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Are You "Poor" by Today's Standards? |
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Dear Reader, |
I train my cannons often against governmental distortion of economic realities — primarily through the torture of statistics. |
Today I let loose another salvo. |
The poverty line for a nuclear family of four, as the federal government draws it, registers $31,200. |
Any household taking in under $31,200 per year wallows in immiserating poverty. |
Any household taking in over $31,200 per year escapes the indignity, though perhaps barely. |
Yet is a four-member household taking in $40,000, $50,000 or even $80,000 per year out of poverty's cruel grasp? |
How They Calculated Poverty in 1963 |
Mr. Michael Green is Chief Strategist and Portfolio Manager for Simplify Asset Management. |
And he has interrogated the figures. And they collapsed under withering examination: |
This week, while trying to understand why the American middle class feels poorer each year despite healthy GDP growth and low unemployment, I came across a sentence buried in a research paper: |
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"The U.S. poverty line is calculated as three times the cost of a minimum food diet in 1963, adjusted for inflation." |
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I read it again. Three times the minimum food budget. |
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Why sick? |
It's Not 1963 Anymore |
In 1963, American families consecrated some one-third of their budget to grocery items. |
Multiply that figure by three… and there government wiseacres sketched the poverty line. |
If a household's grocery purchases exceeded one-third of its income, it fell beneath the line. |
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Yet the year is no longer 1963. And American households no longer consecrate one-third of their incomes to grocery items. |
Mr. Green: |
Everything changed between 1963 and 2024. |
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Housing costs exploded. Healthcare became the largest household expense for many families. Employer coverage shrank while deductibles grew. Childcare became a market, and that market became ruinously expensive. College went from affordable to crippling… |
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The labor model shifted. A second income became mandatory to maintain the standard of living that one income formerly provided. But a second income meant childcare became mandatory, which meant two cars became mandatory… |
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The composition of household spending transformed completely… food-at-home is no longer 33% of household spending. For most families, it's 5 to 7 percent. |
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Housing now consumes 35 to 45 percent. Healthcare takes 15 to 25 percent. Childcare, for families with young children, can eat 20 to 40 percent. |
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What's Today's Poverty Line? |
If $31,200 represents 1963's poverty line… then what dollar figure represents 2025's poverty line? |
Before revealing the answer, I will dangle you upon my hook. I will have you guess. |
Does the answer hover between: |
A): $96,000-$106,000 |
B): $109,000-$119,000 |
C): $127,000-$137,000 |
D): $140,000-$150,000 |
E): $155,000-$165,000 |
Have you selected your answer? |
How to Calculate Poverty |
Before I reveal that answer, here is how this Green fellow tackled the question: |
The official poverty line for a family of four… is $31,200. The median household income is roughly $80,000. We have been told, implicitly, that a family earning $80,000 is doing fine — safely above poverty, solidly middle class, perhaps comfortable. |
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But if [the] crisis threshold were calculated today using [the same] methodology, that $80,000 family would be living in deep poverty. |
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I wanted to see what would happen if I ignored the official stats and simply calculated the cost of existing. I built a Basic Needs budget for a family of four (two earners, two kids). No vacations, no Netflix, no luxury. Just the "Participation Tickets" required to hold a job and raise kids in 2024. |
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So what is the answer? Which income threshold separates poverty from non-poverty in 2025? |
The answer is D — $140,000-$150,000 — in this fellow's telling at least. |
How do you like it? How many Americans peg along in poverty who do not even realize it? |
We're Measuring Starvation, Not Poverty |
Mr. Green, in defense of his updated poverty line: |
If you measured income inadequacy today the way [a government bureaucrat] measured it in 1963, the threshold for a family of four wouldn't be $31,200. |
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It would be somewhere between $130,000 and $150,000… |
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If the crisis threshold — the floor below which families cannot function — is honestly updated to current spending patterns, it lands at $140,000. |
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What does that tell you about the $31,200 line we still use? |
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It tells you we are measuring starvation. |
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Just so. Yet are not material conditions in 2025 far superior to material conditions in 1963? |
After all: 1963's television was a 19"black and white 19" model, yielding more static than picture. |
The 2025 television watcher stares into a 65" colorized miracle of clarity. |
The typical 1963 automobile lacked air conditioning. AM radio was standard. |
In comparison, the 2025 automobile operator rolls around in high opulence. |
He enjoys air conditioning, endless entertainment options and whistles and bells. |
In certain instances, he need not even operate the automobile. |
Here I cite but two examples. |
Can we therefore draw adequate parallels between 1963 and 2025? |
The Price of Participation, Not Luxury |
Mr. Green has considered the objection: |
Economists will look at my $140,000 figure and scream about "hedonic adjustments." Heck, I will scream at you about them… |
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[But] we are not calculating the price of luxury. We are calculating the price of participation. |
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To function in 1955 society — to have a job, call a doctor, and be a citizen — you needed a telephone line. That "Participation Ticket" cost $5 a month. |
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Adjusted for standard inflation, that $5 should be $58 today. |
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Yet it is not $58 today. It is $200: |
But you cannot run a household in 2024 on a $58 landline. To function today — to authenticate your bank account, to answer work emails, to check your child's school portal (which is now digital-only) — you need a smartphone plan and home broadband. |
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The cost of that "Participation Ticket" for a family of four is not $58. It's $200 a month. |
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The economists say, "But look at the computing power you get!" |
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I say, "Look at the computing power I need!" |
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The utility I'm buying is "connection to the economy." The price of that utility didn't just keep pace with inflation; it tripled relative to it. |
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Welcome to Poverty! |
I have certain nits to pick with Mr. Green's calculations. |
He likely overestimates average childcare costs, for example. He likewise underestimates the lower real costs of certain consumer items. |
His work may contain additional boo-boos. |
Thus I call into question his $130,000-$140,000 poverty boundary. |
Yet I believe his overall body of work is a solid construction. I believe its foundations are structurally sound. |
Thus we can safely erase the federal government's official $31,200 poverty line. |
Let us — conservatively — draw the poverty line instead at $100,000. |
And so I announce to many, many self-identified middle class Americans: |
Welcome to poverty! |
Regards, |
Brian Maher |
for Freedom Financial News |
P.S. Wall Street — and the mainstream financial media behind it — have convinced the masses to invest all their money in stocks. |
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