The Poverty Conundrum

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.