What the Poverty Rate Tells Us About the Overall Economy

From yesterday’s NYT “The UpShot” Blog by Jared Bernstein:

On Tuesday, the Census Bureau will tell us whether the share of population that’s officially in poverty went up, down or stayed the same in 2013. There’s tons of other data in the release, like the change in the real income for the median household and information on health insurance coverage.

Because the data is a year old, financial markets ignore it. But political markets pay a lot of attention, as do policy analysts and advocates who work on poverty and middle-class economics. And, of course, these being the early days of the Affordable Care Act, the health coverage data will doubtless also get a close look. My own interest is that of the policy wonk who focuses on the nexus between the overall, or macro, economy and living standards of middle- and low-income families.

It’s an important set of numbers. Although one must always be careful not to read too much into one year’s data, 2013 represents the fourth full year of an economic recovery that officially began in the second half of 2009. Yet this recovery has been uniquely unforthcoming for the poor, the unemployed and even many people in the middle class.

Poverty, as officially measured, has held steady at about 15 percent of the population since 2010, and unfortunately, I expect it to do so again this year. I expect the real median household income to do a little better, up by maybe 1 percent.

Why, if I’m right, should the poor and middle class have gained so little by Year 4 of the recovery? That relates to the answer I tend to give when someone asks me how the economy is doing: Whose economy are you talking about?

Yes, various indicators improved in 2013. Real G.D.P. was up, but no faster than the year before (a bit above 2 percent); same with payrolls. And while the unemployment rate fell seven-tenths of a percentage point in 2013, from 8.1 percent to 7.4 percent, more than half of that was from people dropping out of the labor force. That’s not exactly a sign of strength. In fact, the share of the working-age population with a job barely budged last year.

The real wages of low-wage workers were generally as torpid in 2013. For example, if we look at the hourly wage of those in the bottom third of the pay scale, it averaged a bit above $10 per hour over both 2012 and 2013. However, a stagnant low wage is actually an improvement, because real low wages fell sharply earlier in the recovery. And the real median hourly wage went up 1 percent last year, providing a slight bump to the middle class.

Government policy didn’t help much in 2013, though the official poverty rate captures only some of the antipoverty spending by federal and state governments. For example, unemployment insurance benefits are counted, but the value of nutritional support or the earned- income tax credit (a wage subsidy for low-wage earners) is not.

Fiscal drag — fiscal policy that slows economic growth — was actually a big negative last year, taking 1.5 percentage points off economic growth by most estimates. The relevant parts of that policy for low- and middle-income households would include the ending of a tax break for wage earners (the payroll tax holiday) and less in unemployment insurance benefits.

I used statistical models that forecast the 2013 poverty rate based on the movements of the variables discussed above. Because it’s hard to make a case that the rising tide lifted too many rowboats last year, the models I run predict no statistically significant change in the poverty rate. (The rate could tick down a tenth or two, but that would be statistically indistinguishable from no change at all).

That said, there’s some chance the poverty rate will come down more than I expect. First, there’s just the momentum of a cyclical variable: Eventually the recovery sprinkles at least some of its benefits on low-income households and poverty falls a bit.

Also, there were some changes in the composition of the population last year relative to earlier years that could push the rate down. There was slower growth in immigration and a smaller share of the population in mother-only households (both groups have higher-than-average poverty rates).

Finally, inflation was low in 2013, only 1.5 percent, and that means a smaller nominal gain in income becomes a larger real gain. That’s one reason I predict that nominal median household income grew a bit faster than 2 percent last year. So it is possible they eked out a small real gain thanks in part to such minimal price growth. I expect real growth in the median household income in the 0.5 to 1 percent range.

It’s important to put these results in historical context. I expect poverty to still be 2.4 percentage points above its rate of 12.5 percent in 2007; that’s an additional 7.5 million poor. And even if I’m right about the bump in the real median income, it will still be 7.6 percent below the 2007 level, representing a loss of over $4,000.

In other words, if I’m in the ballpark, Tuesday’s release will be another reminder of why many Americans still feel pretty gloomy about the recovery: It hasn’t much reached them.

The Expanding World of Poverty Capitalism

From NYT “Opinion” August 26, 2014 by Thomas Edsall:

In Orange County, Calif., the probation department’s “supervised electronic confinement program,” which monitors the movements of low-risk offenders, has been outsourced to a private company, Sentinel Offender Services. The company, by its own account, oversees case management, including breath alcohol and drug-testing services, “all at no cost to county taxpayers.”

Sentinel makes its money by getting the offenders on probation to pay for the company’s services. Charges can range from $35 to $100 a month.

The company boasts of having contracts with more than 200 government agencies, and it takes pride in the “development of offender funded programs where any of our services can be provided at no cost to the agency.”

Sentinel is a part of the expanding universe of poverty capitalism. In this unique sector of the economy, costs of essential government services are shifted to the poor.

In terms of food, housing and other essentials, the cost of being poor has always been exorbitant. Landlords, grocery stores and other commercial enterprises have all found ways to profit from those at the bottom of the ladder.

The recent drive toward privatization of government functions has turned traditional public services into profit-making enterprises as well.

In addition to probation, municipal court systems are also turning collections over to a national network of companies like Sentinel that profit from service charges imposed on the men and women who are under court order to pay fees and fines, including traffic tickets (with the fees being sums tacked on by the court to fund administrative services).

When they cannot pay these assessed fees and fines – plus collection charges imposed by the private companies — offenders can be sent to jail. There are many documented cases in which courts have imprisoned those who failed to keep up with their combined fines, fees and service charges.

“These companies are bill collectors, but they are given the authority to say to someone that if he doesn’t pay, he is going to jail,” John B. Long, a lawyer in Augusta, Ga. active in defending the poor, told Ethan Bronner of The Times.

February 2014 report by Human Rights Watch on private offender services found that “more than 1,000 courts in several US states delegate tremendous coercive power to companies that are often subject to little meaningful oversight or regulation. In many cases, the only reason people are put on probation is because they need time to pay off fines and court costs linked to minor crimes. In some of these cases, probation companies act more like abusive debt collectors than probation officers, charging the debtors for their services.”

Human Rights Watch also found that in Georgia in 2012, in “a state of less than 10 million people, 648 courts assigned more than 250,000 cases to private probation companies.” The report notes that “there is virtually no transparency about the revenues of private probation companies” since “practically all of the industry’s firms are privately held and not subject to the disclosure requirements that bind publicly traded companies. No state requires probation companies to report their revenues, or by logical extension the amount of money they collect for themselves from probationers.”

Human Rights Watch goes on to provide an account given by a private probation officer in Georgia: “I always try and negotiate with the families. Once they know you are serious they come up with some money. That’s how you have to be. They have to see that this person is not getting out unless they pay something. I’m just looking for some good faith money, really. I got one guy I let out of jail today and I got three or four more sitting there right now.”

Collection companies and the services they offer appeal to politicians and public officials for a number of reasons: they cut government costs, reducing the need to raise taxes; they shift the burden onto offenders, who have little political influence, in part because many of them have lost the right to vote; and it pleases taxpayers who believe that the enforcement of punishment — however obtained — is a crucial dimension to the administration of justice.

As N.P.R. reported in May, services that “were once free, including those that are constitutionally required,” are now frequently billed to offenders: the cost of a public defender, room and board when jailed, probation and parole supervision, electronic monitoring devices, arrest warrants, drug and alcohol testing, and D.N.A. sampling. This can go to extraordinary lengths: in Washington state, N.P.R. found, offenders even “get charged a fee for a jury trial — with a 12-person jury costing $250, twice the fee for a six-person jury.”

This new system of offender-funded law enforcement creates a vicious circle: The poorer the defendants are, the longer it will take them to pay off the fines, fees and charges; the more debt they accumulate, the longer they will remain on probation or in jail; and the more likely they are to be unemployable and to become recidivists.

Read the entire article here.