Jared Bernstein Starts Thinking About the Forthcoming Poverty Release

Jared Bernstein writes:

TomPaine.com - The Catch-Up Economy: As summer draws to a close, the mind inevitably turns to... benchmarks. A benchmark is a number you use to help put another number in context. It answers the economist’s pesky question: Compared to what? Now is the time to be thinking about benchmarks because on August 29 the government will release findings on household income and poverty for 2005.

In a world where most of our economic information is about broad averages... these statistics offer important insights into how families of different income classes fared last year. Every five minutes, we’re updated on the latest squiggle in the stock market, but only once a year the Census Bureau tells us how many children are poor in America....

Most of us who follow such things expect positive results: median household income—-the income of the typical household, smack dab in the middle of the income scale—-should rise a bit in real (inflation-adjusted) terms, and poverty should fall.

What underlies our optimism? First, 2005 is the fourth full year of an economic recovery that began in late 2001. As we would expect, poverty rose and household income fell in that recessionary year. But the negative trend has persisted in each recovery year since, and that has taken us by surprise.... The poverty rate, for example, rose each year from 2002 through 2004, a historically unprecedented trend. Since 2000, when poverty bottomed out at 11.3 percent, it has climbed to 12.7 percent in 2004, adding 5.4 million persons, including 1.4 million children to the ranks of the poor.

That’s not supposed to happen in an economic recovery, and it is a telling reminder of just how unbalanced this economy has been.... It’s also a sharp reversal of the poverty trend of the 1990s, when an all-too-unique period of broadly shared prosperity pushed poverty rates into a seven-year slide, with the biggest benefits accruing to the least advantaged. Child poverty among African Americans, for example, fell by 14.9 percentage points over these years, more than twice the overall decline for all children....

[W]ith most labor market indicators trending up... we expect enough of the growth to reach the bottom half to begin to reverse the slide. But there is almost no way the 2005 results will repair the damage done thus far. The income of the median household is down $1,700 (in 2005 dollars) since 2000, and it would take an unusually large gain to make that up in one year. Poverty is likely to decline by only a few tenths of a point, and will remain well above its 2001 level of 11.7 percent....

Note that getting back to the previous income peak and poverty trough is not that demanding a benchmark. Productivity over this recovery has been quite stellar—up 14 percent just since late 2001. Most economists assume this automatically translates into higher living standards, but don’t tell that to the median family.

If the August 29 release reveals that incomes rose for middle and low-income families, we will applaud even meager gains. Our applause should be tempered, however, by the knowledge that we are behind where we ought to be.

Armed with appropriate benchmarks and reference points, we must place the upcoming Census results in the context of an economic recovery that has produced an alarmingly large gap between growth and the living standards of most families...