(2025-11-23) Green Poverty Line Is A Lie

Michael Green: Part 1: My Life Is a Lie. Markets, liquidity, factor models—none of these ever felt self-evident to me. Markets are mechanisms of price clearing. Mechanisms have parameters. Parameters distort outcomes. This is the lens through which I learned to see everything: find the parameter, find the distortion, find the opportunity. But there was one number I had somehow never interrogated. The poverty line.

*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.”*

The formula was developed by Mollie Orshansky, an economist at the Social Security Administration. In 1963, she observed that families spent roughly one-third of their income on groceries

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.

But everything changed between 1963 and 2024.

Housing costs exploded. Healthcare[[ became the largest household expense for many families. Employer coverage shrank while deductibles grew. Childcare became a market, and that market became ruinously expensive. College went from affordable to crippling.

The composition of household spending transformed completely. In 2024, food-at-home is no longer 33% of household spending. For most families, it’s 5 to 7 percent.

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.

• This math is ridiculous.

The official poverty line for a family of four in 2024 is $31,200. The median household income is roughly $80,000. We have been told, implicitly, that a family earning $80,000 is doing fine—safely above poverty, solidly middle class, perhaps comfortable.

This is the trap. To reach the median household income of $80,000, most families require two earners. But the moment you add the second earner to chase that income, you trigger the childcare expense.

Add federal, state, and FICA taxes of roughly $18,500, and you arrive at a required gross income of $136,500.

Economists will look at my $140,000 figure and scream about “hedonic adjustments.” Heck, I will scream at you about them. They are valid attempts to measure the improvement in quality that we honestly value.

And I would be making a category error. We are not calculating the price of luxury. We are calculating the price of participation.

The economists say, “But look at the computing power you get!”
I say, “Look at the computing power I need!”

The only thing that actually tracked official CPI was… food. Everything else—the inescapable fees required to hold a job, stay healthy, and raise children—inflated at multiples of the official rate when considered on a participation basis. YES, these goods and services are BETTER. I would not trade my 65” 4K TV mounted flat on the wall for a 25” CRT dominating my living room; but I don’t have a choice, either.

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.

*1. The View from $35,000 (The “Official” Poor)

At this income, the family is struggling, but the state provides a floor. They qualify for Medicaid (free healthcare). They receive SNAP (food stamps). They receive heavy childcare subsidies. Their deficits are real, but capped.*

*2. The Cliff at $45,000 (The Healthcare Trap)

The family earns a $10,000 raise. Good news? No. At this level, the parents lose Medicaid eligibility. Suddenly, they must pay premiums and deductibles.*

*3. The Cliff at $65,000 (The Childcare Trap)

This is the breaker. The family works harder. They get promoted to $65,000. They are now solidly “Working Class.”

But at roughly this level, childcare subsidies vanish. They must now pay the full market rate for daycare.*

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.

The Physics of Ruin: The Phase Change

The most dangerous lie of modern economics is “Mean Reversion.” Economists assume that if a family falls into debt or bankruptcy, they can simply save their way back to the average.

Falling below the line isn’t like cooling water; it’s like freezing it. It is a Phase Change.

The Lockdown Arbitrage: Proof of Concept

If you need proof that the cost of participating, the cost of working, is the primary driver of this fragility, look at the Covid lockdowns.
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.

When the world reopened, the costs returned, but now inflated by 20%.

The Politics of Drowning

This mathematical valley explains the rage we see in the American electorate, specifically the animosity the “working poor” (the middle class) feel toward the “actual poor” and immigrants.

The family earning $65,000—the family that just lost their subsidies and is paying $32,000 for daycare and $12,000 for healthcare deductibles—is hyper-aware of the family earning $30,000 and getting subsidized food, rent, childcare, and healthcare.

They are not seeing “poverty.” They are seeing people getting for free the exact things that they are working 60 hours a week to barely afford. And even worse, even if THEY don’t see these things first hand… they are being shown them:

We have created a system where the only way to survive is to be destitute enough to qualify for aid, or rich enough to ignore the cost. Everyone in the middle is being cannibalized. The rich know this… and they are increasingly opting out of the shared spaces:

The Optical Illusion of Prosperity

You’ve likely seen this chart. It shows that the American middle class is shrinking not because people are getting poorer, but because they’re “moving up” into the $150,000+ bracket.

If the cost of basic self-sufficiency for a family of four—housing, childcare, healthcare, transportation—is $140,000, then that top light-blue tier isn’t “Upper Class.”
It’s the Survival Line.

This chart doesn’t show that 34% of Americans are rich. It shows that only 34% of Americans have managed to escape deprivation. It shows that the “Middle Class” (the dark blue section between $50,000 and $150,000)—roughly 45% of the country—is actually the Working Poor. These are the families earning enough to lose their benefits but not enough to pay for childcare and rent.

The Lie

Most of my readers will have cleared this threshold

But most of my readers are now seeing this trap for their children.

Next week, I’ll show you why that’s wrong. And THEN we can start the discussion of how to rebuild. Because we can.

The wealth you’re counting on—the retirement accounts, the home equity, the “nest egg” that’s supposed to make this all worthwhile—is just as fake as the poverty line. But the humans behind that wealth are real. And they are amazing.

Jezebel: The True Poverty Line Is not $140,000, But It’s Still Shockingly High

There has likely never been a greater disconnect between how people feel about the economy and what the metrics say about it. Kayla Scanlon coined the term of the decade, perhaps century, in vibecession, as nothing describes the post-2020 vibes like that term does. Many believe we are and have been in a recession the last few years amidst steady GDP growth

Something has fundamentally changed in how people perceive the economy, and this is far more than just media misinformation

Payroll processing firm ADP released a report today stating that private companies lost an average of 13,500 jobs a week in November, providing some credence to the missed consumer confidence reading

We are not even remotely close to being in a recession right now, but this is where I can thankfully stop giving it to Will Stancil and point out that there are plenty of figures demonstrating how the precarity people feel is very real.

But not many of them come in this blog by the Chief Strategist and Portfolio Manager for Simplify Asset Management that is going semi-viral right now. It’s pointed in the right direction and the assertions it makes are salient, but Michael Green’s claim that “the real poverty line is $140,000” for a family of four and that “I’m being conservative,” is fucking absurd

most of the points it makes are good and they touch on serious dynamics, but the topline figure is gobsmackingly preposterous.

We do have workable solutions! They’re called Medicare for All and the jobs program known as the Green New Deal! The New Deal and FDR’s new Bill of Rights a century ago were workable solutions too!

Now that the fascist American oligarchy has accomplished their century-long project of dismantling many New Deal and Great Society-era protections, we now have the highest inequality since just before the Great Depression. I wonder what happened!

there are other far better measures out there, like the OECD’s poverty rate, which rates the United States as one of the highest in the developed world. Asset Limited, Income Constrained, Employed (ALICE) households is another good measure that economists have used to show how precarious life can be in America this century.

What measures like ALICE do is use the actual cost of living in the counties that people live in as a baseline, because you simply cannot use one cost of living figure for a big, diverse country like ours. They found that in 2023, “based on the Federal Poverty Level (FPL), 13% of U.S. households were defined as being in poverty. Yet this measure failed to account for an additional 29% of U.S. households — more than twice as many — that were also experiencing financial hardship.”

Housing prices are at all-time highs, as a generation of NIMBYs stopped building and weaponized the supply and demand curve in service of their own net worths

Because we don’t build enough, home prices go up, and now they sit at all-time highs as the median age of the first-time home buyer has reached an all-time high of 40 years old, while the share of first-time home buyers also dropped to a record low of 21%

Entire generations are getting priced out of the housing market for their young adulthood, forced into a renter class that is at the heart of the increasing precariousness in America. How are renters supposed to build wealth when almost a third of their paycheck is going into someone else’s investment?

This is a climate change story too, as 6.3% of homeowners paid $4,000 a year or more for homeowner’s insurance, warping the cost of mortgages, which then filters down to increased costs on renters

Interest rates are another big problem, as the death of zero percent interest policy (ZIRP) created a bifurcated housing market and put people in a position where trading their old mortgage for a new one adds additional costs to any new home purchase, and this further reduces the supply on the market

Among our peer countries, we have the lowest life expectancy at birth. A big part of this is due to medical bankruptcies, a foreign concept to most countries with universal healthcare coverage. Medical debt is the leading cause of bankruptcy in America, and companies like UnitedHealthcare whose business model is predicated on rejecting as many claims as economically feasible are making the conscious decision to push people into bankruptcy. This is an intrinsic part of life in America.

If you are a renter with a median income and average healthcare costs, life in most American cities is one rejected insurance claim away from economic ruin

The auto loan market has been telling a nervy story in the second half of the year. In September, Tricolor Holdings, a major subprime auto loan provider, went bankrupt amid allegations of fraud, further adding to the concern around a market that primarily services used car buyers.

Lenders began tightening their standards once the Fed hiked interest rates in 2022, and that has begun to trap people in something of a vice grip. Debt is more expensive to service now, and Americans have a lot of it, further reducing their ability to save

The New York Fed found “4.5% of outstanding debt in some stage of delinquency” in the third quarter of the year, and that “Transitions into early delinquency were mixed with credit card debt and student loans increasing, while all other debt types saw decreases.”

In the State of ALICE’s 2025 Report, they found that “Of the 20 most common occupations in the U.S. in 2023, 11 paid less than $20 per hour,” and that “of all workers in these 20 occupations, 33% lived in households below the ALICE Threshold, with rates as high as 53% for home health and personal care aides and 49% for cashiers.”

Byrne Hobart: The Poverty Line Trap

This piece about updating the poverty line for 2025 spending has been getting some attention. Mike Green, the author, has made some clever points in the past (during the great inverse-vol bubble of 2018, he outlined what would happen in advance). He's also been early to thinking through some of the subtle impacts of index fund investing, though it's always hard to model how other market participants will handle that.

But now, grocery spending is about 4.9% of household expenditures. Food out of home, which was a quarter of grocery spending in 1963, is actually higher than grocery spending, at 5.5%. And even that understates how much food consumption has shifted from buying and preparing food to paying someone else to prepare it and consuming the finished product, because some of the incremental grocery dollars you spend come from things like buying pre-sliced fruits and vegetables or entire prepared meals.

If grocery spending has been crowded out because we're all meeting our basic needs and spend our incremental income on discretionary purchases, then basically everyone in America has cleared the poverty line. If we're still spending-constrained because there are new needs, or newly-expensive ones, then we can potentially be poorer.

But even in that latter case, we have to be careful. The more of your spending that's absorbed by services, the more your spending turns directly into income for somebody else.

What Green does in this essay is to compare the median household income ($80k) to some estimated median expenditures for a family of four. He comes to a final poverty line—the income below which a family is desperately poor—of $140k. This seems high. The first item is $32k for childcare. But 87% of school-age children are in public schools.

and then 0.1312 = 1.56 years of private school tuition per child.* ?

And also, let's wait some more: this family is earning $80k. And we're assuming they need full-time childcare, which implies two full-time earners

it doesn't take much variance between them at all for that childcare to be a bad deal after taxes

Now, it's easy to push back against that, but in a way that complicates the picture further. You can note that some people don't want to spend all of their time on childcare, which is absolutely true. But poverty is not the state of having to make tradeoffs that have downsides—that state is the state of existence.

And there's pushback-to-the-pushback: if you graph hourly wages against hours worked, you see that for earners in the bottom half, lower hourly earnings predict fewer hours worked. In communities where underemployment is the norm and multigenerational families are common, there's a sort of informal in-kind welfare state: grandparents babysit, nephews crash on the couch,

Other entries in the list are more sensible. Healthcare, for example, really is expensive, though if you're comparing average household income to average healthcare spending, 1) you need to consider that ~60% of working-age households have access to employer-subsidized health insurance, and 2) health expenditures overwhelmingly occur later in life

we don't really have a political culture that would trade more generous health benefits for stricter regulations on unhealthy behavior

Healthcare is just full of unpleasant tradeoffs, and in general when you see what looks like an easy win, there's going to be someone who is very upset that you took away either their lifestyle subsidy or their income.

One of the most unpleasant tradeoffs is that the high fixed cost of research, and the risk-averse nature of the industry, mean that promising new treatments often start out very expensive and sometimes never get cheap. In fact, it's hard to tell what anything costs, given the level of cross-subsidies

But you can't really buy 1963-level healthcare. Nor would you want to; polio and measles were still common, though vaccination was cutting that risk drastically

All of this has a cost; the healthcare system was a lot cheaper when the only option was for more people to die, and that's not the case any more.

And another important point the piece makes is housing. If there is a coherent theory by which output grows over time, but standards of living decline, it basically has to pass through housing supply restrictions

Housing has gotten more expensive, but we also use a lot more of it than we used to; the average house has 40% more square footage than in 1973, and average household size dropped 17% over that time period. Housing is another category where it's hard to even find the 1963 consumption basket of a smaller dwelling with no air conditioning.

The piece does raise one very important point, which is that means-testing with cliffs leads to all sorts of crazy distortions, like when Pennsylvania's system meant that a single mom with two children would be able to consume more when earning $29k than she would earning $69k.

But that's also a function of how taxes and redistribution work—if there's some basic standard of living that everyone needs to get, the two ways to achieve this are 1) a big flat pp that covers those basics, and progressive taxes to fund it, or 2) means-tested transfers such that we give more to people who earn less and vice-versa, which means we flatten the curve of after-tax income graphed against pretax income

*When people from outside the US visit American friends of the same relative socioeconomic status, i.e. if a middle-class French person comes to the US to hang out with a middle-class American, they don't tend to wonder why everyone is poor. They will sometimes wonder just how many pickup trucks per capita Americans need, why there are so many parking lots, and why these pickup trucks need to be roughly the size of a tank. They also sometimes remark that the Standard American Climate, in July and December and in both Maine and Phoenix, is a steady 71 degrees year-round.

It's just very hard to draw an accurate poverty line in a society that's well-off in the aggregate, offers lots of means for self-expression by way of consumption, but also has big non-tradable sectors like healthcare, housing, and education that suffer from a mix of cost disease, structural inefficiency, regulatory overhead, and regulatory capture

what specific problem we're trying to measure when we talk about poverty.

Healthcare, education, and housing have risen as a share of household budgets in part because that’s where more marginal consumption dollars go when basic needs have been met.

All of this would be true even if there weren’t regulatory and industry structure reasons for costs to spiral. But all of those extra layers of inefficiency are paying people, even if they shouldn’t be. So it’s inflating the cost of a middle-class lifestyle, but also inflating the incomes of workers who can’t get jobs in higher-output sectors

The skeleton key to a lot of this discourse might be surprising: one reason millennials feel poorer than previous generations despite having higher inflation-adjusted net worths at the same age is that their parents, especially the richer ones, had kids later in life.

it's true that if you extrapolate the economic growth previous generations experienced, you get much higher GDP per capita numbers today. We really did have a long lull in productivity growth starting in 1971, though recent numbers actually look a lot more like what we had during that mid-century boom. That makes it a very tricky time for economic populism: there's a new economic growth engine, it will absolutely produce a mix of winners and losers, and when the losers say that they did everything right and lost their jobs anyway, they'll have a point.

The Diff has written about the factors affecting economic growth, mobility, and inequality in pieces that look at specific industries as well as the broader context