How Not to Redefine Poverty

Debunking the Worst Poverty Analysis I Have Ever Seen

I tried to let it go. Someone mentioned the essay to me on Monday, when it was a Substack post. I tweeted out some quick thoughts as to why no one should take it seriously, pointing out the glaring problem that I’ll walk through below. I tried to get back to my other work (a paper showing that declining homeownership among young adults is due to falling marriage rates, rather than vice versa, thanks for asking). But then the essay was posted at The Free Press and more people started sending it my way. It had gone viral.

The essay is by Michael W. Green, who is chief strategist and portfolio manager for Simplify Asset Management. The Free Press version is subtitled, “Why $100,000 Is the New Poverty,” but Green actually argues—I am not making this up—that the new poverty is $140,000. Since the typical household only makes a little over $80,000 a year in income, that means roughly two-thirds of Americans are poor.

It is…The Worst Poverty Analysis I Have Ever Seen. (And I’ve read Matthew Desmond!)

Much of the essay involves other arguments about middle-class expenses, and I’ll try to address those claims separately. Here I just want to convince you that Green’s claim about poverty is, I’m sorry, hot garbage. Rather than the Free Press piece, I’ll be critiquing his longer Substack post.

According to the official poverty measure (OPM) used by the federal government, 19.5 percent of Americans were poor in 1963, falling to 10.6 percent in 2024. The official poverty line is supposed to reflect a constant standard of living, after adjusting for inflation over time. There are actually 48 official poverty lines, depending on how many people are in a family, how many children there are, and whether the household head is under age 65. For a family of four with two children, the threshold was $31,812 in 2024. If a family’s income was below that line (or, rather, the line specific to their family type), they were officially poor.

These thresholds are not entirely arbitrary, but nor are they especially meaningful. The first attempt at a kind of official federal poverty rate came in the 1964 Economic Report of the President, which adopted a $3,000 poverty threshold for families and a $1,500 threshold for individuals living without family. (My discussion draws on a definitive history by Gordon Fisher.) The $3,000 was consistent with research by Mollie Orshansky, a government economist who had estimated a $3,165 threshold for a nonfarm family of four. Orshansky had gotten to this figure from the starting point that in 1955, families with at least three people spent an average of one-third of their after-tax income on food. Using food budgets for different kinds of families that reflected an adequate diet for “temporary or emergency use when funds are low,” she created poverty thresholds by multiplying the budgets by three. (This is something of an oversimplification, but you can read Fisher if you want to go deep.)

A number of other contemporary studies, including by staff of the Council of Economic Advisers, which produced the Economic Report of the President, had also gotten to around $3,000 using different approaches. In no small measure, the choice of $3,000 and $1,500 thresholds seems to have reflected a desire on the part of President Lyndon Johnson to deem one-fifth of Americans poor when he declared war on poverty.

Over the next five years, Orshansky’s approach, with its numerous poverty lines, was informally adopted until an interagency committee in 1969 agreed on an official measure. That measure took Orshansky’s estimates for 1963 and extended them backward and forward based on the change in the cost of living. That has been the basis for updating the poverty thresholds annually ever since.

At no point have the poverty thresholds ever been adjusted by revisiting either the cost of a minimally adequate diet or the food share of spending (the inverse of which is the “multiplier” that turns the cost of the diet into a poverty line). The thresholds are best conceived in the way that Orshansky herself described them: as “arbitrary, but not unreasonable.” One can set poverty thresholds higher or lower, but whatever the levels, they should be updated annually to account for the change in the cost of living. (Don’t talk to me about relative poverty measures.) Then one can see whether we have more or less poverty over time, whether it’s higher in some places than others, or whether there’s more hardship among some groups than others. And if you measure poverty this way, with an “absolute” measure, it doesn’t really matter what levels you pick—far fewer Americans are poor today than in the past. Let’s come back to that.

Green claims that Orshansky’s “principle” is “that poverty could be defined by the inverse of food’s budget share.” However, she never would have agreed with this as a principle for poverty measurement. We know because Orshansky was well aware—as Green apparently is not—of something called “Engel’s Law.” As she articulated (in two different 1965 publications), “the proportion of income allocated to the ‘necessaries,’ and in particular to food, is an indicator of economic well-being” and “a low percentage of income going for food can be equated with prosperity and a high percentage with privation.”

Engel’s Law says that as societies grow richer, they spend a smaller share of their income on food. For instance, according to one study, in the US the share fell from about 17 percent in 1960 to under 10 percent by 2019.

Engel’s Law renders the way Green is proposing to revise the poverty line absurd. He’s saying that rather than multiplying a minimally adequate food budget by three, as Orshansky did, we should multiply it by a larger number because we spend a smaller share of what we make on food today. He seems to think, wrongly, that that smaller share of spending on food is because everything else has gotten expensive without our being able to buy more and better non-food goods and services. In that case, the more expensive non-food purchases would crowd out spending on food and lower its share of spending. Multiplying a food budget by three would produce a low poverty threshold relative to the increased cost of living. It would fail to capture the increased hardship from simply paying more for the same non-food goods and services while being unable to afford to buy the same food. Updating the poverty measure by using a new multiplier would then make sense.

But in reality, we devote a smaller share of our spending to food because we can afford what we could in the past plus a lot more non-food spending. In 2023 dollars, the average household spent about $10,000 on food in 1960 and about $10,000 on food in 2023. (See here for 2023 and here for 1960, then adjust the latter for inflation using this index.) But average family income rose by over $85,000 in inflation-adjusted dollars and median family income by nearly $55,000.

The multiplier Green advocates is larger than three because we spend a larger share of income on things that aren’t necessities. For example, one (dated) federal study found that American spending on non-necessities was just over 20 percent of all expenditures in 1901, about 36 percent as of 1960, and 50 percent by 2002. It is undoubtedly larger today. The multiplier Green wants to use is so large because we’re much better off than in 1963.

Let’s look at Green’s calculation. He says, again, without citation, that “most families” today spend “5 to 7 percent” of total expenditures on food prepared at home. Taking the inverse of 5 and 7 percent, he says that today we have to multiply the minimum adequate food budget not by the three that Orshansky used, but by 16. (The inverse of 7 percent is 14.3, while the inverse of 5 percent is 20.0.) Green indicates that the true poverty line is between $130,000 and $150,000, settling for $140,000.

I was able to replicate his $130,000-$150,000 estimates, but not using a multiplier of 16. Green takes the federal poverty guideline for a family of four, $31,200 in 2024. He divides it by three to get back to Orshansky’s minimum adequate food budget. Then he has to multiply it by the inverse of the food share of the budget to get the new poverty line. In 2023, food at home accounted for 7.8 percent of spending. If I assume the food share of the budget is 8 or 7 percent, then the resulting poverty thresholds are $130,000 and $148,570. (Those are multipliers of 12.5 and 14.3, not 16. Using a multiplier of 16 produces a poverty threshold of $171,360. Using 20 yields $214,200!)

Note that Orshansky was using not just food at home as the basis for her multiplier, but all food. The total food share of spending in 2023 was 12.9 percent. Plug that into Green’s equation and the poverty line is “just” $80,620. But this is only somewhat crazier than saying the poverty line is $140,000.

The whole exercise is crazy. In 1901, the food share of the budget was 42.5 percent. Plug that into Green’s equation and the poverty line is $24,470 in 2024 dollars. That would be much easier to surpass than $80,620.

But does anyone think that the reason we spend such a smaller percentage of our income on food today than in 1901 is because everything else has become more expensive without our lives improving? In that case, we’d be better off if non-food prices declined and we could afford to get our food share of spending back up to 42.5 percent. But if the food share has gone down because we can afford more and better things than the days when fewer than one in ten homes had electricity, then why on earth would we better off spending less on non-food goods and services in order to spend more on food?

Before moving on, I also want to direct your attention to the fact that while the share of expenditures going toward food prepared at home fell from 14 percent to 5 percent between 1960 and 2019, the share spent on food enjoyed outside the home rose. Increased visits to restaurants is…not what we’d expect to see if hardship were rising.

Orshansky’s poverty lines are arbitrary but reasonable, but Green’s are arbitrary and unreasonable. No one in their right mind should think that a meaningful poverty line can be set at $140,000. But say you’re not in your right mind. We could still set the poverty line at that level in 2025. But then to figure out how bad we’re doing at alleviating hardship, we would want to adjust it for inflation, create the equivalent poverty lines going back to, say, 1963, and determine how much “poverty” we have today compared with the past. (The answer is we’d have less.)

As it happens, returning to statistics for people in their right mind, though the logic of the OPM’s thresholds in 1963 was reasonable, in practice the measure severely understates the extent to which poverty has declined. This is so for several reasons.

First, the price index it uses to adjust the thresholds each year overstates the rise in the cost of living. Green cites (without any real numbers) increases in the cost of housing, health care, child care, and higher education to suggest that the OPM has become obsolete. But guess what? While some costs have gone up, others have gone down (or risen more slowly than incomes have). Price indexes account for all of these products rather than cherry-picking the specific items that Green mentions. Price indexes also distinguish between people spending more for better stuff and people paying more for the same stuff. It’s the latter that represents an increase in the cost of living.

Adjusting the OPM for inflation is exactly what one should do to account for any increase in the cost of living. If costs go up, the poverty thresholds will go up, putting more people into poverty. But it’s important that the price index accurately reflects the true change in the cost of living. Most experts agree that our most-used indexes actually overstate inflation.

Green uses tired and facile arguments to cast doubt on the relevance of inflation adjustment for the questions he’s posing. But his “price of participation” has all the fatal flaws of Oren Cass’s “cost of thriving,” and I won’t spend thousands more words shooting down his claims—go here for that. Nor will I take up more of your time by batting down the idea that the economy used to support a single-earner model but no longer does, another argument Green trots out without evidence to say the price of participation has risen. Here you go if you’re interested.

A second reason why the OPM understates the decline in poverty is that many resources are missing from the “money income” measure that it compares against the poverty thresholds. The missing resources include employer-provided health insurance, noncash government transfers (such as food stamps, health coverage, and housing subsidies), and refundable tax credits.

A third factor that causes the OPM to understate poverty declines is that money income is a pre-tax measure, but spending depends on after-tax income. The latter has increased more than pre-tax income.

The most comprehensive effort to address these issues is a recent paper by Richard Burkhauser, Kevin Corinth, James Elwell, and Jeff Larrimore (ungated version here). These authors use a complete after-tax income measure, set the poverty line so that 19.5 percent of the population is poor (as the Orshansky-based OPM does), and update that threshold for inflation with a better price index than the OPM uses. They find that poverty fell to 1.6 percent by 2019—much lower than the decline to 10.5 percent found by the OPM.

At this point, there’s a good chance you’re saying, “Who would take seriously any poverty measure that says only 1.6 percent of Americans are poor?” But remember: poverty lines are arbitrary (but should be reasonable). The authors of the paper also show results setting the 2019 poverty rate to 10.5 percent and then looking back at what the 1963 rate was using this more generous threshold. The answer is that the poverty rate was 70 percent. Either way, poverty has fallen dramatically.

The idea that populist rage is rampant because of widespread economic dissatisfaction is almost always an assumption not backed up by evidence. But evidence does exist in this case too, and it tells us that people are not actually any more dissatisfied with their own economic situation than in the past. Rather, they think—contrary to what people say about themselves—that everyone else is doing poorly. That impression doesn’t develop in a vacuum. It’s fed by inaccurate—sometimes wildly inaccurate—claims that are taken up by the very online and spread like wildfire among the disaffected on social media. I won’t follow Green in accusations of bad faith (“don’t let them gaslight you”). But his argument about poverty is simply bad.