California’s Experiment in Reducing Poverty Worked. So Why Did It Stop?

For a brief, shining moment, the United States government decided to do something about poverty in America. The country embarked on a two-year experiment with European-style social democracy—and found that it worked. Of course, the package of measures offering support to struggling Americans was seen as an emergency measure in response to the COVID-19 pandemic of 2020 and 2021.

Without any of the emergency pandemic measures, poverty would have surged.

“Americans learned a key lesson during the pandemic,” wrote Dylan Matthews, lead reporter for the site Vox.com, in a 2021 report. “Poverty is a policy choice, and it can be easily reduced through increased government support.”

Despite the precipitous economic disaster caused by the pandemic, poverty in America decreased, in a significant way. This was especially remarkable because without any of the “emergency” pandemic measures, poverty would have surged, according to projections by the Columbia University Center on Poverty and Social Policy. Instead, thanks to the economic support programs, poverty rates dropped. 

Not only did they drop, but poverty rates dropped by record levels, the Center on Budget and Policy Priorities reported. The CBPP estimated that 53 million people nationally were stopped from the descent into poverty by the support programs.

The Policy Choices That Prevented Poverty

Those programs included three rounds of direct cash payments in the form of stimulus checks, totaling $3,200; expanded unemployment insurance that pumped more than $650 billion into Americans’ bank accounts; and increased child tax credits that reached 61 million children and slashed the child poverty rate to 5.2 percent, the lowest ever recorded.

If poverty is a policy choice, why don’t we as a society make a different choice?

In California and nationally, the pandemic era protections also included a ban on evictions, and dispersal of funds to cover missed rent payments for tenants. Those protections ended starting March 31, 2022 (some counties kept them in place for several more months). In California, the protections, along with stimulus payments, slowed the growth of homelessness by 41 percent, according to an Economic Round Table report. 

From 2019 to 2020, the first year that the pandemic support programs were offered, the poverty rate as calculated by the U.S. Census Bureau dropped from 11.8 percent to 9.1. In California the drop was even steeper—from 16.2 percent to 12.3. California still held its place as the country’s most poverty-ridden state. But the pandemic-era expansion of the social safety net made an important difference.

Poverty Makes a Comeback

In 2022, the poverty rate in California jumped back to 16.4 percent, according to the nonpartisan California Budget & Policy Center. Child poverty skyrocketed from 7.4 percent in 2021 to 16.8 percent in 2022.

The state was right in line with the national trend. According to the measurement of poverty used by the U.S. Census Bureau, poverty nationwide jumped 4.6 percentage points from 2021 to 2022, to 12.4 percent—the first overall increase in more than a decade.

The reason? Simple. The programs that pulled millions of Americans out of poverty and helped millions more to avoid falling into it ended. Or, to put it more accurately, the government ended them.

So if poverty is a policy choice, why don’t we as a society make a different choice? Why were the poverty-busting 2020-2021 support measures allowed to run out, condemning millions of Americans to live in poverty once again? To understand the answers to those questions there’s one important question to answer first. What is poverty?

What We Talk About When We Talk About Poverty

The Oxford English Dictionary defines poverty as “The condition of having little or no wealth or few material possessions; indigence, destitution.”

In 1965, Pres. Lyndon Johnson declared a “War on Poverty” but there was no agreed-upon definition of what “poverty” actually was.

That seems like a pretty accurate definition, but it’s also rather broad. The U.S. government uses a more specific measurement called the “poverty line.” If your income falls below this figurative line, you are counted as living in poverty. So, what is the line? According to the Census Bureau, the official "poverty measure" equals three times the cost of a minimum food diet for a family. 

In 1966, the year after the U.S. Office of Economic Development (OED) adopted the standard as its measure of poverty, the average American family spent almost exactly as much on food as on housing, 29.2 percent to 30.2 percent. By 2022, housing consumed one-third of an average American budget, but food expenditures were down to 12.8 percent, behind transportation at 16.8 percent.

When she came up with it 60 years ago, Mollie Orshanky’s poverty measurement standard was groundbreaking, and had a major influence on social policy for decades. In 1963, Orshanky was a 48-year-old statistician and economist working for the Social Security Administration (SSA)—the daughter of Jewish immigrants from Ukraine (then part of the Russian empire) whose parents had come from poverty in that country.

With the family food budget as a starting point, Orshanky created 120 different thresholds of poverty, each based on a variety of factors. In 1965, Pres. Lyndon Johnson had declared a “War on Poverty” but there was no agreed-upon definition of what “poverty” actually was until the OED adopted Orshanky’s standard.

A New Definition of Poverty

Orshansky, who worked at the SSA until 1982 and died in 2007 at age 91, recognized the flaws in her own poverty standard, acknowledging that it defined only what was an “inadequate” income, but said nothing about what should be considered adequate for an American household. 

Even as the government develops new and presumably more accurate ways of measuring poverty, it seems the solutions to poverty are staring us in the face. 

Other drawbacks in what’s become known as the “official” poverty line include that it doesn’t account for regional differences—California’s high cost of living plays a major role in the state’s high poverty rate, for example—or other factors such as out-of-pocket medical costs and work expenses. 

In 2011 the Census Bureau started using a new standard in addition to the official poverty line. In fact, the percentages cited earlier in this story are based on this new standard, called the Supplemental Poverty Measure (SPM).

In 2020, the bureau made some updates to the methodology used to determine the SPM, but the simple version is, rather than rely on the decades old “minimum food diet” benchmark, the SPM takes into account costs of housing, utilities and clothing. It also counts public assistance provided in forms other than cash (food stamps, housing subsidies and so on) as income. 

The official measure also relies on a household’s before-tax income, while SPM recognizes that the majority of households and individuals must rely on the income they have remaining after taxes to cover their basic living expenses.

The SPM generally shows higher rates of poverty for the population as a whole than the official measure, but lower rates for children—and higher rates for senior citizens.

The Census Bureau did not arrive at the SPM formula overnight. In its ongoing attempt to better understand the scope of poverty in America, the bureau has been trying out new measurements of poverty since the 1980s. From 1992 to 1995, a National Academy of Sciences panel, at the request of Congress, researched new methods of measuring poverty, publishing an extensive report that served as a basis for the Census Bureau’s later developments in the field.

Even as the government develops new and presumably more accurate ways of measuring poverty, however, it seems the solutions to poverty are staring us in the face. If poverty is a policy choice—the solution involves making different choices.

Health Care Costs and Poverty

That health care expenses drive millions of people into poverty has been clear for years. Census Bureau data from 2018 showed 8 million people falling into poverty due to medical expenses. And that was a reduction from the years 2014 through 2017, when an average of 11 million people per year crossed the threshold into poverty due to health care costs.

“Protecting people from the financial consequences of paying for health services out of their own pockets reduces the risk that people will be pushed into poverty.”

WORLD HEALTH ORGANIZATION

If direct health care costs for consumers could be eliminated, poverty would be reduced. That was the conclusion of the World Health Organization, which in October, 2023, stated that “protecting people from the financial consequences of paying for health services out of their own pockets reduces the risk that people will be pushed into poverty because the cost of needed services and treatments requires them to use up their life savings, sell assets, or borrow—destroying their futures and often those of their children.”

According to the WHO, one billion people worldwide face “catastrophic” out-of-pocket health care expenses, and 344 million are being buried deeper into “extreme poverty” by their health costs.

The Public Policy Institute of California has developed its own way to measure poverty in the state, which they have appropriately titled the California Poverty Measure (CPM). The CPM, similar to the SPM, factors in housing costs and government support programs. The PPIC found in a 2023 study that when health care costs were factored into the CPM, the resources needed by an individual to keep from falling into poverty spiked by 60 percent.

The combined federal and state public health insurance program for low-income people, known in California as Medi-Cal plays a major role in preventing poverty. In a California with no Medi-Cal, child poverty would leap from 7 percent to nearly 17 percent, according to the PPIC. Poverty among adults between ages 45 and 64 would rise from 13.1 percent to 19.3 percent.

The poverty rate for Medi-Cal recipients is 18.5 percent compared to 13.2 percent overall using the CPM standard. But for Californians with no health insurance at all, the CPM poverty rate is 38.4 percent. Those fortunate enough to get health coverage through an employer experience only a rate of 4.2 percent.

How Government is Deciding to Push People Into Poverty

One might think that California would be doing everything possible to extend the Medi-Cal program to cover even more people—a step that according to PPIC data would lift tens of thousands out of poverty and prevent thousands, maybe millions more from falling below the line. And the state is doing that. Starting May 1, 2022, California expanded Medi-Cal eligibility to undocumented immigrant adults over the age of 50. And in 2024, all undocumented immigrants in the state, regardless of age, will become eligible for the program if they meet income requirements. That would be the largest expansion of health coverage in California since the Affordable Care Act took effect more than a decade earlier.

Americans have long been enamored with the idea that individuals can pull themselves out of poverty simply through hard work and determination—or as the saying the goes, “by your bootstraps.” But “bootstraps” are mostly a myth.

At the same time, California—as well as the rest of the country—is moving ahead with a decision that appears certain to send millions, including children, into poverty. During the pandemic, the federal government put a “continuous coverage” requirement in place for Medicaid (including of course its California version, Medi-Cal). That meant no low-income person would lose health coverage during that time.

That protection was lifted in April 2023. Washington gave states 14 months to cull their enrollments, which California began doing in July 2023. The decision to end the federal financing of the continuous coverage plan will force between 8 million and 24 million people off Medicaid, according to the Kaiser Family Foundation. 

Between 2 million and 3 million of those people will be Californians, the state Department of Health Care Services expects. How many of those will then fall into poverty is difficult to know for sure. Given that, according to the PPIC data ,the poverty rate for uninsured Californians is more than twice as high as for those on Medi-Cal, the ranks of the newly impoverished appear likely to swell significantly.

Poverty is Expensive

Americans have long been enamored with the idea that individuals can pull themselves out of poverty simply through hard work and determination—or as the saying the goes, “by your bootstraps.” But “bootstraps” are mostly a myth. The reality is, poverty breeds more poverty, not because people experiencing poverty are somehow lazy or lack toughness and grit, but because poverty itself costs a lot of money.

Of course, it remains theoretically possible to “bootstrap” yourself out of poverty, but even people who have managed that heavy lift generally benefit from some form of government intervention.

The circumstances imposed by poverty create higher costs of basic necessities—and lower-income households spend a bigger percentage of their money on those necessities, 82 percent according to a Brookings Institute Report. Middle-income households spend 78 percent of their income on necessities, while high-income earners spend just 67 percent, per the Brookings figures.

At the same time, food costs more for people in poverty, because they generally live in neighborhoods where supermarkets, are reluctant to set up shop, knowing that their profit margins will be low. That means food is in short supply, pushing prices up. Or, people on poverty must travel to find lower-cost food.

And transportation can be expensive for those in poverty. If a person in poverty must buy a car, it will likely require a high-interest “sub-prime” loan even for a cheap, used one.

Lacking a car, the main alternative is public transportation which not only costs money but perhaps more importantly can be inordinately time-consuming. The more time spent simply getting from one place to the other, the less time a person has to earn income.

Even something as simple as doing laundry costs more for people in poverty, who rarely have washers and dryers in their homes. Regular trips to laundromats that charge by the load add up, and exceed the costs of doing laundry at home. The same holds true for other routine household tasks. 

Of course, it remains theoretically possible to “bootstrap” yourself out of poverty, but even people who have managed that heavy lift generally benefit from some form of government intervention. Increased minimum wages, the federal Earned Income Tax Credit, and other support for expanding employment  have all helped reduce poverty. 

The COVID-19 economic support programs provided an example, even a model, for how to reduce or even end poverty in California and throughout the United States. With the pandemic emergency officially ended, the country is now headed in the other direction—a direction that appears certain to cause more poverty in the state and country.