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May 6, 2019, Monday

Redefining Poverty Down

Austerity for the poor, trickle up for the rich

Redefining Poverty Down
You'd think that in a booming economy growing at an impressive 3.2 percent clip and hailed as the greatest economy ever by the President, poverty should be redefined higher. After all, when things are going so well, you want everyone to do better. And to that extent, reassess what is not so well up.

Redefining the metric at which the poor is counted is probably one way to reduce "poverty" except nothing really changed besides statistics and numbers. President Trump is all about headline numbers ─ like the price of the Dow and record unemployment at 3.6 percent ─ though candidate Trump routinely ridiculed these same measures as phony and a giant bubble.

According to Bloomberg, "by changing the index the government uses to calculate how much the cost of living rises or falls, the poverty level could rise at a slower rate."

One proposal by the Office of Management and Budget includes shifting to the so-called chained CPI, which registers slower inflation gains than the traditional CPI. How? It's hedonic pricing in reverse. When consumers switch from steak to chicken because steak has gotten too expensive, the statisticians conclude that inflation hasn't risen at all. People just downgraded the quality of their meat. And when consumers switch from chicken to hot dogs because they can't afford chicken either, our clever statisticians tell us that consumers aren't paying more, just paying for something different. As crazy as this sounds, government bureaucrats do this all the time. In the past twenty years, we redefined inflation to include hedonic quality adjustments. And the BLS began to uncount discouraged workers in the monthly employment numbers. The official unemployment rate is 3.6 percent, but it's really not.

"Because of this, changes to the poverty thresholds, including how they are updated for inflation over time, may affect eligibility for programs that use the poverty guidelines," OMB said.

poverty threshhold chart

With this economic legerdemain, thousands of Americans will disappear from the roll of the impoverished and struggling and magically levitate into the class of Americans who are doing just fine. And with fewer Americans on food stamps, welfare and government subsidies, that will serve as another feather in the White House's red hat.

"The possible change appears to be the latest effort by the Trump administration to make it harder to access welfare programs," Bloomberg said. "Last year, President Donald Trump signed an executive order calling on federal agencies to more strictly enforce current work requirements for welfare recipients, and propose additional, more stringent requirements that could further reduce eligibility."

S&P 500 and FED stimulus

But playing games with numbers is no way to run an economy or a country that wants to be "Great Again". One in four Americans currently receive some kind of government subsidy. A majority live paycheck to paycheck. Forty-five percent of boomers have zero in savings for retirement. And forty percent of Americans can't afford a measly $400 emergency expense. Just saying that fewer Americans suffer from poverty doesn't change that. But maybe less people should be on the government dole? Perhaps we've been too generous? Maybe Trump is right when he say, "millions of able-bodied, working-age adults continue to collect food stamps without working or even looking for work."

If tough love is good for the poor, then why do we continue to treat Wall St. with soft kid-gloves? According to Trump, the economy is so strong the FED should cut rates by 1 percent as soon as possible and introduce another round of QE. Worse, he crows about new highs in the Dow as if what's good for Wall St. is good for Main St. Why is it okay to advocate subsidies and socialism for Wall St. while casting vituperations for the same on the poor? It seems very unfair, inequitable and one sided.

US U3 Unemployment Rate
US labor participation rate

It's little wonder why socialism, Universal Basic Income (UBI) and candidates like Bernie Sanders (a democratic socialist) are increasingly popular with everyday Americans, even pundits and hedge fund managers. It's becoming clear that QE for Wall St. is trickle up for the rich. Bank bailouts don't help America, it helps wealthy bankers. Central bank monetary policy is often a euphemism for socialism/wealth redistribution for the .1%. And so in reaction, people want a bit of that free money too. Why should only the rich get handouts? #yanggang2020
povertyblsunemployment ratehedonicsstock marketcpiconsumer price indexinflationyanggangandrew yangbernie sanderssocialismtrickle down economics.1%