I periodically share data showing that living standards are higher in the United States than in Europe.
My goal isn’t to be jingoistic. Instead, I’m warning readers that we won’t be as prosperous if we copy out tax-and-spend friends on the other side of the Atlantic (just like I try to draw certain conclusions when showing how many low-tax jurisdictions have higher levels of economic output than the United States).
I’m sometimes asked, though, how America can be doing better than Europe when we have more poverty.
And when I ask them why they thinks that’s the case, they will point to sources such as this study from the German-based Institute of Labor Economics. Here’s some attention-grabbing data from the report.
The United States has the highest poverty rate both overall and among households with an employed person, but it stands farther away from the other countries on its in-work poverty rate than its overall poverty rate. The contrast between the US and three other English-speaking countries — Australia, Ireland, and the United Kingdom — is particularly striking. Compared to those three nations, the United States has an overall poverty rate only a little higher but an in-work poverty rate that is much higher.
And here’s the main chart from the study, with the United States as the bottom. It appears that there twice as much poverty in the USA as there is in a stagnant economy like France.
There even appears to be more poverty in America than there is in Spain and Italy, both of which are so economically shaky that they required bailouts during the recent fiscal/financial crisis.
Sounds horrible, right?
Yes, it does sound really bad. However, it’s total nonsense. Because what you read in the excerpt and see in the graph has nothing to do with poverty.
Instead, it’s a measure of income distribution.
And, if you read carefully, the study actually admits there’s a bait-and-switch.
The…approach to measuring poverty is a “relative” one, with the poverty line set at 60 or 50 percent of the median income.
Think about what this means. A country where everyone is impoverished will have zero or close-to-zero poverty because everyone is at the median income. But as I’ve explained before, a very wealthy society can have lots of “poverty” if some people are a lot richer than others.
And since the United States is much richer than other nations, this means an American household with $35,000 of income can be poor, even though they wouldn’t count as poor if they earned that much elsewhere.
This is like grading on a rigged curve. And if you read the fine print of the IZA study, you’ll see that the “poverty” threshold for a four-person household magically jumps by $16,260.
For a household of four (two adults, two children) the difference between the official US threshold and the 60-percent-of-median threshold amounts to more than $16,000 ($24,000 versus $40,260). This means that the size of the working poor population in America according to the official poverty measure is significantly lower than the size obtained in studies using a relative threshold.
In other words, you can calculate a much higher poverty rate if you include people who aren’t poor.
By the way, since the IZA report acknowledges this bait-and-switch approach, I guess one would have to say that the study technically is honest.
But it’s still misleading because most people aren’t going to read the fine print. Instead, they’ll see the main chart showing higher “poverty” and assume that there is a much higher percentage of actual poor people in the United States.
Moreover, some people may understand that there’s a bait-and-switch and simply want to help fool additional people.
And I’m guessing that this is exactly what the authors and the IZA staff expected and wanted. And if that’s the case, then the study is deliberately misleading, even if not technically dishonest.
I’ll close by stating that I don’t mind if folks on the left want to argue that market-based societies are somehow unfair because some people are richer than others. And it’s also fine for them to argue that we should be willing sacrifice some of our national prosperity to achieve more after-the-fact equality of income.
But I’d like for them to be upfront about their agenda and not hide behind dodgy data manipulation.
P.S.When you do apples-to-apples comparisons of the United States with the best-performing economies of Europe, you find that the poor tend to be at the same level, but every other group is better off in America.
P.P.S. You probably won’t be surprised to learn that both the Obama Administration and the leftists at the OECD prefer the “relative” definition of poverty.
P.P.P.S. The problem with our statist friends, as Margaret Thatcher explained, is that some of them are so upset about inequality that they’re willing to make everyone poorer if that’s what it takes to reduce income differences.
P.P.P.P.S. Indeed, this “Swiftian” column about reducing inequality is satire, but one wonders whether statists would actually accept such an outcome.
P.P.P.P.P.S. Data from China demonstrates why our attention should be on poverty reduction rather than inequality.
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an interesting straight-forward presentation…
“Dr. Yaron Brook, the executive chairman of the Ayn Rand Institute, was giving a lecture at England’s University of Exeter when a smug college student asked if it was fair that poor factory workers in Asia are paid just dollars a day. He asserted that capitalism relied on sweatshop workers staying in poverty. Brook went off on him:”
https://pjmedia.com/video/yaron-brook-confronted-a-college-student-who-said-capitalism-is-bad-for-poor-people/
[…] More Dishonest “Poverty” Research that Doesn’t Measure Poverty […]
Dan nails the “ridiculousness” as usual, but the full story is even worse. The underlying data set used in this study (the Luxembourg Income Study –LIS– data set) is incomplete and biased. It excludes some of the major U.S. income transfers because they don’t fit the European socialist model for delivery. In particular, they exclude Medicaid because it goes only to the poor. So the top half of the income distribution pays for the health care of the bottom half, but that doesn’t count as reducing their relative poverty because it wasn’t done in the “right way.”
When the data are adjusted for the missing pieces, the results are reversed, and the U.S. is actually less unequal than most other Western democracies.
“The…approach to measuring poverty is a “relative” one, with the poverty line set at 60 or 50 percent of the median income.”
So by that measure all we have to do to make the US “richer” is get all US citizens on the Forbes 400 list to leave the country.
Though that technically would make the total net worth of the US much lower…
I guess if we can’t all be equally rich we’re better off being equally poor.
The study paper says that it uses the usual poverty statistics published by the US government. Note that those statistics measure poverty according to earned income, disregarding any benefits delivered to a family. So, a family earning $25K and receiving $15K in assistance (food, housing, education, tax reductions) is counted as having an income of $25K. This classifies a family “in poverty” when its total, real income places it way above poverty.
That is a scam designed to exaggerate the evils of capitalism.
The old legal joke is to pound the facts when they are on your side, pound the law when it is on your side, or pound the table when nothing is on your side.
Socialists cannot pound the productivity of their programs, so they pound the social stress felt by some envious people when they see someone better off. The primary group of envious, greedy people pushing socialism are the academics who feel that they should be much richer than the lucky, too-hard working people they see. Socialism is their plan for becoming the richest, most powerful people in society.
Motto: I think more, therefore I should rule.
One more important thing…
The position that a poorer but more equal society is preferable to a richer and more unequal one is not completely invalid. As long as we have both I’m reasonably happy. People can migrate to their preferences.
Soon though the problem becomes that a forcibly more equal society is also a slower growing society. And growth inequalities quickly compound with time. This leads to huge inequalities between countries as the quicker compounding wealth of “inequality society” keeps diverging from the slower growing wealth of “solidarity society”. As the divergence increases, eventually you cry uncle. How much total foregone compounding wealth is a leftist willing to give up to achieve equality? Twenty percent? Half? Seventy percent? Ninety percent? As the diverging growth rates keep increasing, the inter-societal disparity between “inequality country” and “solidarity county” grows towards infinity, and “solidarity country” eventually cries uncle. That has been the story of socialism wherever it was applied. Those socialist (and semi-socialist) countries that have not met that fate yet,…are in their way to doing so.
Thank you for the “comparing apples to apples” lesson using a very relevant topic and illustrating the trickery involved.
I’m guessing that the biggest poverty in America is amongst people who make more than a million. That is probably the segment of the population with the biggest income disparities (#of relative disparities * deviation from mean). From petty one to two million incomes to billions. What a wretched miserable bunch of people!
———–
Americans have not only higher individual consumption compared to European citizens. Their money also buys more things since they have bigger freedom of selection as consumers. For example, Americans can still buy single family homes with a yard. In Europe centralized environmental planning has reduced supply of housing to the point that single family homes are virtually banned. “Villas” they are called in Europe. Anyone living in a “villa” in Europe is either very rich or is simply “old wealth” from a time forever gone when building in Europe was freer. For the price of a single family twenty five hundred square foot house on a quarter acre yard in Texas, in Europe you buy an eight hundred foot apartment on the fourth floor. Similarly, for the price of an average automobile in America, in Europe you buy a matchbox with wheels and pay seven-eight dollars a gallon for gas and plenty of other restrictions.
So it’s not only how much money you consume, but also what your money is allowed to buy during that consumption.
Sadly, all this is changing as America Europeanizes — under legendary leaders such as the popular statist Mr. Obama. With singed wings and a broken back, the voter moth flies once again towards the magical light of coercive collectivism.
Reblogged this on Public Secrets and commented:
Key point: “A country where everyone is impoverished will have zero or close-to-zero poverty because everyone is at the median income. But as I’ve explained before, a very wealthy society can have lots of “poverty” if some people are a lot richer than others.”