This NPR story about a poverty stricken family probably worked better on the radio.

The mother, on the right, is 40 years old. She did not graduate from high school and has never had a job. She says a car accident in 1990 left her depressed an unable to work. She claims “most of her siblings and their spouses are unemployed and rely on government assistance and food stamps.”

Despite never having worked she’s apparently eligable for Social Security - $637 per month. She also gets $100 in food staps. She has never worked in her life yet has an income that puts her in the top 25% globally.

The rising cost of food means their money gets them about a third fewer bags of groceries — $100 used to buy about 12 bags of groceries, but now it’s more like seven or eight. So they cut back on expensive items like meat, and they don’t buy extras like ice cream anymore.

I suspect she’ll survive with a little less ice cream.

At least she have to miss work to vote for Obama.

From a great op-ed in the Sunday NYT by the Federal Reserve Bank of Dallas’ Chief Economist:

…Income statistics…don’t tell the whole story of Americans’ living standards. Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.

The top fifth of American households earned an average of $149,963 a year in 2006….(T)hey spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.

The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.

So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1…

…Richer households are larger — an average of 3.1 people in the top fifth, compared with 2.5 people in the middle fifth and 1.7 in the bottom fifth. If we look at consumption per person, the difference between the richest and poorest households falls to just 2.1 to 1.

We’ve written before about how income statistics usually cited to demonstrate gross inequality are distorted by not including transfer payments. Specifically, they do not count taxes or Social Security, Welfare, or Medicare.

Income levels for defining poverty are based on the same data. Not surprisingly, the poverty rates stopped their precipitous decline right around the time many transfer payment programs were ramping up under Johnson’s War on Poverty and Great Society. Increasing someone’s welfare payments has no impact on their measured income - unless, of course, they decide welfare pays enough and stop working.

The distortion is especially pernicious when these data are used to compare income equality in the US to that of other nations (e.g. via a Gini Index or somesuch). For many countries, like France where half of working adults are employed by the government, most of their economy is a big transfer payment. How can you count the wages paid to unskilled French civil servants in make-work jobs, but not count welfare payments to Americans?

Update 2/18/08:

A relevant quote from Andy Warhol:

What’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest. You can be watching TV and see Coca-Cola, and you know that the President drinks Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too. A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking. All the Cokes are the same and all the Cokes are good. Liz Taylor knows it, the President knows it, the bum knows it, and you know it.

Great editorial in today’s WSJ by Bret Stephens. A bit wandering and thus difficult to excerpt. Read the whole thing.

Selected quotes:

…A nation in which the poor are defined by an income level that in most countries would make them prosperous is a nation that has all but forgotten the true meaning of poverty. A nation in which obesity is largely a problem of the poor (and anorexia of the upper-middle class) does not understand the word “hunger.” A nation in which the most celebrated recent cases of racism, at Duke University or in Jena, La., are wholly or mostly contrived is not a racist nation…

…The problem with Iraq today is that it is a net importer of terrorism and instability. Yet when the U.S. invaded, it was a net exporter of both. An improvement? On balance, probably yes. Since Iraq regained its sovereignty in 2004, it has had two presidents and three prime ministers. This is too much in the Italian mold of government. Yet who, outside of the CIA, wants to return to the strongman model?…

…(A)cross the way is the hulk of the old Deutsche Bank building, critically damaged on 9/11 and slated for destruction. In an attempt to ensure that not even trace levels of asbestos and other unpalatable elements would escape the wreck, a meticulous plan was devised to dismantle the building floor by floor, at a price exceeding that of its construction. In August a fire broke out, and two firefighters died after getting lost in the maze of internal scaffolding erected to keep the asbestos in. Those brave men lost their lives for the sake of an EPA standard, and there’s been no work to speak of on the building since. It’s a case of the perfect becoming the enemy — the mortal enemy — of the good…

…There is great virtue in the American way, which expects CEOs to perform on a quarterly basis, presidents and Congresses to reinvent politics in 100 days, generals to wipe out opponents in 100 hours without taking significant casualties, doctors to save life and limb every time, search engines to yield a million results in less than a second, and so on. There is also great virtue in the belief that what is bad can be made good, and that what is good can be made great, and that what is fractionally less than great is downright awful.

But these virtues can spawn vices. One is impatience. Another is a culture of chronic complaint. A third is the belief that every problem has a solution, that trial is possible without error, that risks must always be zero, that every inconvenience is an outrage, every setback a disaster and every mishap a plausible basis for a lawsuit…

From the WSJ (1.5 weeks old):

…The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.

Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.

Also encouraging is the fact that the after-inflation median income of all tax filers increased by an impressive 24% over the same period. Two of every three workers had a real income gain — which contradicts the Huckabee-Edwards-Lou Dobbs spin about stagnant incomes. This is even more impressive when you consider that “median” income and wage numbers are often skewed downward because the U.S. has had a huge influx of young workers and immigrants in the last 20 years. They start their work years with low wages, dragging down the averages…

I’m glad somebody finally cut the numbers this way. Comparing income groups across time is meaningless when movement of individuals between groups isn’t taken into account.

The income declines for 1996’s top 5% and 1% of filers over the following 9 years is important. It reveals that many among the “richest 1%” of income earners don’t stay in that group long. In any given year most of them are probably beneficiaries of a 1x windfall from the sale of a family business, farm land, or somesuch.

Also interesting is the 24% number - the amount by which incomes went up for the group overall. Yet we know median household income went up by only half that amount from 1996 to 2005. How to reconcile the two figures? The study followed the same people, while the median for all households includes new entrants to the workforce. Young people and immigrants typically enter the low end of the workforce. And the US, unlike almost every other developed country, has lots of young people and immigrants.

Discussions of social and economic policy often contrast the US against the supposedly more egalitarian European Union. What is usually missing from these discussions is acknowledgement that the EU’s less productive economy leaves its citizens far worse off from a material standpoint. In fact, by many measures most people in the EU live in what most in the US would consider a state of poverty.

Timbro is a Sweden-based economic think-tank. Their 2004 report EU versus USA has some striking findings concerning the differences between the economies of the EU and US. The 49 page report is worth downloading and reading in its entirety. A few highlights:

The chart below ranks GDP per capita for the US, EU, plus the 50 states (and DC) and EU member states. At this scale its hard to read the labels so I’ve colored each EU state red and put a red dot over the bar for the EU overall. The US overall is blue and has a blue dot over it. All the grey bars represent the 50 States plus DC. (Original graph on p.13 of the report.)

A few observations - On a GDP per capita basis Americans are 45% wealthier than Europeans. Only four states (AK, MT, WV, MS) have average citizens poorer than the average European. The same is true for the individual countries of France, UK, Italy, and Germany. The only EU country with a GDP per capita higher than the US average is Luxembourg. Luxembourg is a tiny (population slightly less than Fresno) tax haven principality.

This next table (p.16). shows the household penetration of various appliances. 86% of US households have a microwave vs just 19% in France and 6% in Italy. Penetration of PCs in the US is 2x that in France and almost 4x that in Spain.

The next table (p. 22) shows penetration of various appliances among US households below the poverty line. Compare these data with the numbers above. Penetration of microwaves is higher among poor households in the US than among average households in every EU country listed. Penetration among the US poor of things like TVs, PCs, and cars is greater than it is overall in most European countries.

The next table (p. 23) compares dwelling spaces and tells a similar story. Average poor people in the US live in bigger homes than average people in every EU country except Luxembourg. The average US poor person has 12% more dwelling space than the average EU citizen.

The above graphs and tables all show symptoms of the differences between the EU and US economies - the text in the Timbro report addresses the reasons for the differences. Higher tax burden, lower growth, more regulation, higher unemployment, greater protectionism, industrial concentration (i.e. monopolies), et cetera.

Here’s a table (p. 29) revealing one of the fundamental, structural differences between the EU and US. LS Ratio stands for labor supply, and measures what portion of working age people have full time employment outside of the home. An LS Ratio of 1.0, for example, would mean 100% of 16-64 year olds have full time jobs. This ratio is useful because it captures not only unemployment but also work force participation.

Everyone knows that most EU countries have consistently higher unemployment than the US. But unemployment measures only people who want jobs. This table shows that US adults are employed outside the home at a rate of 40% greater than in France or Germany.

Of course all of this concerns only material wealth. Maybe Europeans, with long vacations, high unemployment, low growth, fixed social classes, and cradle to grave social welfare are happier.