Measuring Poverty

by Russ Roberts on September 9, 2005

in Standard of Living

Some measures of economic well-being for either the poor or the average person suggest stagnation since 1974.  Here’s a nice counterpoint by Nicholas Eberstadt in today’s New York Times (rr).  The best part:

The profound flaws in our officially calculated poverty rate are
revealed by its very intimation that the poverty situation in America
was "better" in 1974 than it is today. Those of us of a certain age
remember the year 1974 – in all its recession-plagued,
"stagflation"-burdened glory. But even the most basic facts bearing on
poverty alleviation confute the proposition that material circumstances
in America are harsher for the vulnerable today than three decades ago.
Per capita income adjusted for inflation is over 60 percent higher
today than in 1974. The unemployment rate is lower, and the percentage
of adults with paying jobs is distinctly higher. Thirty years ago, the
proportion of adults without a high school diploma was more than twice
as high as today (39 percent versus 16 percent). And antipoverty
spending is vastly higher today than in 1974, even after inflation

In the face of such evidence, what do you call an
indicator that stubbornly insists that the percentage of Americans
below a fixed poverty threshold has increased? How about "a broken

The soundings from the poverty rate are further belied
by information on actual living standards for low-income Americans. In
1972-73, for example, just 42 percent of the bottom fifth of American
households owned a car; in 2003, almost three-quarters of "poverty
households" had one. By 2001, only 6 percent of "poverty households"
lived in "crowded" homes (more than one person per room) – down from 26
percent in 1970. By 2003, the fraction of poverty households with
central air-conditioning (45 percent) was much higher than the 1980
level for the non-poor (29 percent).

Besides these living
trends, there are what we might call the "dying trends": that is to
say, America’s health and mortality patterns. All strata of America –
including the disadvantaged – are markedly healthier today than three
decades ago. Though the officially calculated poverty rate for children
was higher in 2004 than 1974 (17.8 percent versus 15.4 percent), the
infant mortality rate – that most telling measure of wellbeing – fell
by almost three-fifths over those same years, to 6.7 per 1,000 births
from 16.7 per 1,000.

And this is good too:

In the Labor Department’s latest Consumer Expenditure Survey (2003),
the average reported income for the bottom fifth of households was
$8,201, while reported outlays came to $18,492 – well over twice that
amount. Over the past generation, that discrepancy widened
significantly: back in the early 1970’s, the poorest fifth’s reported
spending exceeded income by 40 percent.

Unfortunately, economists
and statisticians have yet to come up with a clear explanation for this
gap (which is not explained by in-kind payments like food stamps or
other assistance). The divergence may be in part a measurement problem:
partly a matter of income under-reporting, partly a consequence of
increasing income variability in our more "globalized" economy. But
whatever its cause, it does drive home the unreliability of using
reported household income as a benchmark for poverty.


Add a Comment    Share Share    Print    Email

Previous post:

Next post: