Intro. [Recording date: March 19, 2021.]
Today is March 19, 2021 and my guest is sociologist and author Mark Rank of Washington University in St.Louis. He is the author of Poorly Understood: What America Gets Wrong About Poverty, coauthored with Lawrence Eppard and Heather Bullock. And, that book is our topic for today. Mark, welcome to EconTalk.
Mark Rank: Oh, thanks Russ. It's great to be with you.
Russ Roberts: So, let's talk about poverty to start with in the general sense, and we'll get to the details of the book which is quite interesting.
But, I want to start with the question of: What is poverty?
Obviously, it has a subjective and can have an objective measure. So, talk about what the objective measures are that you use in the book. And then if you want to talk about some of the other senses of the word, that's fine too.
Mark Rank: Yeah. So, that's a great place to start: What do we actually mean by poverty and how do we actually measure poverty?
So, the way that we talk about poverty in the book, for the most part, is the way that the Census Bureau defines poverty. And, that is basically to say: If folks earn below a certain income level, we're going to count them in poverty. If they are above that level we're not going to count them in poverty.
And, the concept there is that if you fall below a certain income level, you really don't have the resources to have a decent, minimally adequate lifestyle.
And so, in the United States, for last year, that poverty line for a family of three was around $20,000. So, if that family earned less than $20,000 during the year they would be counted as in poverty. If they were above that they would not be counted as in poverty.
And, the poverty line varies depending on the size of the household because obviously larger households need more income to get by than smaller households.
But, that's pretty much how we measure poverty.
Now, there's been a lot of critiques about the measurement of poverty in the United States. And most people argue that it's a pretty conservative measure: that if you think about trying to survive on less than $20,000 a year, it's pretty difficult.
And, the other thing that I'll just point out in this sort of beginning discussion here is that: That $20,000 represents poverty at its most opulent level. So, in other words, if you earn $1 more you're out of poverty. It turns out that about 45% of people in the United States fall below half the official poverty line. So, instead of falling below $20,000, imagine a family of three trying to survive on less than $10,000.
Russ Roberts: What was that number again? Say that again. What proportion?
Mark Rank: So, about 45% of everybody in poverty in the United States fall below half of the efficient poverty line. So, it's almost half of folks in poverty.
Russ Roberts: Almost half the folks in poverty are terribly poor.
Mark Rank: Exactly. Exactly. Are what we might call in extreme poverty.
And, interestingly, that percentage of poor folks in extreme poverty has actually been rising over the last 20 or 30 years.
Russ Roberts: And, what's the proportion of people who fall below the official poverty line--say, for 2020?
Mark Rank: Yeah. Yeah. So, actually the latest data is for 2019. For 2019, it was at a low point in terms of thinking historically about poverty. So, 10 and a half percent of the population fell below the official poverty line in 2019.
Russ Roberts: I've often pointed out that many of these measures are difficult to compare over time because of changes in family structure. The proportion of households headed by single women with children--that is the subgroup of family structure with the highest poverty rate--that group has gotten larger.
So, just looking at the poverty rate as a measure of how the economy treats people, over time, is not fully informative because of family structure changing.
Now, you could argue that the economy is not making enough opportunities for single women with children, or that they have trouble getting married because of the economy. And, those are real issues obviously.
But, I just want to remind listeners that when you make comparisons over time--and a lot of what were going to be talking about is a different kind of over-time comparison--but, it's really important to remember that family structure has changed dramatically in the United States. And, since these measures are typically household measures, not individual measures, it's a little bit tricky.
And, one more point I want to make about the data and the challenge of interpreting it is that--this is very hard to understand but it's really important: Over the last 40 or 50 years the number of households in the United States has increased much more dramatically than the actual population. And, that's because there's more divorce, less marriage, more people. Those two factors.
So, even though the population has increased by a certain amount, the number of households increased by more than that. And many of them are not two-earner families.
So, measures of, say, average income, even median income, and certainly poverty are distorted by that if you make comparisons over time.
Mark Rank: Yeah. And that's a good point. I teach a course of poverty and inequality every semester here at Washing University and one of the things I point out is just what you're saying, which is that the overall poverty rate tells us something but it certainly is affected by demographic changes in the population.
And, as you rightly point out, probably the main demographic change that has happened which affects poverty is the rise of single-parent families--who, as you say, are at a significant risk of experiencing poverty. About 35% of all single-parent families fall below the poverty line.
So, that certainly is an important factor in terms of thinking about the overall rate of poverty. And, that's why sometimes what people will do is they'll look at particular groups like single parent families and they'll look at how have they changed over time in terms of the rate of poverty.
Russ Roberts: And, they've often fallen even though the overall poverty rate has changed because that subgroup with the higher rate has gotten more numerous. And, those who are interested in that, I have a video on that. We'll put a link to it. It's called Simpson's Paradox. It's interesting, but we're not going to get into it in audio.
Russ Roberts: The other thing I want you to clarify is: You use the measure of, I think you said $20,000 for a family of three. It's so interesting. How that number is calculated is kind of historically of interest--to me, anyway.
Mark Rank: Yeah. Yeah. It is.
So, in 1964, President Lyndon Johnson famously declared a War on Poverty and said, you know: 'We are going to fight a war on poverty. It's not right that in this wealthy country we have so many folks in poverty.'
So, if you declare a war on somebody you need to know the strength of the enemy, right? And, up until this time we had no official measure of poverty.
So, a woman by the name of Mollie Orshansky in the Social Security Administration was charged with coming up with a measure. And, the measure that she used is pretty much the same measure that is used today. It hasn't really changed very much.
And, here's how it's done. You basically figure out what for that household of--let's say that household of three--what do they need during the year to purchase a minimally adequate diet? And, that's based on the Agricultural Department's survey of food and things like that.
So, what do they need to purchase a minimally adequate diet? Let's figure out that number.
We multiply that number by three, and that's the poverty line.
Now, you might say, 'Well, why would we multiply it by three? Is that some kind of special number? What's the deal there?'
At the time, the survey showed that, in general, a typical family in America spent about a third of their income on food, another two thirds on all the other things: shelter, housing and clothing and all that.
So, the argument was if we can figure out what the minimum amount is for food, we can multiply that by three and that's the other minimum amount that you need for these basic goods and services to have a decent life.
That's how the poverty line was devised, and that's still how it's measured.
And, one of the critiques of that measure is this multiplier of three. Because, what people say is, 'Look, the amount that families are spending now on housing, childcare, all of these things are much more than they were 50 years ago.' And, therefore the argument is that that multiplier should be something like four or five instead of three.
But, that's basically the way it's devised and it has remained that way ever since.
Russ Roberts: A couple of other caveats I want to point out about that. I worked for the Social Security Administration when I came out of college for eight months before I went to graduate school. I think I met Mollie. I'm pretty sure I did.
Russ Roberts: And, I always found that sort of interesting, because an economist--I forget who it was--a long time ago, once calculated that if you really just wanted to survive and get nutrients and ignore the agricultural measures that the Department of Agriculture does: Eat a lot of bananas because they're high in potassium and other good things.
So, there's an arbitrary aspect to it.
And I also want to add I was in Costco yesterday and eggs there right now are--I think it's $8 for two dozen--five dozen--excuse me. So, eggs are--that's not expensive. Eggs are very, very protein-effective.
But, what's interesting about that number of course is that it's not exactly literally the minimum you'd need in food to survive. It's some kind of diet.
What's good about the number, of course, is: It's a number. It's a measure. And, it's been kept consistent over time as opposed to the pressure that some people have suggested--and there's an argument for it--that says: absolute poverty isn't what matters, it's relative poverty. Maybe we should use half the median income. The same issue especially comes up in international measures of poverty.
But, the last thing I want to add of course is that all those measures have the issue that cost of living is very different in Biloxi, Mississippi than it is in San Francisco, California; and of course this is a national single number not related would where you live.
Mark Rank: Yeah. That certainly is another critique. That $20,000 in Ames, Iowa means a lot different than that $20,000 in New York City or San Francisco or Boston. So, the measure does not take that into account.
But, I like your point, which is that there is some definite advantage that it has remained consistent over this period of time and allows us to look over time.
The other thing I should mention, which is obvious, but these poverty lines each year take into account changes in the cost of living and inflation. So, each year they're updated to take that into account. So, obviously what it costs today is not the same as 50 years ago; and the poverty line reflects that.
Russ Roberts: Last point to talk about, and we may come back to this, which I think is very important, is that: while we care a lot about material well being, it's not all we care about. And, I think often these discussions of the state of the economy, who is it helping, how are we doing economically--it's important to remember that contrary to the most basic models of economics, contrary to those models, people don't just care about how much stuff they have. In the standard models that undergrads and graduate students in economics learn, your wellbeing is a function of how much stuff you have.
Now, it occasionally gets--that measure gets improved by people pointing out, 'Well, stuff includes, say, how well you get along with your spouse.' And, that's okay. But, it's still the problem that it's stuff. Even though that's a particularly ethereal kind of stuff, in theory in economics if you have more stuff holding the ethereal parts constant, you're better off. And, if you have the same amount of stuff you're just as well off.
And, in that model if you are working and getting satisfaction from your work and earning say, $25,000 a year and you're not poor because of that. You're making say $12 an hour and you're living by yourself, so you're definitely not poor by the official measure. And, that is replaced by a $25,000 a year check by the government, you're still not poor.
But, it's maybe the--in fact in the economic model you are no better off and no worse off. You've got the same amount of stuff.
But, we know that people get satisfaction from things other than stuff. Like self-sufficiency, independence, autonomy, pride.
And so, I think it's important just to note that were going to mainly be talking monetary measures of poverty and not worrying about dignity which I like to always point out is not in the dataset.
Mark Rank: Right. Yeah. No. I think that's an excellent point. And, yeah, most--I did a book a few years ago on the American Dream and kind of what you're saying really came through that almost everybody finds dignity through work and through their jobs and through other things.
But, I will say there has also been--and I know you're familiar with Amartya Sen. And, he's an economist and won the Nobel Prize a number of years ago. And, he talked about these issues in an interesting way in which he said the way we should really define poverty is that it represents a lack of freedom.
And, the argument there is that if you don't have these necessities you are really constrained in what you can do in your life. That it's not just not having those necessities but what that means in terms of your lifestyle. He talks about the anxiety and all of these kinds of things that are associated with poverty that go beyond just sort of the material wellbeing.
So, I think that that is a really important point for us to keep in mind. And, as you said, most of the conversation is on just not having enough income. But there are these other things as well.
Russ Roberts: Yeah. And, if you have to worry about paying your rent and that worry doesn't just hang over you, it may require you to occasionally find a second source of income that's erratic, that anxiety--worry--obviously makes it hard to interact with your children in a productive, thoughtful, kind, loving way.
So, it obviously is so much more than just the amount of stuff you have. And of course, the timing of it matters, how much risk it is, whether it will last for a while. I'm blessed and I think you are probably blessed to live in a world where for yourself that if I lost my job--if Washington University closed its Sociology Department--I assume you have tenure, Mark--but if they closed the Sociology Department it might be a little bit unpleasant for you but you could find things to do that would bring in a healthy amount of money in some way.
Other people don't have that assurance and live very fragilely. And that's part of what we're going to talk about.
Mark Rank: Yeah. And, that brings up an interesting point which is that there's different kinds of poverty out there. A lot of my work is focused on--which we'll talk about I know--sort of the life-course risk of poverty: of people experiencing poverty at some point in time. And, most people who do experience poverty do so for fairly short periods of time.
But there are folks that are in poverty for long periods of time. And, as you're rightfully pointing out, that's a different kind of a psychological thing than the knowing that, 'Oh, I'm going through a tough period but it's going to be okay down the road.' So, I think that that's really important to lay out.
Russ Roberts: Yeah. Well let's turn to your book now--which was way to bleak for me. I know I have a bias towards optimism and cheerfulness about the economy overall, but this was pretty unrelentingly bleak. So, I'm going to let you lay out some of the bleakness; and I'll challenge it some. Maybe you can change my mind a little bit. Maybe I'll get you to add some--
Mark Rank: Okay. Okay. Okay. Well, I actually--I'm kind of guardedly optimistic, so maybe at the end we can kind of have a hopeful note to this.
Russ Roberts: Yeah. That'd be awesome.
And, you have done work that is, I would call cheerful, that's not in this book so we'll talk about that, too.
Mark Rank: Yes. In fact my book on the American Dream, we might call it cheerful. Because it's--that's something that I think is really important. Anyway. Okay.
Russ Roberts: So, let's start with: One of the ways your book is organized is around some of the myths that people have about poverty; and I do think--I agree with you--that I think poverty's a little bit like foreign aid. People have a very unmoored numerical assessment of it. Of the magnitudes.
So, we've already mentioned one issue, which is about 10% of households, I think it is--not individuals--fall below the poverty line as officially defined.
Mark Rank: Well, actually it is individuals. So, 10-and-a-half percent of individuals in the United States are in poverty.
But, as we talked about: The measure is a household measure, but then it counts how many individuals are in the household.
Russ Roberts: Excellent. Well said.
One of the first things you talk about, which I think is very thought-provoking even though I'm somewhat skeptical of it is the us/them distinction. So, talk about the point you're trying to make there.
Mark Rank: Yeah. So, the basic point--and this is kind of a theme throughout the book--that the way that we've generally looked at poverty and understood poverty is as an issue of 'them' rather than an issue of 'us.'
And, what I mean by that is that poverty for many people is thought of as, 'Oh, it will happen to somebody else, but it's not going to happen to me.'
And so, a number of years ago, myself and my colleague at Cornell, Tom Hirschl, we wanted to look at this question of, not how many people are poor at any given year or how long are people in poverty, but: what's the lifetime risk of experiencing poverty?
And so, we've done a lot of work on that question using this large longitudinal data set called the Panel Study of Income Dynamics [PSID], which has been following people for over 50 years. And, use that data to look at what's the probability of an American experiencing poverty.
And, what we found was that between the ages of 20 and 75, close to 60% of Americans would experience at least one year below the official poverty line--which is what we were talking about earlier--and three quarters of Americans would experience a year below--in poverty--or near-poverty, which we defined as below 150% of the poverty line.
So, the idea that, you know, poverty only happens to other people is not correct. It actually will affect the majority of Americans.
And, I think that that puts a different spin on this issue. It's again, getting to this issue of--you know, so often we view poverty as affecting somebody else but not affecting me. And, this work shows that actually, again, three quarters of Americans will experience at least one year in poverty or near poverty.
And, I should say just sort of adding onto that, in this book that I was referring to about the American Dream, we used a broader measure of economic insecurity. And so, we looked at poverty. We looked at whether you might experience a spell of unemployment during the year, or whether you might use a social safety net program. And, if you use that measure, which is a broader measure, we found that between 25 and 60, 79% of Americans would experience one year in which one of those three things or more happened to them.
So, there's a lot of economic vulnerability that you find across people's lifetimes.
Now people say, 'Well, how can that be?' And, maybe Russ you're thinking like--
Russ Roberts: I'm one of those people--
Mark Rank: Yeah. Like why is that?
But, you have to think about this. That we're talking about a spell of 20, 30, 40 years. That's a lot of time to be considering. During that time, things happen to people that they didn't anticipate. Like, losing a job. Or a pandemic occurring. Or getting sick. Or a family splitting up. And, all of those things have the potential to throw people in poverty.
So, when you look over longer periods of time there is much more probability of these risks happening.
Russ Roberts: Let me just clarify the data point that you're drawing on there, because you said it quickly. You said between 25 and 60. You mean between the ages of 25 and 60, 79% of Americans will experience at least one of those three things: be below the poverty line, be unemployed, or use a social safety net program. Correct?
Russ Roberts: So, that's a big number: 79%.
Mark Rank: That is a big number.
Russ Roberts: And, I'm going to challenge it a little bit.
But, I want to first make sure we understand how that number was calculated on the poverty side.
Your measure of financial wellbeing, which gets you above or below the poverty line, which comes from the Panel Study of Income Dynamics [PSID]--this is a fabulous data set. Because, just for listeners who don't know about it, it asks a lot of questions about your financial wellbeing. It's not just what was your income last year? It tries to get--
Mark Rank: Right. Right--
Russ Roberts: at all measures of income.
So, it's not earnings. Right? This measure I assume would include--explain what that would include.
Mark Rank: Yeah. No. It includes any kind of income that folks have gotten during the year.
The other really valuable thing that they started doing in the mid-1980s was also asking about all of your assets.
So, we're talking now about poverty in terms of income. But, there's another way of thinking about poverty, which is: how much assets do you have, how much savings, and these kinds of things do you have? So, it's also really valuable for looking at those questions of assets and wealth.
Russ Roberts: The only thing I would add to that is that, when people ask me my income on a form, I never tell the truth. I pick a number that's high enough, I think, to get me, say, the credit card, without revealing my actual number.
And so, I think people do have some intimacy issues with their money. Probably, I'm not alone. So, I always wonder about the asset side of that--it's a--and the income part to some extent, because it's self-reported. Obviously, people in that survey vary in how eager they are to be accurate and help sociologists and economists measure stuff. But, it's something to think about.
Mark Rank: Yeah. And, that's a valid point in any kind of survey research is how accurate are people's responses. But, they've done checking with other data, and it seems like for the most part it's pretty accurate data. And, as you said, it's a really valuable dataset because it is the longest longitudinal dataset, not only in the United States, but in the world. So, it's really valuable.
Russ Roberts: Just as a footnote, it started with 5,000 families that were disproportionately sampled to be poor. I think 3,000 poor families. 2,000 [?non-poor?]. Again, for listeners who don't know the dataset, which I assume is almost all of you. And, I happen to know a little bit about it because I used to use it and consume data--research--from it when I was a lot younger. It follows people over time and asks them almost the same questions.
It was annual for a while, then it became I think every other year for certain things.
But, the most interesting part of it that we haven't mentioned yet is that when the survey started in 1968, if you were, say, married but without children--or with children, either way--it would follow your kids as they grew up. And, then when they started their own households they became new data points in the survey as well as being, I think, linked to their original families. Correct?
Mark Rank: That's correct. Yeah.
Russ Roberts: So, the sample is now much greater than 5,000 families. You know how big it is roughly?
Mark Rank: You know, that's a really good question. It's probably 20-some-odd-thousand in terms of the folks.
And then what happens is as folks die, the sample is replenished so that at any year it's representative of the United States. That's the other thing that's really valuable here: is that it's nationally representative of the United States. So, we can make these kind of generalizations based upon that data.
Russ Roberts: I'd like you to clarify that in the following way. And, we may cut this if it goes on too long, but I'm kind of fascinated by that last little point. In my memory of work using the PSID--the Panel Study of Income Dynamics that we're talking about and which you draw a lot on for your book--it started out very much unrepresentative based on income. So, it had 3,000 poor families and 2,000 non-poor families. So, if you wanted it to be representative nationally, you had to weight it accordingly.
So, I don't understand what you're saying happened when people die, because they could always re-weight. So, is it to make sure they have enough in subcategories of certain kinds of family size?
Mark Rank: Yeah. And, you're bringing up a really good point, which is that in the original sample they over-sampled low income folks. So, as you said, about 3,000 were low income and 2,000 were just general population. But, yes, what you can do is weight that sample. And, that's what we've done throughout all of our analysis because we obviously want it to be generalizable. So, you weight the sample so that it reflects the overall population.
Russ Roberts: Okay. So, let's get to the findings of your book. This first point about the 'us'/'them,' which I think is really interesting; but I'm skeptical about it in the following way.
I assume I've been poor. In my 20 to--I'm 66--from the age of 20 to 66 there were many years I was poor. I am not a poor person. Meaning I'm not destitute. I was poor when I was an undergraduate. I was poor as a graduate student. There were time periods where I didn't have work. But, there's nothing destitute about me. My future was bright. It was a temporary thing. It had none of the Amartya Sen loss of freedom. In fact, the opposite. I chose poverty for the opportunity to have a skillset that would allow me to avoid poverty.
So, when we have that broad an age, from 20 to 75--and at the end, of course, there are people who are poor--the elderly, who maybe have access to things like Medicare. So, we're not counting in-kind, I assume, benefits--or maybe you do? You can talk about that--housing benefits and so on that may not be measured in my formal income.
So, using that measure seems, just, not the right measure.
Mark Rank: Well, here's a way to think about this, Russ, that I think is helpful.
Think about poverty in the same way as we think about sickness. We don't define people as sick people unless they have some kind of chronic illness. People experience sickness throughout their lives. You get the flu or you get this thing. And, you have that. And when you have it, your life is not so good. But then you get over it.
Well, much of poverty is the same way. And so, the idea of saying 'poor people' is really a misnomer. It really only applies to a small segment of the overall number of folks that experience poverty. Most people are just like what you said.
Now, your situation is a little different because of higher education and things like that and you going on to graduate school. But, most people experience a spell of poverty and then get out of it and then maybe down the road experience another spell of poverty.
So, we so often use this term 'poor people,' but it would be like we're describing 'sick people' and we would say, 'Well, these are sick people.' Again, that's only really a small segment of the percentage of people who experience some kind of sickness.
So, I think--that, you know--I think it's really important to draw this out and to say that most people who do experience poverty--and this is another myth that we deal with in this first section, which is the myth that, 'Oh, everybody who experiences poverty is there for 20, 30 years.' No. That is not the case. There is a small segment of folks that are in poverty for long periods of time, but it's not most people.
Another really interesting analogy that David Ellwood, a long time ago, and Mary Jo Bane at Harvard used, which I think is helpful, is the analogy of a hospital and looking at people in the hospital.
Most people who go into the hospital do so for a short period of time. But, if we were to sample, at any point in time, people in the hospital, we would have a number of people who were there chronically because they're there month after month after month. But, again, most people who go into the hospital do so for a short period of time.
But, those longterm cases are the ones we would pick up if we were just to walk into the hospital at any point in time. And, it's the same thing with poverty and welfare.
Russ Roberts: Yeah. It's--you actually bring it out in another piece of work you did that is--this was the more cheerful work that you're referring to.
But, this is an incredibly important point. We're going to go back and forth a little bit on the data question and how you measured it and all that.
But, the insight that you don't want to talk about The poor, is the same--and understanding that the world is dynamic and looking at a particular snapshot and a point in time may not be representative of past snapshots of what's happened to those people.
And, you can think about it--I always think about it with respect to the rich--the top 1%, the top 10%. People talk about them as if they were a group sitting around scheming against the rest of us, trying to exploit the system. And, of course, some of them are, and do it successfully; and they should be stopped and punished, in my view.
But, it's an incredibly dynamic group. So, when we talk about The rich in 1973 and The rich in 2020; or The poor--they're not the same people when you are looking at two different snapshots.
That's incredibly important.
And, in your earlier work, you talked about the likelihood that at least at some point in your life you think you'd be in the top 10%--was what you looked at?
Russ Roberts: And, it was a shockingly large number.
Mark Rank: It was. And, it's the same point, but on the other end of the income distribution. Which is: there's a lot of dynamic movement.
Which, as you said, this is the more cheerful picture, which is that actually at some point folks may do quite well in their lifetime so that they're annual earning. So, yes, there's a lot of turnover at the top end.
There's also a small segment, as we know, at the top end that is there for a long period of time.
But, most people who experience, really, wealth may do so fairly short periods of time.
So, and, at that point--most of my work focuses on the bottom end of the income distribution, but this was really interesting because it was finding the same pattern at the top end of the income distribution.
Russ Roberts: Do you remember the percentage that spent at least one year in the top 10%?
Mark Rank: Yeah. It's--I don't have it on the tip of my tongue.
Russ Roberts: We'll find it. We'll reference the paper. We'll link to the paper. [See "The Life Course Dynamics of Affluence," by Hirschl and Rank--Econlib Ed.]
But, the part that's interesting is that if the group stayed the same, the top 10%, about 10% of the population would be in the, say, top 10%; but because there's movement in and out and turnover it's actually quite a bit higher.
Mark Rank: Yeah. No. It's something like--off the top of my head, it's something like 40% of the population--
Russ Roberts: That was my memory. I didn't want to quote it, but yeah--
Mark Rank: will find themselves at some point in that top 10%. Which is like, again, almost half of the population.
Russ Roberts: But, that's only for a year.
Russ Roberts: And, you just have a great year. You sell something. Your house, whatever it is.
Mark Rank: Exactly. And, that's kind of the analogy with the poverty--
Russ Roberts: the flip side--
Mark Rank: Or, you have a bad year.
Russ Roberts: Exactly. You're unemployed. You struggle to find to work. Or, you don't want to find work for a while. You decide--
Mark Rank: Whatever it may be, yeah--
Russ Roberts: So, that's my problem with the book, actually, is that--sorry to pick on you, Mark. But--and, that's because it's a very--I think it's a very deep insight, this point about turnover. And, I do not mean to minimize anything about one year in poverty and say, 'Oh, that's not a big deal.' One year in poverty can be hellish, frightening, traumatic, and it can damage you for well beyond that one year.
The part I found troubling about the book was the implication that you drew from that number--the one you just gave, let's say 79% of at one point between the ages of 25 and 60 you'd experience one of these three things--is that it's an indictment of the system. And, there are a lot of things about the economic system I think are worth indicting it for. I just felt like you left out a lot of anything that was cheerful. And, the book suggests that there's something horribly wrong when the percentage of people who are in poverty even just for one year--whatever that number is--we didn't talk about that. I think you said 60% will have at least one year between the ages of 20 and 75. And, my thought of that is, 'Yeah; a lot of them are grad students and that's really not a tragedy. It doesn't mean anything for how we ought to change economic policy.'
So, what I'm picking on you for, and I'm going to let you respond, is: what's the implication of that number? I mean, I like the point that it's not an 'us versus them' and all of us will have some years where we have some economic hardship; but does that mean we need to start over?
Mark Rank: Yeah. This is interesting. So, first of all, the grad students. We've also redone this analysis and taken out the grad students and it doesn't change the numbers very much. That's a very small percentage of the overall population.
Russ Roberts: Fair enough.
Mark Rank: What we're seeing is folks who are having a bad year in their 30s, 40s, 50s, whatever in terms of the poverty.
And, you're right that you can look at this--and it's sort of like: Here's the data. How we interpret that data, we can argue about. Like, Russ, you and I can sort of debate this.
On one hand we can say, which I have said in the book, and my coauthors, that there's something wrong here when you have so many people experiencing at least one year in poverty or near poverty.
On the other hand--and I've talked to many groups and people will raise this issue. They'll say, 'Well, but this shows that since they're only there for a year or two that the system is working, because they got out of that. And, that's not so bad.' So, what I'm saying here--
Russ Roberts: Half full, half empty kind of argument.
Mark Rank: Exactly. And, we can interpret this both ways.
But, what's important is that this idea of poverty, first of all, having a wide reach but its grip is not so strong--this goes against the myths and the stereotypes that are out there.
Russ Roberts: Fair enough.
Mark Rank: Now, how we interpret this, again, we can debate that.
So, we're laying this out. And, you're right. I mean, we have made a more negative--sort of drawn out the negative implications. But, I think you're right that you can say if poverty for most people is fairly short term, in a way that is positive.
Russ Roberts: I'm thinking of it a different way. Let me lay it out and you can respond to it.
When I look at the data from the same dataset you've used--and I've looked at a lot of the studies that have, I think as many as I've been able to find of what's happened to people over time--people at the bottom, say in 1980 in that dataset, do quite well over the next 20, 30 years of their life. They actually grow faster in many of the studies. Their economic wellbeing grows faster than people at higher quintiles. The bottom 20% grows faster than other slices.
Now, some of that's just because they started at a low level. Doesn't mean they absolutely do better. But, sometimes they do though. It's kind of shocking. And, sometimes it's because it's a measurement phenomenon that you caught them in a bad year and it's not representative of them and so on. A lot of interesting questions there that are often usually ignored.
But, the thing I would focus on and I want your thoughts on, is we had Mauricio Miller on the program talking about his book, The Alternative, and he actually focused on what I think is the more important issue, which is the number of people who are persistently in poverty.
And, again, I don't want to say, 'Oh, well they're only in poverty for three years and they got out so the system's working fine.' I don't think that's necessarily true. But, I wouldn't use the proportion that experience some kind of poverty as an indictment on the system.
What I would indict the system for, and I worry that your approach distracts us from this, are the people--Miller points out and you will point out I'm sure that is a relatively much smaller group--who are persistently poor, who struggle to find a use for their skills that puts them above the poverty line.
And, that's the group I think we ought to be the most worried about, because the rest of the folks are doing pretty--not just doing pretty well; that's not the right measure. But, have opportunities to grow, have opportunities to expand their skillset and acquire more material wellbeing as they get older.
It's the people who can't who are stuck in the minimum wage job or around the poverty level job. And, those are the ones I think we ought to be focusing on and I worry that this more general point you're making distracts us from that.
So, talk about first whether you agree or disagree; and then let's talk about: is there anything different? Is something different about that group?
Mark Rank: Yeah. I think that's a fair point. And, this gets back to what we were talking about at the very beginning, which is there's different kinds of poverty out there. And, what you're getting at is: most people would say maybe between 10% and 15% of people who experience poverty are going to do so for long periods of time. Are going to be sort of this term of the underclass.
And, I do think that the situation there is different, certainly, than folks who experience poverty for a couple of years and then are able to get out. This is much more likely to be folks that have a real disadvantage in terms of competing in the labor market.
So, these are folks of color living in areas that are economically depressed, both inner cities and certain rural areas in America. Single parent families, which you point out. Folks with disabilities. All of these conditions are related to individuals being in poverty for long periods of time. And, I think that that is a very difficult situation and we definitely need to be addressing that.
But, I would say, in terms of: is one group more worthy of attention than the other?--I would just say that they're different and that we need to focus on both of those groups. Let me put this--well, we may get to this, but--
Russ Roberts: Go ahead.
Mark Rank: One of the things that I was interested in doing--and we do this in the book and I did this in an earlier analysis--was to look at the economic cost of poverty. It's getting to your question of why should we be concerned about this, maybe.
And so, what I did with a graduate student here is we estimated what the economic cost of childhood poverty was in the United States in terms of we know that childhood poverty is associated with higher healthcare costs. We know that childhood poverty is associated with less economic productivity when children become adults. And, we know it's related to higher criminal justice costs. So, we factored all those things in and what we came up with was--and I think this was a conservative number--we came up with the annual cost of childhood poverty in the United States was around $1.1 trillion. And, you know your numbers. This is a big number. In 2015 this was 28% of the entire Federal budget.
So, the issue here is not that we're not paying for poverty, and childhood poverty in particular, but we're paying for this on the back end of problem rather than the front end of the problem. And, from an economic point of view, it's always more effective to deal with a problem on the front end rather than the back end. And, that's the other thing that we show in this study is that for every dollar we would spend reducing childhood poverty we would save between $7 and $12 down the road in averting those costs.
So, the argument that we make is not only is reducing childhood poverty the morally right thing to do in this wealthy country, but it's also economically the smart thing to do. It's, like, smart economic policy to invest in our human capital. So, I think that's a compelling argument to make.
Russ Roberts: So, I agree with part of it--for a variety of reasons; we might get into them. I'll say it a different way. If I said, 'Let's spend an extra trillion dollars this year. Let's spend 25% of the Federal budget this year on fighting poverty,' we might struggle to spend that money well. We certainly can give people money.
My argument has always been: Government does two things really well--it cuts checks and it kills people. We're really good at fighting wars. Government does that better than anybody else. And, that's important sometimes because unfortunately to protect yourself sometimes you need to have an army; so that's okay. And, it's good at transferring money.
The other parts doesn't do so well. And, our attempts to transfer money to "fight poverty" have been, I'd say, a very mixed bag. We can alleviate suffering, which is important, through spending.
But, I think the part that's challenging here is this question of: Are people who are poor just like people who aren't poor but they just have less money? It's the old Hemingway-Fitzgerald joke on the other end. One of them says, 'The rich are different from us.' And, the other one says, 'Yeah, they have more money.'
That's not the only thing that's different. And I think the people--let's use that phrase you used, the underclass. The people who are persistently poor, struggle to integrate into the economy--I'm not sure money is the thing they need the most. It might good for them. They might be happy to have it. It might be a good idea for a lot of reasons. But, it's not the only thing that's wrong is they just don't have enough money. They are maybe de-linked from their family; they don't have skills; their school was awful; they got no leadership from family or mentors that other people were able to have.
And, I thinking looking at it just is--for an economist, funny thing to say to you--but, I just don't think money is the real essence of the issue.
Mark Rank: Yeah. And, I think, again, we're getting back to that issue of different types of poverty.
But, everything you're talking about there, I would interpret that as: there has been a severe structural failing that results in folks that don't have skills. Also results in the fact that there aren't any jobs available in some of these areas. So, we need to think about some structural policies to address those kinds of things.
So, I agree with you that in some cases money is important but it's not the only thing, and we need to focus on these other kinds of structural issues.
Russ Roberts: One of the examples you talk about in the book is education. I suspect we somewhat agree on that. Certainly the people who end up poor in the United States were often handicapped by a mediocre or atrocious education. Often also by other factors like family structure: not having two parents I think is a challenge for folks. But, just looking at education, you are skeptical of that--as the recent guest we had on, Fredrik deBoer, in his book, doesn't like this view that education will solve everything. You also are skeptical. Why?
Russ Roberts: Because that is the human capital argument: We need to invest in people.
Mark Rank: It is. It is. It is.
And, here's the way that we lay out to think about this. Increasing somebody's education is a great individual strategy for averting poverty. No doubt about it. For decades we've shown that those with more education earn more money and have a lower risk of poverty. No question about it.
So, on an individual level, increasing somebody's skills, increasing their education is a great strategy to avoid poverty.
On a macro level, it's not going to work unless we deal with the structural failings.
And, the analogy that I use in the book is the one of musical chairs, which is to say: Okay, let's imagine we have a game of musical chairs where there are 10 players playing and eight chairs available. Circle around, music stops, two people lose out. So, we can say, 'Okay, who lost out at that game?' Well, somebody that they weren't as fast, they weren't as agile, they were in a bad position when the music stopped. All those reasons are valid for why those two people lose out. But, if we step back and we say, 'Wait a minute. The structure of the game is set up so that two people are going to lose out,' it doesn't really matter what those characteristics are.
And so, the argument that we're making is that we're playing a large-scale version of musical chairs. There aren't enough chairs for players playing the game. Why aren't there enough chairs? There aren't enough jobs to pay a decent wage. There aren't enough jobs that have decent benefits attached to them. We don't have things like healthcare and childcare and affordable housing that other countries provide. And so somebody's going to lose out.
Well, who is going to lose out? Well, it's going to be folks that are not as competitive in the labor market. They have less education, skills, they're single parent families.
All of those things are valid for why those individuals lost out.
But, again, if we step back, all it's doing is sort of indicating who loses out, not why there are losers in the first place. And, what we need to focus on is this question of why there are losers in the first place.
The other way to think about this, the other analogy, would be as a queue. Imagine a queue of people lined up and the good jobs are, you know, those sort of at the front of the line.
We can--but, there are only so many of those good jobs for the people that are lined up in the queue. Well, we can shuffle people up and down in terms of their order in that queue, in terms of getting a good job, but they're still going to be the same people that lose out at the end of the game. At the end of the time.
So, picture this. Let's imagine, Russ, that automatically overnight everybody has a college degree. Does that mean that we've just solved poverty? No. Those dead end jobs are still going to be there. They're just going to be filled by people with a college degree.
So, that's the analogy that we use that I think is--at least I find it helpful to think about this. I'm sure that you might disagree with me.
Russ Roberts: Yeeaah. Let me try to give an alternative perspective there.
Russ Roberts: So, before we do that, by the way, whether everyone getting a college degree is good or bad for poverty is going to partly depend on whether college is a signal or an actual acquisition of talent and of skill. There are people who think it's mostly just a piece of paper. If more people have the piece of paper, I agree with you, if that's all it is. And, I think that's a serious issue. It also of course depends on what you study. There are some fields that pay better than others and some equip you better for workforce success. But, I would never argue that colleges should focus only on what the--
Russ Roberts: Marketable skills you acquire. In fact, I think that's antithetical to real education, often. So, I'm going to put that to the side.
And, before I get to why I think your musical chairs issue is not the right one, I want to raise an issue that's, I think, interesting. People will say, 'Oh, well, it's easy to escape poverty. All you have to do is graduate from high school, get married, go to college, graduate from college.' You can get married after that. It's okay. The order is not important. But, if you've graduated from college and you're married and you wait to have children until you're married and have a college degree, you will have an economically lovely life.
And, I think that's true ex post. I think it's true that the people who do those things tend to do well.
I think people draw the wrong conclusion. Here's where I'm going to kind of agree with you before I disagree. Which is, 'Oh, well just get more people to get to college and wait to have children till they're married.'
The people who go to college, get married, and have children in the right order, they're not the same people. They're not a random sample.
So, it's not informative--it's not necessarily a policy lever we want to use, a dial we want to dial up to avoid poverty.
To me, it's a little bit analogous to saying: We need more professional basketball players because obviously they have higher salaries than the average. And if we can get a bigger proportion of the population in basketball we'll have more stuff.' Well, that's really wrong. That's just a fundamental, logical error.
And, so, just because college is correlated with economic success, we don't really know how much that economic success comes from college.
That's where I think--I'd say we're in agreement on that.
Russ Roberts: Where we disagree is the musical chairs thing. I don't think there's any structural problem with the U.S. economy in that area. I think we have a horrible education system. I do think there are barriers to getting into the room with the chairs like licensing and minimum wage, which I think makes it harder to get the skills that you might start to get that would help you get into the room.
But, the problem with the fundamental idea that there's a fixed number of jobs or that there's a fixed number of good-paying jobs, I think is not true.
And, the evidence I would give for it on the other side is that between roughly 1960, late 1950s, early 1960s till the present, there was an enormous increase in the labor force participation of women. Enormous increase. That didn't increase the unemployment rate. It didn't increase the number of people who were unemployed because there weren't enough chairs to go around. More chairs got put out. Because these women who joined the labor force had a lot of skills, and people found new ways to associate with each other to create companies that could employ them.
And, that's the problem in my view, is that we don't have a set of skills for the two people who can't get a chair; and if we could give them the skills--it's not college per se. Not a degree in--I'm not going to pick anything to embarrass that field. But, it's that they don't have enough skills. That's the problem.
Mark Rank: Well, two things there. In the analogy, we do say that the game is dynamic. That it can vary. That you can have nine chairs for 10 players or only six.
Clearly, when we look at what's happened economically, for example the Great Recession or recently with the pandemic, the number of chairs available has been reduced. There's no question about that.
Russ Roberts: Yeah. True.
Mark Rank: The other thing about the labor force participation is: As you know, men's labor force participation has been coming down at the same time that women's has been going up. That's an indication that maybe there are a limited number of chairs available.
Russ Roberts: But, the total number has increased dramatically--
Russ Roberts: and I just think most people don't know that. It's just important to point it out.
That, you know, for example, when people say 'Trade deficits take jobs, trade reduces jobs,' we have an enormously larger amount of trade than we had 50 years ago, and we have a lot more jobs.
You don't want to just look--and I'm not suggesting that proves that they're wrong or that I'm right--but it does prove that the number of jobs is not fixed. It's not a zero-sum game. It's really, I think, crucial.
Mark Rank: Right. And, again, I would agree that the game itself is a dynamic game that can vary over time.
The other thing that I talk about in the book which goes against this--so basically the argument I'm making is kind of a zero-sum kind of game.
But, there is an argument to be made, which I think there is some validity to, to say: actually if you do provide more education for everybody and skills, what you do is you create a more innovative workforce which can create actually more opportunities.
Russ Roberts: Absolutely.
Mark Rank: Kind of what you're talking about here.
And, I do think that there's some validity to that.
But, I think where we always drop the ball is we just say: if we only focus on let's just increase everybody's education and we don't at the same time think about the fact that--I mean, as you know, the economy has been producing more and more low-wage jobs. I mean, there's no question about that. It's estimated that the last couple of years, in terms of the labor force, roughly 40% of the jobs are considered low wage, which at the time was about $16 or less an hour.
So, you know, it's like we are producing more low-wage jobs, part-time jobs, jobs without benefits, and that gets at the fact that we're reducing the number of chairs in the analogy.
But, I do think there is this counter-argument that says if you do make your workforce more skilled and have greater levels of education, you create a more dynamic workforce. And, I do think that there definitely is something to that argument.
So, I don't want to just say, 'Oh, forget education and skills.' No. And, if there are jobs available and people don't have the skills for them, then obviously we do need to provide those skills and education.
So, I don't want to simply provide just one sort of side to that argument.
Russ Roberts: I just think it's not--I know people use that kind of language all the time: 'The economy has produced a lot of low-wage jobs.' I don't think that's a fruitful way to think about the emergent nature of entrepreneurship and the way that people find work, as if it's some kind of widget machine called--'Why don't we just have it produce more highway jobs?'
And, I think it's endogenous. It means it's part of the system. And some of those results come from the choices we make as individuals and the policies we put in place--some of which are awful, particularly I think around schooling.
Just want to make one small distinction. I know you didn't mean this but you said producing more education and skills--as if they're two separate things. And, of course, in some sense they are, right? You go to school and sometimes school has skills associated with it; but there are other ways we get skills, obviously. But, I think it's really important that in a lot of the data that we're looking at, we can't measure education. We can measure how many years people sat at the desk, and that's not the same thing, unfortunately.
You can be in school. And, this is particularly a problem, I think, in poorer societies outside the United States, where nothing happens except that you're not working. You're sitting at the desk. What we care about is education that adds something. It doesn't have to be marketable skills. But, there's education happening.
Now, we can't observe education, so we observe this surrogate called 'years of schooling.' They're not the same. It's a pet peeve of mine. I'd like to get that in.
Mark Rank: Right. Yeah. No. Well taken.
Russ Roberts: Let's close with some of the structural things that you might think need fixing or policies that you think would be helpful. Obviously a larger safety net would reduce material suffering. We could argue it has other consequences. We might not like those but might decide it's worth it. But, what are some of the structural things, given these issues, that you're worried about that I'm skeptical, but who cares? Your turn. Talk about what we might do in your view to make it better.
Mark Rank: Yeah. We kind of started out about optimism and pessimism; and this is where, from my perspective I'm somewhat guardedly optimistic that we are starting to think about policies kind of that get at more of these structural issues.
So, one of the first things, as we were just talking about, that I feel is problematic is that we have all this low-wage kind of employment out there. And so, we need to have policies that get those wages up. So, I'm certainly in favor of raising the minimum wage. And, as we know, there's a lot of debate about what effects that would have. But, as President Biden has said, it seems fundamentally wrong if somebody's working full-time and they're still in poverty. So, I think that there's a lot of talk about that.
Interestingly, there's talk about, in the latest pandemic, a relief package of a child allowance, which is an idea that has been in European countries for decades. But, the fact that both President Biden and Senator Romney on the Republican side have proposed this idea is actually fairly radical for the United States.
So, the idea there is that if you have children you get a certain amount on a monthly basis to help in raising those children. The proposal in the bill was, I think, $300 a month. Something like that.
And so, I think that those are really important policies that we need to think about. Other ways of getting wages up is through the Earned Income Tax Credit [EITC] which is actually the largest anti poverty cash program that we have right now.
So, those are things that focus on that. As you said, strengthening the safety net I think is critical, but also thinking about the safety net in a broader context. So, I think it's wrong that we're the only country in the developed, in Western industrialized countries that doesn't provide universal healthcare. I think we should provide that. I think that that hurts us in many ways. I think we should provide affordable and accessible childcare. I think that that, as I talked about earlier, pays off in the longterm. So, I think those are policies that are important.
And, the other thing that I'll mention, just in terms of policy, is policies that build lower-income folks' assets. We have those kind of policies for middle- and upper-income individuals. They can deduct their home mortgage interest and that allows them to build their asset in their home. But, we should think about policies that also allow lower-income individuals to build their assets. Because that's more of a longterm strategy for poverty is allowing people to build their assets that will protect them when their experience these spells of poverty down the road. 1:05:22
Russ Roberts: Those are interesting ideas. It's going to be interesting to see what happens. Poverty hasn't been an important issue in the United States in a long time in public discourse, which is weird to me. And, I've criticized my free-market colleagues for failing to deal with the underclass issue, the persistence of poverty. It won't surprise you that I think raising the minimum wage could make the problem worse by pricing some people out of the market.
Mark Rank: Yeah, I know. I know.
Russ Roberts: But, that's an empirical question that reasonable people can disagree about. And, while I might wish that economists had a unified front on it, I certainly don't demand it of other social scientists. And, the data are very mixed. I think a reasonable person could make either argument.
But, do you think this issue of front and center--I think it's a tragedy. And, this is when I say I'm critical of my free-market friends. And, my free-market friends talk about how great the American economy is. I think there's plenty of things wrong with it, some of which are policy-related, not related to so called 'free capitalism.' But, there's something wrong. Can debate what it is.
But, there's something wrong when there is a large, persistent group of people who struggle. Now, I'm not talking about people with mental health issues who might struggle to lead what we might call a mainstream life. That's a different issue. I'm talking about people who don't have mental health issues who--there's something tragic. I'll just say tragic--I forget what the Biden phrase was--something terribly tragic that people who are mentally healthy still struggle to acquire the skills in the economy as powerful and extraordinary as ours.
And, I wish we would focus on that as a policy issue, as to what's gone wrong there and to look more granularly at what holds them back. Whether it's the minimum wage, licensing restrictions--which are increasingly egregious in the United States. And, maybe I'm wrong about that. Maybe that's not what holds them back. But, I'd like to see people as talented as you hone in on that group per se. What do you think of that?
Mark Rank: Yeah. No, I think that's right. And, I think this is what Trump tied into, and actually Bernie Sanders on the Left--
Russ Roberts: Absolutely--
Mark Rank: tied into this idea that folks feel like they're not getting ahead. That they're hard-working but they're falling behind. And I think that that is the absolute critical issue now and in the future. So I totally agree with you. So, that might be a good spot for us to end on, this total agreement here.
Russ Roberts: My guest today has been Mark Rank. His book is Poorly Understood. Mark, thanks for being part of EconTalk.
Mark Rank: Oh, you're welcome, Russ. I enjoyed it a lot.
Russ Roberts: Me, too.