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The UN's Absurd Measure of US Poverty

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06/26/2018

The United Nations is at it again with yet another report on how bad poverty is in the United States — and how things would improve greatly if the US raised taxes. This time, the UN denunciation of the US has raised the ire of US ambassador Nikki Haley who has called the report "patently ridiculous."

Specifically, Haley was responding to a June 18 report by UN bureaucrat Philip Alston. Alston concluded that poverty rates in the US are among the worst in North America or Europe.

How did Alston come to this conclusion?

Well, first of all, it's important to note that he didn't collect any new information.

The report comes at the end of a two-week visit to the United States conducted back in December of 2017. At the time, Alston released a similar preliminary report.

The new report to the UN Human Rights Council is just an update of the old report.

Moreover, Alston could have easily authored the report had he just stayed home. The report is based simply on existing data already collected and published by agencies such as the US Census Bureau and the OECD. Any undergraduate could have written a similar report using data he found online.

One example of this method is found in Alston's reporting on poverty.

According to the report:

About 20 per cent of children live in relative income poverty [in the United States], compared to the OECD average of 13 per cent.

Here, Alston has essentially cut and pasted text from an existing OECD report. There's nothing wrong with this, per se, except for the fact that Alston has implied he has recently completed a thorough survey of poverty in the United States — even though he clearly hasn't.

This November 2017 report from the OECD reads:

[C]hild relative income poverty rates are very high – around 20% of children in the U.S. live in relative income poverty, compared to just over 13%, on average across OECD countries.

The report also includes this graph:

Jun-23-18-OECD-Child-Poverty-Fraud_0.jpg

But there's a problem here with Alston's use of the data. The OECD report refers to "relative income poverty," which isn't what most people think it is. Most people would think a poverty rate should measure incomes against the cost of maintaining a certain basic living standard. But this "relative" poverty measure isn't that sort of measure. It's just a measure of how many people in a country make 50% or less of that country's median income level.

So, if you have country with a very low median income, and a very low standard of living, it's possible to have very low poverty rates — so long as most people make more than fifty percent of that country's lousy median income level.

This allows the OECD to claim — as it does in the graph — that the US has higher poverty rates than Mexico.

In order to understand this more fully, let's look at the OECD's own measure of disposable median income for each of its member countries (2015 data) in Graph A:

_median_income.png

These numbers include both ordinary wage income and also cash assistance from welfare programs. It is also adjusted for local purchasing power and rendered in international dollars.

Now, note in the footnote of the OECD graph above that you're poor — regardless of where you are — if you make 50 percent of the local median income. So, 50 percent of the median income in Greece (with a median income of $13,000) or 50 percent of the median income in Norway (with a median income of $39,000) are both simply "poverty."

But let's look at just how huge these differences can be.  If we look at incomes at the 50 percent level for each country, we get in Graph B:

50_percent_poverty_rate.png

If you're going to be poor by this measure, you'll have a higher income in the US than in many other places. For example, the poor in the US at the median poverty level have incomes 34 percent higher than the median poor in Italy. When comparing the US and Spain, the US comes in at 40 percent higher.

Put yet another way, if you make $15,000 in the US, you're poor. But if you make $15,000 in France, Germany, the UK, or Italy, you're not poor. Why? Because the overall median incomes in those non-US countries are lower.

Basically, by this measure, poverty has little to do with what resources you have at your disposal. It's more or a measure of how much you're making compared to how much other people are making. It's a measure of income inequality, not poverty. 

The problem with making comparisons this ways can also be illustrated by looking at the US poverty-level income compared to the median income from other countries. For example, the US poverty-level income is so high it's at 70 percent of the median income in Spain and 67 percent of the median income in Italy in Graph C:

overty_ratio.png

If you have a median poverty-level income in the United States, your income is 95 percent the size of the median income of all households in Portugal. Stated broadly, we might say that poor households in the US have pretty much the same income as the overall population in Portugal. Or, one might say the median poverty income level in the US is nearly two-thirds as high as the overall median income of everybody in the United Kingdom.

Clearly, if a poor household in the US has an income 40 percent higher than a poor household in Spain — then these two types of "poverty" are not the same.

Measuring Poverty by Actual Standards of Living

A more honest way to measure poverty would be to look at actual indicators of the standard of living. This would include household amenities, living space, labor-saving appliances, entertainment, and so on.

For example, living space in the US, even among the poor, is measurably more plentiful than elsewhere. As noted by Robert Rector at the Heritage Foundation:

Housing space can also be measured by the number of square feet per person. The Residential Energy Consumption survey conducted by the U.S. Department of Energy shows that Americans have an average of 721 square feet of living space per person. Poor Americans have 439 square feet. Reasonably comparable international square-footage data are provided by the Housing Indicator Program of the United Nations Center for Human Settlements, which surveyed Housing conditions in major cities in 54 different nations. This survey showed the United States to have, by far, the most spacious Housing units, with 50 percent to 100 percent more square footage per capita than city dwellers in other industrialized nations.

America's poor compare favorably with the general population of other nations in square footage of living space. The average poor American has more square footage of living space than does the average person living in London, Paris, Vienna, and Munich. Poor Americans have nearly three times the living space of average urban citizens in middle-income countries such as Mexico and Turkey. Poor American households have seven times more Housing space per person than the general urban population of very-low-income countries such as India and China.

As Rector notes, "There is a vast gap between poverty as understood by the American public and poverty as currently measured by the government." This is due to a wide variety of reasons. One reason is that income surveys don't count non-cash poverty relief programs. This means programs like Medicaid and food stamps aren't included in the incomes of low-income households in America. That makes those incomes looked significantly lower than they are. 

Poverty measures also can't take into account heads of household who have low incomes, but also don't have a mortgage because they're paid off their houses already. This is not an insignificant factor in measuring poverty among the elderly. 

All of this is important because in Alston's report to the UN, he relies on US government data using the traditional poverty-rate measures. He then combines these with the OECD's "relative" poverty measures to conclude that poverty is "shockingly" widespread in the United States. 

A closer look at the data, though, suggests things are more complicated. 

None of this is to say that poverty doesn't exist anywhere. Of course is exists, and issues like homelessness and true poverty are real for some people. Sweeping claims like those by Alston tell us very little, however, about the real state of poverty in the US. 

Ryan McMaken (@ryanmcmaken) is a senior editor at the Mises Institute. Send him your article submissions for Mises Wire and The Austrian, but read article guidelines first. Ryan has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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