The United States Is Doing Better Than Europe on Poverty: An Economics Rorschach Test

Kevin Drum, in commenting on a Binyamin Appelbaum article in the NY Times, writes that the Presidential candidates should be talking more about poverty in part because the US is way behind Europe.  Specifically, Appelbaum quotes a Harvard Sociology (!) Professor as the source for the poverty claim:

“We don’t have a full-voiced condemnation of the level or extent of poverty in America today,” said Matthew Desmond, a Harvard professor of sociology. “We aren’t having in our presidential debate right now a
serious conversation about the fact that we are the richest democracy in the world, with the most poverty. It should be at the very top of the agenda.”

Drum argues that Desmond is right, because of this chart from the OECD:

blog_oecd_poverty

One of the dirty secrets about poverty measurement is that the actual measurement seldom has anything to do with absolute well-being.  And this is the case with the OECD numbers.  The OECD's poverty measurement is based on the country's median income, and is the percentage of people who are below a certain percentage (generally 50%) of the country's own median income.  As such, this is more rightly thought of as a graph of income inequality rather than absolute poverty.

Here is an example.   Image country A with a median income of $50,000 and an income of the 20th percentile at $20,000.  Now imagine country B where the median income is $30,000 and the 20th percentile income is $15,000.  In this example, the poorest 20th percentile in country A are better off on an absolute basis, but the OECD (and most other poverty numbers) will show country B doing better because the poor are closer to the (much lower) median income.  In an extreme example, if everyone in a country were equally impoverished, the OECD would show that country as doing the best on poverty -- Yes, you read that right.  By this metric, the OECD would show a country where every person made just $10,000 a year as having 0% poverty.

Obviously, what one would really like to do is compare across nations the absolute well-being of the lowest 10th or 20th percentile.  On a purchasing power parity basis, which country's poor has, after transfers and taxes, more money?  Unfortunately, you likely have never ever seen this.  Yes, the data comparison is hard, but it is possible, so one has to wonder if there is some ulterior political motive for never showing this quite obvious analysis.

I tried to do this analysis myself for years (I describe some false starts here) but was unsuccessful until I actually identified a data source that would work, ironically from two folks on the Left (Kevin Drum and John Cassidy) who were using data from the LIS Cross-National Data Center to make comparisons of income inequality.  It turned out the data they were using could do what I wanted.

So now we get to the chart I call the poverty Rorschach test.  It is a comparison of the absolute income, by income percentile and including transfers and taxes, of the US vs. Denmark (the country by Drum's chart that should be the "best" on poverty)

click to enlarge

(The date is old, alas, because this kind of cross-country data is only gathered every so often)

This chart shows, on a purchasing power parity basis, that for every single income percentile, all the way to the bottom, an equivalent person in the US has more income than that a similarly situated person in Denmark.  In short, the poor in the US are wealthier than the poor in Denmark.  The only reason Denmark does better than the US in the way the OECD and others measure poverty is that the middle class in the US are a LOT wealthier than the middle class in Denmark.

I call it the Rorschach test because one either sees the US doing a good job, because everyone is better off, or the Danish doing a better job, because everyone is more even.  Proponents of the latter view tend to believe that the size of the economic pie is an exogenous variable, unrelated to the method one chooses to slice it.

I picked the Danish because they were the obvious comparison from Drum's chart, but here is the US vs. all the European countries for which there was data in the survey.  The US is better than all but 3 at the 10th percentile and better than all but one country at the 20th percentile.  And better -- by a huge margin-- for the middle class than any of the countries in Europe.

income_all

Update:  One more note on Drum's chart.  As I said above, the exact definition of the OECD numbers is percentage of people with income less than 50% of the country's own median income.  The US has a median household income, per the OECD, 41% higher than Denmark's.   So the US has 9% more people under a number that is 41% higher.   That is hardly a fair or meaningful comparison.

For reasons that are beyond my understanding, I am banned at Mother Jones so I cannot post the comments directly to his article.  If someone wanted to cut and paste this under his or her own name, I wouldn't complain.

 

  • GoneWithTheWind

    Most of our poor live at about the same level as Europe's middle class. About 3 billion people in the 3rd world countries are poor, really poor. Everyone of them can only dream of living as well as the "poor" in the U.S.

  • ErikTheRed

    Eh, you should call it the economic Rorschach test because it does to their argument what Rorschach does to the bad guys in the Watchmen books.

  • Maddog

    I posted the following on this at my blog, and cross posted over at MJ, it has a slightly different focus than your article but achieves the same ends:

    Europe, statistics, and fraud

    http://www.maddogslair.com/blo...

    The Poverty Rates Around the World chart is pure garbage and not worth the time to post, I am not sure why anyone would assume otherwise. Here is a good analysis of why.

    http://www.coyoteblog.com/coyo...

    In almost every case, the US has the best, and frequently the only meaningful data, and statistical information in the world. The European nations, suffer from many data problems, and all of them seem to stem from a need to be seen as excellent, but uncooperative data. So, whether the data concerns medical conditions like cancer, infant mortality, or poverty, the data coming out of the European nations must nearly always be interpreted as it seldom is complete.

    Examples of this are the fact that most European nations deflate their infant mortality rates by simply defining births of less than a specific weight, or gestational period as something akin to miscarriages, and not births, regardless of whether the child was born alive or not. This obviously makes any nation, like the US, which reports accurate data appear worse. But the truth is these European nations have their thumb on the scale.

    The same thing applies to poverty calculations, which Warren points out so well in the above post. The European nations seek to deflate their poverty numbers by creating a calculated number which is highly likely to deflate their numbers while inflating the US numbers. This seems to be the primary game in these statistical calculations.

    Please go read the article, it is short and well worth your while.

    The data comparatives are well done, and meaningful. Notice in the chart that if you compare the US 50% income level with Denmark, you find that it is equal to the 90-95% income level (Disposable Household Income (Dollars, PPP). Effectively the average family in the US has the disposable income of the top 95% level Dane. Where would you rather live?

    Also note that two nations commonly held out as paeans of high GDP, Switzerland, and Norway, perform quite badly on this chart with the 95% income level for both falling at about the 75% level of the US. Meaning the wealthy in those nations have the disposable income level of the middle to upper middle class American. Again, where would you rather live?

    I have written before about how surprised I am every time I travel to Europe with the low standard of living in the middle and upper middle classes. It is only the upper class and the uber wealthy who have large amounts of disposable income, or even American upper middle class levels of income.

    The OEDC chart is part and parcel of the European nations attempting to disguise just how far they are behind the US economically. This is the primary driver behind the European nations desire to ensnare the US with global warming foolishness. This is one of the only ways the European nations will have to slow US economic growth. Baring success in this area, the US will continue to grow far faster than the European nations, and within a decade or two the differences will become shocking.

    The real key for the next President is to reduce the Obama regulatory strictures, and free the economy to return to full on active growth. Only by doing so will we be able to create the dynamic growth necessary to begin pulling the world, and Europe out of its current mired state.

    And it is only a growing economy which will help continue to move the poor from poverty into wealth.

    I post on all kinds of issues at Maddog's Lair (maddogslair.com), feel free to visit.

    Mark Sherman

  • Michael Killian

    I would recomment the author leave his office and retrace the path of Paul Theroux in his 2015 travel book "Deep South". Or if that is too much to ask even of someone partiuclarly interested in poverty, he could read Theroux's book. The author here says "For reasons that are beyond my understanding, I am banned at Mother Jones so I cannot post the comments directly to his article.". I hope I am not banned on CAPX.

  • Michael Killian

    "Most of our poor live at about the same level as Europe's middle class." That is the most amazing comment I have read in quite some time. Have you met or even seen many poor people in places like Mississippi Delta or blighted Detroit? There are poor people by any standard in many Eastern European countries and now in ravaged Greece. I don't think they could be defined, or would define themselves, as middle class. I know in America, 'middle class', seen from Washington, seems to mean anyone not on food stamps or in prison, but 46% of Americans recently described themselves as working class. Class is hard to pin down. Poverty is visible, in terms of hardship and lack of opportunities. You just need to be able to see it.

  • CC

    The poverty index of OECD is comparable to the Gini coefficient which measures the evenness of a distribution. Yes, the Europeans seem to prefer everyone to be equally miserable. Another way to look at it is for individuals. Most people start out at very low wages (teenagers at below min wage). If your income over time grows by say 3%/yr, you will get a curve just like the purple curve above for the US. By the OECD measure, you spent much of your life in poverty, even though ending your career making good money and owning a house. Most people would say, yes, money was tight when they were 23, but few would say they were in poverty. Heck, there were times I slept on the floor and went years without seeing a movie. Poverty? no.
    The only European country I have driven around in was France. I never saw a nice suburb like one can spend all day driving through in the US. Yes, of course there are poor parts of the US and poor people, but have you seen the tiny cars they drive (or no car) in Europe, that everyone lives in apartments without air conditioning? It is absurd beyond belief to hold up Denmark etc as better than us and to aspire to be like them.

  • Peabody

    Based on your two comments, you seem to be misinterpreting. The author does not claim that real poverty does not exist in the US. He is pointing out that the commonly used metric of determining poverty based on median income is completely subjective and misleading. He is arguing that in general at each relative level of income residents in the US are better off than other countries with regards to absolute purchasing power.

    You can note that the OECD data does not make any distinction between a homeless person and a couple making $25K (less than 50% median income), hence the need to better define poverty. Unfortunately "you just need to be able to see it" does not aggregate to collecting data on over 300 million people.

  • thammond

    If you don't understand what "most" means, perhaps you shouldn't be incredulous at people who use such difficult words. Yes, some are very poor. That doesn't in any way mean the comment or article are wrong. Ten per cent of the US population is over 30 million people. The entire population of Detroit is 680,000. Look at the facts and figures and spare us the self-righteous virtue signalling.

  • Ken Charman

    Should've been posted on the Onion

  • Ken Charman

    Forget the data Mark. Just go and have a walk around in Detroit or the Appalachians ...

  • Maddog

    The progressives have done a bang up job at destroying parts of a near indestructible country. Regardless, the US economy will not be held down, outside of the progressives hell holes, and a few culturally backward places (you forgot to mention the Salton Sea area).

    The city was a mistake, we are learning from that mistake, and reforming its structure.

    Regardless, of Detroit, or the Appalachians, or any other progressive hell hole, Europe has more of these ugly places then can be imagined. And the "wealthy" locals aren't. They are shockingly poor.

    Either we will rebuild the worlds great economic engine, America, or the world will falter economically.

    Choose wisely.

    Mark

  • morganovich

    michael-

    it's very simple: take the 25th percentile spot from the US curve on the spaghetti graph. draw a line right to hit EU standards. it hits around 50.

    take 15 and it hits around 40.

    the EU has poor poor people, even at the very bottom, than the US.

    they just managed to get rid of the middle class and the rich.

    their poor are worse off, not better off.

    the middle class in the EU live in less space that the us lower class. they are less likely (by far) to own a car or many major appliances. i'm sure we can find a few very poor people in the US that have standards below that of the EU middle class, but, of course, if we look around the EU, we'll find poor people that are poorer still.

    no one said "all" he said "most".

    and most is clearly accurate.

  • obloodyhell

    You should have your brain sliced up like an onion... How such a remarkably ineffective device can simulate human behavior could lead to a real breakthrough in man-machine simulacrums.

  • obloodyhell

    In the usa, "poor" is someone whose flat-screen tv is, by other than choice, smaller than 45".... Lol.

    You cannot define "poverty" in relative terms. That is an absolute FAIL at understanding the very CONCEPT of poverty.

    Poverty is when you go hungry on a regular basis because you cannot afford food AND you aren't mis-spending your funds on less basic goods. Poverty is when you are homeless because you want, but can't find, a job. Poverty is when you have holes in your shoes because you just paid your rent and basic-needs bills and there is nothing left for food or clothing.

  • obloodyhell

    Indeed. "Poverty" is an absolute. To define it using a relative metric is foolish at best and probably disingenuous. The primary result is to stir up class envy... Which is The Liberal's main stock-in-trade

  • obloodyhell

    Wecome CapX people...

  • obloodyhell

    In the words of Thatcher, "they would rather the Poor be poorer, as long as the Rich were less rich..."

  • ErikTheRed

    Nice reply. I tend to use the more informal description: "Government statistics are created by liars that are full of shit, but they lie differently and use different kinds of bullshit and thus it's a bit of an Augean task to get through all of the lies and bullshit in order to have the sorts of meaningful comparisons that the lies and bullshit were designed explicitly to avoid."

  • morganovich

    obh-

    bingo. in the united states, poor people are fat. we are, in fact, the first country in all of human history, to have a lower class that is fatter than our upper class.

    throughout most of human history, being fat was an extreme status marker of wealth because so few people could afford to have even a little belly, much less be obese.

  • morganovich

    michael-

    your perspective is failing you. if you think that these places are poor, you have no idea what poor is. detroit is not poor nor rural mississippi.

    if you want to see real poverty, check out cairo or indian or bangledesh or afhghanistan. there, you will see what actual poverty looks like.

    hell, the places you cite have obesity epidemics. fat people in poverty is just a non starter as an idea.

    the income of a US panhandler puts them in the top half of income earners globally. (yes, really)

    MEDIAN per capita global income is $2920. that is $8 a day. you'll do far better than that playing bongos in a subway station.

    and note, those are NOT poor people. that's the global middle class.

    work one hour a day and you hit that. get one buck an hour dropped in your hat and you hit it. most make more like $25-30 a day.

    that's upper middle class by global standards

    so, sorry to demolish your illusions, but you have literally no idea what poverty is. it is so rare in the US as to be almost impossible to find.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Why?

  • Maddog

    I agree regarding Europe, but the US data is commonly excellent, and sometimes shockingly so. Take our murder, and violent crime reporting. The real let down is the manipulated data surrounding global warming, it is disgraceful.

  • SamWah

    Warren, your BANNED because you are harshing their mellow. Leftists can't stand that.

  • CapitalistRoader

    Just go and have a walk around in Detroit or the Appalachians ...

    ...or Marseille or Brussels or Malmö...

  • sailor116

    A lot of this has to do with how you classify a "transfer," and other such statistical machinations.

    For example, Europe has high taxation and many high costs, but also has good social services, especially places like Denmark. Moreover, many of their social services are semi-subsidized, so as a result you can spend less discretionary income on them.

    To use a simple example, compare
    "earning $40k/year after taxes, but you need to pay for your own childcare and health care."
    versus
    "earning $30k/year after taxes, but your childcare and health care are free or heavily subsidized."

  • TruthisaPeskyThing

    Detroit and Appalachians are the result of high levels of government intervention. A few years ago, a NYT reporter did an article on the poverty in Appalachia, revealing the obvious conclusion that government intervention was perpetuating the Appalachia poverty. Then she also recognized an internal dissonance within her thought process: she could not deny the unintended consequences in Appalachia but she did not want to believe that unintended consequence existed in her hometown of New York City

  • Ken Charman

    Whoever you are .. nequality is both an absolute and relative issue. And over the last thirty years the US has seriously lost its way on equality of opportunity. The concentration of wealth in the top 0.1% is ripping the country apart. That level of wealth is accumulated through market abuse not free market competition. But you can keep having the wool pulled over your eyes. The Onion is a satirical website by the way!

  • Ken Charman

    Because it's so comical. The Onion is a satirical website and this kind of polemic would be better used as humour.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    I see you have reality and make-believe mixed up, as leftists often do.

    For a second there, I thought you were suggesting that the Onion had switched formats to factual information, thereby supplanting most news sources today, since their format (comedy/satire) has become obsolete.

    As explained to you above, you’re exactly wrong about poverty. People in the US are not poor.

    Perhaps you can enlighten us with some well-reasoned counterargument….

    [This should be good]

  • ColoComment
  • obloodyhell

    How about something that doesn't involve triggering human envy and greed? Could it be... GASP! GASP! GASP! ... done with an ABSOLUTE measure?

    ;-D

  • obloodyhell

    The 30k case, the free/subsidized components are blatantly part of the transfer payments. They add to your total income.

    Mind you, if I pay $200 a month for health insurance in the USA, and get $4000 a year back in care, that's also a kind of transfer payment.

  • obloodyhell

    Inequality is a bullshit effort to stoke class envy by pointing out that someone else has more than you do, regardless of whether you're suffering or doing pretty damned fine by the standards of 50% of humanity.

    Inequality is, thus, a bullshit meme. It is an effort to sell to FOOLS the notion that it would be better if they were poorer, as long as the rich were less rich.

    Finding excuses in "how someone got rich" is equal parts bullshit and sales pitch for more of the exact same stupidity that made the Rich Bastards richer in the first place: more government intervention in markets.

    As anyone who knows about the history of the Income Tax in the USA -- how it got sold as a "soak the rich" scheme -- even though, by the time it got put into effect the back door for the Uber Rich already was fully in place: Tax Free Foundations (The Bill and Melinda Gates Foundation. The Buffet Foundation. The Rockefeller Foundation. The Pew Charitable Trust... etc. etc. etc.).

    The point to be learned -- which liberal idiots, who learned all they understand about wealth from Duck Tales (Rich people keep their money in money bins, preventing anyone else from playing with it. Then they go for a swim in it just for fun) Just Don't Get -- is that the Rich Bastards have better and faster access to the Corridors of Power than the Rest of Us. So attempts to use Government to Get At Them will ALWAYS FAIL. ALWAYS. They will subvert any law, regulation, or dirty trick you attempt to create, such that you rip off their noob rivals, NEVER them.

    The net result is a system which is infinitely more GAMEABLE than the Free Market -- the term is "Rent Seeking".

    I am VASTLY more wealthy than I would be in a more heavily soclialist system, because I have skills -- so as much as they already steal from me to give to people who WON'T work, I make enough. I'm not going to begrudge anyone making more because I realize MOST of the ones I could aspire to be are all BUSTING THEIR ASSES a lot harder than I do -- I've known enough people who make six figures, and every freaking one is a workaholic who works 50, 60, 70, and even 80 hours per week. I don't want that that much. Certainly not enough to justify giving up even more of my life to doing work.

    }}} And over the last thirty years the US has seriously lost its way on equality of opportunity.

    I agree. And the reason for that has nothing to do with the wealthy, it's because of all the absolute BULLSHIT the federal, state, and local governments put in place that utterly obstruct anyone from doing things for themselves.

    It's called REGULATIONS and it's the only segment of the economy which is a perpetually reliable growth industry.

    Which, if you actually hang around here long enough to Get It (I doubt if you will, this ain't no liberal echo chamber) you'll start to figure out. That or you'll get mocked a lot for being brain-dead stupid.

  • Ken Charman

    Would you say you are more or less tempted to mouth off when you hide behind a silly screen name?

  • ano333

    Warren, do the charts you provide re Denmark not account for the extra services that the Danes received due to their higher taxation, such as healthcare? I know that a good chunk of my disposable income here in the US goes to health insurance and then to co-pays and the like. Is there a way to correct the data in the charts to compensate for whatever extra the Danes get from their government?

  • jdgalt

    Good luck trying to come up with an absolute measure. Do you trust official exchange rates or try to come up with equal purchasing power?

  • stevewfromford

    All one needs to know is that the poor of the world (the REAL poor) stream into the US, if they are able, to take the most menial jobs we have , the ones Americans, supposedly, won't do! These people are not stupid. They understand very well what poverty is and where they have the best chance to avoid it by their own efforts. Having the ability to avoid poverty and despair by ones own efforts is one of the most wonderful gifts possible and yet most don't even know it exists.

  • http://blog.monstuff.com Julien Couvreur

    I'm always wary of per-household measures of income, because there can be such a dramatic different with per-person. Do you know if the purchasing power data is also available per-person, by any chance?

  • http://blog.monstuff.com Julien Couvreur

    While your broad point is certainly correct (looking a relative vs absolute measurements matter), a household's standards of living are not just measured by disposable income. For instance, I assume that Denmark has universal tax-funded healthcare, which means benefits to the poor that are not registered in the above graph.

  • markm

    The USA also has free healthcare for the poor: Medicare. What we don't do is force those that can pay the average cost of healthcare into the same sucky government system. Not yet - but if Obamacare was designed to do _anything_, it's to raise the cost of medical services and private insurance until everyone but the 1% is forced onto government healthcare.

  • http://blog.monstuff.com Julien Couvreur

    Seems like you have trouble staying on-topic 😛
    Actually, the US system for the poor is Medicaid (I mix them up constantly too). My point still remains (disposable income does not equal standards of living).

  • http://aguanomics.com/ David Zetland

    Yes. I live in the Netherlands and the QUALITY OF LIFE here is far better (on my $70k salary that would be double in the US) than I'd ever enjoy in the US (I've lived in California and DC). Does America have cheap land in boring places? Yes. Can people with high income live in gated communites? Yes. What's better here is the generally excellent (better than 90% of the US) condition of public spaces, infrastructure and institutions (e.g., politics, governance, retirement, bureaucrats).

    But, yes, you can earn more CASH in the US. Congrats on finding ways to enjoy it...

  • Robert Rounthwaite

    Would love to see a link here.