Prof G Markets · 5 min · Dec 5, 2025

Relative poverty better captures exclusion than a single income cutoff

PKPaul Krugman · Distinguished Professor of Economics, CUNY

Paul Krugman says the official poverty threshold is a useful policy benchmark but a poor proxy for social inclusion.

In this episode

39:38 Climate damage accumulates, while clean energy offers a path forward6 min
11:14Relative poverty better captures exclusion than a single income cutoff5 min
29:51 Wall Street sees political risk in Washington more clearly than tech5 min

“Most countries actually measure... poverty quite differently. They'd say that poverty is having less than half the median income.”

PKPaul Krugmanat 12:35 · Prof G Markets

Takeaways

The official threshold began as a quick measure based on food costs.
Many countries define poverty relative to median income.
Krugman says social exclusion matters beyond the cost of essentials.

About this segment

Paul Krugman says the official poverty threshold is a useful policy benchmark but a poor proxy for social inclusion. Relative poverty and access to middle-class life reveal more about hardship.

PK

Paul Krugman is a Nobel Prize-winning economist and distinguished professor of economics at CUNY.

Ed Elson, Host
Scott Galloway, Host

From “The Economic Risks Keeping Paul Krugman Up at Night | Prof G Markets”, Dec 5, 2025. Watch the full episode

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

11:26
that perhaps that that metric that we've used to measure poverty might be flawed i actually have been aware of the article and not bothered to read it because it's kind of this is kind of a stupid point. I mean, you know, I sit at the City University, I sit at something called the Stone Center for the Study of Socioeconomic Inequality. Let me tell you, my colleagues know all about poverty measurement. And, you know, poverty measure is one of those things where basically Lyndon Johnson needed a quick and dirty measure of poverty. And an economist at the Bureau of statistics, Molly Arshansky did a quick and dirty calculation, which somehow got stuck. And the original calculation was based on the cost of food, and since then has been just adjusted for the Consumer Price Index and nothing else. I mean, Molly Arshansky did something really useful,
12:20
and it turned out to be extremely useful to have a standard measure of poverty, even if it's somewhat arbitrary. But if you really want to think about poverty, there's one question, which is, can people afford the essentials of living? And then there's a bigger, tougher question, which is, are people really part of the broader society? Poverty as a measure of social exclusion is really what you want, mostly.
12:48
Most countries actually measure... poverty quite differently. They'd say that poverty is having less than half the median income. And we can do that for the United States. And it does show that we've actually, because of increasing inequality, poverty has risen over time. And yes, the material standard of living associated with half the median income has gone up, but in some ways that doesn't help much. So this is the wrong approach. I mean, in some ways it should just say, you know, poverty, poverty? How are we doing? How many people are really effectively excluded from the economic mainstream in America? And the answer is a lot and too many. And the, you know, we, for kind of almost bureaucratic policy reasons, we're kind of stuck with this poverty measure, but trying to, you know, fiddle with it to make it better is not, that's really not very helpful.
13:45
It sounds like maybe you agree with the premise, though, which is that this idea of a poverty line is kind of an arbitrary and stupid way to measure things with this question of how is America doing? I feel like one of the larger points is like the economy is so much different today than it was 60 years ago. There are so many other things that we need to account for. You mentioned there that real income is up, but this affordability crisis is still a problem for all of the other issues that you mentioned, the job market, housing market, borrowing costs, all of these things, which seems to bring us to this question of like, how are we supposed to measure the economy then?
14:21
If we can't rely on the poverty, we can't rely on income, what should we be looking at? I mean, I would say the poverty measure is arbitrary but not stupid. There was a reason for doing it. There's a reason why a lot of federal programs are key to the official poverty threshold because they have to be keyed to something. So if you look at what are the subsidy rates under the Affordable Care Act, they're tied to your income as a percentage of the official poverty line. And changing that would be kind of a nightmare.
14:54
It's just, you know, there are more important things to spend political capital on. So, you know, let's focus on what's important. And again, we have pretty good measures of inequality. We have a pretty good sense of how many people really can't afford to be part of the mainstream of American life. They're all very troubling. So just, we don't need... The problem, the fault lies not in our numbers, but in ourselves, right?
15:19
It's fundamentally a question of what kind of society do we want to have and how do we deviate from that? And clearly, if the poverty line, you know, if you have some calculation that sets the poverty line at a level that is way, way above where people actually consider themselves poor, then that's wrong. It doesn't matter what the details of the calculation are. So let's just say, are there a lot of Americans who are below some line?
15:46
Yes, there are.