Happy Days Are Here Again-or Not

Tom Corbett, Challenges for Human Services columnistby Tom Corbett

Good news at last! The U.S. Commerce Department reports that the economy, as measured by the GDP (Gross Domestic Product), grew at a 3.5 annualized percentage rate during the third quarter of this year, ending September 30. This is a dramatic turnaround from the 6.4 percent decline experienced in the first three months of the year.

Further reflecting a step back from the economic precipice, the Dow Industrial Average recently has hovered around the 10,000 mark. This broadly monitored measure is up roughly 50 percent from the low of 6,547 reached on March 9, 2009, a dramatic turnaround after the average had dropped some 54 percent from its October 9, 2007 peak of 14,164. (By way of contrast, the Dow fell 89 percent in the first three years of the Great Depression.) Let the good times roll, right!

Most analysts realize, however, that reality exists on several levels. This recent jump in GDP is largely driven by an uptick in personal spending (up 3.4 percent). While that sounds good, that increased spending has been greased by government stimulus investments such as the popular Cash for Clunkers program and the $8,000 tax credit for first-time home buyers. Will the spending continue after various stimulus programs eventually grind to a halt, a likely occurrence given growing federal deficits?

On a somewhat deeper level, other measures of well-being continue to be troubling. The unemployment rate now has crept over the 10 percent mark with another 190,000 jobs disappearing in October. Another 530,000 individuals filed new applications for unemployment insurance in the latest week for which data are available. Employment is broadly understood to be a so-called lagging indicator. There continues to be a great deal of discussion about a “jobless” recovery. Paul Krugman argues that even if we were to enjoy the robust economic growth experienced during the Clinton years (roughly growing 3.7 percent a year), it would take us a decade to achieve something like “full” employment.

Poverty is yet another indicator that might well persist in the face of short-term upticks in economic performance measures. The most recent Census report on poverty and income tells us that the aggregate poverty rate jumped from 12.5 to 13.2 percent between 2007 and 2008, signaling economic challenge even before the bottom of the current recession was reached. Not surprisingly, median income fell 3.6 percent over the same period.

Income declines, unemployment rates and poverty increases go hand-in-hand. What is particularly troublesome is that these indicators may resist easy responses to macro-economic surges. Economist Isabel Sawhill, in an opinion piece on the Brookings website, argues that rising poverty rates are just the “tip of the iceberg,” and that poverty will probably rise to at least 14 percent before we see any relief.

“The effects of the recession….” she goes on to say, “will be felt for years to come…” Thus, in the absence of a stronger safety net or more opportunity for those at the bottom, the recession could end up widening income disparities in the U.S.—disparities that were already large long before the economic meltdown began.”

Rural, areas, not surprisingly, are faring worse than the aggregate numbers suggest. The rural poverty rate was 15.1 percent compared to 12.9 percent for those residing within urban areas. Median income in rural areas also declined sharply and remains some $11,000 less than for those residing in metropolitan jurisdictions.

A more compelling measure of economic failure is, as always, child poverty. Recently, the Carsey Institute published a report titled The Forgotten Fifth: Child Poverty in Rural America, which was written by William O’Hare, long-time producer of the well-known Kids Count report.

According to this report, 22 percent of rural children were poor in 2007, representing some 2.5 million children. This rate was up 2 percent points (a 10 percent jump) in just two years and was some 5 percentage points higher than for non-rural children. Over one million of these poor children live in what is called deep poverty where their families survive on incomes less than one-half of the official poverty level.

Most rural poor children were non-Hispanic whites (57 percent compared to 28 percent for urban kids); the poverty rates for rural minority children were always higher for each minority group when compared to their urban counterparts.

The rural child poverty rate exceeds one in four for a broad swath of Southern states from Arizona to South Carolina. Not surprisingly, 55 percent of all rural poor kids are found in the South. Moreover, these disadvantaged, rural kids are more prone to live in areas where economic challenges are concentrated and persistent. Of all persistently poor counties (the poverty rate exceeded 20 percent in every decennial census since 1970), over four out of five are rural. In addition, the 27 counties with child poverty rates of 50 percent or higher are all rural.

Why focus again on child poverty when so much other disheartening news is out there? There are several reasons. As the United Nations has stressed, poverty is the best overall measure of child well-being. The Carsey report uses 2007 data—the situation surely has worsened since then as unemployment and earnings have further fallen. Moreover, as indicated above, there is little to suggest that we will see any measurable improvement in the foreseeable future. Finally, the potential future costs of child poverty are striking; one estimate puts the present cost at $500 billion per year.

Clearly, we are not out of the woods by any means. To end, other indicators of well-being also evidence signs of societal stress, but that is a story for another time.

Tom Corbett has emeritus status at the University of Wisconsin-Madison and is an active affiliate with the Institute for Research on Poverty where he served as Associate Director. He has worked on welfare reform issues at all levels of government and continues to work with a number of states on issues of program and systems integration.

Opinions expressed in this column are those of the author and do not necessarily reflect the views of the Rural Health Information Hub.

Professor Corbett welcomes your feedback. Comments and reactions can be sent to: Corbett@ssc.wisc.edu.

Back to: Fall 2009 Issue