Inflation Inequality

“The Costs of Being Poor”…. New research finds *inflation inequality* means 3.2 million more people are living in poverty than official stats suggest. Subscribe to Off-Kilter on iTunes.

A truism that’s long had staying power in the poverty space because of… well, its truth, is: “it’s expensive to be poor.” Well, it turns out it may be getting even more expensive to be poor, due to a new trend that’s emerged as yet another consequence of rising inequality. Economists are calling this new phenomenon “inflation inequality.” In a nutshell: As prices go up more quickly for the things that low-income households spend a significant share of their household budgets on, families with low incomes are in effect facing a higher rate of inflation than the public at large — further adding to the squeeze they’re experiencing as their wages continue to stagnate.

The result? We may be underestimating the scale of both poverty and income inequality in the U.S. by a long shot. New research released just this week by the Center on Poverty and Social Policy at Columbia University, in partnership with the Groundwork Collaborative, utilizing an adjusted inflation index that accounts for inflation inequality across the income distribution, finds that a staggering 3.2 million more people are living in poverty than our official statistics suggest — and that inequality is worsening even more sharply than we knew, to boot.

This research — and the phenomenon of “inflation inequality” — may seem even wonkier than the wonkiest topics we ever discuss on this show. But it has hugely important implications — for starters, on how we understand poverty, who the economy’s currently working for, and how rapidly the gap between rich and poor is widening in this country. Even more tangibly, it has direct implications for how many people currently struggling to make ends meet qualify for government benefits like food assistance and subsidized health insurance.

Meanwhile, this important new research comes against the backdrop of an ongoing debate over how we measure inflation for low-income households. Earlier this year, the Trump administration proposed to redefine poverty downward by switching to an even stingier measure of inflation than we already use to adjust the annual poverty threshold. Their proposed change — which was widely lambasted by poverty experts as “mathematical gaslighting” — would result in an even lower poverty line and lower official poverty rates over time, despite the fact that struggling families weren’t seeing their economic situation improve at all. It would also function as a backdoor way to slash a wide range of assistance programs, from SNAP to Medicaid and more, by restricting the number of low-income people who are eligible for those programs.

To better understand the phenomenon of “inflation inequality,” how it’s impacting low-income folks, and what’s at stake in the growing debate over how we measure inflation, Rebecca sat down with one of the leading researchers on “inflation inequality” and an author on this newly released paper — Dr. Xavier Jaravel, a professor at the London School of Economics — and with Jessica Fulton, director of economic policy at the Joint Center on Political and Economic Studies, one of the experts working on putting this research into practice in the policy world. And later in the show: we bring back a conversation Rebecca had earlier this year with the Center on Budget and Policy Priorities’ Jared Bernstein, who helped to unpack the Trump administration’s proposal to redefine poverty downward by switching to an even less accurate measure of inflation.

Fair warning, this will admittedly be one of Off-Kilter’s wonkier episodes to date. But we thought it was important enough a topic that it was worth diving into, given the far-reaching implications for antipoverty policy — so bear with us, friends.

This week’s guests:

• Dr. Xavier Jaravel, professor, London School of Economics
• Jessica Fulton, director of economic policy, Joint Center on Political and Economic Studies
• Jared Bernstein, senior fellow, Center on Budget and Policy Priorities

For more on this week’s topics:

• Dig into Dr. Jaravel et. al.’s new report, “The Cost of Being Poor: Inflation Inequality Leads to 3 Million More People in Poverty”

This week’s transcript:

♪ I work and get paid like minimum wage

sights to hit the class by the end of the day

hot from downtown into the hood where I stay

the only place I can afford ’cause my block ain’t saved

I spend most of my time working, trying to bring in…. ♪

REBECCA VALLAS (HOST): Welcome to Off-Kilter, powered by the Center for American Progress Action Fund. I’m Rebecca Vallas. A truism that’s long had staying power in the poverty space because of well, its truth is it’s expensive to be poor. Well, it turns out it may be getting even more expensive to be poor due to a new trend that’s emerged as yet another consequence of rising inequality in America. Economists are calling this new phenomenon “inflation inequality.” In a nutshell, as prices go up more quickly for the things that low-income households spend a significant share of their household budgets on, families with low incomes are, in effect, facing a higher rate of inflation than the public at large, further adding to the squeeze that they’re experiencing as their wages continue to stagnate. The result: we may be underestimating the scale of both poverty and income inequality in the US by a long shot.

New research released just this week by the Center on Poverty and Social Policy at Columbia University, in partnership with the Groundwork Collaborative, utilizes an adjusted inflation index that accounts for this new phenomenon of inflation inequality across the income distribution. And this new research finds that a staggering 3.2 million more people are living in poverty than are official statistics suggest. The research also finds that inequality is worsening even more sharply than we knew, with real household incomes for the bottom 20 percent actually falling by more than 7 percent over the past 15 years. Using that adjusted inflation measure that I mentioned, income inequality, they find, between the top and bottom quintiles widened by more than 20 percentage points. That’s about 35.5 percent more than is measured by the conventional measure of inflation.

So, this research and the phenomenon of inflation inequality may seem even wonkier than the wonkiest topics we ever discuss on this show, but it has hugely important implications. For starters, it has implications for how we understand poverty, who the economy’s currently working for, and importantly, how rapidly the gap between rich and poor is widening in this country. But even more tangibly in the lives of low-income people in America, it has direct implications for how many people currently struggling to make ends meet qualify for government benefits like food assistance and subsidized health insurance.

This important new research, I should also note, comes amid the backdrop of an ongoing — I’m going to start that paragraph again. This important new research comes against the backdrop of an ongoing high-stakes debate over how we measure inflation for low-income households. Earlier this year, as you may recall, the Trump administration proposed to redefine poverty downward by switching to an even stingier measure of inflation than we already use to adjust the annual poverty threshold every year. The Trump administration’s proposed change, which was widely lambasted by poverty experts as “mathematical gaslighting,” would result in an even lower poverty line and lower official poverty rates over time, despite the fact that struggling families wouldn’t be seeing their economic situation improve at all. It would also, and this is really important to note, function as a backdoor way to slash a wide range of assistance programs from SNAP to Medicaid and more, by restricting the number of low-income people who are eligible for those programs.

So, as the team of researchers behind this groundbreaking new research argues — and the paper is called The Costs of Being Poor: Inflation Inequality Leads to Three Million More People in Poverty, the researchers argue that taking seriously the actual inflation rates faced by families at the bottom of the income distribution strongly suggests that we have a far too rosy view of the actual levels of deprivation and hardship faced by low-income households struggling to make ends meet. And importantly, when you look at the policy implications here, we should be doing more, not less, as the Trump administration would like us to believe, to help these families get by.

So, to better understand the phenomenon of inflation inequality, how it’s impacting low-income folks, and what’s at stake in the growing debate over how we measure inflation, I sat down with one of the leading researchers on inflation inequality and one of the authors on this newly-released paper I mentioned, The Costs of Being Poor. His name is Dr. Xavier Jaravel. He’s a professor at the London School of Economics. I also sat down with Jessica Fulton. She’s the director of economic policy at the Joint Center on Political and Economic Studies, and she’s one of the experts working on putting this research into practice in the policy world.

Later in the show, to round out this conversation, we also bring back a conversation I had earlier this year with the Center on Budget and Policy Priorities’ Jared Bernstein, who helped me to unpack the Trump administration’s proposal, which I mentioned would redefine poverty downward by switching to an even less-accurate measure of inflation, helping remind us what’s at stake as we think about how we measure inflation and why it matters. Fair warning: this will admittedly be one of Off-Kilter’s wonkiest episodes ever, but we thought it was important enough a topic that it was worth diving into, given the far reaching implications for anti-poverty policy and the stakes, as I mentioned, because of Trump’s current proposal to redefine poverty downward by fudging how we measure inflation. So, bear with us friends, because here we go.

First up, my conversation with Dr. Xavier Jaravel, one of the leading researchers on inflation inequality, and one of the authors on the new paper I mentioned, The Costs of Being Poor: Inflation Inequality Leads to Three Million More People in Poverty. Let’s take a listen.

Dr. Jaravel, thank you so much for taking the time to join the show.

XAVIER JARAVEL: Well, thank you very much. It’s my pleasure to be here.

VALLAS: So, before we dig into your research and dig into sort of the wonkier side of this subject — and it is no shortage of wonky here — it feels like the right place to start is actually just to unpack what is inflation? And then we can talk a little bit about how we measure it.

JARAVEL: Yeah. That’s a great question. So, it seems like a fairly simple question, right? Because we often talk about inflation. We have the central bank, the Fed talking about inflation. But in fact, it’s fairly, you know, it’s a difficult concept. So, the idea is that we want to measure how prices change in the economy. And you have obviously millions of products, right? Different industries, and in each industry, you have millions of goods, and you have different types of services. And so, we want one single number that tells us how much more expensive life has become today compared to a year ago. So, that’s the idea of inflation. You want a single number that tells us how cost of living is changing over time.

VALLAS: And there is no one way that we measure inflation. This is actually where it adds another layer of complexity. What are the various ways that we are currently measuring inflation, and would you explain those?

JARAVEL: Yeah. So, I’ll just give a broad description because the details are fairly complicated. But basically, what you do when you measure inflation. So, in the US, it’s the Bureau of Labor Statistics that does this. So, what you do is that you collect information on price changes for millions of products and services, and then you aggregate those into a single number using spending shares. So, expenditure shares: how much people were spending on this good versus that other good. There are different methods about exactly how you do the aggregation. So, how you use expenditure shares today versus a year ago, because over time spending changes, right? So, for example, over time, we spent relatively more on services. So, services today is 70 percent of the economy. Thirty years ago, it was closer to 45, 50 percent. And so, the main difference in ways to measure inflation is how you change these expenditure shifts.

And the idea is that you want to keep track of the right basket of goods. And so, the main method is from the Bureau of Labor Statistics, and you look at total spending in the US economy. So, it’s an aggregate notion of consumption. So, you have this market basket for the whole US economy. And so, I think what we’re going to talk about is what happens when now you have differences for different groups that in fact have different market baskets.

VALLAS: No, that’s exactly right. And so, people might be hearing you describe this and thinking, got it. OK. So, there’s this thing, inflation, and it’s how we all experience things getting more expensive for us. But that’s actually a big part of what your research has looked at over the years and also in recent months. And you’ve taken a look at, is it fair to say that everyone at all different levels of the income distribution is experiencing the same kind of inflation, or is it actually playing out differently for low-income versus higher-income households? This concept of quote-unquote “inflation inequality,” as I mentioned in my introduction up top. Talk a little bit about some of the questions that you’ve been looking into and that others have been looking into and some of what you’re seeing in the research.

JARAVEL: Exactly. So, I’ve been trying to quantify the extent to which there might be inflationary inequalities, so meaning to what extent do people at the bottom of the income distribution experience different inflation rates than compared to those at the top of the income distribution? And the reason why you might think that could be the case is that we can see with our own eyes that price changes, inflation are very different for different types of products, right? So, if you think about electronics, prices don’t really increase. If anything, they decrease. We get better and better goods. The existing ones become cheaper. And then you have other goods like food products, for example, which tend to have most stable and positive inflation rates. And so, what I’ve found using a variety of data sets is actually that the inflation rates in the United States happen to be larger for people at the bottom of the income distribution. So, that means that the cost of living goes up faster if you’re someone who doesn’t have a lot of income in the first place. Then you face higher price increases. And so, one example of this is, for example, food versus electronics, consumer electronics. If you’re low-income, you’re going to spend relatively more on food as opposed to consumer electronics.

But a lot of what I’ve found is actually that even if you zoom in, in very detailed product categories, you keep finding that same pattern. So, other examples, within alcohol, wine has lower inflation rates than beer. Then even if you’re zooming further, beer that targets higher income groups like craft beer, that has low inflation rates, a lot of innovations, a lot of product variety compared to established manufacturers like Miller or others where you have actually higher inflation rates. So, you look in different parts of the economy, different levels of aggregation, and you keep finding that you see indeed, higher inflation rates for goods that are services that are bought by lower-income groups.

And so, that’s a bit in contrast with all the work that had been done before, which was using low-aggregate data sets. So, if you use really just a couple very broad categories like food as a whole, transportation as a whole, then you miss a lot of this heterogeneity, and so you don’t actually find that these changes, these different inflation rates are sustained. So, you see just perhaps in one year, the low-income get higher inflation rate, but then this reverts back to something that’s the same for everyone. So, you need a bit more detailed in the data. And then this comes out to be a clear fact for the US economy. And what I’m telling you here is basically for the past 15 years. And in ongoing work, we’re trying to document this going back further back.

VALLAS: So, and you mentioned that 15-year look back window that you’ve been using. Is your sense that this is a new trend, or is this something that has always been the case in the US economy?

JARAVEL: So, my sense is that this has been going on for a while. The data we have suggests that the inflation inequality has existed in the US economy until at least 1980s. And there’s some data that suggests that before the 1980s, the differences were not as large. So, certainly we can say that from today until the 1980s, we have seen this divergence, and it matters that it’s a long-term trend because these differences can compound over time. And so, the impact of inflation inequality if it was just a couple years, it’s something that we could probably ignore. But with thoughts mattering, as soon as you’re dealing with sustained brands over decades.

VALLAS: Now you’ve done some research that looked specifically at the retail sector and these trends within retail. There’s also a range of other research, some of which you actually have underway, although it’s too early to have findings looking at other sectors. Talk a little bit about the research kind of broadly and how these trends play out in various sectors.

JARAVEL: Yeah. So, what’s interesting with the retail sector is that we have very good data on prices and expenditure. And so, we can really measure very accurately inflation going back to what I was saying at the beginning about the ways that you can, various ways you can use to build these inflation measures. If you have great data, you can do lots of things. And so, there, we find very precise measures of inflation inequality. And so, for example, I can give you from the food sector one thing that’s quite striking and that a lot of us see every day is the role of organic products. So, organic food has become cheaper and cheaper over time, while non-organic regular food is on higher inflation trends. And so, the reason why this might matter, especially for the US, is that a lot of the income support that low-income groups receive is through food stamps. And so, food stamps go to people who tend not to buy organic products, and so they face higher inflation rates. The products that they buy have rising prices. But the way in which we, each year, reassess the value of food stamps, the inflation rate we apply to food stamps, that’s based on the whole economy of food. So, it’s going to include these organic products, which have very low inflation rates. In fact, sometimes prices fall, so it’s called deflation. And so, that’s one clear example where in the data, we can track precisely long-term trends of inequality within food. And this has direct bearing on the way you should index food stamps if you want to preserve the purchasing power of these food stamps.

VALLAS: And some of the other areas that people have pointed to that are significant expenditures for lower-income families as a share of their budgets include healthcare and housing. Those are areas you’re looking at right now, but others have done some research in those sectors as well. Outside of retail, what else do we know from the literature?

JARAVEL: Yeah. And so, I think one line of work in this area is about the housing sector. And often here, you hear something that maybe sounds the opposite of what I’ve been saying so far. So, when you think of certain cities like San Francisco and New York where you mostly have high-income households, and prices have increased very fast there. So, it seems like inflation inequality could go the other way, because if I’m in San Francisco and high-income, and my rent keeps going up. And so, certainly that’s a feature of the world, and its important. But something that comes on top of that, which I’ve been looking at, is the question of who is a homeowner. So, if you’re a homeowner, then it’s not so bad for you that prices go up because you own your house. So, you can view this as consumption, you’re in your house. So, you’re consuming some value from your house, but your house is also an asset. So, the fact that the prices go up in San Francisco is not a problem if you’re a homeowner. And we know that home ownership varies a lot by income groups. So, you have a much lower share of homeowners for low-income and especially young, low-income populations. And so, for these groups, you have a real impact on purchasing power from the fact that rents go up, and you need to pay rent month after month. So, that’s some of the patterns that we’ve been exploring in recent work that tend to run contrary to what others emphasized before, which is that certain cities have a faster housing inflation, and these tend to be richer cities. But they also tend to be cities with a lot of homeowners.

VALLAS: Now, one of the things that your research reveals, and your research on retail in particular, is that it appears that this trend of inflation inequality is actually getting worse, as income inequality itself is getting worse. And I would love to hear you sort of describe that feedback loop a little bit, particularly in the retail context, because your research speaks to that so specifically. But I’m also curious if it’s fair to say that there’s something of a vicious cycle here.

JARAVEL: Mmhmm. Yeah. So, that’s a great question. So, the reason why income inequality might be related to inflation inequality is the following. What I’ve found is that the patterns of innovation, introduction of new goods or improving the production process for existing goods, those innovation dynamics, they’re really led by market size. So, if you have a market that’s expanding, it makes sense as a manufacturer that you would try to grab more market shares. You make investments; you innovate. And so, with the US economy as we all know, we have high levels of rising inequality. So, market size for luxury goods increases faster just because of that. For example, if you think about high-end Scotch, high-end wine or craft beer, these are markets that grow just because there’s increased demands. It’s also the case for organic food, right? There is increased demand from high-income populations for organic products. And so, because of this, it makes sense that you would see more investments. And as a result, lower inflation rates, higher quality, lower prices in those premium segments of the markets.

And the other hand, you don’t see that for cheaper products, which currently target low-income populations. They are still cheaper, but over time, they become relatively more expensive compared with the more premium products that have all these innovations. And so, in that sense, there is this amplification. We see more inequality in the first place just through wage [audio cuts out]…standard measure of income inequality. But then that gets compounded by the direction of innovation, the types of innovations that we see in the market.

And so, you ask whether that’s a vicious circle, and in some sense it can be, because if I’m a low-income household, I face now higher inflation rates, so my effective purchasing power is even lower than it would be absent this divergence in inflation. One number on this is that if you use the standard inflation adjustment from the Bureau of Labor Statistics, you see that the low-income [inaudible] public, that the bottom 20 percent of the income distribution experiences a fall in income of about 1 percent between 2004 and 2015. So, it’s a slight decrease in economic prosperity for the bottom 20 percent of households in the US. But then if you adjust those numbers for the relevant inflation index that looks at the products that these groups actually consume, then it’s a much more dramatic decline in economic prosperity. We measure a fall of about 7 percent in the actual purchasing power for these households in the bottom of the income distribution.

VALLAS: So then, in the last couple of minutes that I have with you, why does all of this matter? There are obviously, as you noted, many different ways that inflation is currently being measured, and they certainly do not take into account this inflation inequality trend that you’re describing. Its inflation measures that we use in the US are standard across the board and don’t take into account that it may actually look different for people at lower ends of the income spectrum. What are the implications here? Why does this matter?

JARAVEL: I think it matters because we tend to index a lot of important programs on these overall inflation rates. So, to be specific, if you think about programs like food stamps or anything that’s tied to the poverty line, like eligibility for Medicaid, for example, this really fundamentally depends on the way we measure inflation. Because every year we redefine the poverty line based on those numbers of inflation. And if you account for inflation inequality, which means that actually the inflation rate at the bottom of the income distribution is higher, that means that more households should become eligible for these transfer programs. So, it can make a big difference. So, here again, based on our data between 2004 and today, we compute that about three million more households should become eligible for this range of transfer programs that are tied to the poverty line. So, it’s an increase of about 8 percent in the total number of people who should be eligible for these programs who are considered to be in poverty. Because effectively, their purchasing power is lower than you think with the current metric.

And the other implications, just more broadly for the way we think about the US economy and trends in inequality. I already gave you that number earlier that if you compare income growth at the top of the income distribution and then the bottom of the income distribution, you get a really different picture, depending on whether or not you make this adjustment for inflation inequality. And so, as I said, bottom income groups, when you properly measure inflation, have suffered from a quite substantial fall in purchasing power over the past 10 to 15 years: about 7 percent decline in purchasing power. And you wouldn’t capture that with a standard measure. In contrast, at the top of the income distribution, you have an increase of about 14 percent in total purchasing power.

So, this is to say that it’s important to make the adjustments, also to have the right data to be able to compute this properly. And some of the proposals that have been mentioned by the administration tend to go the other way. So, that is proposing to use smaller inflation rates rather than higher inflation rates for these populations of low income.

VALLAS: I’ve been speaking with Dr. Jaravel, a professor at the London School of Economics, a leading researcher, as you’ve heard, on inflation inequality, and one of the authors on the new paper, The Costs of Being Poor: Inflation Inequality Leads to Three Million More People in Poverty, published by the Center on Poverty and Social Policy at Columbia University in partnership with the Groundwork Collaborative. And you can find a link to that new research and a whole bunch of different resources to help break it down, of course, on our nerdy syllabus page. Dr. Jaravel, thank you so much for taking the time to join the show and for this incredibly important research.

JARAVEL: Thank you.

VALLAS: Don’t go away. More Off-Kilter after the break. I’m Rebecca Vallas.

[hip hop music break]

You’re listening to Off-Kilter. I’m Rebecca Vallas. Next up in our series of conversations on inflation inequality and what it means and its broader implications, we go to my conversation with Jessica Fulton. She’s the director of economic policy at the Joint Center on Political and Economic Studies. And formerly, she was the director of external relations at the Washington Center on Equitable Growth. And in that role, she was one of the researchers and policy experts who commissioned some of the earliest work on inflation inequality, including much of the work that Dr. Jaravel was just discussing. Let’s take a listen.

Jessica, thanks so much for taking the time to join the show.

JESSICA FULTON: Thank you for having me.

VALLAS: So, I’ve been speaking with Dr. Jaravel in the previous conversation about sort of the wonky side, some of his research, some of other people’s research around inflation inequality. And a lot of the work that you have been doing is actually thinking about how this wonky-sounding concept plays out in struggling folks’ lives. What are the real world implications? So, talk a little bit about how we’re seeing this research on this trend play out in everyday families’ lives.

FULTON: Yeah. So, this research is really interesting. It basically shows that the people who are earning the least are saying their expenses rise more quickly than the people who are earning more. And so, that means that when people are going to the store year over year, they’re not imagining the fact that things are getting more expensive. And unfortunately, the people who are earning more are the ones who have control over how many hours people are able to get at work and how much they can earn per hour to afford the things they need to thrive. So, what we have seen is that people who are experiencing the trends have little control over increasing their earnings. They have little control over the price of the things that they need to survive in society. And government aren’t taking into account what’s happening to the folks at the, what’s happening to poor folks, really. And we’re literally not thinking about this when we think about things like what the minimum wage should be or what our safety net should look like. We’re talking about top-line numbers and not how our decisions are affecting everyday folks, and what happens when they agree to go to the store to buy milk or whatever.

VALLAS: And how does this inflation inequality side of things play out in combination with the wage side of the equation? Obviously, it’s not just important to think about how much things cost. It also matters how much people have in the bank to be able to spend.

FULTON: Yeah. We know that wages at the bottom have been steadily decreasing over the past several decades. Even our federal minimum wage has been $7.25 per hour for the past 10 years. I think one thing that’s really difficult when you think about inflation inequality is that inflation isn’t necessarily a bad thing on its own. But because of extreme inequality, it is affecting those who have the least ability to deal with it more than it’s affecting those with the power to increase wages. So, as prices for certain things are creeping up, people have to figure out how to keep up, and they’re not getting any help. And that includes people who are on fixed incomes like retirees or people who are on Social Security. How does this affect whether they’re able to make ends meet on their already super-thin budgets? And then I think compound that with the fact that we also have to think about how things like childcare, education, and housing are getting more costly for people across the country and across the income spectrum. And it’s just making it really hard for folks to get ahead.

VALLAS: I mentioned up top that one of the sort of truisms that often gets used in the poverty space, and I’ve been hearing this one for years, is that it’s expensive to be poor. And that is not necessarily specifically usually referring to inflation equality itself. It’s often used in a much broader context. But how does this trend that we’ve been seeing and that you’ve been describing play into and actually exacerbate other ways that it’s expensive to be poor?

FULTON: Yeah. So, one of the things that I thought about when we were reviewing this application for this work when I was at Equitable Growth was that I thought about going to the store in a poor neighborhood and being really disappointed by how many options I had and how expensive things were, right? And so, I think this is kind of like a reality for a lot of people day to day if I’m going to think about what are my options. And I think that’s really what this paper is getting at. The prices are getting higher, are still high and getting higher, for poor communities because businesses aren’t making an effort to compete with each other to drive prices down. At the top end, they’re trying to drive prices down. And I think we also see that in things like interest rates or loans and mortgages and the availability of any kind of products in poor communities, really.

VALLAS: So, one of the things that you have done in recent months is actually some polling looking at how people are experiencing the economy, so not just looking at the research trends, not just looking at the headline statistics, or the other types of statistics that don’t quite make it up to that headline level. But actually asking people, is the economy working for you? And how are you doing when it comes to getting by? Talk a little bit about some of that polling and some of what you’ve seen turn up.

FULTON: Yeah. So, we worked, the Joint Center worked on Project Mosaic with the Groundwork Collaborative and UnidosUS this year. And we asked 3,000 black and Latino folks how they’re experiencing the economy. And one of the most interesting findings to me, because these are folks all across the income spectrum, was that 59 percent of Latino and 62 percent of black folks said that finding a job to keep up with the cost of living was a challenge. People know that their wages aren’t keeping up with their expenses, and that’s a frustrating way to experience the economy. If you’re working hard and you’re contributing or even if you are having a setback, trying to figure out how to match the work that you’re doing with your skills, and then still be able to afford what you have, we need to be doing better for folks. And for low-income folks, the numbers were even higher. People were saying, and our 59 percent of black folks were saying this is actually a really big challenge in my life. And that’s something that’s just unacceptable.

VALLAS: And it strikes me that an important piece of the conversation here as well, and particularly as you talk about that polling, given that it looked specifically at black and Latino households, is that there are serious race equity implications here, both when it comes to inflation inequality, but obviously, as well to the broader conversation about inequality and how we think about who the economy is working for. What do you see as some of the race equity implications as we’re thinking about this inflation inequality conversation?

FULTON: Yeah, I think one thing that this study really made me think about was how we can do this same kind of work in looking at how the economy interacts with people of different races differently, and what are the things that we need to put in place to, what are the racial justice-focused policies that we need to put in place to ensure that everybody is benefiting from economic growth, right? So, it doesn’t matter if our economy is growing, but the gains are only going to those at the top who are largely not people of color. And so, thinking about how we make things work for the rest of us is really important.

I think this study really shines a light on an opportunity to do research by reason, right? So, the initial working paper looked at groups that were making $30,000 a year. Well, the neighborhood that my parents grew up in is largely black, and the median income there is not even $30,000 a year. So, what does that mean for the prices that folks in that largely black community are experiencing year over year while simultaneously being told that them not getting ahead is their fault? We’re not setting up an economy that’s working for everybody, and so it’s really hard for people to thrive.

VALLAS: So, one of the things that I talked about with Dr. Jaravel and that you’ve hit on as well a little bit as we’ve been speaking, is that there are pretty significant implications here for how we measure poverty and inequality and also for how we understand poverty and inequality in this country, which stem from the measurement and whether it’s accurate and whether it takes into account differences at the top versus at the bottom. What do you see as some of the very specific policy implications? And obviously, some of them are incredibly timely given some of the proposals we’ve seen from the Trump administration.

FULTON: Yeah, I think we need to think about both income levels and expenses for those earning at lower levels. So, thinking about things like how we think about the poverty level is going to be really important, right? Because we want to think about it while taking into account what levels of income or what levels of inflation people are experiencing. And so, that may warrant a change in the inflation measures that we’re using. And we need to raise the wages at the bottom, right? So, we need to do things like increasing worker bargaining power so that people can bargain for wages that keep up with the cost of living. We also have to think about how we can strengthen our safety net. So, when we think about our poverty limits, we use income limits as a test for who can get help through programs like for food and housing and childcare. And we have to consider to the difference in cost of living increases these families are experiencing if we’re going to really be helpful.

And then we also have thresholds for like how much assistance people get and how much that increases year to year for SSDI and for food and housing and employment. We already know that these programs aren’t covering everyone that needs help, but we also have to think about if the assistance is actually helpful, right? If it’s at the right level, if it’s increasing at the right levels from year to year. So, I think those are just a few of the things that policymakers need to be thinking about as we look forward.

VALLAS: Do you see broader implications outside of just benefits eligibility, given that it feels like how we measure poverty, how we understand poverty, and how we understand inequality in this current economy is sort of the threshold-level question that then could, in theory, determine how we end up shaping broader policy solutions as well. Am I off base there?

FULTON: No, I think you’re definitely on base. And I think one of the opportunities that being able to look at this granular level affords us is being able to see how individuals experience the economy. And I think what you might hear from family or friends who aren’t earning at high levels, people are able to tell you that their paycheck just isn’t enough to cover what it used to. And I think that we really need to take those things into account when we’re deciding on what the poverty line should be.

VALLAS: Yeah, and I’m always struck in conversations like this. I’m always reminded of a poll that actually was done by the conservative American Enterprise Institute, which I feel like we should always bring back out because it’s sort of surprising that it was AEI who did this one. But it was back in 2016, and they did this big poll on poverty. And I think they probably were surprised by what they got back. They were asking people, among other things, how much money a family of four — so, two adults, two kids — would have to earn to not be poor. And the response that they got back — and this was in 2016 — was $30,000. That was the median response. And compare that to where the poverty line was for a family of four in 2016, which was just $24,000. So, in sum, we can actually look to AEI to tell us that the American people believe that the poverty threshold should at least be 23 percent higher than the existing threshold. And anyone’s guess where that would be today. I don’t know if you have any takeaways or comments to that, given the broader point you were making about cost of living.

FULTON: Yeah, I think that makes a lot of sense. I think people understand what they need to survive. And we’re asking people to, we’re decimating the safety net while asking people to be able to manage housing costs, food, healthcare, education, childcare, transportation. People are struggling, and we really need to take all of these things into account.

VALLAS: So, what are your hopes that people take away from this very wonky conversation about this really, really kind of narrow thing that probably makes a lot of people’s eyes glaze over, but which is really important to understand if we want to get it right on our policy agenda for all the reasons you were talking about? What are any final words you have that you hope people take away from this kind of concerted week of action around inflation inequality?

FULTON: You know, I really hope that people, especially policymakers, can look at this study and understand that it is really hard to be poor, and it is only getting harder. And we really have to take that into account when we’re making policies and trying to help prepare people to live fuller, more healthy lives.

VALLAS: And those are good words to end on, I think. I’ve been speaking with Jessica Fulton. She’s the economic policy director at the Joint Center on Political and Economic Studies, formerly the external relations director at the Washington Center on Equitable Growth, where she worked on some of these issues and on Dr. Jaravel’s paper as well. Jessica, thanks so much for taking the time to de-wonkify some of this for us. And I would love to have you back at some point down the road.

FULTON: Thanks. Thanks for having me.

VALLAS: Don’t go away. More Off-Kilter after the break. I’m Rebecca Vallas.

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You’re listening to Off-Kilter. I’m Rebecca Vallas. And finally, to round out this episode of discussions around inflation and why it matters for how we measure poverty, how we think about inequality, and what the policy stakes are, we’re bringing back my conversation from earlier this year with Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and formerly the chief economist to Vice President Joe Biden. We talked about the Trump administration’s proposal to redefine poverty downward by switching to an even less accurate measure of inflation, which impacts how we measure poverty. Really worth keeping in mind as we think about this new research, given the incredibly high stakes and the ongoing threat of this particular proposal. Let’s take a listen.

Jared, thanks so much for taking the time to join the show.

JARED BERNSTEIN: My pleasure.

VALLAS: So Jared, I feel like before we step into what this specific proposal would do and there’s a lott there it probably makes sense to actually move up a level or two and explain how we measure poverty in this country currently. It gets wonky but Jared there’s nobody who does it quite like you.

BERNSTEIN: The question is how do we measure poverty in America and the answer is we measure it pretty badly. Unfortunately the threshold by which we determine who is poor, that is the income threshold were devised many decades ago and were pretty quickly obsolete. So what we do, we look at your income before tax and we compare that income to the set of the thresholds which are adjusted for different family types. Obviously a family with say, two parents and two kids needs less income than a family with two parents and three kids. So they have all these different poverty thresholds and every year we collect a sample data on the income of households in America. We compare that income to the threshold and decide who is poor. The problem is it’s going to become important in that conversation is that the threshold themselves are not only highly unrepresentative of who is poor, they are considerably too poor so we underestimate poverty in America.

VALLAS: So using the current measure that we have what do we know about how many poor people we have officially and then I’d love you to actually paint a picture of some better measures so that we have a baseline before we head into what this administration’s proposing to do.

BERNSTEIN: So right now the poverty rate is somewhere around, a little below 13% as I recall and that’s going to be in a country of 300 million people that’s going to be somewhere north of 40 million poor people. Thankfully the census data has done really good work at the federal level using alternative measures of poverty that correct some of these problems of the unrepresentativeness of the official poverty threshold. These account for where people live, they account for medical cost, childcare cost, they account for changing places that people have to [INAUDIBLE]. And those poverty rates tend to be a couple of points higher than the official one. So that is fortunate that we have those but those aren’t the official ones and programs eligibility are benchmarked off of poverty, they come from the official measure.

VALLAS: And the other statistic I always love to throw in when we’re using official measures of poverty just because it does a better job of helping people understand what’s going on, you’ve got in this country right now about 4 in 10 American families are struggling to afford food and housing and health care and other kinds of basics. So just to give a little bit of a comparison point that helps to underscore exactly what you said Jared of what a poor job that official measure does of counting poor people in this country. It’s actually a lot to closer to 4 in 10 families in this country. So Jared what is Trump actually proposing to do with this number fudging thing that’s started to gain some attention in the news?

BERNSTEIN: So the proposal is to change the way these poverty thresholds are calculated every year in a way that will make them overtime even lower than they are now. And if the threshold is lower that means fewer people will be considered poor. Basically let’s just make it very concrete. Let’s say the poverty threshold is around $15,000 and your income is $14,000 so you’re going to be considered poor because $14,000 is less than $15,000. Let’s say we now reduce that poverty threshold to $13,000. Well now you’re $14,000 income makes you no longer poor. So how are they going to do this? How will they reduce these thresholds, which are already too low, how are they going to reduce them over time, they’re going to change the inflation adjustment. So every year the poverty threshold adjusted by the Consumer Price Index, now they’re going to adjust it by a different type of CPI, it’s a variation on that. It’s called the chained CPI, we can get into the details of the technical differences but the point is that the proposed adjustment grows more slowly than the traditional one and because the inflation adjustment grows less, the poverty thresholds will be lower. You’ve got that dynamic that I explained before.

Let me say it one other way because this is kind of tricky to wrap your head around. Let’s say you’re a poor family, your income is just below the poverty line, so the poverty line is $15,000 and your income is $14,900 so you’re just below the poverty line, you’re poor and you’re eligible for services that poor people get. Let’s say your income grows 2% and inflation also grows 2%, well you’re still poor. Your income grew 2% in nominal terms but the inflation threshold also goes up 2%. What if instead of going up 2% the inflation threshold goes up 1.5%? You’re no longer going to be counted as poor and that’s the kind of adjustment they’re doing.

By the way, I want to clarify something I said earlier. I said the poverty rate was slightly below 13%, actually it’s 12.3% the official poverty rate in 2017 the most recent one we have so it’s lower than that but it’s still about 40 million Americans or so.

VALLAS: So Jared just to sum up what you were describing, if we were to switch the way that the poverty thresholds change over in the way that this proposal says we do we would effectively be pushing the poverty thresholds further and further down over time even though it seems like a slight change in this moment. And what you’re starting to describe is that there are very real consequences to changing how we use these kinds of official government statistics and the formulas that get put into them because there’s a lot of stuff that’s pegged to those thresholds including eligibility for public assistance and I want to get into that for a second. But before we get into that wonkery I also feel like it’s really important to say out loud the broader context here of what we’re watching come from this Trump administration with this move, which is that here we’ve got a president trying to say that there’s an economic miracle taking place in the United States, that’s a direct quote from his state of the union as folks may recall and that’s very much the brand that he’s trying to sell given his campaign promises, given what he’s trying to say is coming from his tax law but there’s this really inconvenient truth which is that we’ve got close to half the country struggling to make ends meet on his watch. And so is it fair to say that this is an effort to redefine poverty away to make it seem like a smaller problem then it actually is.

BERNSTEIN: No question, the result of this proposal will be to make it look like there’s fewer poor people without doing anything to help the poor. That is, the way by which we measure poverty will and you were correct about this over time show fewer and fewer poor people relative to the current approach. So we’ll have fewer poor people, we’ll have lower poverty rates but we won’t have spent one dime to help poor people. All we’re doing is changing the measuring stick not the living standards of families who are struggling to make ends meet. And let’s be very concrete about this the poverty threshold for say a single mom with a couple of kids is about $20,000 a year. There may be some rural areas where you can barely get by on that amount, I actually don’t think there are. But there are certainly no cities you can do that in. So again the threshold are already inadequate to describe the hardship that’s out there. And you cited some other statistics about food insecurity that underscore that. But this would be a way to show that you actually lowered poverty without helping the poor.

VALLAS: And you would also be effectively I think a phrase I used the other day in describing this is it’s like mathematical gaslighting. You’re basically changing up the math to tell a whole bunch of people who can’t afford to food on the table or put a roof over their heads, oh don’t worry, we made you less poor.

BERNSTEIN: Right that’s precisely the right way to look and this and here’s the way I described it because I was also thinking about the tax cuts which of course bestow all kinds of economic largess on those at the very top of the scale. And if you look at the tax cuts which are a reality, that’s not a proposal as we all know that was passed and the benefits are already flowing to corporate coffers and to the wealthy. And then you look at that in tandem with this proposal it seems that the problem the Trump administration is trying to solve is rich people don’t have enough and poor people don’t have too much and I just don’t know too many right thinking people out there who would sign onto that.

VALLAS: Now the broader context off this is where you were starting to go and where I think we should go next which is what are the potential ripple effects that we would see from this. It wouldn’t just be able shrinking the number of people who are officially counted as poor. There are also real life consequences that would take a serious human toll if this policy were to take effect. It’s a backdoor way to slash a whole bunch of public assistance programs, isn’t that right?

BERNSTEIN: It is right and the key there is if all we were doing was tweaking the measurement to look like there’s been progress against poverty when there hasn’t that would be bad enough but it wouldn’t take the toll that this would actually take overtime because the poverty thresholds are how we often measure the eligibility for various programs that help low income people. So SNAP, used to be called food stamps, Medicaid, even the Affordable Care Act which goes pretty high up the pay scale, you can get premium assistance help pay your insurance on the open market if you had an income up to multiples of the poverty line, school lunches these programs are, housing programs, these are all keyed to the poverty line. So if you make fewer people look like they are poor at the same time you are going to make fewer people eligible for benefits.

VALLAS: And of course a lot of the programs that you just named listeners of this show will know very well are the kinds of programs that Trump has spent his entire presidency trying to slash through legislation, failing in a lot of regards to do that way so turning around, trying to do it through an administrative attack including most recently on SNAP that you were just describing so in effect it’s like his administration has found yet another backdoor way to cut programs that they haven’t successfully been able to cut through the front door.

BERNSTEIN: Yeah and that’s true and I guess to me maybe because it’s been happening over the last couple days but this one has particularly gotten under my skin and that’s a high bar in this administration because like you said earlier they’re always up to something in this space. But take the work requirements which the Trump administration are trying and successfully in fact through waivers to states imposing on people who receive nutritional support or health coverage through Medicaid and they’re basically saying if you don’t follow your work requirements you can use your eligibility to these programs. Well that is a kind of transparent thing. We can have a good argument about whether that is a good idea or a bad idea, my colleagues at the Center on Budget have shown that the work requirements are just a pure hassle factor to kick people off the rolls, most able bodied people are already trying to work. But this one, they’re trying to sell as a technical fix, it’s sort of like nothing to see here folks, just move along, all we’re doing is tweaking a price deflator in a way that’s going to generate a more accurate measure. It’s really very much a wolf in sheep’s clothing.

VALLAS: Let’s talk about part of what you just brought up there because some proponents, I’ll erect the straw man, here I go, some proponents of this policy are saying it will make our poverty measure more accurate. Now it’s hard for me to even say that out loud with a straight face but there we have our straw man. What do we know about the kind of a claim when it comes to what inflation looks like for low income people and their cost of living.

BERNSTEIN: Well that claim is evil on a couple of levels. It’s very misleading on the level that I mentioned a second ago, making it sound like an antiseptic adjustment when it has very stark consequences for our least advantaged folks. But it also is answering a question, the one we just ask that we don’t know the answer to. It is assuming that prices for low income people grow more slowly than is reflected in the consumer prince inflator. This chained CPI better represents prices faced by the poor. We don’t know if that’s the case and before we want to go and make a change like that we need to know more about that. There are a couple of research papers and I’ve just been digging through them over the last few days that show and this is a historical finding and probably wouldn’t surprising listeners who apply common sense, poor people often pay more for things that the rest of us can drive to outlets and pay lower prices, we can buy a house instead of renting and rental inflation has been going up a lot more quickly than overall inflation, we can find retail sources that are going to give us price benefits. Poor people can’t always do that so that’s unknown but here’s the thing. If you convinced me that you had a more accurate price adjustment for the poor than the one we currently use I still would not advocate applying it to the current threshold because the current threshold is really broken. SO if you’re telling me we can do a better job of adjusting a broken threshold that’s not what I want to do. What I want to do and I think we need to do if we actually want to figure out who is poor in this country is apply a much better measuring stick to more accurately figure out who is poor and then we can apply the best inflation adjustment to that measure. We’re using a poverty threshold that we devised in the early 1960s that by the person who actually came up with it, a very smart woman named Molly [INAUDIBLE] said in so many words I don’t expect this to last because it’s keyed off of the low income food budget that people were accessing in the late 1950s so that’s how out of date this measure is so I don’t want to focus on, I think it’s analytical incorrect to focus on a better adjustment to a broken threshold. And this isn’t a better adjustment.

VALLAS: And if people are hearing you describe the origins of the federal poverty measure and hearing the name Molly Orshansky and going where do I know that name from, well if you don’t spend a ton of time studying the history of how we measure poverty in this country it might be from a famous West Wing episode which of course was the first thing I thought of when I saw this proposal actually get announced and news reports started to break about it because do you remember Jared that West Wing episode where they were grappling with the fact that a more accurate poverty measure would cause it to look like poverty had gone up on the president’s watch and that wasn’t something they wanted to do and so there was active debate about instead keeping the poverty rate measured poorly which isn’t as bad as this proposal would go which would make it less accurate but in a way that didn’t grapple with the fact that there are a lot of people in this country who don’t have enough to get by.

BERNSTEIN: Let me just tell you that I’ve never watching one minute of the West Wing in part because I used to work in the White House and it just didn’t seem like a good way to relax. But that’s really interesting that they had a show on that and I really have to find that episode because that’s precisely what has bedeviled even administration that get everything we’re saying, and there have been administration like that I worked for them. They’re like yeah we get it but we don’t want to have poverty go up 12 to 14% on our watch simply because we’ve changed the metric. So what they’ve done and I really think the Census Bureau deserves a lot of praise for this is they developed a supplemental measure which is more accurate and does end up with higher rates.

VALLAS: I will confess I wish the conversation we were having is the one you are describing which is how do we measure hardship in a real way in this country that doesn’t just take the political easy route to look at what would look good in a press release but grapples with the actual cost of living. So I feel like I would be remiss in the last couple minutes that I have with you if I didn’t give you an opportunity to talk about the cost of living, there are a lot fo organizations out there the Economic Policy Institute and others who have done cost of living calculators and other analyses to really look at that question not just from the standpoint of who is officially poor under the guidelines.

BERNSTEIN: Yeah so it so happened just I have a piece in today’s Washington Post that gets into this in some detail. It starts with this observation that because the job market is so tight and wages have been going up and they’ve been going up for low income workers which is great, no question. But we can’t just look at wage trends if we want to ask this question about whether people are getting by. We also have to look at wage levels. And I point out that the wage level for the 20% worker a typical low wage workers in this country is about $12 an hour, that’s about $24,000 a year. A minute ago I said for a poor mom with a couple of kids that will get her family over the poverty line but will it enable them to meet their basic needs that’s the question you’re asking, that’s the question that a a bunch of calculators get at, EPI has one, MIT has one and I use some of these in my article and I can tell you that they are multiple, 2 and 3 times that of the poverty line. So I happen to be looking at Ohio and for a family with a couple of kids in Ohio the family budget line was about $56,000 which is more than twice that of the poverty line. It doesn’t mean that everybody below that is poor but that everybody below that is going to engage in some struggle to meet adequate child care, decent housing, to afford health coverage that’s reliable so I wouldn’t think of it in terms of necessarily poverty but I would think of it as a middle class family would recognize as meeting the basic standards of living, those are multiples of the poverty line.

VALLAS: I’ve been speaking with Jared Bernstein, he’s a senior fellow at the Center of Budget and Policy Priorities and also a former chief economist to then Vice President Joe Biden. Jared thanks so much for taking the time to demystify this wonky but super important topic.

BERNSTEIN: Thank you for having me on.

VALLAS: And I would be fully remiss if I didn’t advise our listeners to check out our nerdy syllabus page where we have a link to comment in the next 44 days which is what you’ve got to raise your voice and tell the administration what you think about this proposal and we’ll have some additional resources on the page as well to help you formulate a comment. Jared thanks so much for taking the time.

BERNSTEIN: My pleasure.

VALLAS: Don’t go away, more Off Kilter after the break, I’m Rebecca Vallas.