The EconomistSeptember 28th 2019 Special reportPoverty in America 52
Measure for measure
The official way America calculates poverty is deeply flawedF
or lyndon johnsonto wage a success-
ful war on poverty, he first needed to
define it. The brainy work was done by
Mollie Orshansky, a statistician for the
Social Security Administration, who devel-
oped the first federal poverty line in 1963.
Ms Orshansky’s method was plausible
enough for the times. From a survey con-
ducted in 1955, she calculated that families
would typically spend a third of their
household budgets on food. So she com-
puted the cost of bare-essentials food
plans for families of varying sizes and
multiplied these thresholds by a factor of
three. These numbers, after simple annual
adjustments for inflation, are the modern
poverty lines used by federal government.
Times have changed. Globalisation and
advances in agriculture mean that modern
households now spend only one-eighth of
their incomes on food. Better data are
available. They show that housing and
child care—not food—are the biggest
constraints on the household budgets of
poor people. The majority of American
renters who make less than $30,000 now
spend more than half of their income on
housing. Among poor families with chil-
dren, those with such severe rent burdens
tend to reduce the amounts spent on other
necessities like food, transport and health
care. And deciding who counts as poor is
not merely a matter of statistical arcana.
Eligibility for safety-net programmes,
which disburse trillions of dollars, is
determined by the federal poverty level. Its
deficiencies also fuel the perception that
safety-net programmes have had no posi-
tive effect.
America’s antiquated poverty line
presents several problems. The mostsignificantisthatincomeiscalculated
before taxes and transfers, meaning that
the poverty-reducing effects of the earned-
income tax credit ($63bn annually) or food
stamps ($68bn) is ignored. Progress
against poverty goes undercounted as a
result. There are two commonly cited
measures of American poverty more so-
phisticated than the official one—the
supplemental poverty measure (spm),
which takes benefits and cost of living into
account, and the consumption poverty
measure, based on expenditure instead of
income, developed by two economists,
Bruce Meyer and James Sullivan. Both of
them show sharp and sustained declines
over the past half-century upon account-
ing for safety-net programmes (see chart).
Another problem is that the poverty
line is set far too low. Most developed
countries do not use only measures of
absolute poverty, as America does. They
also employ relative poverty measures. InBritain, for instance, families with in-
comes below 60% of median income are
classified as poor. In America the median
income for a family of four in 2017 was
$94,876—yet the poverty threshold was
just $24,600, or 26% of median income.
Because income growth has outstripped
inflation, the divergence has increased
over time. In 1975, for example, the poverty
level was as much as 40% of the median
income for a family of four. Government
programmes try to take this inadequacy
into account, albeit inconsistently.
A third issue is that there is no account-
ing for variation in the cost of living—the
poverty line in San Francisco is the same as
in rural Louisiana. That scrambles the
perception of rich states and poor states. A
favourite saying in poor states like Ken-
tucky or Alabama is “Thank God for Mis-
sissippi”—the state that finishes last on
poverty indices. Yet when measures that
take the cost of living into account are
used, like the spm, it turns out that Califor-
nia is at the bottom of the rankings. De-
spite the progressive state’s more generous
safety net, the out-of-control housing
costs push more people into destitution
than anywhere else.
This deficiency in the official poverty
statistics is exploited by some right-wing
politicians. Paul Ryan, a Republican for-
mer Speaker of the House, justified his
proposal in 2016 for modifying safety-net
programmes—largely by adding work
requirements—by noting that “Americans
are no better off today than they were
before the war on poverty began in 1964.”
That might be right by the official statistics
but, when poverty is properly measured, it
is plain wrong.Poor showSources:CensusBureau;
CentreonPoverty& Social
Policy; povertymeasure.org*Anchoredto 2015 povertythreshold
†Anchoredto 2012 povertythreshold,
after taxes and transfersUnited States, poverty rate, %0102030401967 80 90 2000 10 17Supplemental†Consumption*Officialsince Johnson declared his war. Compared with the rest of the
country, poverty there remains high. But in absolute terms, the
share of poor residents has dropped by nearly half since 1960.
When John F. Kennedy campaigned for the presidency in West Vir-
ginia, he was horrified not by the state of the roads but by the ema-
ciated people. Out-and-out hunger is much rarer today. However,
new social pathologies have sprung up: obesity, joblessness, dis-
ability and addiction.
Each new social problem compounds the others. Individual
choice and social structure co-mingle, yielding a Gordian knot of
pathology difficult for policymakers to cut. The national economy
has evolved to one that prizes education, leaving low-skilled work-
ers behind. Deindustrialisation and incarceration have particular-
ly decimated the prospects for black men.
Poor families of all races have become increasingly unstable asa result. Rates of non-marriage and births out of wedlock have ris-
en among this population, leading to many more single-mother
families—41% of children in such households live below the pov-
erty line. Drug use, particularly of opioids, has grown exponential-
ly, fracturing families even more. “I became a mother at 72 again,”
says Debbie Crum, who has lived nearly all her life in Martin Coun-
ty. “My great-nephew and his girlfriend had the baby. But they were
hooked on drugs. The family had to go all the way back to me before
they could find someone who could take care of the baby, who
could pass the background check and drug test.” Ms Crum is a lov-
ing carer, but not all children are so lucky.
The Bureau of Economic Analysis publishes detailed data on
sources of income, public and private. In some counties of Ken-
tucky, federal transfers—through food stamps and disability and
old-age benefits—account for 36% of all income. Without them, 1