When socialist muckraker Upton Sinclair dropped his gonzo exposé on the abysmal working conditions of Chicago’s meatpacking industry, the public was enraptured and horrified by the serial that eventually became known as “The Jungle.” However, the outcry wasn’t over the dangerous and destitute conditions faced by Chicago’s laborers, but rather the appalling sanitary and health handling of the meat itself. Sinclair didn’t spur a socialist revolution, but disgust with the safety of America’s meat culminated in the creation of what became the U.S. Food and Drug Administration.
A similarly florid and semi-fictionalized piece by portfolio manager Michael W. Green at the Free Press has instigated a similar reaction. Though Green’s thesis is that $100,000 is the new poverty line, audiences on the social media site X have obsessed over Green’s tangential illustration of public benefits cliffs and how the welfare system disincentivizes the working class from, well, working.
BILL PULTE WILL DO ANYTHING TO LOWER HOUSING PRICES EXCEPT BUILS MORE HOUSING
“Our entire safety net is designed to catch people at the very bottom, but it sets a trap for anyone trying to climb out,” Green writes. “As income rises from $40,000 to $100,000, benefits disappear faster than wages increase. I call this zone the Valley of Death. At $35,000, a family gets SNAP food benefits and childcare subsidies. But move to just $45,000, and the family loses Medicaid eligibility. Now there are premiums and deductibles. For a family in New Jersey, the $10,000 gain is erased by an increase of $10,567 in costs. At $65,000, there is another cliff where childcare subsidies vanish. The $20,000 income gain is accompanied by $28,000 in new tuition payments.”
It is unambiguously true that our welfare system is progressive to the point that it is pernicious to those who actually have the integrity to want to earn their keep. It is also beyond dispute that, after four years of the worst inflation crisis in the past 50 years, wages are still struggling to catch up to a +20% increase in the cost of living, despite sustained real earnings losses under President Joe Biden.
But that is not the same thing as the poverty line being $100,000, or worse, as Green later claims in his essay, $140,000.
Green begins his case with the argument that the historical definition of the poverty line in the U.S., being three times the minimum annual food budget for a given household, is a lie because groceries no longer comprise a third of household spending. Instead, Green asserts that household food consumption accounts for 5-7% of a household budget, housing for 35-45%, healthcare for 15-20%, and childcare for 20-40%.
“If you keep [economist Mollie] Orshansky’s logic — if you maintain her principle that poverty could be defined by the inverse of food’s budget share — but update the food share to reflect today’s reality, the multiplier is no longer three,” writes Green. “It becomes 16. Which means if you measured income inadequacy today the way Orshansky measured it in 1963, the threshold for a family of four — the official poverty line in 2024 — wouldn’t be $31,200. If the crisis threshold — the floor below which families cannot function — is honestly updated to current spending patterns, it lands at close to $140,000.”
It’s not entirely worth engaging with the rest of the piece, which similarly argues that “the cost of participation” in society amounts to almost $140,000 exactly, if only because none of the above is actually true.
The latest Consumer Expenditure Survey, released by the Bureau of Labor Statistics, found that the average household consisted of 2.5 people and 1.3 earners who earned $101,805 before taxes and spent a total of $77,280 in 2023. Nearly 13% of the average budget was allocated to food, with nearly half of that amount spent on food outside of the home. At 32.9%, housing comprised just under a third of the total budget, while transportation accounted for 17%.
Childcare is where the data gets a little tricky. Because so few households even have children anymore, you have to pull the figures from BLS microdata to find that the average household spends less than 2% of its annual budget on childcare. Interestingly enough, the average household with children also allocates only 2% of its spending toward childcare, in large part because most children begin taxpayer-funded public schooling between the ages of three and five. Among the 5% of households that actually pay for a few years of childcare, this accounts for 23% of their total spending. For households earning between $50,000 and $100,000 that spend on childcare, childcare accounts for 22% of annual spending, and for those earning between $100,000 and $150,000, it accounts for 16% of spending.
Let’s compare this data to the early 1960s, when Orshansky initially created our contemporary definition of the poverty line. According to the BLS, the average household spent $5,054 annually, but the average household income was only $5,600. In today’s dollars, the average household was only netting some $6,000 before taxes. More than a quarter of average household spending went to food, 13.1% to shelter, 15.2% to transit, and 6.7% to healthcare. In other words, compared to 1960, food for the average household is half as expensive, while transit and healthcare are actually just a tick more than they were then. The truly explosive cost, as I have repeatedly opined, and the source of virtually all of today’s economic malaise, is the cost of housing.
And the only source driving that exorbitant cost of housing is the government-engineered dearth of housing supply. From the 60s through 2000, the nation’s total housing stock grew at an annual rate of 1.7%, but in the past decade, it grew less than half as fast. Compared to the second half of the 20th century, the production of medium-density housing, specifically two-to-four unit structures, in the 21st century has decreased by 75%. While it’s difficult to quantify the precise responsibility restrictive zoning has on housing supply, it’s easy to illustrate, as I previously have here and here and here and so on. More restrictive zoning laws tend to mean less space for housing to be built, and the housing that is built is often legally required to be so large that it is prohibitively expensive for lower-income earners who don’t need such a large space in the first place.
THE SENATE TRIES TO DO WHAT THE HOUSE CANNOT: SOLVE THE HOUSING CRISIS
Other economics wonks have taken their own stabs at Green’s assertion that some 7-in-10 Americans actually live below the poverty line. AEI’s Michael Strain points out that Green ignores the 40% increase in average inflation-adjusted wages over the past three decades, and Scott Winship excoriates Green’s methodology.
But we need not push the analysis any further. On the basic facts about necessities as a share of household spending, Green is simply wrong. Housing is too expensive, as are specific markets for childcare and healthcare, and the welfare state unfairly rigs the game at the lowest tiers of society. But to pretend that most Americans are actually impoverished is a level of entitlement and delusion that deserves equal parts scorn and pity.
