Chapter 7 Poverty and income inequality: myths and magic
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Chapter 7 examines income distribution and poverty in the USA. Official data suggest that (with the exception of senior citizens) the US war on poverty has had little effect on the percentage who are poor. However, when scholars adjust for biases in the measuring process, it appears as though some progress has been made. On the other hand, the government measures the poverty threshold income level by multiplying the cost of food by a factor of three. In reality, for most people near the bottom of the income distribution, they should multiply by five. This would raise the poverty threshold income level significantly, which means that, by any reasonable definition of poor, there are probably tens of millions more poor people in the USA than official statistics indicate. We might have made some progress, but no one really knows how many people in the USA are poor. The Gini coefficient suggests that there is significantly more income inequality in the USA than in other leading countries. However, some economists have calculated the value for the US Gini in, supposedly, a more accurate manner. They conclude that the US Gini is about the same as its mean for other leading countries. A standard argument against taxing the rich heavily to help the poor is that this will reduce the rate of economic growth. However, both theoretical and empirical scholarly studies on this topic do not reach a consensus. Standard thinking is not supported as often as it is supported. Also, the Nordic countries have the lowest Gini coefficients but have grown much faster over the last several decades than the leading countries.

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