Thank you so much for showing me this link, it really critizied the part that I personally wanted to find information on (breaking down each cost point and determining what the actual cost of living was).
Though he still didn't go far enough, as he didn't go into the breakdown that green did of going from 40k>140k and talking about welfare cliffs and other expenses, I just want that expense report broken down into better figures, jeremy did a decent job but it would be nice to see it completed
Greens work simultaneously outlines, (albeit crudely), the conditions in which Americans can save, have more children, and buy a house without feeling 'pinched.' Your refutation of his work, spending more time debating the "how" of the poverty line marker (and defending status quo) misses the larger point, which is that most Americans are not thriving. In fairness, if you have evidence to the contrary, I would love to read more as to why you think that's the case.
Since we live in real life, where we have needs such as housing, food, and transportation, all with associated costs, Green's work attempts to reconstruct poverty from a needs-based bottoms-up approach. Missing here is a simple explanation on why a bottoms-up approach like Green's is flawed?
“Which means if you measured income inadequacy today the way Orshansky measured it in 1963, the threshold for a family of four wouldn’t be $31,200.
It would be somewhere between $130,000 and $150,000.
And remember: Orshansky was only trying to define “too little.” She was identifying crisis, not sufficiency. If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at $140,000.”
I’ll have another post about his “bottom-up” numbers. In the meantime, if you want to read my critiques of his arguments about inflation measurement and the sole-earner model, you should follow the links I include toward the end of my post.
Scott, I'm sorry but this reverse motte-and-bailey type shit is so tiring..
If you disagree with the point , and the argument that Americans are not thriving, then how about make the case for why Americans are in fact thriving (in an empirical as well as 'spiritual' sense)? If Michael Green's point and data are indeed nonsense, then why not pivot to focus on the main broader themes and experiences that are being signified by this?
A darker part of me hopes this whole DC ecosystem that is reinforcing these obnoxious and passé, facile defenses for some 'status quo' with this hyper-positivist instrumental rationality gets totally wiped out by the next recession/crash event.
Maybe you all need to experience what it's like to live trying to raise a family in 2025 with these pressures and the general institutional insanity and synesthesia caused by current incentive structures (something Michael Green doesn't even get into).
First, not sure what a “reverse motte and bailey” is—refuting the actual hard claim instead of some easier claim? Guilty, I guess?
Second, I am raising a family.
Third, I’m only making claims about economic well-being (better than ever). I would agree that social well-being is not faring well. It’s worth being precise about things, else we’ll try and solve a “spiritual crisis” or “social breakdown” by throwing money at people, which is unlikely to do any good. You need to diagnose the problem correctly, and Green’s post does not (instead claiming we’re in economic crisis).
I guess maybe it's different in Milwaukee than wherever you are, but I know multiple families making under $140K a year combined and we're all doing okay. None of us are starving or living on the street.
Mike's point wasn't people making under 140k are somehow "on the street".. it's about long term financial stability and security (not even targeting becoming 'wealthy' or some abstract pinning to a historical version of the 'American Dream'), and being able to save money and afford reasonable life for one's children without costs of goods (staples) and services sucking up everything..
I'm in the DC region, and bigger urban centers but particularly those with a nexus to 'elite' culture and capital flows, this is felt more. However I even have a friend who lives in the Southwest whose experience resonates with what Michael Green is describing.
“Mike's point wasn't people making under 140k are somehow ‘on the street’.”
He literally said below $140K for a family of poor was poverty.
And once he even said the number was “being conservative”
It would be one thing if he said $140K for a family of 4 was the minimum to be middle class. His numbers are *still* poorly calculated, but at least it would be a discussion.
But he didn’t say that. He literally said under $140K puts a family of 4 in poverty “and that’s being conservative”.
Missing from this thread IMO is that if you use Green's approach and apply it to prior periods, way more people would be considered poor. If the poorest tenth of America today lives as well or better than 70% of Americans in 1963 then you can't just pretend to compare the two periods in the way Green does.
If childcare is too expensive for most families today I think an effective argument would just say that instead of completely misapplying a poverty calculation. If someone didn't want the shotty math to cannibalize that conversation then they shouldn't lead with it. But the arithmetic sleight of hand is what's given Green's piece its notoriety and fits too well with TFP/Weiss's overall journalistic approach to be an accident.
Tried to get at this: “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.)”
I don't think Green is comparing the two periods- he's trying to argue the measure isn't accurate, is distortive, and comes from an earlier era without the same complexities.
Also, it isn't just childcare. He's been on about price levels of groceries, etc. for several years now.
I've also experienced wage stagnation in the last three years, despite being mid-career, also starting a family supported through a single income, and being in a highly sought-after professional field where I would like to think I am more capable and generally mature in navigating professional environments than I was three or five years ago.
Frankly, if you were a colleague of mine, I would be frustrated with you right now if this was a work discussion. Multiple people have pointed out that the definition you are using-- "thriving" -- simply doesn't match the statistic being measured which is "poverty". And your insistence on returning the argument to your own current resentments seems to be limiting rather than expanding your view of the larger issue being argued.
The problem for Green and his defenders is that stripped of his specific empirical claims, all he’s saying is that a lot of people feel they can’t thrive. But he’s just asserting that! So people who agree with his unsubstantiated assertion think he’s hit on something, even if his hard evidence is garbage.
The claim that it’s harder to thrive is reasonable enough, depending on one’s definition of thrive.
In particular, if it includes buying a house in a very desirable area, he’s surely got a point. The cost of those houses has gone up faster than incomes, and the cost of the mortgage has gone up enormously from the artificially low interest rates we had before Biden’s inflation to now.
But the rest of his numerical claims and pseudo-logic and just bad logic are what is indefensible.
Very interesting post (following this argument from across the Atlantic, directed here by FT Alphaville).
All your numbers make sense, and clearly no family with an income of well above $100k could be considered poor in the sense that there must be enough money for food and clothing etc.
But isn’t Green’s concern that in the 2020s parents would expect to be able to send their children to college and have good health insurance. The cost of these non-traded services has risen significantly since the 1960s, so the poverty line measured and updated in the standard way doesn’t capture the anxiety of many Americans today… living standards rise, but so do expectations.
There’s a tendency to focus on big costs like college that have seen big price increases, which is understandable. But the cost of living is determined by how prices change for ALL the things people buy. Conventional inflation adjustment of income is intended to take these changing prices into account, and inflation-adjusted incomes are higher than ever.
A fatal problem with your analysis is glossing over the two most significant non-food factors of Green’s analysis, childcare and healthcare, and the brutal cliff that exists for families at the edge of income based welfare programs. Imagine a household of four, two working parents and two young children, if each parent makes 60k per year, a combined household income of 120k are they financially secure independent of state or familial aide? If a sudden expense such as a short hospital stay for a bad flu or a new set of tires comes up can they weather it without taking it on as unsecured debt? The source of this “populist rage” is a rampant sense of insecurity, fear that a minor injury or accident will force someone down into a great financial ravine where they become dependents on the state. This is what is behind Green’s article, he gives a controversial figure for sure, but ask yourself: is poverty calorie deficiency? Or is poverty the constant fear of a minor expense becoming the straw that breaks your back?
We don't have to ask ourselves anything, since we are discussing an actual article and it's response. We would use the articles definition of poverty, which is based on OPM. OPM is much closer to the calorie deficiency definition than feeling insecurity. Obviously.
Scott, I believe you're correct, but it's not the detailed, wonky explanations of math formulas. It's the inverse of this question:
> “Who would take seriously any poverty measure that says only 1.6 percent of Americans are poor?”
Which is: "who would take seriously any poverty measure that says Americans making $140,000 are poor?"
If you'd like to reach a wide audience (not just other economists), simplify, simplify, simplify. You can include all the math and technical explanations. But lead with the big picture, human face of the issue.
This is what Green did, and it's impactful! If not for the gut check that I simply cannot consider my friends making $100,000/year poor, I would believe him.
IMO the thesis behind "140К line" is that any simple inflation adjustment is flawed if it spans a structural transition periods. If the "participation ticket" got different in substance, you get wrong results with any deflator index which is structilurally continuous.
the methodology for defining "the poverty line" has always been essentially arbitrary (so we are to blindly accept the 1/3 of income on food based definition?), and ignores the radically different costs of goods and services, and even more importantly, the costs of housing that one encounters depending largely on location within the continental USA. I am not buying into this proselytized defacto standard. Poverty is not the standard to discuss unless we are talking about how to keep people from starving to death. That is a poor way to measure what seems to be a perception of societal well being. The whole discussion is about academia and not to real world existence in today's America.
The author writes “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?”
Yes and no. The principal reason why the fraction of income people spend on food has gone down is because the fraction of the workforce involved in food production has gone down. In 1800 some 85% of the workforce were farmers, producers of raw food stuffs, almost all processing was done in the household. By 1963 about 8% of the workforce were primary producers and some food processing was done commercially, while late-stage processing (meal prep) was done at the household level. Total outlay on food was about 33%, as Orshanky found.
Today a little over 1% are involved in primary food production and food outlays are about 10%. Now almost all of the processing is done commercially (we eat out a lot). You can see this in the fraction of food outlays that is for the raw material. It fell from nearly 100% in 1800 to about 25% in 1963 to about 10% today. There is a word for that, economic growth. How do economies grow? They do so by creating new categories of economic demand, or new entries into the household budget. See my post in leading sectors for more on this:
Now, what Green was getting at can be more readily illustrated by a more extreme example. Let’s use 1800 as our basis. We will start with the 1963 food budget of about $1000, but divide it by the 85% expenditure for food in 1800, rather than the value for 1963. Adjust that to the present and you get a poverty level of $12,500. I think it is clear than one cannot live in American society for very long with this level of total income (no government benefit, no charity).
But this did not happen in the America of 1800. $12,500 in today’s money was not a poverty level then. Nor is it in today’s undeveloped countries. Ordinary people in India live on $4000/yr. In America the Baumol effect has raised the cost of such things as education and health care to levels far above what such things cost in India, and housing cost has risen relative to inflation largely because many Americans are much richer today and bid up the price of land in attractive locations. As they say, they aren't making more land.
What this means is you cannot take a poverty measure that passed the smell test at one time, and just adjust for CPI to update it. That is nonsense. The easiest way to adjust is to use GDP per capita as your “deflator”. If you do that with the $3000 1963 level you get $80K today. If you adjust the modern value for the fact that food is now 10% rather than 33% of spending and adjust the value upward for that you get closer to 100K. I think the GDPpc result is cleaner. But in either case the official value is too low because it does not consider that the economy evolves over time and the reality of life changes with that evolution.
Here's why a household income of $140K feels poor. In my city, San Diego, the median house price is now around $930K and the median household annual income is now around $105K. Houses costing 9x annual income is a relatively new aspect of American life -- that wasn't the case even in coastal California a couple decades ago (before 2000, houses cost only 4x or 5x annual income). Median people starting out in life can't accomplish what used to be ordinary for their parents or grandparents, so they feel poor despite a higher inflation-adjusted income. People who grew up in San Diego and want to stay must endure a worse standard of living than did previous generations, and people who want to move to San Diego for the opportunity must also endure a worse standard of living than did people who moved here a couple decades ago.
I grant you that there are some places (coastal CA in particular) where the housing market is out of whack. The median married family in SD makes $150K, so I don’t think the problem is on the income/jobs side. But the kind of affordability problem you’re describing is very unusual nationally.
It’s based on rents rather than the cost of buying a home, but still interesting. I do think that home prices are high in part because young adults are less likely to marry and therefore less likely to afford homeownership, which skews the market toward older and higher-income buyers and pricier homes.
“I do think that home prices are high in part because young adults are less likely to marry and therefore less likely to afford homeownership, which skews the market toward older and higher-income buyers and pricier homes.”
This is the first thing you’ve said in your post or your comments that I think is noticeably off.
The two main reasons that housing costs too much in CA are:
1) people want to live there, because of the climate and the number of high-paying jobs
2) local and state government have made it extremely difficult to build more housing.
I doubt your suggested “in part reason” is actually any factor at all in making housing prices higher, but if somehow it is, it surely doesn’t make the top 10.
Then what did you mean by “skews the market”? You have evidence that it is buyer composition that has caused housing price increases more than lack of supply (caused largely by government regulation of housing)?
Because people buying later in life would serve to lower housing prices, not raise them.
Your claim was that “home prices are high in part because young adults are less likely to marry and therefore less likely to afford homeownership”. But you don’t provide evidence for THAT claim in the new post as far as I can see. And that was the specific claim I was objecting to.
If you were merely citing a major reason for today’s vibes, then you would get no argument from me…
Even using $150K, housing is more than 6x annual income, a level that I don't think ever occurred prior to 2000 in coastal California. And it's not just in San Diego -- housing seems to be much more expensive in LA, the Bay Area, Seattle, NYC, and Boston compared to what it was a couple decades ago, which starts adding up to a substantial part of the country. I don't have numbers, but I wonder if housing has become relatively more expensive than it used to be everywhere in the U.S. We've had a couple decades of severe underbuilding, so housing is more expensive than it needs to be.
Imagine what would happen if the government passed a law that severely limited how many cars could be built or imported into the country. New cars and used cars would become much more expensive than they are now, and people would feel poorer, even if they had more inflation-adjusted income than previous generations. People would think back on times when they didn't have to work for so many months just to pay for an ordinary car, and they might want to adjust the poverty line much higher to account for what they were experiencing.
Housing supply restrictions are definitely a problem. But you’ve listed the areas with the biggest problems (add DC). If the argument is that we should change regs so we can build more, I’m with you. If the argument is that inflation-adjusted income measures are wrong in indicating we’re richer than ever before, I’m out.
My view is that housing supply restrictions are the biggest problem. It may be the case that we're richer than ever before, but if people can't financially accomplish life goals their parents and grandparents did, they feel poorer. In some objective sense, their perception may be wrong, but it's probably not very effective to argue against lived experience. It would be better to recognize that by restricting housing supply, a substantial amount of wealth is transferred from renters and prospective buyers to incumbent land owners, which does make the former objectively poorer than they would have been otherwise. You could affirm and explain why people feel poor (even if they're not by some income measure) and offer the solution of removing building restrictions to increase supply.
Yes but there is another effect, housing prices in red cities that have no restrictions are also high relative to the real prices in the 1890-1995 period.
Are housing prices in Houston higher relative to incomes?
Most other red cities in fact have housing development restrictions as well, if not as bad as those in blue cities.
IMO the effect you are citing is partly that housing size and housing quality are higher, and partly that we are all richer and can afford to spend more on housing.
"Imagine what would happen if the government passed a law that severely limited how many cars could be built or imported into the country."
No need to imagine, Joel, it has been happening incrementally for decades.
When we account for amortization costs, the increase in ownership expense becomes obvious. Add the increased maintenance costs that result from complexity, and the number increases.
Reflect on precisely how and why "cash for clunkers" was considered a valid stimulus expense, and the picture becomes even clearer. Aggregate amortization costs, which include maintenance, took a nontrivial step upward.
Add regulatory compliance costs, casualty indemnification and component obsolescence, and the position becomes even more sharply outlined.
"Cash For Clunkers" was a determining event for those operating below the median income, because those vehicles interrupted a critical supply chain, when they were sent to the crusher; aging vehicle inventory maintenance costs rose very sharply. This has an effect on monetary velocity at specific points of the distribution curve.
Was it Thomas Sowell who observed that there are no solutions, only trade-offs?
Don’t miss Jeremy Horpedahl’s critique, which covers much of the ground I intended to: https://economistwritingeveryday.com/2025/11/26/the-poverty-line-is-not-140000/
Thank you so much for showing me this link, it really critizied the part that I personally wanted to find information on (breaking down each cost point and determining what the actual cost of living was).
Though he still didn't go far enough, as he didn't go into the breakdown that green did of going from 40k>140k and talking about welfare cliffs and other expenses, I just want that expense report broken down into better figures, jeremy did a decent job but it would be nice to see it completed
Greens work simultaneously outlines, (albeit crudely), the conditions in which Americans can save, have more children, and buy a house without feeling 'pinched.' Your refutation of his work, spending more time debating the "how" of the poverty line marker (and defending status quo) misses the larger point, which is that most Americans are not thriving. In fairness, if you have evidence to the contrary, I would love to read more as to why you think that's the case.
Since we live in real life, where we have needs such as housing, food, and transportation, all with associated costs, Green's work attempts to reconstruct poverty from a needs-based bottoms-up approach. Missing here is a simple explanation on why a bottoms-up approach like Green's is flawed?
I think I was responding pretty directly to this:
“Which means if you measured income inadequacy today the way Orshansky measured it in 1963, the threshold for a family of four wouldn’t be $31,200.
It would be somewhere between $130,000 and $150,000.
And remember: Orshansky was only trying to define “too little.” She was identifying crisis, not sufficiency. If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at $140,000.”
I’ll have another post about his “bottom-up” numbers. In the meantime, if you want to read my critiques of his arguments about inflation measurement and the sole-earner model, you should follow the links I include toward the end of my post.
Scott, I'm sorry but this reverse motte-and-bailey type shit is so tiring..
If you disagree with the point , and the argument that Americans are not thriving, then how about make the case for why Americans are in fact thriving (in an empirical as well as 'spiritual' sense)? If Michael Green's point and data are indeed nonsense, then why not pivot to focus on the main broader themes and experiences that are being signified by this?
A darker part of me hopes this whole DC ecosystem that is reinforcing these obnoxious and passé, facile defenses for some 'status quo' with this hyper-positivist instrumental rationality gets totally wiped out by the next recession/crash event.
Maybe you all need to experience what it's like to live trying to raise a family in 2025 with these pressures and the general institutional insanity and synesthesia caused by current incentive structures (something Michael Green doesn't even get into).
First, not sure what a “reverse motte and bailey” is—refuting the actual hard claim instead of some easier claim? Guilty, I guess?
Second, I am raising a family.
Third, I’m only making claims about economic well-being (better than ever). I would agree that social well-being is not faring well. It’s worth being precise about things, else we’ll try and solve a “spiritual crisis” or “social breakdown” by throwing money at people, which is unlikely to do any good. You need to diagnose the problem correctly, and Green’s post does not (instead claiming we’re in economic crisis).
I guess maybe it's different in Milwaukee than wherever you are, but I know multiple families making under $140K a year combined and we're all doing okay. None of us are starving or living on the street.
Cabbage,
Mike's point wasn't people making under 140k are somehow "on the street".. it's about long term financial stability and security (not even targeting becoming 'wealthy' or some abstract pinning to a historical version of the 'American Dream'), and being able to save money and afford reasonable life for one's children without costs of goods (staples) and services sucking up everything..
I'm in the DC region, and bigger urban centers but particularly those with a nexus to 'elite' culture and capital flows, this is felt more. However I even have a friend who lives in the Southwest whose experience resonates with what Michael Green is describing.
“Mike's point wasn't people making under 140k are somehow ‘on the street’.”
He literally said below $140K for a family of poor was poverty.
And once he even said the number was “being conservative”
It would be one thing if he said $140K for a family of 4 was the minimum to be middle class. His numbers are *still* poorly calculated, but at least it would be a discussion.
But he didn’t say that. He literally said under $140K puts a family of 4 in poverty “and that’s being conservative”.
Andy, he's made several subsequent posts where he further explains his actual point.
I imagine you could be aware of that if you're replying to this thread a month later.
Happy new year,
"how much do I need to be able to easily afford everything I want with no tradeoffs or hardship" is not a measure of poverty.
Where are the wants? I don't see man caves, vacations, motorcycles or botox mentioned anywhere.
Missing from this thread IMO is that if you use Green's approach and apply it to prior periods, way more people would be considered poor. If the poorest tenth of America today lives as well or better than 70% of Americans in 1963 then you can't just pretend to compare the two periods in the way Green does.
If childcare is too expensive for most families today I think an effective argument would just say that instead of completely misapplying a poverty calculation. If someone didn't want the shotty math to cannibalize that conversation then they shouldn't lead with it. But the arithmetic sleight of hand is what's given Green's piece its notoriety and fits too well with TFP/Weiss's overall journalistic approach to be an accident.
Tried to get at this: “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.)”
I don't think Green is comparing the two periods- he's trying to argue the measure isn't accurate, is distortive, and comes from an earlier era without the same complexities.
Also, it isn't just childcare. He's been on about price levels of groceries, etc. for several years now.
I've also experienced wage stagnation in the last three years, despite being mid-career, also starting a family supported through a single income, and being in a highly sought-after professional field where I would like to think I am more capable and generally mature in navigating professional environments than I was three or five years ago.
Frankly, if you were a colleague of mine, I would be frustrated with you right now if this was a work discussion. Multiple people have pointed out that the definition you are using-- "thriving" -- simply doesn't match the statistic being measured which is "poverty". And your insistence on returning the argument to your own current resentments seems to be limiting rather than expanding your view of the larger issue being argued.
And if you want evidence about the “thriving” point, see my third post: https://open.substack.com/pub/scottwinship/p/apocalypse-not?r=1tjvd&utm_medium=ios
The problem for Green and his defenders is that stripped of his specific empirical claims, all he’s saying is that a lot of people feel they can’t thrive. But he’s just asserting that! So people who agree with his unsubstantiated assertion think he’s hit on something, even if his hard evidence is garbage.
The claim that it’s harder to thrive is reasonable enough, depending on one’s definition of thrive.
In particular, if it includes buying a house in a very desirable area, he’s surely got a point. The cost of those houses has gone up faster than incomes, and the cost of the mortgage has gone up enormously from the artificially low interest rates we had before Biden’s inflation to now.
But the rest of his numerical claims and pseudo-logic and just bad logic are what is indefensible.
Sorry—this is moving goalposts. See the multiple examples I provide in my next post, which couldn’t be clearer. https://open.substack.com/pub/scottwinship/p/the-real-math-of-survival?r=1tjvd&utm_medium=ios
Thanks to Roger Pielke for recommending First World Problems.
Very interesting post (following this argument from across the Atlantic, directed here by FT Alphaville).
All your numbers make sense, and clearly no family with an income of well above $100k could be considered poor in the sense that there must be enough money for food and clothing etc.
But isn’t Green’s concern that in the 2020s parents would expect to be able to send their children to college and have good health insurance. The cost of these non-traded services has risen significantly since the 1960s, so the poverty line measured and updated in the standard way doesn’t capture the anxiety of many Americans today… living standards rise, but so do expectations.
There’s a tendency to focus on big costs like college that have seen big price increases, which is understandable. But the cost of living is determined by how prices change for ALL the things people buy. Conventional inflation adjustment of income is intended to take these changing prices into account, and inflation-adjusted incomes are higher than ever.
Moreover, I don’t think there’s good objective evidence that anxiety levels are higher than in the past. See, for instance, https://www.civitasinstitute.org/research/should-we-believe-the-economic-data-or-americans-lyin-eyes-the-answer-is-yes
Thanks, will follow up that link!
“ But isn’t Green’s concern that in the 2020s parents would expect to be able to send their children to college and have good health insurance.”
Those are surely valid concerns re: “thriving”
One could even try to argue that they are serious concerns to be “middle class”,
But he didn’t try to say that. He tried to say below $140K a family of four is in *poverty*. *That* is the indefensible bogus claim.
A fatal problem with your analysis is glossing over the two most significant non-food factors of Green’s analysis, childcare and healthcare, and the brutal cliff that exists for families at the edge of income based welfare programs. Imagine a household of four, two working parents and two young children, if each parent makes 60k per year, a combined household income of 120k are they financially secure independent of state or familial aide? If a sudden expense such as a short hospital stay for a bad flu or a new set of tires comes up can they weather it without taking it on as unsecured debt? The source of this “populist rage” is a rampant sense of insecurity, fear that a minor injury or accident will force someone down into a great financial ravine where they become dependents on the state. This is what is behind Green’s article, he gives a controversial figure for sure, but ask yourself: is poverty calorie deficiency? Or is poverty the constant fear of a minor expense becoming the straw that breaks your back?
Either way, Green is WAAAAY off. See my latest: https://scottwinship.substack.com/p/the-real-math-of-survival
We don't have to ask ourselves anything, since we are discussing an actual article and it's response. We would use the articles definition of poverty, which is based on OPM. OPM is much closer to the calorie deficiency definition than feeling insecurity. Obviously.
Scott, I believe you're correct, but it's not the detailed, wonky explanations of math formulas. It's the inverse of this question:
> “Who would take seriously any poverty measure that says only 1.6 percent of Americans are poor?”
Which is: "who would take seriously any poverty measure that says Americans making $140,000 are poor?"
If you'd like to reach a wide audience (not just other economists), simplify, simplify, simplify. You can include all the math and technical explanations. But lead with the big picture, human face of the issue.
This is what Green did, and it's impactful! If not for the gut check that I simply cannot consider my friends making $100,000/year poor, I would believe him.
IMO the thesis behind "140К line" is that any simple inflation adjustment is flawed if it spans a structural transition periods. If the "participation ticket" got different in substance, you get wrong results with any deflator index which is structilurally continuous.
Yes, but there are better ones. I find per capita GDP useful as a deflator. (see my other comment).
the methodology for defining "the poverty line" has always been essentially arbitrary (so we are to blindly accept the 1/3 of income on food based definition?), and ignores the radically different costs of goods and services, and even more importantly, the costs of housing that one encounters depending largely on location within the continental USA. I am not buying into this proselytized defacto standard. Poverty is not the standard to discuss unless we are talking about how to keep people from starving to death. That is a poor way to measure what seems to be a perception of societal well being. The whole discussion is about academia and not to real world existence in today's America.
The author writes “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?”
Yes and no. The principal reason why the fraction of income people spend on food has gone down is because the fraction of the workforce involved in food production has gone down. In 1800 some 85% of the workforce were farmers, producers of raw food stuffs, almost all processing was done in the household. By 1963 about 8% of the workforce were primary producers and some food processing was done commercially, while late-stage processing (meal prep) was done at the household level. Total outlay on food was about 33%, as Orshanky found.
Today a little over 1% are involved in primary food production and food outlays are about 10%. Now almost all of the processing is done commercially (we eat out a lot). You can see this in the fraction of food outlays that is for the raw material. It fell from nearly 100% in 1800 to about 25% in 1963 to about 10% today. There is a word for that, economic growth. How do economies grow? They do so by creating new categories of economic demand, or new entries into the household budget. See my post in leading sectors for more on this:
https://mikealexander.substack.com/p/an-introduction-to-leading-sectors
See this post for a nifty chart showing this sort of economic evolution:
https://mikealexander.substack.com/p/why-progress-seems-stalled
Now, what Green was getting at can be more readily illustrated by a more extreme example. Let’s use 1800 as our basis. We will start with the 1963 food budget of about $1000, but divide it by the 85% expenditure for food in 1800, rather than the value for 1963. Adjust that to the present and you get a poverty level of $12,500. I think it is clear than one cannot live in American society for very long with this level of total income (no government benefit, no charity).
But this did not happen in the America of 1800. $12,500 in today’s money was not a poverty level then. Nor is it in today’s undeveloped countries. Ordinary people in India live on $4000/yr. In America the Baumol effect has raised the cost of such things as education and health care to levels far above what such things cost in India, and housing cost has risen relative to inflation largely because many Americans are much richer today and bid up the price of land in attractive locations. As they say, they aren't making more land.
What this means is you cannot take a poverty measure that passed the smell test at one time, and just adjust for CPI to update it. That is nonsense. The easiest way to adjust is to use GDP per capita as your “deflator”. If you do that with the $3000 1963 level you get $80K today. If you adjust the modern value for the fact that food is now 10% rather than 33% of spending and adjust the value upward for that you get closer to 100K. I think the GDPpc result is cleaner. But in either case the official value is too low because it does not consider that the economy evolves over time and the reality of life changes with that evolution.
Sorry, this doesn’t make sense at all.
Here's why a household income of $140K feels poor. In my city, San Diego, the median house price is now around $930K and the median household annual income is now around $105K. Houses costing 9x annual income is a relatively new aspect of American life -- that wasn't the case even in coastal California a couple decades ago (before 2000, houses cost only 4x or 5x annual income). Median people starting out in life can't accomplish what used to be ordinary for their parents or grandparents, so they feel poor despite a higher inflation-adjusted income. People who grew up in San Diego and want to stay must endure a worse standard of living than did previous generations, and people who want to move to San Diego for the opportunity must also endure a worse standard of living than did people who moved here a couple decades ago.
I grant you that there are some places (coastal CA in particular) where the housing market is out of whack. The median married family in SD makes $150K, so I don’t think the problem is on the income/jobs side. But the kind of affordability problem you’re describing is very unusual nationally.
Even using the Living Wage Calculator that Green used, it shows the typical expenses as $150K for SD County. https://livingwage.mit.edu/counties/06073
It’s based on rents rather than the cost of buying a home, but still interesting. I do think that home prices are high in part because young adults are less likely to marry and therefore less likely to afford homeownership, which skews the market toward older and higher-income buyers and pricier homes.
“I do think that home prices are high in part because young adults are less likely to marry and therefore less likely to afford homeownership, which skews the market toward older and higher-income buyers and pricier homes.”
This is the first thing you’ve said in your post or your comments that I think is noticeably off.
The two main reasons that housing costs too much in CA are:
1) people want to live there, because of the climate and the number of high-paying jobs
2) local and state government have made it extremely difficult to build more housing.
I doubt your suggested “in part reason” is actually any factor at all in making housing prices higher, but if somehow it is, it surely doesn’t make the top 10.
I wasn’t referring specifically to CA here. See my latest Substack post.
Then what did you mean by “skews the market”? You have evidence that it is buyer composition that has caused housing price increases more than lack of supply (caused largely by government regulation of housing)?
Because people buying later in life would serve to lower housing prices, not raise them.
Your claim was that “home prices are high in part because young adults are less likely to marry and therefore less likely to afford homeownership”. But you don’t provide evidence for THAT claim in the new post as far as I can see. And that was the specific claim I was objecting to.
If you were merely citing a major reason for today’s vibes, then you would get no argument from me…
Even using $150K, housing is more than 6x annual income, a level that I don't think ever occurred prior to 2000 in coastal California. And it's not just in San Diego -- housing seems to be much more expensive in LA, the Bay Area, Seattle, NYC, and Boston compared to what it was a couple decades ago, which starts adding up to a substantial part of the country. I don't have numbers, but I wonder if housing has become relatively more expensive than it used to be everywhere in the U.S. We've had a couple decades of severe underbuilding, so housing is more expensive than it needs to be.
Imagine what would happen if the government passed a law that severely limited how many cars could be built or imported into the country. New cars and used cars would become much more expensive than they are now, and people would feel poorer, even if they had more inflation-adjusted income than previous generations. People would think back on times when they didn't have to work for so many months just to pay for an ordinary car, and they might want to adjust the poverty line much higher to account for what they were experiencing.
Housing supply restrictions are definitely a problem. But you’ve listed the areas with the biggest problems (add DC). If the argument is that we should change regs so we can build more, I’m with you. If the argument is that inflation-adjusted income measures are wrong in indicating we’re richer than ever before, I’m out.
My view is that housing supply restrictions are the biggest problem. It may be the case that we're richer than ever before, but if people can't financially accomplish life goals their parents and grandparents did, they feel poorer. In some objective sense, their perception may be wrong, but it's probably not very effective to argue against lived experience. It would be better to recognize that by restricting housing supply, a substantial amount of wealth is transferred from renters and prospective buyers to incumbent land owners, which does make the former objectively poorer than they would have been otherwise. You could affirm and explain why people feel poor (even if they're not by some income measure) and offer the solution of removing building restrictions to increase supply.
Yes but there is another effect, housing prices in red cities that have no restrictions are also high relative to the real prices in the 1890-1995 period.
Are housing prices in Houston higher relative to incomes?
Most other red cities in fact have housing development restrictions as well, if not as bad as those in blue cities.
IMO the effect you are citing is partly that housing size and housing quality are higher, and partly that we are all richer and can afford to spend more on housing.
Not all of us are richer. Those who own the houses, certainly, are richer, young working-class folks trying to buy their first house, are not.
"Imagine what would happen if the government passed a law that severely limited how many cars could be built or imported into the country."
No need to imagine, Joel, it has been happening incrementally for decades.
When we account for amortization costs, the increase in ownership expense becomes obvious. Add the increased maintenance costs that result from complexity, and the number increases.
Reflect on precisely how and why "cash for clunkers" was considered a valid stimulus expense, and the picture becomes even clearer. Aggregate amortization costs, which include maintenance, took a nontrivial step upward.
Add regulatory compliance costs, casualty indemnification and component obsolescence, and the position becomes even more sharply outlined.
"Cash For Clunkers" was a determining event for those operating below the median income, because those vehicles interrupted a critical supply chain, when they were sent to the crusher; aging vehicle inventory maintenance costs rose very sharply. This has an effect on monetary velocity at specific points of the distribution curve.
Was it Thomas Sowell who observed that there are no solutions, only trade-offs?
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Did you read his essay or just the headline