer no reason why.

If my car is broken, I go to a mechanic and tell him to fix it. I don't expect the mecahnic to keep my car for ten years and continuously *speculate* to me the low-level, obscure dynamics of the anti-pollution devices interacting with the computer during certain environmental conditions for a specific vendor brand of oxygen sensor.

I expect him/her to FIX THE PROBLEM *in a timely matter* and give me a concise reason why he's billing me for fixing it.

I really, really want a job as an economist. It's just like being a weatherman but you get more respect.

[kellysmalltowngirl]

All your points are correct, because economics is not an exact science like physics. It is a social science where being correct 60% of the time is considered really darn good, about the best you could hope for.

[Herrington]

The problem is that nobody seems to be able to tell if they are correct or not. Exactitude is not the issue. The understanding and appreciation that reality should reflect your predictions, no matter how exact, seems to be lacking.

The only thing you can conclude is the economic leadership of this country, economists included, don't really care about consequences of their actions with regard to the public. So to extend the mechanic analogy, they get paid whether they fix your car or not.

[UnbiasView]

So do you hold Global Warming scientists to the same?

After Katrina the global warming alarmists were telling us it was going to be another massive hurricans season . . . nothing happened. Does that mean they are all BS'ers?

[swooge]

When you say "global warming alarmists" you're not talking about the scientists. You're talking about your neighbor who was speculating.

As far as "massive hurricanes" are concerned, you are going on the fact that no hurricane made landfall in the states. That doesn't mean that there were no large hurricanes.

Now as for how many hurricanes there were. DO you even know the average for named storms in a year? From 1950-2000 it's 9.6. In 2006, the year after Katrina there were 9 named storms--only average. 2007 there were 15 named storms, 50% more. 2005, the year of Katrina? The most active year ever recorded- 28 named storms.

As a matter-of-fact, the average has gone from 9.6 for 1950-2000 to 11.4 today because of the large increase in named storms. Why more storms? It's called Man-Made Global CLimate Change.

[Chavez08]

It used to be amusing but know I find it quite annoying. I'm hearing all of these "economists" trying to make sense out of numbers that are continuously skewed or altered completely.

This is all history, this is "neo classic" economics that is designed to make 2% kings and 98% serfs. This is an orchestrated attack on the middle class that is a repeat of the early 1900s. It has little if anything to do with smoke and mirroe acronyms or confusinng formulas and everything to do with manipulation of information and the systematic concentration of wealth.

The "best and brightest" discuss the issues but, the fact is, we need another FDR to nip this in the bud like he did last time. Keynes economics worked very, very well for most Americans but the right-wing elite decided it was better to remove power from the working-class in order to maintain, expand empire.

That is the simple, honest truth about this economy.

Attention overpaid, overrated elitists: - No more BS!! FIX IT or make way for a system that works! (like Social Democracy)

[vippy]

Today's economists are like our journalists. Neither does their job anymore but have to do as
told. Government either does not give numbers anymore if they cannot spin it towards the
positive side or they manipulate the numbers. The NEW WORLD ORDER is being wispered
and I wonder if that is where we are going?

[Shaddup]

I'll bet B ush is trying to have the econony numbers declared Ex ecut ive Privil ege.

[procrustes]

Oh, that pesky math!

Productivity, as I'm sure you all know, is output divided by input. There are two ways to increase productivity: increase output using the same cost input, or keep output the same and DECREASE cost input.

Most of the productivity "gains" in the last few years have been by keeping output constant and firing people, same output with less employees.

Now that wouldn't be so bad except that the numbers are phony because of measurement lag; e.g., today I have an output of 100 produced by an input of 90, making productivity north of 1.1. Propagandists say, "not good enough! We gotta tyrant to elect, here, Dipdink! GET CRACKING!"

So, management immediately fires a bunch of people and, BINGO, output is still 100 but input is instantaneously dropped from 90 to 80 and productivity jumps from 1.1 to 1.25! Propagandists publish scream headline: "PRODUCTIVITY INCREASED 12% IN THE LAST QUARTER" Yea for Bush-enonics!

And then the lag hits. People are out of work, productivity drops lower than the original 1.1 because there are not enough resources to maintain the original output of 100. (Solution? Fire more people.) The drop is blamed on the stingy (out of work) consumer for not buying. Meanwhile, management buys new yachts and Porche's with bonus' earned for their good work "increasing" productivity.

Bush-enomics at work for Jesus.

[RS]

Hmmmm....T­hat sounds an awful lot like like Wal*Mart's playbook, i.e. MORE WITH LESS.

[elbzee]

Ain't no coinkeedink!

[gypsy508]

"...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."

I guess that means neither Obama nor McCain will win. About time.

[jwws007]

the economy was destroyed when clinton and bush decided that so called free trade was a good idea with countries who have slave labor and practice protectionism. needless to say, the economy has been on a downward slide ever since

[rbspickles]

I agree! I was mad as hell when Clinton signed NAFTA! Anyone with any brains could have seen this train wreck coming for miles but the big money has bought our country out from under we the people. It's time we the people take back our constitution and our country! We need to vote outside the 2 party system. We need to look at other parties and what they have to offer (besides millionairs who vote their wallets).

[cdembrey]

We need to create viable third parties that people will want to join. We need to mainstream them. Present third parties will never get anywhere because they are just too fringe

[cdembrey]

I agree. Things need to change.

[FreedomBeforeDemocracy]

Clinton was right to sign, and actively pursue, NAFTA. Since then, the unemployment has not gone under 6%. And yes wages in all quintiles have also risen. It's what freedom does.

But you're about the 2 party system. It concentrates all political power into basically two entities. The best thing we, progressives and libertarians, can do to break this concentration of power is to support Instant Runoff Voting. This is where the voter ranks candidates rather than just choosing their favorite. The candidates are sorted from first to last based on initial ranking, and the bottom candidate is dropped. Then the candidates are re-ordered, but everyone who voted for the dropped candidate, now votes with their second choice. This process is repeated until a single candidate has 50% of the vote. They are already doing it in various places around the US (for progressives, you should go check out what San Francisco is doing).

As a side, this is also why supporting publicly financed campaigning is so wrong. It just gives more power to the two major political parties.

[llozano]

This is the only post today that makes sense and in my estimation is the most important and meaningful. The economy trumps all other issues (and is entwined with the wars) in Iraq and Afghanistan. It is easy to get diverted by the goings on in Georgia and China as if those were the real things that will affect us directly. What affects everyone today is the economy and how it is affecting us. The fact that people are buying Iphones, going to movies in droves belies the underlying insecurity many people are experiencing because of decreased spending, earnings and job cuts. Iphones and movies are not going to save our economy! I hope the next president puts this front and center of his agenda and priorities. This laissez faire approach is not working other than to make a few people richer and most of us poorer.

[RumiSouth]

Jared: What you call "the disconnect between growth and living standards," I call "the divorce of economy from prosperity­."

[Chavez08]

GDP ".. total market value of all final goods and services produced within the country "

[jbernstein]

Well said.

So we just need to get growth and prosperity to start dating again, and ultimately, remarry.

Thnx,
JB