WXP: New measures for poverty in NYC?

Interesting piece in the Washington Post about thoughts by NY mayor Mike Bloomberg on how to measure poverty. It sounds correct that measuring poverty by amount of income spent on food is not so relevant any more with the advent of fast food (poorer health) and the increased costs of items like rent, transportation and health care. We wish Mr. Bloomberg and the city of NYC Godspeed in coming up with better metrics. We agree the federal measurement system is perhaps outdated. (link to article here) -pg

N.Y. Mayor Offers New Poverty Gauge
Bloomberg Says Federal Measurement System Is Outdated

By Keith B. Richburg
Washington Post Staff Writer
Monday, July 14, 2008; A02

NEW YORK, July 13 — Calling the current federal poverty measure broken and outdated, Mayor Michael R. Bloomberg (I) on Sunday unveiled a new method that he and his aides said gives a more accurate picture of the poor, and that he hopes eventually will become the new national standard.

“If we are serious about fighting poverty, we also have to start getting serious about accurately measuring poverty,” Bloomberg said in remarks prepared for delivery to the convention of the NAACP in Cincinnati. Bad weather prevented his flight to Ohio, and one of Bloomberg’s deputy mayors made the speech in his place.

Bloomberg chose as his audience the nation’s oldest civil rights organization, which is committed to increasing economic empowerment for African Americans, who remain disproportionately poor. His effort comes as the House Ways and Means subcommittee on income security plans a hearing this week on the need for a modern poverty measure for the United States.

The current federal measures show New York City with a poverty rate of 18.9 percent. But the new measure shows that the rate is 23 percent. And the new measure shows wide differences within that spectrum. There are fewer people in extreme poverty, reflecting the impact of anti-poverty assistance programs. But under the new measure, the number of elderly poor nearly doubles, from 18 percent to 32 percent, mostly because of health-care costs.

The current federal poverty measure, in use since 1969, is based primarily on how much of an individual or household’s pretax income is spent on food. The federal poverty measure is used to determine eligibility and amounts of assistance from federal and state programs.

But Bloomberg’s aides said that while food accounted for a third of household spending in the 1960s, food now accounts for only an eighth of spending, with housing and transportation taking a larger slice of income. The new measurement, put together by New York’s Center for Economic Opportunity, takes into account a household’s spending on food, clothing, shelter, transportation, utilities and out-of-pocket medical expenses.

Equally important, the advisers said, the new measurement also takes into account targeted poverty programs that the current measure does not — for instance, whether the individual or household gets food stamps or housing subsidies.

“We don’t have the benefit of an accurate measure of poverty,” said Linda Gibbs, deputy mayor for health and human services, in a conference call with reporters.

The new measure also takes into account regional differences in housing costs to reflect the higher amounts in expensive cities such as New York and San Francisco.

The new measurement is based largely on a method the National Academy of Sciences proposed to Congress in 1995. The center also said it uses census statistics to make adjustments for geographic differences in housing costs.

Why the Swedes go for high taxes?

Why the Swedes go for high taxes?
An American academic in Stockholm
Why do low income Americans hate taxes so much while wealthy Swedes don’t mind paying higher taxes. Both groups are supporting an economic system that seems to violate their own self-interest?
That’s the question Carnegie Mellon researcher Christina Fong explored in a recent project. Americans work from Jan to April to pay taxes. Swedes work from January to August to pay taxes.
“If only income mattered and beliefs about fairness didn’t matter at all, then you should expect to see the world that traditional economists expect you to see, which is that poor people demand redistribution (of tax revenue) and rich people oppose it,” she writes. “The fact that we don’t see that requires some explanation, and a big part of the explanation is that these beliefs about fairness matter a lot. So if you’re poor but you think that the rich people really deserve to be rich, then you’ll accept having less.”
She says Americans believe in the idea of fairness – that you will earn more money if you work hard. They are more concerned with fairness than the actual degree of income equality or inequality.

She said both Swedes and Americans would give up 20% of their annual income to achieve a world that was fair if they perceive it as unfair. Some studies Dr. Fong and others have done illustrate that people will fork over money to ensure fairness. (Click here to read recent studies by Dr. Fong and her collaborators).

Sweden remains a fascinating study in political economy. P.J. Rourke’s book “Eat the Rich” (which now sells for .01 cent on Amazon used) was a good first introduction for me to the Swedish economy when I was an undergrad. He used Sweden as a chapter example of “good socialism” and showed the woes the Swedish economy faced. I’d be curious what readers think of future growth prospects and issues for Sweden’s economy and whether the U.S. should consider aspects of its model or not?

M. Yunis at the Skoll World Forum 2007

Dear Readers,

I will be writing several posts about the origins of Micro-Finance and one of the early leaders of this industry: Muhammad Yunis, founder of Grameen Bank in Bangladesh and Nobel Prize winner. Here is a good introductory video of his work from his appearance at the Skoll World Forum in 2007. It is a good primer to the concept of micro-finance. More videos and posts to come.

-Paul

High fences in Micro-Finance?

When does micro-lending become usury?

That’s a question the entire industry is wrestling with as it becomes a larger phenomenon in the banking world and intersects with local NGOs and governments around the world.

Many experts point out that interest rates of 15% to 35% on loans of $100 to $2,000 in places like India and Latin America are the norm. They point out that while those interest rates are higher than typical loans in Western markets, they are not much higher than credit card loans in developed markets. They say the higher rates are required because of the higher default rates and higher administrative costs.

“Young micro-finance institutions often need all that high interest margin to be able to implement their model,” said Brad Swanson, a partner in Delaware-based investment bank Developing World Markets, speaking to a recent class at Columbia Business School. “You can’t start off and be successful from one day to the next. You have to start up with bricks and mortar, sales, client base etc. it is a high-cost business on the operations and administrative side.”

In Mexico, some banks are charging as much as 80% to 100% to make loans to customers. Experts in microfinance point out that these loans are often not micro-finance loans at all but are consumer loans. Micro-finance loans are intended to help locals launch start-up businesses. They often involve applications, interviews and accountability with either a loan officer or a group of neighbors. Consumer loans with higher interest rates – by contrast — are similar to predatory lending practices in America. They don’t care if people are using the money to start a business or buy a TV.

The microfinance industry grows frustrated with media portrayals – such as a recent Business Week article http://images.businessweek.com/ss/07/12/1213_mexico/index_01.htm – that confused consumer lenders in Mexico with microfinance lenders. The consumer-lending bank gave the Micro-finance lenders a bad name. The key, they say, is communicating what Micro-Finance is all about and explaining how it works.
“The high interest rates are important in the early stages but it unwinds in later stages,” said Mr. Swanson, noting that an ongoing portfolio begins to return more equity and attract more entrants to the market. “As more people lend to the clients, competition will drive interest rates down for clients.”