As I went walking I saw a sign there, and on the sign it said “No Trespassing.” But on the other side it didn’t say nothing. That side was made for you and me. In the shadow of the steeple I saw my people. By the relief office I seen my people. As they stood there hungry, I stood there asking, is this land made for you and me? We all know the first verse of the 1940 Woody Guthrie folk song, but few realize that it was a protest song, written as a critical response to Irving Berlin’s God Bless America. Few who sing about this land running from California to the New York Island realize that the song was filled with anti-capitalistic political verses.
Woody Guthrie’s America was racked by change. The Great Depression which was actually what we would call a double dip recession had lagged on for 10 years, and nominal GDP was just approaching the levels last seen in 1929. The Dust Bowl had torn tens of thousands of poor farmers from the land in the Great Plains, and according to the current definition, about half of all Americans lived below the poverty line. At the same time, the measure of income inequality (the Gini coefficient) was a modest .42, which is 12 percent lower than today, and was at a 20-year low.
In other words, in the America of 1940, poverty was 3-times what it is today and income inequality 12 percent lower. And 1940 America was the country documented by Dorothea Lange http://en.wikipedia.org/wiki/Dorothea_Lange in those gripping pictures of dust and despair. Poverty in 1940 meant not eating, dying of infection, and living in a shack. Today, according to the Census Bureau, even among those in poverty, 45 percent have an automatic dishwasher, 81 percent have a cell phone, 83 percent have air conditioning, and 96 percent have a television. In fact, while life is still quite difficult for many families, the idea of poverty is simply not what is depicted in popular culture and dustbowl photographs.
On top of that, poverty is down by two-thirds since the end of the Great Depression. This should be heralded as a success. Maybe the New Deal and the Great Society really worked. While it is certain that some government efforts like the Earned Income Tax Credit, Social Security and to some extent Food Stamps, have probably helped reduce the sting of poverty, the main reason behind the drop in the poverty rate since 1940 is due to how the statistic is calculated. Basically up until 1969 the poverty rate was set at an income level 3 times the cost of feeding a family. Since then, the poverty rate was set by taking the last year’s rate and basically adjusting for inflation. So what do the data show? The Census Bureau actually started calculating a poverty rate in 1959, and between 1959 and 1969 poverty in American fell by 46 percent. However, once the statistic changed, the poverty rate has remained virtually flat, and has actually risen in the past few years. Why is this the case? Why did poverty in America fall so rapidly between 1940 and 1969 and then stop falling just as the Great Society programs went into effect?
The answer is simple. The statistic changed. By tying the poverty rate to the price of food, a statistical “ghost” appeared whereby poverty fell along with the relative cost of food. While this was not the only reason for falling poverty rates, it did account for about a fifth of the decline. Other factors including high productivity growth following WWII, and higher levels of education also led to the decline. But why did the decline stop in 1969? The simple answer is that the way the statistic is designed ensures that the poverty rate will remain at about 13 to 15 percent of the population. Unless wages for those in the lowest income class (generally measured in 5ths) grow faster than inflation, then mathematically, a constant share of the population will remain at the poverty level. And since those in the lowest income category are by definition the least productive workers, the share will stay relatively fixed. The only way to change this is to increase the productivity of the least productive workers – but again, by definition the least productive workers will only be marginally productive.
So by definition, poverty in the United States is pretty much stuck at 12 to 15 percent depending on the condition of the overall economy. As some families move out of poverty, others will move in based on no change in their actual family situation but rather because of how they fall on one side or the other of a statiscital line.
Income distribution is a whole other animal, and in fact has little relationship to poverty. The statistic used to calculate relative income distribution is called the Gini coefficient (after the sociologist Corrado Gini). This index measures the degree of inequality in the distribution of family income in a country. The more nearly equal a country’s income distribution, the lower its Gini index. But a low Gini index does not always mean that a country does not have a great deal of poverty. For example, both Ethiopia and Kazakhstan have a more equal income distribution than the European Union. The Gini for Niger and Ireland are the same as are those for Japan and Yemen.
In other words, income distribution has virtually nothing to do with poverty. Botswana, with one of the world’s most unequal income distributions has a poverty rate of about 31 percent, which is virtually the same as that in Ethiopia, a country with one of the most equal income distributions. In other words, while poverty is related to the ability of a family to purchase necessities, income distribution has more to do with history (countries in Southern Africa have very unequal income distributions for example), the structure of the economy (Scandinavian countries have very equal income distributions but they also have huge sovereign wealth funds that distribute benefits from undersea oil to all citizens), or demographics (many countries in the Middle East have a high proportion of young people relative to those in their higher earning years).
In the United States there are two factors at play. Demographically, the country is aging while at the same time experiencing a “baby boom.” As such, the proportion of both young and old people relative to those in their highest earning years is growing. Second, in response to the nation’s tough drug sentencing laws, there is a large underclass of high school dropouts and ex-felons who have little opportunity to grow their earning potential. The fact that there is a small group of very high net worth individuals (the so called one percent) does little to change income distribution, but it does make for good populist fodder for those trying to fan class division and jealousy in their political endeavors.
Woody Guthrie was correct in that this land was made for you and for me. It was made for those on both ends of the income scale, for those who have been lucky and for those who have suffered misfortune. No Trespassing is really a signs of success, not a sign of poverty.