Being poor sucks.   I remember walking miles at midnight in rainy New York because I didn’t have enough for the subway ride home.  Let alone for a meal.  I would not wish financial insecurity on anyone.

But I’ve been struck by recent studies on how poverty today is different from poverty in the past.   Over the last few decades, the price of many things has fallen, while their quality has increased.   97% of US households have a TV, and > 90% of adults in the US have a cell phone.    More choice has emerged, allowing for less costly substitutes.  Clothing, cars, communication, even housing, are less expensive than they have been.  A nice chart of this appeared in the New York Times recently:

Changing Costs for Americans

Changed Life of the Poor: Better Off, but Far Behind By Annie Lowrey.   New York Times, April 30, 2014

Economists, being fellow geeks, try to account for this increased quality and choice.  The Consumer Price Index, long used to adjust for changes in cost, has expanded into a variety of flavors that attempt to capture changes in quality and choice, as well as price.    Traditional CPI shows that the incomes of the bottom 10% are flat over the last forty or so years.    But measures of CPI that try to account for the changing nature and choice show that incomes for the bottom 10% have increased.   By some measures significantly:

10th Percentile Income over Time over CPI's

The Role of Prices in Measuring the Poor’s Living Standards.  By Christian Broda, Ephraim Leibtag, and David E. Weinstein  Journal of Economic Perspectives, Spring 2009.

A simplistic reading of this chart shows that wages of the bottom 10%, when adjusted by the traditional CPI (CPI-U above), are the same as they were back in 1979.   But if you attempt to adjust for both increased quality and increased choice along with price, (C-CPI-U-BW above), then wages for the bottom incomes are 30% higher than in 1979.

I am not at all trying to say that being poor is not terrible.   Just trying to learn how poverty is different today than it was five, ten, and forty years ago.   Many “luxuries” are affordable to even the very poor.   And “Indexing” on the changing nature of goods as well as price, paints a picture of rising incomes for the very poor.

While many goods and services are less expensive, the goods and services that are true pathways out of poverty are ever more expensive.    College.   Child Care.   Health Insurance.  As commentator said “In American luxuries are cheap, but true needs are expensive.”

Me?  I’m not so keen on helping poor with items that are inexpensive and within their reach.   But investing in true needs – pathways out of poverty – sure strikes me as reasonable goals for public policy.



Relevant Publications

2014.  “Changed Life of the Poor: Better Off, but Far Behind” in the New York Times, April 30, 2014.  By Annie Lowrey.

2009.  “The Role of Prices in Measuring the Poor’s Living Standards” in the Journal of Economic Perspectives, Volume 23, Number 2, Spring 2009.  By Christian Broda, Ephraim Leibtag, and David E. Weinstein

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