Study misses what poverty is about

The Heritage Foundation released a report today about poverty that managed to get some traction in the media. There is nothing terribly new in the report; it is basically a statistically-rich rehashing of the idea that poor people are not really poor. The Heritage Foundation provides a long list of what are mainly cheap, consumer electronics, and then reports on what percentage of impoverished households have them. The suggestion is that America’s poor are actually living quite well because most of them have a television, coffee maker, air conditioning, and other similar amenities in their households.

The timing of this report is fairly suspect. All of the data in the figures is from 6 years ago which suggests that in addition to there being nothing new in the approach, there is also nothing new in the statistics. Of course, publishing a report like this right now makes sense politically as a background for a deficit reduction bill that is poised to take away trillions of dollars from the poor in the coming decade. If they are not really poor — as the Heritage Foundation suggests — then making them pay for the budget deficit must not be nearly as inhumane a policy as it sounds.

Responses to the arguments have been fairly limited. Derek Thompson at The Atlantic makes the point that although consumer electronics are getting cheaper, the more essential items like housing, food, health care, and education are getting much more expensive. A one-time purchase of a television set hardly makes up for the wage-eating rise in rents. Matthew Yglesias forwards a similar argument pointing out that although electronics are more accessible, “if you’re looking to live in a safe neighborhood with good public schools in a metropolitan area with decent job opportunities you’re going to find that this is quite expensive.”

These responses are worthwhile in demonstrating the absurdity of the Heritage Foundation’s selection of amenities to measure. However, they problematically rely on the same misconception that the harms of poverty are exclusively tied to some sort of objective material deprivation. Although being deprived of quality material goods is a big aspect of poverty — especially when talking about poverty in absolute terms — there are additional impacts of poverty that are just as damaging.

For instance, one of the most difficult aspects of living in poverty is being in a state of total instability. A family of three making $18,000 per year is always a single step away from total insolvency. If it is even possible for that family to find a place where they can make ends meet reliably, they will almost certainly accumulate no savings. They will live in a dangerous, run-down neighborhood with the threat of crime and violence always present — granted with a refrigerator and toaster in their apartment. Due to their scarce financial resources, any kind of disruption (e.g. an illness or a layoff) will leave them short on their bills, constantly in interest-accruing debt, and never certain whether this will be the month they get kicked out of their rental unit for failure to pay.

It is the utter terror and anxiety of that kind of life that is really the defining feature of poverty, and the reason why a moral society would be interested in doing whatever it takes to eradicate it. In the United States, it is not likely that someone will be so poor that they starve. They might be so poor that their food options leave them horribly unhealthy, but even the poorest in the society are typically able to find the absolute bare necessities to keep on living.

Debates about how much above those bare necessities should be considered legitimately poor completely miss the point. Having some index of goods does not make your life stable and secure, and consequently does not shield you from the psychological impacts of living in perpetual uncertainty about the next month’s expenses. That is what poverty is about, and that is why studies like those produced by the Heritage Foundation are so vacuous.

The ideological significance of the financial crisis

The financial crisis is nearing its three year anniversary, and the ideologically-tinged battles over identifying its causes are still roaring on. For champions of the free market, much is at stake in explaining what led to the 2008 financial meltdown. On its face, it appears that banks and investors foolishly jumped on the bandwagon of an asset bubble driven by the extension of easy credit. When that bubble popped, the investment vehicles built on top of it saw a huge loss in value, causing a panic that would have — if not for government intervention — precipitated a world-wide financial collapse and great depression.

Investors and banks incompetently bankrupting themselves and bringing down the rest of the world with them is hard to reconcile with the usual rhetoric about the self-correcting, rational, efficient market. Defenders of that particular ideology are then pressed to find some way to explain away the crisis that absolves the market actors from the colossal mistakes that they made. If they can blame their actions on something else — ideally government behavior — then they can protect their free market ideology from what would otherwise be a devastating counter-example to its practicality.

Efforts to provide a government-blaming explanation have revolved around two main claims. The first is that the Community Reinvestment Act — a 1977 law that outlaws the racist practice of redlining — forced banks to make the bad mortgages that drove the asset bubble and the eventual financial collapse. At first glance, this argument is very implausible given that the law has been around for three decades, and only requires community banks not to discriminate between equally creditworthy individuals. Whatever one thought of the viability of the argument, it was crushed in the Financial Crisis Inquiry Commission report which found the following:

The Commission concludes the CRA [Community Reinvestment Act] was not a signifcant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans — a proxy for subprime loans — had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law.

With that attempt to blame the government defeated, the only other argument coming from those trying to defend the market ideology centers around Fannie and Freddie. The arguments surrounding that are fairly technical and largely depend on disputes about definitions. I wont go into the discussion in depth here, but Mark Thoma provides an abundance of different analyses explaining where those arguments go wrong. The short of it is this: even though Fannie and Freddie did foolishly participate in subprime lending and securitization, they were late to the game and were only responding to existing market trends set by private originators and investment houses.

To that analysis, I would add that even if the behavior of Fannie and Freddie did lead banks and investors to create a speculative bubble, there is no reason it should have. Private market actors were under no obligation to buy mortgage-backed securities; ratings agencies were under no obligation to provide AAA ratings to those securities; investment firms were under no obligation to leverage themselves in a way that left them insolvent when the bubble burst; AIG was under no obligation to insure the mortgage-backed securities in a way that would eventually leave the firm bankrupt; and, other mortgage originators and investment banks were under no obligation to copy the practices of Fannie and Freddie (although we know that Fannie and Freddie were actually copying their bad practices).

The fact that market actors freely chose to do all of these things reflect that they had misjudged the risk the housing bubble posed, a sector-wide misjudgment that had catastrophic consequences for the entire world. Defenders of the ideology of unrestrained markets have nothing that they can say about those freely chosen decisions. Market actors are supposed to be acting on all of the knowledge that is available to them, including any distortions that Fannie and Freddie introduce, information about which was public and accessible. They are not supposed to make decisions which bankrupt their own firms and bring down the entire financial sector, certainly not en masse. But in this case, they did exactly that.

What the financial crisis represents is a real-world refutation of the idea that the market is rational and can be counted upon to self-regulate. In theory that argument has some compelling features. After all, why would a firm trying to maximize profits take actions which destroys itself. Whatever the reason is — incompetence, misplaced incentives, or irrational exuberance — we have a perfect example of firms doing just that.

If proponents of a wide-open free market were intellectually honest about this financial crisis, they would have to revise their views in the same way that Alan Greenspan — previously a proponent of the ideology of self-regulating markets — did soon after the meltdown took place. Of course, just because they should do it does not mean that they will. Given the central importance of this view for the entire ideology of the right wing, I am doubtful anything could ever convince them to abandon it.

The silver lining of the food desert study

A study published earlier this week debunked one of the primary explanations for why obesity disproportionately affects poor people. According to the Los Angeles Times, researchers found that better access to supermarkets did not positively affect the diets of poor people. The findings contradict the argument that food deserts — geographical areas that are devoid of healthy food options — are a driving factor for obesity among poor people.

The food desert argument is a very plausible one. Urban and rural areas inhabited by poor people often do not have supermarkets in their immediate vicinity. Consequently, residents of those areas have to rely on fast food restaurants and convenience stores to access food. These food sources primarily feature highly caloric items which, when consumed often enough, can drive obesity. On this view, the lack of access to healthy food options for poor communities is driving the obesity epidemic. If we want to remedy the problem, we need to find ways to end food deserts, and bring healthy food options to those who do not currently have them.

Although this argument makes good sense, it is apparently not supported by the data. In this particular study, researchers analyzed the diets of 5,000 study participants and found that their food choices did not change when healthier options came into their areas. The study does not prove that geographical access to healthy food is not necessary for a good diet. But it does prove that access alone is not sufficient. Individuals with low incomes and a proximity to fast food options still pursue those options whether healthier food is available or not.

These findings do not conflict with the idea that the conditions of poverty are a driving factor in the obesity epidemic. In fact, the researchers claim that having a low income was one of the primary factors that predicted a bad diet. Given that healthy foods cost more than unhealthy foods, low-income individuals are in a position where genuine access — not just geographical access — is not present. As long as healthier food remains more expensive and more time consuming than unhealthier food and poor people remain poor, the obesity epidemic will continue to plague poor communities whether food deserts exist or not.

Although the findings are somewhat disappointing, there is a silver lining to it. Recently Walmart has used the claim that they can help alleviate food deserts to try to get approval to build in cities in which they were previously unable. With this new study, that rhetorical approach suffers a serious blow.

It is clear that simply providing access to healthy food will not be enough. If poor communities do not also receive higher wages — something Walmart certainly will not provide — the increased geographical access will amount to nothing. Poor residents will still be forced to resort to unhealthy food options, and obesity and other diseases related to poor food will not be curbed at all. Walmart’s expansion might alleviate the problem of geographical access to healthy food, but its employment policies exacerbate the problem of genuine access to it.

Now that we know that geographical access does not, by itself, help with problems of food inequality, we can focus on the issue that everyone always hates to focus on instead — poverty.