Mark Rank on Poverty and Poorly Understood
Apr 19 2021

51ewwNuKFxL._SX327_BO1204203200_.jpg Sociologist and author Mark Rank talks about his book, Poorly Understood, with EconTalk host Russ Roberts. Rank looks at a wide variety of aspects of poverty. He argues that many widely-held views on poverty are inaccurate, and in particular he argues that most Americans will be poor at some point in their lives. This is a wide-ranging and lively conversation on the nature of poverty and the challenge of ending or reducing it.

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Explore audio highlights, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.

READER COMMENTS

Eric
Apr 19 2021 at 10:03am

Mark Rank: (~46:10) It’s like smart economic policy to invest in our human capital.

Great words and I would agree with that statement, but I wonder what meaning he actually has in mind by those words.

When we invest in our human capital (e.g. through education, training, etc.), that should mean an outcome that the labor of those people would have increased value. Value is quite different from increasing cost. If you increase the cost of something without increasing its value, that will tend to suppress demand for it, not increase demand for it.

Yet when asked later in the episode how he would improve the system (~1:02:20), none of his proposals would increase the actual value of an hour’s labor. Many would instead just increase the cost, starting with his lead example of increasing the minimum wage. That only increases the cost of the labor without increasing the value in any way.

Mark Rank: (~59:05) …the economy has been producing more low wage jobs. … We are producing more jobs, low wage jobs, part time jobs, jobs without benefits …

I wonder if he realizes that this is exactly what one would expect to happen if we increase the costs of full time employment with an expensive benefit package without increasing the value of the labor. Of course the economic result will be to encourage utilizing low skill or unskilled labor via greater reliance on part time work that doesn’t incur the costly benefit packages required for full time workers.

At the very same time, higher skilled jobs are not increasing as fast as they could be because there are not enough workers who have those higher skills.

David Bahnsen, financial analyst, Moneybeat 2021-04-19: And then on the higher end or or mid-tier end. There are just so many small businesses and companies that can’t find the skill level they need of laborers, something in the range of four or 5 million job openings that require some degree of pedigree certification, expertise, and they can’t fill those jobs.

I wish guest Mark Rank would more seriously consider what it would really mean to invest in human capital in a way that increases the value of labor and qualifies more people for the jobs that could have been created except that there is a lack of qualified applicants.

One cannot increase the amount of gas in the fuel tank by dictating that the fuel gauge must read a higher number. One cannot force the system to make those jobs appear without qualified people to fill them. Policies should promote real increased value through increased relevant skills, not just create an illusion of value by mandating increased cost for the same low skill workers.

Roger McKinney
Apr 21 2021 at 10:43am

Excellent points. Years ago McKinsey and Co did a study that showed public education adds little value to productivity. On the job training carries the wholw load.

J M Applegate
Apr 23 2021 at 11:05am

What if labour was currently undersold wrt to value? A minimum wage in this respect would shift money from extraordinary profit to wages. We should know our Smith, where a firm owner would never pay a worker less than a living wage for himself and his family. Without that element, wages are driven as low as possible, with the assistance of a variety of corporate subsidies (ie EITC). A minimum wage enforces what Smith took as a given.

Floccina
Apr 19 2021 at 11:39am

IMO He doesn’t address the big stuff.

Most poor people in the developed countries are either very chronically unhealthy or lack wisdom. As evidence about the lack of wisdom is the fact that people who are quite poor for religious reasons manage to live good lives on very low income see here. Giving money to the unwise can be like throwing goods and services into a black hole. (I say this as a supporter of a UBI BTW.)

So $3/day/person is enough to eat good in this country. Small simple homes can be built for like $30k each in this country where Government allows it. That would allow a monthly rent or mortgage of about $400/month. So why are business people not providing such homes, because the people who would benefit are unwise and it will be a pain collecting from them. The bottom 20% are often difficult to help because of lack of wisdom and described in bible book Proverbs.

alvincente
Apr 19 2021 at 1:32pm

Good episode, and so far good comments.  The discussion left me with some questions:

The poverty rate of around 10% – is that before or after government transfer payments?  Prof. Rank was speaking of money “earned.”  If $20,000 in earned income for a family of three is inadequate for basic needs, but that family also receives food stamps, Section 8 housing assistance, Head Start preschool for the little kids, and so forth,  that should make a huge difference in the extent to which this poverty is a serious problem.

I did not understand the call for universal health care insurance.  Why is it necessary to institute a universal program to address needs of 10% of the population?  And doesn’t that 10% already get free health care in the form of Medicaid?

Floccina
Apr 19 2021 at 2:16pm

He must mean before taxes and transfers because the consumption poverty rate is about 5%.

And yes most of them are covered by medicaid excluding those males, without certain chronic conditions, in the states that did not expand Medicaid.

Ajit Kirpekar
Apr 20 2021 at 10:49am

This is a pet peeve of mine. When people study income inequality and leave out in kind transfers and/or look at pre tax earnings. It’s something Piketty, Saez, and Zucman do quite regularly.

How much of extreme poverty goes away if we put in transfers?

Victoria
Apr 19 2021 at 2:32pm

There is a song by Pulp called Common People.

It’s basically about a rich girl who wants to live like a working class person.

And the singer in the song  says to her  “But … you’ll never get it right
‘Cause when you’re laid in bed at night
Watching roaches climb the wall
If you called your dad he could stop it all, yeah”

Basically if some of the people who the interviewee says are poor can call  their parents, a friend, a family member etc, to get them out of poverty, or they can sell their assets etc. they aren’t really poor. Also I wouldn’t consider someone who sold their house as part of the 10%. That’s an one time thing. They can’t possibly replicate it.

As for the low paying jobs, Americans are, in general, extremely expensive to hire, for example if you search about Zoom employees you get that their engineers are all from China an that’s a major driver of profit ( and that’s considering that Chinese engineers aren’t that cheap). Low paying jobs are, a lot of the time, the ones that you can’t outsource ( delivery, retail etc.). That’s probably why they grow much faster.  There is also high paying jobs you can’t outsource but they tent to be related to factories, local resources, research institutes, university education, etc., so they don’t grow as fast.

Lisa
Apr 19 2021 at 8:53pm

Yes!  The persistent reference to people “living in poverty” for a brief period is really misleading.  If you are out of work for a year you may have an income that is below the poverty level, but if you had savings that you spend you are not “living in poverty.”  And it seems like it’s the hopelessness of long-term poverty that would be the truly debilitating part of it.  If you are “young and poor” but know there is a path to the middle class, it’s not the same.  Having an income below the poverty level for a short period of time may or may not constitute living in poverty.

 

Ajit Kirpekar
Apr 20 2021 at 10:39am

I am not sure I agree with low wage work being jobs you cannot outsource and that high paying jobs are one’s you can. Some of that is true of course, but take software engineers. There is a quality difference between engineers here and lesser wage countries. Furthermore, while it seems obvious that software engineer work can be all done remotely, building a cohesive, communicative team is much harder in practice remotely. Plus a lot of the talented foreign engineers end up coming over here because their skills are in such demand and why earn a lesser wage?

Meanwhile part of the explosion in low wage work has been the increased demand for low wage services like Uber, like child care and elderly care workers.

 

 

Victoria
Apr 21 2021 at 8:27am

I’m not sure i buy the quality difference,  everybody seems to think that people from where they live  are the more talented or whatever,  but companies and industries  have move from one place to another time and time again. There doesn’t seem to be that great of a difference in talent considering that  a lot of the  people working for silicon Valley weren’t born in the US. The main difference seems to be access to funding, but that could change.

As for moving,  you might not want to?  If you are already living a comfortable  life in China,  Germany,  Japan Canada etc,   the cost of living might be higher where you are going  or  have a spouse that doesn’t want to leave etc etc

I live in a pretty awful third wolrd country and some of the most talented people in my workplace don’t want to leave.  If they asked,  they could be living in the Uk Canada or the USA but they don’t.

Skip Franklin
Apr 19 2021 at 3:51pm

I enjoyed this conversation, appreciate how both Mark and Russ expressed their views without turning the discussion into attacks on the other position. At the end of the episode, there were comments to the effect of “we should study why we have this persistent problem of people who can’t get ahead” in a rich society. It doesn’t seem like a particularly complex cause to me – when you allow the people with power in any given area (money for economics, votes for politics, etc) to consolidate that power, they’ll do so, and the easiest way to do that is to block the path that others use to take that power. Russ mentioned licensing requirements…the egregious examples of those come from existing providers setting up barriers to new entry. All sorts of discriminatory practices come about when those who can use their power to influence the rules do so to prevent challenges to themselves. You might call it rent-seeking from an economic standpoint, or regulatory capture from a policy standpoint, or any number of other manifestations…but it all boils down to the “haves” setting up barriers to anyone else following them.

Ajit Kirpekar
Apr 19 2021 at 5:40pm

As someone versed in economics, it hurt my insides to hear the guest describe the labor market as fixed in demand, which is basically what he’s saying when he likens the labor market to musical chairs. It’s almost like his view is the labor market as a whole behaves like the NFL or the NBA; only so many allotted roster spots.

But of course this is absolutely not how labor demand works at all. Women entering the labor force did not cause half the population to become unemployed. And immigration has not caused rampant unemployment either, despite there being a huge surge in the labor supply. So I think his argument here is just wrong.

Getting back to his comments about college, I think it’s important here to distinguish between a college degree in theory and in practice. I believe our current education system is mostly slanted towards signaling but that doesn’t mean a reimagined education system focused on marketable skills would be all signaling. And again, the outcomes were targeting are pretty low bar: getting people out of poverty.

As an aside, these kinds of topics are hard for me because it’s easy to fall into patronizing. Cohort is X has problems Y and Z and thus government needs to do more to help them.

Brian T
Apr 19 2021 at 7:32pm

I thought that this was a very compelling interview and always enjoy how civil the debate is on the podcast.

I would have enjoyed greater clarity on the role of government support payments such as SNAP or housing assistance or the EITC on the calculation of the poverty numbers as well as some quantification of the impact of changes in household demographics on the percent of folks and households in poverty.

I did think that the poverty mobility numbers were interesting, as were the top 10% mobility numbers, but did feel that they are somewhat irrelevant to policy issues regarding those persistently in poverty (which seems like the more pernicious issue).

Mike
Apr 19 2021 at 8:05pm

If life is too expensive, instead of raising wages you could also lower the cost of your expenses. Namely, deregulate housing and watch the rent drop. Deregulate healthcare and watch the insurance premiums drop. Reducing these costs seems more likely to work than trying to increase some people’s wages.

Michael
Apr 19 2021 at 8:37pm

The perception that a person matters in society is another important qualitative measure of poverty. Today, a growing number of people who are materially comfortable don’t see themselves as valued citizens. Isn’t that a type of poverty? On the other hand, people who believe that society depends on them  are more likely to free themselves from the constraints of poverty. Instead of spending more money on education, or instituting welfare programs that target a narrow segment of the population, we must have a more inclusive society-  one that nurtures each citizen’s belief in his or her self-efficacy.

Buckeye
Apr 19 2021 at 10:15pm

Prof Rank,

For a household of 4 with 2 able-bodied adults and 2 children, supposing one adult works for Home Depot or Walmart at $10 an hour ($20k a year). The other works similar jobs but at $15 an hours ($30k a year). That’s a total of $50k if working full-time. Assuming their jobs are only part-time at 50%, that’d be $25k a year. If the adults use the other 50% to work as Uber driver or Amazon delivery driver, they could add $10k-20k a year. And you don’t even need a high school diploma to do that and you won’t be in poverty. Why is it so hard?

Able-bodied people in poverty mainly because they are not working. Many of them are not working because their criminal records make it hard for them to get hired.

For truly the working poor, earned income credit is a better solution than raising minimum wage, which punishes the lowest skilled workers.

If you give free cash to people in poverty in the name of helping their children, you’ll not reduce poverty. Instead this incentive will create more single mothers and more people in generational poverty.

Todd D Mora
Apr 20 2021 at 10:00am

Another Great Episode!

I did learn a lot about how poverty is measured measured and monitored.  I think that the previous podcast with Nina Munk, author of Idealist, would have been very pertinent to this discussion.  Additionally, most of the poverty interventions that are proposed are designed for static not dynamic populations.  The idea that one-size fits all really reminds of Russ’s favorite quote “The curious task of economics…”

Dr. Rank’s idea that minimum wage is the route to financial independence is fraught with peril.  Raising everyone’s wage just means that prices can rise and certain jobs are eliminated.  Additionally, as has been pointed out, it doesn’t change the labor market’s value for that labor, it just sets an artificial floor.

I would’ve like to hear more about the failed programs of the past.  Ms. Amity Shlaes in her book Great Society does an excellent job of recounting the sad history of our country fighting poverty.  The story about the Pruitt-Igoe housing projects in St. Louis is a great example of unintended consequences of government interventions.

Ajit Kirpekar
Apr 20 2021 at 10:46am

After thinking a bit more on this, I can’t help but feel like academics who study or make proclamations about the labor market should at least have some real domain knowledge of what it’s like to work and hire in an active labor market. Simply looking at data is insufficient… You might conclude doctors kill sick people.

I work on a large tech team. About a little less than half are American Born workers and the rest are foreign born workers who immigrated here. I suspect there is a bias towards hiring American workers ( you don’t have to worry about H1B status, preference for english first speakers etc) and yet over half are not American Born workers( no judgement implied), suggesting there is a severe supply shortage. So even if the guest’s musical chairs assertion were true, it’s not the case that we educated more Americans to be software engineers, they’d still be out of a job.

Nick Ronalds
Apr 20 2021 at 5:26pm

I was shocked that Rank espoused the “lump of labor” fallacy–there are just so many good jobs to go around–which he explained with his musical chairs metaphor. Anyone who knows so little about the history of the economy and labor market has no credibility on poverty (or much else related to economics). Thanks Russ for calling him out on that. As was pointed out in a previous comment, missing from the conversation was a discussion of transfer payments. At one point Rank said the measures he was discussing included “all income”, which would imply that transfer payments, welfare, and in-kind payments were included. But Russ said in-kind transfers were not taken into account. The omission of the topic of transfer payments was a gaping hole in what was otherwise an interesting episode.

Todd D Mora
Apr 21 2021 at 10:15am

I think the “musical chairs” analogy is used because the real explanation of the labor market is complex and difficult for most people to understand.  If you want to propose large government intervention, you need to show that the real world is biased and unfair and the only way to solve the problem is with more government.

Markets are complex, nuanced, and independent, all things people who support large government programs despise.  Russ did a good job of pushing back in a respectful way and I think Dr. Rank even acknowledged some of Russ’s points.

Dallas Weaver Ph.D.
Apr 20 2021 at 6:11pm

Don’t know where to start.  He stated that the majority were in poverty sometime in their life which is true for me, but says 10% of the people are in poverty in any given year.   He then says that 10% of the people in poverty are consistently in poverty, but that means we only have a 1% of the population problem.  It is either a “we are them” problem or it isn’t.

Like so many of our academic elite, he has probably never tried to help any of the people at the bottom end of the income distribution and understand the source of some of their problems.  As a small business owner, I did try to help many times in my life with highly variable results.   One of my early employees had maxed-out credit card problems and a car failure facing eviction.  We bailed her out including a new car with an interest rate of only a bank CD (break-even for us if we got our money back).  Dropping from 20% interest + penalties and fees to 2% made a huge difference.  After a couple of years with lots of economic mentoring, we thought she was making progress, but then we discovered that she was cheating us on the timesheet.  We had the employees long-in on the computers with an excel macro much like a time clock.   After several days when I didn’t remember when who came and left at what time, she was changing the times.   She didn’t know how Excel stored the date and time information as seconds so I found over 100 times she cheated us after writing another macro.

The point being sometimes the bottom 1% have some cultural issues that make it difficult for them to succeed.

Others in the bottom 1% also have problems with just basic intelligence and can only do one simple task at a time.  Much like the army won’t take people with an IQ of < 85, they have serious trouble with employment and they can’t plan ahead enough to even utilize “free” money.  I knew a lot of marginal small businesses that did hire such people (often family connections) and they loved their jobs and it worked great with a lot of supervision and only one task at a time.  However, a government inspector demanded minimum wage and they would have to fire them with great damage to the individual.

 

Dallas Weaver Ph.D.
Apr 20 2021 at 8:06pm

The more I think about it, the real question should be why the social sciences don’t think like the STEM scientists. While the physicist worries about 2.5 part per billion disagreements between the standard model and their measurements, social science seems to ignore relevant variables then claim their results are meaningful. For example, they talk about poverty and don’t mention the variables of culture and intelligence. Some cultural aspects don’t create good economic outcomes, such as single parenting and lack of fundamental intelligence doesn’t help you get out of poverty.

In a society where technology and knowledge make the difference between living like other wild animals near starvation, overpopulation, and disease, Rank seems to think all jobs are identical and interchangeable with only a fixed supply from “above”. This is pure magical thinking. The reality of real jobs is that they are almost all different as the complexity of our technology and knowledge bases is so advanced that the system only works by spreading that technology and knowledge among millions of interacting people. We aren’t smart enough as individuals to trade jobs with more than a narrow subset of other individuals.

I think that Rank should read the little book “flatland” by Abbot https://www.amazon.com/Flatland-Romance-Dimensions-Thrift-Editions/dp/048627263X to understand the impact of ignoring principal components in an analysis. Leaving out inconvenient variables from culture and IQ to alcoholism and addiction from poverty makes the results and analysis meaningless.

Ajit Kirpekar
Apr 20 2021 at 9:18pm

I have a different intrepration of your point. I suspect, as a sociologist, he has thought about cultural causes. I certainly don’t think he’s oblivious to it at all. However, I suspect that its viewed as not the primary hurdle or if it is; it along with the other problems are a matter of resources or government support. I don’t think this argument on its face is wrong and its certainly easy enough to buy into.

But I would also add, his views on economics aren’t so different from the typical arguments I hear from stem majors. Good economic thinking requires its own study and who has time for that? Its much easier to view trade deficits as bad and jobs as fixed in nature.

Look, econ talk has brought so many guests on poverty and its rare to hear some of them acknowledge the problem of implementation, perverse incentives, and/or the cultural erosion that might leak from these programs. I can probably count on one hand the number of guests who took that view compared to the opposite, who saw this as merely the government not taking enough of an active role. I suspect if you polled professional economists, it might be close to a unanimous vote that government needs to be doing more to help the poor and disadvantaged. So in that sense, I don’t view the guests beliefs as outlandish even if I think a few of them are just wrong in terms of economics.

 

Also, Russ – when the next guest comes in wanting higher minimum wages, could you please ask them what number is too high, how do they KNOW that thats the threshold and who exactly is this money coming from?

 

Roger McKinney
Apr 21 2021 at 10:37am

Well we have tried all that the author suggested over the past 60 years with little improvement. See this https://finance.townhall.com/columnists/rogermckinney/2021/03/26/socialism-cant-solve-poverty-only-christianity-can-n2586948

Roger McKinney
Apr 21 2021 at 10:49am

PS, I would like to see the poverty level adjusted for cost of living. I think it would show that most of the poor live in liw cost states like OK, my home, and MS. The rate would be much lower as a result. In rural OK a family can do well on $20k per yr.

Adam Rickert
Apr 21 2021 at 12:39pm

Even under the best of circumstances, students who do not overcome learning disabilties might be limited primarly to low wage jobs coupled with longer hours worked. In addition, not everyone has an entrepreneurial spirit and may simply desire to work within a structured environment.

Earl Rodd
Apr 21 2021 at 2:49pm

The cynic in me says that this podcast was a “nice try” by Mark Rank to justify new social program spending without enough data to truly do so – in spite of the host’s efforts to explore more deeply.

In particular, I don’t think Mr. Rank’s analysis carries enough weight to affect public policy until one has more understanding of who the poor are. It’s not enough to say that many people are mobile. Among those who are more or less permanently in poverty and those who move into and out of poverty, there are different reasons which I think we could agree require different policy approaches. The biggest gap I thought of in the discussion was ignoring substance abuse – both a cause and an effect of poverty. Along with that is the statistical data indicating the strong co-occurrence  of substance abuse and mental illness.

So what portion of those in poverty are related to: substance abuse; chronic mental health; episodic mental health; low functioning (low IQ etc.); other?  My concern is that Mr. Rank’s spending proposals touch relatively small numbers of people correctly leaving the rest in never-never land.

When one reads the history of mental illness and social problems, it is difficult to not come away with a feeling that there always has been a section of the population that needs “taken care of.” The policy that is right for these people is not what is right for those who are mobile and are in poverty due to externalities. Bad examples I can think of are throwing money at people with substance abuse problems – this enriches drug dealers and liquor providers. Another is throwing “education” at people with chronic mental health issues who need support – many can be productive but not without support – I’m thinking of the missing link between $1000/day hospitalization and $1000/month group homes where there is actual support.

David Miller
Apr 23 2021 at 12:20pm

Over my 68 years I’ve thought about the poverty issue in the United States many times.  And let me state that this comes from the perspective of a white guy who has worked for black people and those of various religious affiliations, including LDS.  Further, while what I will say here is completely anecdotal and relates only to my personal experiences over my 68 years, I believe it applies to everyone.  Knowing now where I sit, the following would be my responses to the conversation with Mr. Rank:

 

First, I agree with Mr. Roberts that the economy is not a zero sum game.  Second, the cards are not stacked against people of color (or whatever I’m supposed to refer to minorities today).  Third, I agree with both that developing a skillset is the key to extricating oneself from poverty.  Fourth, with the proper attitude and skills anyone can become relatively wealthy.  Finally, any desire for equality in terms of wealth is nothing more than jealously (all anyone needs is sufficient resources to provide for comfortable living).

 

With regard to the notion that the economy is a zero-sum game, Mr. Rank, like other Marxists and progressives, is extremely wrong.  All one must do is take a look around to witness the dynamics of any economic expansion.  With regards to the first and second points, having the right attitude makes a big difference in where you end up, period (don’t burn bridges).  With regard to the third point, anyone can improve their skillset as I did by working my way through college, a degree in economics with a boatload of math of all things (and by the way, the college does not need to be prestigious) .  I think the fourth point is extremely important when it comes to success or goals of  anti-poverty.  It’s fine to offer up new ideas, but don’t hobble yourself with unrealistic expectations if your goal is to avoid poverty.  Finally, get rid of those notions of envy and jealousy if you really wish to have a happy life.  Don’t be miserable because Warren Buffet or Bill Gates have more than you.  Simply strive to  achieve what you need to be happy by not being afraid to work hard and living below your means in the process.

In summation, I have experienced poverty at least once in my life when I found myself recently married and unemployed in 1983.  I did not like that feeling and took the steps outlined above to avoid any repetition.  Today I’m retired and ended up as a 7-figure saver.  Although I confess that I’m white, you will be hard pressed to convince me that people of color can’t do the same.

 

 

Dr. Duru
May 2 2021 at 3:43am

I left this discussion unconvinced that, at least for people who end up living good lives, counting the number of years spent in poverty or in riches, is a meaningful exercise. Or at least that exercise stands a distant second to the core issue that Professor Roberts pointed out at the very end: how better to understand entrenched poverty and the tools, methods, theories, etc… we can apply to help those people.

Winston
May 2 2021 at 7:56pm

Discussions about poverty that ignore transfer payments and the unique exclusion of these potentially lucrative sources of “income” are completely devoid of credibility. As I listened to this episode, I kept waiting for the point to be addressed, and it was only in passing.

Extremely disappointing.

I sometimes wonder how Dr. Roberts find guests with purported expertise who can actually talk for an entire hour whilst still ignoring the elephant in the room. John F. Early of the Cato Institute wrote a very insightful paper in 2018 called “Reassessing the Facts about Inequality, Poverty, and Redistribution” that is a must read for anyone who listened to this podcast and was left wanting. Among other interesting insights, it discusses how the U.S. calculates the Gini Coefficient differently than other countries that makes our distribution look more unequal than it actually is.

Comments are closed.


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AUDIO HIGHLIGHTS
TimePodcast Episode Highlights
0:37

Intro. [Recording date: March 19, 2021.]

Russ Roberts:

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.

1:01

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.

4:24

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.

7:41

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.

10:20

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.

Mark Rank: Wow. Wow.

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.

13:05

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.

18:13

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?

Mark Rank: Right. Right.

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.

26:14

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.

29:08

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?

Mark Rank: Yeah.

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.

Mark Rank: That's right.

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--

36:32

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.

40:16

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.

46:23

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.

49:15

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?

Mark Rank: Yeah. Yeah--

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.

Mark Rank: Okay.

53:14

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--

Mark Rank: Market--

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.

Mark Rank: Yeah. Yeah.

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--

Mark Rank: Yeah. Yeah--

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.

1:01:50

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.


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