Denmark, Finland, and Sweden are proof that poverty in the US doesn’t have to be this high

by from Vox.com

The iconic Three Smiths Statue in Helsinki.Rob Hurson

Ever since Bernie Sanders emerged as a major contender for the Democratic nomination for president, debate has heated up about whether the Nordic countries whose welfare states he celebrates — countries like Denmark, Sweden, Finland, and Norway — really do provide a better life than the United States. Critics insist that this is a myth. For instance, the Fordham Institute’s Michael Petrilli and Brandon Wright assert that poverty actually isn’t lower in Scandinavia than it is in the US. That’s a big, counterintuitive claim: that for all these countries’ social spending, they don’t actually do a better job of taking care of their most vulnerable citizens than we do.

The problem is that this claim is false. Poverty is not just lower in Scandinavia than in the US, it’s dramatically lower.

Poverty is lower in Scandinavia — even if you use the US’s poverty line

Petrilli and Wright — in a column for National Review drawing upon a longer piece for the journal Education Next — attempt to show that the poverty rate in the US is about the same as in Finland, one of the celebrated Nordic states (one that is especially relevant to education policy debates, because Finnish students score incredibly well on international standardized tests).

Specifically, they claim to look at the fraction of people in Finland and other European countries living under the US poverty rate, which is currently set at $11,770 per household plus $4,160 for each additional member of the household after the first. Their argument is that the apparently lower poverty rates in northern Europe are an artifact of using purely relative measures that compare German people to other Germans. On an absolute standard, they say the United States has less poverty:

A bad chart on povertyPetrilli and Wright, Education Next

The chart cites 2010 numbers from University of Wisconsin’s Timothy Smeeding, a renowned poverty scholar. Wright told me the chart relied on “data that Smeeding provided us.” Smeeding, however, insists he never provided them with any data at all.

Indeed, the data Wright’s relying on isn’t Smeeding’s. It comes from the Luxembourg Income Study, which Smeeding co-founded but hasn’t run since 2006. And LIS did not produce absolute poverty estimates for 2010 at all. What it did do is produce estimates of how much disposable income people at different points in the income distribution — the 5th percentile, 10th percentile, 20th percentile, etc. — in various countries made. Wright explained to me that he used that data to try to estimate the share of people living in poverty in each country:

 Numbers via Wright, table by Vox

This looks weird right off the bat. Finns at the 5th and 10th percentile are living much better than Americans at that point in the distribution; it would be odd if that translated into poverty that’s not significantly different.

So how did Wright and Petrilli do it? Well, they tried to guesstimate.

For example, in Finland in 2010, the 10th percentile was at $10,996 and the 20th was at $13,523. If the US poverty rate, adjusting for purchasing power, was $12,100, then Wright estimated that was about 46 percent of the way between $10,996 and $13,523 and thus that 14.6 percent of Finnish people were under the US poverty line. To be blunt, this is not how arithmetic works. If 10 percent of Americans own 10 forks or fewer, and 20 percent own 20 forks or fewer, it does not follow that 11 percent own 11 forks or fewer. Even as guesswork goes, this is rather imprecise.

When I passed along Wright’s methodology to Janet Gornick, the current director of LIS and a professor at the City University of New York, she was taken aback at how poor it was.

“Holy cow. This is nonsensical,” she wrote. “How you get absolute poverty rates from these income deciles is beyond me.”

Smeeding agreed: “Bottom line — this is garbage.” Based on the materials Wright provided to me he appeared to be using an Excel file released last spring as part of afeature the New York Times’s Upshot blog.

Gornick says it’s inappropriate to use that data for this purpose. “It’s important to note that working from the NYT aggregated data could turn up something different for any of a number of reasons,” she says. “Those numbers [income levels at various percentiles] were surely not structured to produce poverty rates.” She also objected to the fact that while the chart used this kind of fuzzy math to produce the Finland number, it used the US poverty rate as the indicator for US poverty. By doing that, the Petrilli/Wright charts conflate two totally different data sources that use different income definitions and are not at all comparable. “There are many problems with what they have done,” Gornick says. “The citation is screwed up; they are blending data sources, thresholds, and income definitions [a poverty line drawn from the US Census numbers mixed with income distributions from LIS].”

A better poverty estimate

It actually is possible to use the Luxembourg Income Study database to estimate more precisely how many people live under the US poverty in America versus Finland. If you use the granular microdata and follow the same procedures in looking at the US as in looking at other countries, you can come up with a fair comparison and avoid the errors that plagued the Petrilli-Wright analysis. Stockholm University’s Markus Jäntti, a senior scholar with the Luxembourg Income Study, did just that kind of number crunching for me. Using the same poverty line as Petrilli and Wright, he found that the absolute poverty rate in the US in 2010 was about 10 percent, and in Finland it was about 4.5 percent. Finland’s rate wasn’t slightly lower — it was more than halved compared with the US.

Jäntti and Gornick also produced numbers for a wider range of countries in a 2011 paper. They used data from 2004, which included not just Finland but all four major Nordic nations. And they found that poverty rates in those countries — as measured using the US poverty line — were much lower than in the US. Child poverty in particular was muchlower: 11.8 percent in the US, and a mere 1.9 percent in Denmark.

Why poverty experts don’t like “absolute poverty”

But it’s worth taking a step back and asking if the US poverty line the right way to look at this question. Most poverty experts, Smeeding and Gornick included, prefer to do cross-country comparisons using “relative” poverty measures — e.g., the share of a country’s population living on less than half of its median income — rather than “absolute” measures that look at the percentage of the population living under a given dollar amount.

That’s because poverty, in developed nations, is an essentially comparative notion. In rich countries it doesn’t make much sense to define poverty as “not having enough to meet basic material needs.” Almost no one is that poor in America — not even those earning less than $2 a day. What rich countries mean by poverty is something more like “having enough to have the bare minimum life necessary to be a part of your society.” The late poverty researcher Peter Townsend put this well:

Individuals, families and groups in the population can be said to be in poverty when they lack the resources to obtain the type of diet, participate in the activities and have the living conditions and the amenities which are customary, or at least widely encouraged or approved in the societies to which they belong.

That standard changes over time, growing as countries get richer. Today a minimally decent life in the US almost certainly includes internet and cellphone access; when the poverty line was drawn up 50 years ago, neither existed.

But because relative poverty is also, by necessity, a measure of inequality, conservatives like Petrilli and Wright tend not to like it. It implies that lowering inequality and lowering poverty aren’t two different goals, as laissez-faire types like to insist, but in fact are inextricably linked.

When we look at relative poverty rates, as poverty experts suggest, the US falls even further behind the Nordic countries. In 2012, 17.9 percent of Americans lived on less than half the median income, after taking taxes and transfers into account. Only 9 percent of Swedes did, and 5.4 percent of Danes:

One big caveat: immigration

Bikes! But not a lot of immigrants.Dean Treml/Red Bull via Getty Images
Downtown Copenhagen.

One thing to be careful about when interpreting these poverty rates is compositional effects due to immigration. An average Nigerian worker can increase his income almost 15-fold just by moving to the United States — but that might not even be enough to get above the US’s poverty line. Letting that worker come to America doesn’t actually make anyone in the US worse off, and it makes the worker much better off, but it still increases the poverty rate.

The less low-skilled immigration you have, then, the less poverty you’re going to have, even if you’re doing less to help the poorest people in the world.

This doesn’t explain the huge difference between poverty in the US and Scandinavia; that’s almost entirely due to the US’s much less generous welfare state for the poor. But it does help explain why, say, Sweden has more poverty than Denmark. Sweden has historically been the most pro-migrant Scandinavian country. That’s tempered a bit, with the anti-immigrant Sweden Democrats party gaining ground, and it has recently tried to stanch the flow of Syrian refugees. But it’s still taken more refugees in per capita than any other European nation, while Denmark is notably strict on immigration, to the point of facing charges that its policies violate international human rights law.

Denmark is kind of like a gated community writ large: It’s great if you’re in, but it’s very hard to join. Combining a generous safety net and pro-immigrant policies, as Sweden has done in the past, is probably a better bet from a humanitarian perspective.

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