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Income Dist Chart

The poor in the United States are extremely well-off by international standards. That is clear in the chart above, which David Henderson discusses in “The Role of Luck In The Income Distribution“. By luck, Henderson means that one’s country of birth has a huge impact on their ultimate place in the global income distribution. The chart compares positions in a single country’s income distribution with corresponding points in the global distribution (2008 data). For example, an individual in the 20th percentile of the U.S. income distribution (20 on the horizontal axis) is in roughly the 86th percentile of the global distribution (from the vertical axis). Those at the very bottom of the U.S. income distribution have a greater income than half of the individuals in the world. The average U.S. earner in the lowest 20% earns more than nearly 75% of all earners globally. Individuals across the entire income distribution in the U.S. have higher incomes than their counterparts elsewhere.

Within the U.S., we often use the term “impoverished” in a fairly parochial sense: compared to our compatriots, not to the rest of the world. Robert Rector discusses the living standards of the poor in America in “How Do America’s Poor Really Live? Examining the Census Poverty Report“. The actual census report released this month is discussed in The Atlantic here. Rector states the following:

According to the government’s own reports, the typical American defined as poor by the Census Bureau has a car, air conditioning, and cable or satellite TV. Half of the poor have computers, 43 percent have Internet, and 40 percent have a wide-screen plasma or LCD TV. … Far from being overcrowded, poor Americans have more living space in their home than the average non-poor person in Western Europe.

Rector notes that the Census Bureau’s measure of poverty is based on a flawed definition of income, one that is inconsistent with how income is defined in calculating official measures of poverty in other countries. The Census definition excludes most welfare benefits, and taxes aren’t always subtracted from income by other countries. The Rector post linked above contains an incorrect link to this recent article on international comparisons of poverty rates. When the measurement inconsistencies are corrected, the official U.S. poverty rate is similar to the advanced economies of Europe, and it is lower than Eurooean poverty rates based on a more inclusive definition preferred by many on the left. And again, the actual standard of living of those below the official poverty level in the U.S. is impressive compared to the rest of the world. It is also impressive from a historical perspective.

Rector discusses the failure of the welfare state and the War on Poverty to lift the impoverished out of dependency. This has been covered here on Sacred Cow Chips several times (see here and here). The terrible structure of incentives built into many anti-poverty programs is one of the primary causes, as well as the failure of public education. Also at fault are minimum wage legislation, the War on Drugs, tax policy and a regulatory regime that discourages job creation by punishing new capital investment and business creation.

The left often claims that the distribution of income in the U.S. is becoming increasingly skewed toward high-income households. In “Myths and Causes of Income Inequality“, James D. Agresti demonstrates that the real causes of this phenomenon are demographic. The splintering of families at low income levels has increased the number of low-income households and reduced average incomes among those households. At the level of individual earners, there is no discernible trend in income inequality. According to Agresti:

… the rise of household income inequality stems from family disintegration driven by changing attitudes toward sex, marital fidelity, and familial responsibility.

Agresti stops short of drawing a link between anti-poverty policies and the disintegration of the family, though there are reasons to suspect pernicious connections along those lines.

It is easy to exaggerate the extent and severity of poverty in the U.S.; doing so is of obvious value in promoting the leftist agenda. In reality, the poor in this country are provided with a standard of living through public assistance that is high relative to their counterparts across the globe, and it is similar to other advanced economies. In addition, when changes in the structure of households are neutralized, there has been no upward trend in income inequality, contrary to assertions from the left. Our long-term objective should be to lift able recipients out of dependency, consistent with President Johnson’s original goals for the War on Poverty. That will require major reforms to our anti-poverty efforts, public education and many other aspects of public policy. Most poor families in the U.S. receive support that is enviable to the poor elsewhere. Nevertheless, their plight of dependency has dispiriting and self-reinforcing effects.