Nowhere To Fall
Few people will escape the effects of the global economic crisis that has been unfolding since the fall of 2008. While the stock market’s steep declines conjured immediate comparisons to the crash of 1929, David Kyvig points out that the broad economic effects of the crash (apart from immediate losses in the market) became apparent only in 1933 when the entire nation was in a depression. The devastation of that depression took 25 years to correct. Notably, only 2 percent of the public owned stocks in 1929, while 50 percent owned stocks in 2008. In this precarious context, it is especially important to remember that in 2007, a year before the stock market crisis, the U.S. Census Bureau reported 37.3 million people were already living in poverty. The announcement didn’t make front-page news and no one declared a crisis. No one called for government intervention.
When the stock market crashed in the fall of 2008, stories of layoffs among construction workers, auto workers, factory workers, bankers, and stockbrokers quickly dominated the news. The public faced daily reports of retirement pensions ruined by the crisis and the dire consequences that people in or near retirement now faced. Stories on the foreclosure crisis described a devastated middle class facing cuts to wages, and health care. Still, no one reported on the millions of people who had nowhere to fall—people who never held a job with health-care benefits or pension plans, people who had been working at low-wage jobs doing their best to pay rent and keep food on the table. Millions more now face this kind of severe poverty.
According to the U.S. Census Bureau, in 2007, 37.3 million people, or 12.5 percent of the U.S. population, lived in poverty. Yet these numbers may do more to distort than clarify the presence of poverty. First, it is important to note that people of color represent a disproportionate percentage of people living in poverty. United for a Fair Economy, in their report “The Silent Depression: State of the Dream 2009,” revealed that 10 percent of whites live in poverty, as compared to 24 percent of Blacks and 21 percent of Latinos. Native Americans who live in circumstances that rival those of the poorest countries in the world often do not even appear in government statistics. Second, the U.S. poverty line is not able to meaningfully measure poverty for anyone in the 21st century. The Federal poverty line was established in the 1960s in preparation for the Johnson administration’s 1964 “war on poverty.” At the time, the Social Security Administration enlisted Mollie Orshansky to develop a viable definition of poverty. Orshansky began with calculations from a 1955 Department of Agriculture study that identified food costs as comprising one-third of a monthly budget for a family of four. Armed with this knowledge, Orshansky began by literally filling a series of shopping carts with basic necessities for a family of four. She then calculated the average amount of money needed to meet their minimum nutritional requirements and then developed the Federal poverty line by multiplying this number by three. Since its creation, the poverty line has been adjusted annually for inflation. In 2009, the Federal poverty line was $22,050 for a family of four. The premise established in 1955, that food constitutes one-third of a family budget, remains intact today, yet it is an unrealistic standard for economic self-sufficiency.
Affordable housing is critical to keeping individuals and families out of poverty. In 2008, the U.S. Department of Housing and Urban Development identified affordable housing as constituting 30 percent of household income. But with the poverty line for a family of four in 2008 at $21,200, they could only afford $530 in monthly rent—an unrealistic rent for a family of four anywhere in the U.S. A family would need an income of $42,220—nearly twice the poverty line income—to be able to afford a two-bedroom apartment renting for $1,145 per month. Yet in many urban areas, it would be quite difficult to find a two-bedroom apartment for a family of four even at that price. Families earning a pretax income of $23,000 a year (roughly the Federal poverty line) are forced to pay closer to 50-80 percent of their monthly income on less-than-adequate housing in any major city.
To appreciate the cost of housing in relation to real wages, it helps to understand the Federal minimum wage. In July 2007, the minimum wage was $5.85 per hour for employees who do not earn tips; this provides an annual income of $12,168. The Federal government approved a plan to increase the minimum wage incrementally to $7.25 by July 2009—providing an annual pretax income of $15,080—just about the Federal poverty line for a two-person family. Even at this newly-increased minimum wage, affordable housing would be an impossible $377 per month. States may set their own minimum wage limits higher than the Federal standard, and some do.
According to the Bureau of Labor Statistics, 2.2 million hourly workers made minimum wage or less in 2008. Statistics on minimum wage do not address the millions of migrant laborers and garment workers who consistently hold jobs that fall well below minimum-wage standards—as do many other workers who are paid under-the-table as domestic workers. Hundreds of millions of people resort to working multiple jobs in order to make ends meet, often working back-to-back full-time shifts. Given this perspective, it is not surprising that the American Public Health Association reported in “A Snapshot of the Uninsured in America” that 80 percent of uninsured people come from working families. The Washington Post Magazine (November 9, 2008) reported that over 800 doctors, dentists, nurses and health-care workers attempt to address unmet health-care needs in Virginia each year by holding a 3-day clinic at a local fairground. In 2009, the clinic served about 2,700 people, some of whom waited 12 hours for care.
Considering all this, few experts believe that food constitutes one-third of a family budget today. Dan Kelley (“Poverty Line Rises with Living Standards”) quotes Frances Deviney of the Center for Public Policy Priorities, as saying “Food is about one-seventh of a family’s budget.” If we continue to use the cost of food as the center of gravity for poverty calculations, and if Deviney is correct, a more accurate poverty line for a family of four in 2009 would be a pretax income of $51,450—nearly four times what a minimum wage worker earns. Again, if we don’t account for taxes this would place affordable housing around $1,286 per month.
Recognizing that the Federal poverty line is meaningless today, states (and non-profits) have developed standards for economic self-sufficiency that reflect regional differences and are more comprehensive in their calculations—which include the costs of food, rent, taxes, and transportation. Some also address health care, child care, and miscellaneous expenses such as birthday gifts. If we rely upon the more comprehensive measures of living expenses by region, the poverty line for a family of four is more than twice the Federal calculation and three times the Federal minimum wage. According to the nonprofit Wisconsin’s Women’s Network, a family in Madison consisting of two adults and two children needed an annual income of $47,667 in 2004, just to meet the basic threshold of economic self-sufficiency. The Women’s Center for Career and Educational Advancement found that in 2004, the same family living in Manhattan, New York needed a baseline income of $78,741—and those actually living in Manhattan find that figure impossibly low. The Economy Policy Institute Basic Family Budget Calculator study of families found that, when using measures of family budgets, 42 percent of families living in cities and 30 percent of families residing in rural areas fall short of basic family self-sufficiency thresholds.
To place the threshold of economic self-sufficiency in yet another perspective, consider that both the 2008 Current Population Survey and the Annual Social and Economic Supplement found that the real median household income for 2007 was $50,233. What might be heralded in the media as a middle-class income is, in fact, a bottom-line self-sufficiency income in Madison, Wisconsin—and many other cities. Current U.S. Census Bureau statistics show that the median incomes (half of all incomes are above this number, half are below it) for African American, Native American, Native Alaskan, and Latino families with two parents and two children hovers near $35,000. That’s $10,000 to $20,000 below government-based calculations for economic self-sufficiency.
According to the National Law Center on Homelessness and Poverty (NLCHP), the fact that millions of poor households are forced to pay more than 50 percent of their income on rent contributes to the rising numbers of homeless families. The recent U.S. Conference of Mayors revealed that, on average, cities reported a 12 percent increase in homelessness from 2007 to 2008, with 16 cities citing an increase in the number of homeless families. The report referred to a lack of affordable housing, poverty, and unemployment as the primary causes of homelessness. The report also showed that requests for emergency food assistance went up in nearly every city surveyed with the demand outpacing supply in 20 cities. An estimated 59 percent of requests for food assistance came from families—many for the first time (U.S. Conference of Mayors Report 2008). While the incidence of homelessness tends to be widely underestimated, it is hard to miss the tent cities or shantytowns (modern day Hoovervilles) popping up across the country. On March 25, 2009, the New York Times reported the emergence of tent cities in more than a dozen U.S. cities. NLCHP estimated that approximately 3 million Americans, including 1.3 million children, will experience homelessness in 2009. And that was before the most recent rounds of layoffs—the New York Times (May 9, 2009) reported the loss of 539,000 jobs in April 2009 alone. The overall unemployment rate, as of this writing, has reached 8.9 percent, yet unemployment for African American men has hit 15 percent. It’s not surprising that people who formerly held middle-income jobs are now competing in the service industry for minimum-wage work, according to the “NewsHour with Jim Lehrer” (May 8, 2009).Among those who are unemployed, 27.2 percent were unemployed for more than six months, the highest figure since the government began tracking such data in 1948.
In some respects, the news media have been forced to cover the predatory nature of subprime mortgage lending because it devastated the banking industry. But news media have yet to publicize the predatory lending practices that target people living in poverty. Laura Connerly, a Family and Consumer Sciences Associate at the University of Arkansas, writes in Cash Crisis: Money Traps That Keep You Broke that title loans, paycheck loans, pawnshop loans, money order and check cashing charges, and late payment fees devastate the economic security of low-income families. Living below the self-sufficiency threshold often means that simply maintaining a bank account is an unaffordable luxury. Who can sustain a required minimum balance when wages are barely enough to make ends meet?
The lack of access to banks for check cashing and check writing makes poor people especially vulnerable to predatory lending practices that lead them into debt. Poor neighborhoods are filled with check cashing outlets. In 2006, the Consumer Federation of America (CFA) reported in “Cashed out: Consumers Pay Steep Premium to ‘Bank’ at Check Cashing Outlets” that a worker using check cashing outlets pays an average of $19.66 every week to cash a $478.41 paycheck. Overall, the check-cashing outlets process more than 180 million checks worth more than $55 billion each year. According to CFA, check-cashing outlets sell 22 percent of all money orders in the U.S. and wire a tenth of the country’s money transfers. In addition to check-cashing services, money orders, and wire transfers, CFA reports that two-thirds of check-cashing services also make payday loans.
Families living in poverty inevitably face a month in which they can’t make ends meet—either because of lost time on the job due to illness or injury, or because of unexpected expenses for heating, health care, or vehicle repair. An exceptionally cold winter or a child’s medicine may push the family over the edge. The Center for Responsible Lending published a paper (by Skiba and Tobacman “Do Payday Loans Cause Bankruptcy?”) that estimated 10 million people in the U.S. utilize payday loans each year. By 2008, the number of payday loan outlets had increased to more than 30,000.
Payday loans are typically over $300 and come due by the borrower’s next payday. The CFA reports that typical payday loans are issued at annual percentage rates that vary from 390 percent to 780 percent. In the short term this looks like a finance charge ranging from $15 to $30 for a one- or two-week $100 loan. Payday loans trap financially vulnerable people in long-term debt, forcing them to consistently take out another loan in order to pay back the previous loan and continue to pay for basic necessities. The Center for Responsible Lending found that those who utilize payday loans have nearly twice the chance of filing for bankruptcy than those who do not.
Pawnshops thrive in the current state of financial crisis, making a reported $8.5 billion a year according to the AARP (February 11, 2009). According to the National Pawnbrokers Association (NPA), there were approximately 6,900 pawnshops in the United States in 1988—one for every two commercial banks. In 2009, there are between 12,000 and 14,000 pawnshops. Manny Fernandez’s 2007 article, “Cash to Get By Is Still Pawnshop’s Stock in Trade,” in the New York Times characterized pawnshops in the South Bronx as an essential part of the neighborhood. Notably, the article cites the U.S. Census and places the median household income in the South Bronx at $21,088. Fernandez described how charges accumulated at a particular pawnshop in the Bronx. A $100 loan over 4 months would be repaid with $12 interest, a $5 service fee, and a $2 vault charge, totaling $119—nearly 20 percent of the loan value. The Boston Globe reported on July 24, 2008 that Cash America, the largest chain of pawnshops in the U.S. with almost 1,000 locations, had a net income of $20.1 million in the 3 months of its 2nd quarter (April through June 30). This marks a 52 percent increase from the $13.2 million net income for the same period one year ago. Revenue from merchandise rose 26 percent and pawn loans increased 17 percent.
If the relationships between minimum wage, affordable housing, and predatory lending provide some limited awareness of the presence of U.S. poverty, the disparity between wealth and poverty remains more elusive. The U.S. Census Bureau does not publish data on the incomes of the top 1 percent of the population. However, Paul Krugman wrote in a New York Times op-ed (February 27, 2006) that over the last 30 years the redistribution of wealth through tax cuts has provided average working families with at most a 1 percent increase in income, while those in the 99.99th percentile gained approximately a 497 percent increase in income. Leiserson and Rohaly of the Tax Policy Center estimate that in 2006 family incomes in the 99th percentile were approximately $402,000 and those in the 99.9th percentile were approximately $1,672,726. No figures are available for the 99.99th percentile, but estimates place it well over $6 million. At the same time, the Children’s Defense Fund report “America’s Cradle to Prison Pipeline” documented that child poverty could be eliminated in the U.S. for $55 billion a year—meaning that ending some of the tax cuts for the wealthiest 1 percent of taxpayers could end child poverty.
It is clear that social norms and values are embedded in the market as well as in the media reporting on the economy. Economic relationships are forms of cultural action just as are media’s construction of “newsworthy” events. It is impossible to have markets or economies without social relationships; in this sense, it is impossible to distinguish between an economy and culture. What does it say about U.S. culture that there has been so little media interest in the poorest people during economic turmoil? Are we, as a nation, mesmerized by the spectacle of economic collapse but numb to sustained human suffering? There was a time in U.S. history when cogent class analyses shaped public discourse. It is a discourse from which the 24-hour news cycle seems to lead us farther and farther away.
Living in Poverty
Tracing the Evolution of the Federal Poverty Line