The percentage of Americans living in poverty is about to hit its highest level since the 1960s, according to a new survey by the Associated Press.
The latest Census numbers won't be released until the fall, but economists surveyed by the AP project that the poverty rate will climb from 2010's 15.1% and reach a level as high as 15.7%. This will mean that more Americans are poorer than at any time since 1965.
The 2010 definition of "poverty" is annual income of just over $11,000 for an individual and $22,000 for a family of four. These figures will likely rise modestly this year.
When the next income demographic of "near-poor" is included, a huge percentage of the country is now leaving below or close to the poverty line. This is a bummer for these folks, obviously. But it's also a big problem for other Americans and the economy as a whole.
AP spoke with a number of individuals who face a deteriorating standard of living, including Laura Fritz who grew up in a wealthy Denver suburb of Colorado. "I grew up going to Hawaii every summer. Now I'm here, applying for assistance because it's hard to make ends meet. It's very hard to adjust," Fritz, 27, of Wheat Ridge, Colo, told the AP. Fritz's parents suffered dramatically from the housing bust, her college fund disappeared and eventually the family ended up on food stamps.
Over the past few decades, as manufacturing and other solidly-paying jobs have moved overseas, they have been replaced with low-paying "McJobs" at companies like Walmart (WMT) and McDonald's (MCD). Although these jobs are better than no jobs--which is another big problem right now--these jobs also leave many full-time workers poor or near-poor. And the problem with that, economically speaking, is that, unlike high-wage earners, low-income folks spend all the money they earn. And that spending becomes revenue and earnings for other companies and people in the economy.
Addressing the extreme inequality that has developed in the U.S. in recent years will be critical to truly "fixing" the U.S. economy. And the sustainable solution to the poverty problem is not more government handouts and social programs: These may lessen the pain of poverty, but they won't take poor people and near-poor people and make them middle class.
The answer lies in changing the priorities of private sector, so that companies feel compelled to share more of their wealth with their employees.
Right now, American corporations are earning the highest profits as a percentage of GDP that they have ever earned.
Meanwhile, the same corporations are paying their employees the lowest wages as a percentage of GDP that they have ever paid.
Walmart, McDonalds, Starbucks (SBUX), and other gigantic corporations, meanwhile, generate billions of dollars of profit per year but pay some of their employees so little that these employees live near or below the poverty line.
There's nothing illegal about that--all these companies pay well above "minimum wage." But there is something self-defeating about it, at least with respect to the economy as a whole.
Henry Ford was famous for voluntarily paying his employees more than he had to to keep them--so they could afford to buy his cars. This, it turned out, was a smart move for Ford. And it was also a smart move for the country.