Samuelson: A Poor Way to Measure the Poor

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Who is poor in America? This is a hard question to answer, and the Obama administration would make it harder. It’s hard because there’s no conclusive definition of poverty. Low income matters, though how low is unclear. Poverty is also a mindset that fosters self-defeating behavior—bad work habits, family breakdowns, out-of-wedlock births, and addictions. Finally, poverty results from lousy luck: accidents, job losses, disability.

Despite poverty’s messiness, we’ve measured progress against it by a single statistic: the federal poverty line. Originally designed in the 1960s, it takes the Agriculture Department’s estimate of the cost of a bare-bones diet and multiplies it by three. In 2008, the poverty threshold was $21,834 for a four-member family with two children under 18.

By this measure, we haven’t made much progress. Except for recessions, when the poverty rate can rise to 15 percent, it’s stayed in a narrow range for decades. In 2007—the peak of the last business cycle—the poverty rate was 12.5 percent; one out of eight Americans was “poor.” In 1969, another business-cycle peak, the poverty rate was 12.1 percent. But the apparent lack of progress is misleading for two reasons.

First, it ignores immigration. Many immigrants are poor and low skilled. They add to the poor. From 1989 to 2007, about three quarters of the increase in the poverty population occurred among Hispanics—mostly immigrants, their children, and grandchildren. The poverty rate for blacks fell during this period, though it was still much too high (24.5 percent in 2007). Poverty “experts” don’t dwell on immigration, because it implies that more restrictive policies might reduce U.S. poverty.

Second, the poor’s material well-being has improved. The official poverty measure obscures this by counting only pretax cash income and ignoring other sources of support. These include the earned-income tax credit (a rebate to low-income workers), food stamps, health insurance (Medicaid), and housing subsidies. Although many poor live hand to mouth, they’ve participated in rising living standards. In 2005, 91 percent had microwaves, 79 percent air-conditioning, and 48 percent cell phones.

The existing poverty line could be improved by adding some income sources and subtracting some expenses (example: child care). Unfortunately, the administration’s proposal for a “supplemental poverty measure” in 2011—to complement, not replace, the existing poverty line—goes beyond that. The new poverty number would compound public confusion. It also raises questions about whether the statistic is tailored to favor a political agenda.

The “supplemental measure” ties the poverty threshold to what the poorest third of Americans spend on food, housing, clothing, and utilities. The actual threshold—not yet calculated—will probably be higher than today’s poverty line. Moreover, this definition has strange consequences. Suppose that all Americans doubled their income tomorrow, and suppose that their spending on food, clothing, housing, and utilities also doubled. That would seem to signify less poverty—but not by the new poverty measure. It wouldn’t decline, because the poverty threshold would go up as spending went up. Many Americans would find this weird: people get richer, but “poverty” stays stuck.

What produces this outcome is a different view of poverty. The present concept is an absolute one: the poverty threshold reflects the amount estimated to meet basic needs. By contrast, the new measure embraces a relative notion of poverty: people are automatically poor if they’re a given distance from the top, even if their incomes are increasing.

The new indicator is a “propaganda device” to promote income redistribution by showing that poverty is stubborn or increasing, says the Heritage Foundation’s Robert Rector. He has a point. The Census Bureau has estimated statistics similar to the administration’s proposal. In 2008, the traditional poverty rate was 13.2 percent; estimates of the new statistic range up to 17 percent. The new poverty statistic exceeds the old, and the gap grows larger over time.

To paraphrase the late senator Daniel Patrick Moynihan: the administration is defining poverty up. It’s legitimate to debate how much we should aid the poor or try to reduce economic inequality. But the debate should not be skewed by misleading statistics that not one American in 100,000 could possibly understand. Government statistics should strive for political neutrality. This one fails.

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