The Poverty Conundrum
A noted demographer says that the nation's official measure of poverty is biased, flawed, and inconsistent with almost every other gauge of well-being.
The source: “The Mismeasure of Poverty” by Nicholas Eberstadt, in Policy Review, Aug.–Sept. 2006.
When the Census Bureau reported in August that the U.S. poverty rate essentially held steady at 12.6 percent of the population in 2005 instead of rising, as it had every year since 2000, the Bush administration hailed the news, while Democrats charged that it proved once again that the economy was failing to lift the downtrodden.
The annual announcement of the number of Americans living in absolute poverty—now defined as less than $19,806 a year for a family of four—has turned into a political circus. Nicholas Eberstadt, a demographer at the American Enterprise Institute, writes that the poverty rate has become “an ever less faithful and reliable measure with each passing year.”
The statistic is a relic of the Johnson administration’s War on Poverty. Developed in 1965 by Mollie Orshansky, an economist at the Social Security Administration, it is set at roughly three times the cost of the Agriculture Department’s “thrifty food plan,” a nutritionally adequate but bare-bones diet, adjusted for family size.
It’s hard for Eberstadt to believe that all the social spending of the last three decades has failed to budge the poor out of conditions in which “everyday living implied choosing between an adequate diet of the most economical sort and some other necessity,” as Orshansky put it. Although statistics show that some groups, such as the elderly and African Americans, are better off now than they were in 1973, the official poverty rate has bobbed steadily above 11.1 percent for 32 consecutive years. Last year, 37 million Americans were classified as poor.
Year after year, the number has stubbornly failed to fall—even as the nation’s per capita income rose 60 percent, the percentage of working-age people with jobs went up by six points, the proportion of Americans with a high school diploma increased 24 points, and government spending on the poor tripled. By 2001, more than half of all poverty-level homes had cable television and two or more TV sets. One in four households had a personal computer, and by 2003, nearly three out of four poverty-level households had some sort of motor vehicle. And yet, with nearly every increase in statistical well-being, the poverty rate has gone up. “Something is badly amiss,” Eberstadt writes.
A very different picture emerges when government researchers ask people about what they spend rather than about their income. Household expenditures for the poorest fifth of the population have increased greatly since 1973, even accounting for inflation. In 1960, the poorest quarter of the population spent 12 percent more than their annual income; by 2002, the poorest fifth were spending double their reported annual income.
How can this be? Are poor Americans sinking deeper and deeper into debt? Eberstadt says the more likely explanation is something economists call “transitory variance.” Nine out of 10 people are poor only temporarily. Like other people, they base their consumer behavior on the long, not the short, term, and they spend accordingly. “Transitory variance” better fits the growing discrepancy between spending and income because year-to-year income variability is rising.
Eberstadt notes that criticizing the official poverty measure is sometimes taken as proof of indifference to the poor. To say that Americans are incontestably better off “is not to assert that material progress for America’s poverty population has been satisfactory, much less optimal,” he says.
The nation’s official measure of poverty is biased, flawed, and inconsistent with almost every other gauge of well-being, he writes. It fails the test of common sense.