Can the Economy Be Strong If Poverty Is Not Falling?

Business leaders have asked me that, reacting to concerns that the income gains have been primarily at the upper end of the income distribution.  I take these concerns with a grain of salt.  First, estimates of consumer spending by low-income households show substantial growth, although the official income numbers don’t show much growth when adjusted for inflation.

One element to keep in mind is that, as Greg Mankiw points out, the Earned Income Tax Credit is the largest anti-poverty program we have, but it is NOT COUNTED as income when calculating families living in poverty.  Also not counted are in-kind benefits, such as food stamps, Medicaid, and subsidized housing.  As a result, the official poverty rate doesn’t really tell us whether our efforts to help the poor have been successful.  However, the gains in consumer spending among low-income households are pretty good evidence that we have succeeded in alleviating some of poverty’s sting.

Business Strategy Implications:  Don’t neglect products and services for the low-income market.  There are people making money serving low-income families.  It’s not the same as serving the middle class or upper class markets, but there are certainly opportunities that are both profitable and beneficial to the poor.