Module 78
Income Inequality and
Income Distribution
For at least the past 70 years, every U.S. president has promised to do his best to re-
duce poverty. In 1964 President Lyndon Johnson went so far as to declare a “war on
poverty,” creating a number of new programs to aid the poor. Antipoverty pro-
grams account for a significant part of the U.S. welfare state—the system whereby
the government takes responsibility for the welfare of its citizens—although social
insurance programs are an even larger part. In this module, we look at the problem
of poverty and the issue of income distribution, and learn how public policy can af-
fect them.
The Problem of Poverty
What, exactly, do we mean by poverty? Any definition is somewhat arbitrary. Since
1965, however, the U.S. government has maintained an official definition of the
poverty threshold,a minimum annual income that is considered adequate to pur-
chase the necessities of life. Families whose incomes fall below the poverty threshold
are considered poor.
The official poverty threshold depends on the size and composition of a family. In
2009 the poverty threshold for an adult living alone was $10,956; for a household con-
sisting of two adults and two children, it was $21,756.
Trends in Poverty
Contrary to popular misconceptions, although the official poverty threshold is ad-
justed each year to reflect changes in the cost of living, it has not been adjusted upward
over time to reflect the long-term rise in the standard of living of the average American
family. As a result, as the economy grows and becomes more prosperous, and average
incomes rise, you might expect the percentage of the population living below the
poverty threshold to steadily decline.
Somewhat surprisingly, however, this hasn’t happened. Figure 78.1 on the next page
shows the U.S. poverty rate—the percentage of the population living below the poverty
What you will learn
in this Module:
- What defines poverty, what
causes poverty, and the
consequences of poverty - How income inequality
in America has changed
over time - How programs like Social
Security affect poverty and
income inequality
module 78 Income Inequality and Income Distribution 761
Thepoverty threshold is the annual
income below which a family is officially
considered poor.
Thepoverty rateis the percentage of the
population with incomes below the poverty
threshold.