Over lunch, my friend Matt reminded me of this article from Michael Green (“How a Broken Benchmark Quietly Broke America”) on the origins and impact of the poverty line (part 1 of a three-part series):

This week, while trying to understand why the American middle class feels poorer each year despite healthy GDP growth and low unemployment, I came across a sentence buried in a research paper:

“The U.S. poverty line is calculated as three times the cost of a minimum food diet in 1963, adjusted for inflation.”

I read it again. Three times the minimum food budget.

I felt sick.

The formula for the poverty line, Green learned, was developed by Mollie Orshansky, an economist at the Social Security Administration, after observing that groceries accounted for one third of a family’s income:

Orshansky was careful about what she was measuring. In her January 1965 article, she presented the poverty thresholds as a measure of income inadequacy, not income adequacy—”if it is not possible to state unequivocally ‘how much is enough,’ it should be possible to assert with confidence how much, on average, is too little.”

She was drawing a floor. A line below which families were clearly in crisis.

The poverty line formula was “a measure of ‘too little,’” below which “you were in genuine crisis,” and above which “you had a fighting chance,” writes Green.

The cost of supporting a household has shifted dramatically since 1963. Childcare “didn’t really exist as a market,” notes Green, and can consume 20 to 40 percent of a household budget, while housing and healthcare costs have exploded (ranging from 35 to 45 percent and 15 to 20 percent, respectively). Food now accounts for just 5 to 7 percent of expenses, not a third.

If you keep Orshansky’s logic—if you maintain her principle that poverty could be defined by the inverse of food’s budget share—but update the food share to reflect today’s reality, the multiplier is no longer three.

It becomes sixteen.

Which means if you measured income inadequacy today the way Orshansky measured it in 1963, the threshold for a family of four wouldn’t be $31,200.

It would be somewhere between $130,000 and $150,000.

And remember: Orshansky was only trying to define “too little.” She was identifying crisis, not sufficiency. If the crisis threshold—the floor below which families cannot function—is honestly updated to current spending patterns, it lands at $140,000.

What does that tell you about the $31,200 line we still use?

It tells you we are measuring starvation.

Green pursues this argument through “The Valley of Death”:

Once I established that $136,500 is the real break-even point, I ran the numbers on what happens to a family climbing the ladder toward that number.

What I found explains the “vibes” of the economy better than any CPI print.

Our entire safety net is designed to catch people at the very bottom, but it sets a trap for anyone trying to climb out. As income rises from $40,000 to $100,000, benefits disappear faster than wages increase.

He spotlights the societal support that exists for families making $35,000 (“The ‘Official’ Poor”), which erode as those families increase their earnings.

At $45,000 (“The Healthcare Trap”), a $10K raise loses them access to Medicaid, which then costs them $10,567 in premiums and deductibles.

At $65,000 (“The Childcare Trap”), childcare subsidies are eliminated; the $20K raise costs the family $28,000.

When you run the net-income numbers, a family earning $100,000 is effectively in a worse monthly financial position than a family earning $40,000.

At $40,000, you are drowning, but the state gives you a life vest. At $100,000, you are drowning, but the state says you are a “high earner” and ties an anchor to your ankle called “Market Price.”

Green also uses the Covid lockdowns as a “proof of concept” that illustrates how the “working poor” benefited from eliminating several of these expenses for a time:

In April 2020, the US personal savings rate hit a historic 33%. Economists attributed this to stimulus checks. But the math tells a different story.

During lockdown, the “Valley of Death” was temporarily filled.Childcare ($32k): Suspended. Kids were home.Commuting ($15k): Suspended.Work Lunches/Clothes ($5k): Suspended.

For a median family, the “Cost of Participation” in the economy is roughly $50,000 a year. When the economy stopped, that tax was repealed. Families earning $80,000 suddenly felt rich—not because they earned more, but because the leak in the bucket was plugged. For many, income actually rose thanks to the $600/week unemployment boost. But even for those whose income stayed flat, they felt rich because many costs were avoided.

I found Green’s arguments compelling: it is ridiculous that a formula from 1963 remains the basis for determining poverty levels six decades later. It’s likewise unjustifiable that a salary increase can actually cost you money as subsidies are phased out.

Unsurprisingly, Green received a lot of pushback—in particular, for the $140,000 number itself, which some argue is artificially high—which he dutifully addresses in Part 2 of his series (“The Door Has Opened”).

While I, too, initially found the headline number exorbitant, and the math didn’t always math, it quickly became clear the actual number wasn’t the point: it was the significant delta between the putative poverty line and the actual “cost of participating, the cost of working”—the reality that “the threshold where a family can afford housing, healthcare, childcare, and transportation without relying on means-tested benefits” is well above $31,200. The $140,000 number may be high, but it’s directionally, if not mathematically, accurate.

(Part 2’s section on “The Wealth Lie” and the “phase transition […] from Class to Caste” is an especially withering assault on the notion of upward mobility via wealth inheritance. “You aren’t inheriting a fortune. You are inheriting a hospice bill,” writes Green.)

In Part 3 (“The Pursuit of Happiness”), Green starts to address solutions. He introduces the “Rule of 65,” which he calls “a simple, aggressive strategy” that shifts taxes from workers and onto “idle capital” by raising taxes on corporations, cutting FICA rates while increasing the FICA cap, and eliminating benefit cliffs by expanding the Earned Income Tax Credit.

(While Part 1 by itself is provocative (deliberately or not, I can’t be sure), Parts 2 and 3 frame and contextualize Green’s argument. I recommend treating them as one long piece.)

Surprisingly, Green is not a liberalist calling for massive wealth redistribution, but a small-c conservative (“just one that is tired of the lies”) who once managed the personal capital of Peter Thiel and founded a hedge fund seeded by George Soros. His recommendations are rather tame compared to what some are seeking, and don’t neatly align to liberal/conservative orthodoxy.

I can’t honestly say I follow all of his arguments (and his conservatism sometimes peeks through; for example, he deems “government-directed expenditures (housing vouchers, SSI, Nutrition, Unemployment Insurance)” to be “even worse” than lowering taxes for the rich), but it was an immensely eye-opening read.