Economics, U.S. Economy

Why how we measure poverty is really important

Image Credit: Shutterstock.com

Image Credit: Shutterstock.com

Pundits and politicians marked the 50th anniversary of President Johnson’s “War on Poverty” by lamenting our lack of progress. After five decades and untold sums, they noted, the official poverty rate has only declined by four percent. Can this be our best effort?

(Source: Census Bureau)

This pessimistic story works for partisans on both sides. Conservatives believe that leftist ideas dominate antipoverty policy, so stagnation represents an indictment of progressive governance.  Progressives see helping the vulnerable as their specialty, so persistent poverty means they are needed more than ever. Bad news benefits everyone.

But is it accurate?

The official poverty rate counts Americans whose pre-tax incomes fall below a certain threshold. But many key antipoverty policies don’t boost beneficiaries’ incomes. Food assistance, Medicaid, housing vouchers, and the Earned Income Tax Credit are all central to the safety net as currently constructed. But since they don’t put money directly into people’s wallets, all these programs are invisible to the standard poverty rate. The result, experts say, is an official figure that understates our progress.

News of this incongruity has begun to spread. NPR incredulously reports that “The Poverty Rate Ignores Programs That Fight Poverty.”  The Atlantic’s Jordan Weissmann explains “Why You Should Forget About the Poverty Rate.” And reporters like the NYT’s Annie Lowrey featured the issue in recent coverage. The traditional poverty measure is heading out of fashion.

What alternatives exist? Some experts redefine income to account for taxes and non-cash benefits. This shift, along with heightened sensitivity to living expenses, is how the Census Bureau produces its “supplemental poverty measure.”

(Source: Census Bureau)

The tweaks yield a slightly higher poverty rate of than the official figure, but the big picture looks promising. Extending the new math back in time, researchers find that poverty started much higher in the 1960s than traditional data indicate. They conclude that we’ve cut poverty by 10%, more than twice the official reduction.

(Source: Wimer et al (2013))

Other economists put income aside and look to consumption spending. They measure not what people earn, but what they spend. This yields even rosier conclusions, like Bruce Meyer’s and James Sullivan’s declaration that we are “winning” the war on poverty. Their consumption metrics show a massive 26% drop since 1960.

(Source: Meyer and Sullivan (2012).)

These happier graphs make the alternative measures very appealing. But policymakers should think twice before they completely dispose of the old metric. The old-school poverty rate retains one key advantage over its trendier rivals: It retains the distinction between earned and unearned resources.

To the new metrics, paychecks and government benefits look identical. This is precisely the point; counting the former but not the latter gives an inaccurate picture of a family’s material lifestyle. Our stomachs don’t disregard food purchased with government assistance, so neither should our poverty data.

Critically, though, our hearts do make that distinction. As Arthur Brooks observes, surveys show that productivity and engagement in meaningful work are central to happiness and satisfaction. People who feel “very” or “completely” successful in their jobs are twice as likely as others to say they are “very happy” overall. And Stanford’s Cristobal Young finds that while unemployment insurance may bolster jobless people’s budgets, it barely ameliorates the accompanying drop in well-being:

(Source: Young (2012).)

The human cost of poverty goes far beyond material consumption. The extent to which we earn our resources appears integral to our happiness. And while the new poverty metrics answer some questions more ably than the traditional figure, they are blind to this critical distinction.

The gap between poor Americans’ earnings and their lifestyles is at best a mixed blessing. As cheerful economists point out, it does show that we have significantly reduced material deprivation. But if we aspire to more than making life on the margins of society more survivable—if we seek to empower everyone to earn their own success—then it is also cause for grave concern.

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4 thoughts on “Why how we measure poverty is really important

  1. How about something REAL WORLD such as comparing various salaries to the cost of cars and homes, which are the “big ticket” items?
    Naw, too simple, right?

    • groceries cost more per month, in general, than a car payment. You can get a brand new car for payments in the $200-220/month range pretty easily these days.

      and even that assumes that it is financially O.K. to buy a brand new car while on SNAP and considered impoverished.

      is that real world enough for you?

    • Stevor;

      Do you know what CONSUMPTION based poverty rate is ?
      Look at the Green line on the Meyers and Sullivan graph above. The one that goes from 30% in 1960 to about 5% today. The graph that completely obliterates the increasing inequality and misery of the poor claims of progressives.

  2. War on poverty? Ineffective mostly, with some horrible side effects. The seen and the unseen. The biggest casualty for most of the population has been economic freedom and a robust growth rate. It’s a lot like government schools, neglecting and disserving the golden goose. The rulers are too busy buying votes to notice they have destroyed prosperity.

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