Michael Green (20:12)
Well, in 1963, an economist with the Department of Health and Human Services named Molly Orshansky created the poverty line analysis. She observed that for a typical family, they spent about one third of their income on food. And so by taking the USDA minimum food budget and tripling it, she created a level that she described as the point of crisis. She explicitly declared, it's impossible to know how much is too much, but we can perhaps define what is too little. And so the poverty line was established at that point because at a level of three times the minimum food budget, you would expect that people would be barely able to cover their housing costs, barely able to cover their other lifestyle choices, clothing Food, et cetera. The problem with that analysis is that food has fallen very rapidly in the budget today. And so as a, as a global agricultural superpower who went further and opened up our food markets to the world on a free trade platform, that's led to food appreciating significantly less. Now in 1969, they actually formalized it at that level and began inflating it by the CPI index, which is the index that we usually think of as representing the cost of living. The problem with that is that there are, first of all, just like the poverty line, There are multiple CPIs that are used for different purposes. And the reason why the CPI as it's currently constructed is not appropriate for a poverty level budget for basically using as a discount factor for the poverty level budget is because the CPI includes many luxuries that are falling in price and becoming standard fare when they weren't. Historically, that means things like air conditioning, et cetera. You show in CPI a continuous benefit associated with it in the form of lower and lower prices for air conditioning. That's captured in the CPI through the housing adjustment. It means effectively that housing in CPI doesn't go up as fast as the actual cash outlay for housing. That's actually an accurate representation of improving quality. It's not that there is a giant conspiracy theory to deprive Americans of their appropriate cost of living allowances, but if you're at that level at which you're basically deciding I just need housing, I don't really care whether it has air conditioning or not, that's a false choice. You're not actually expressing what's called in economics a revealed preference for air conditioning. What you're really saying is today there's almost no air, non air conditioned units available, but the government claims I'm paying less for the apartment because I now have the benefit of air conditioning. That's just not correct when you think about a budget that is limited at the very low level, and as a result the poverty line has fallen significantly. This leads to claims statistics that poverty has largely evaporated in the United States. And unfortunately, it's how we calculate it that is really driving that analysis. More and more families are finding themselves at that $100,000 to $140,000 level in which they're incurring all of the costs associated with raising children, with raising those future taxpayers, raising those future contributors to our economy. And the government is basically saying, yeah, that's a negative value activity. So we're seeing less household formation, we're seeing less family Formation, we're seeing less children because people are being forced to make these choices for purely economic reasons.
