Monday, July 19, 2010

So, why do we have such weird poverty data in the US? An 2005 op-ed in the New York Times calls it a Broken Yardstick:
According to the latest poverty rate estimates - released by the Census Bureau on Aug. 30 - the total percentage of Americans living in poverty was higher in 2004 (12.7 percent) than in 1974 (11.2 percent). According to that same report, poverty rates for American families and children were likewise higher last year than three decades earlier...

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 adjustments...

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.

There's a couple of possible explanations. Marginal Revolution quotes Lane Kenworthy:
Poverty comparisons across affluent nations typically use a “relative” measure of poverty. For each country the poverty line — the amount of income below which a household is defined as poor — is set at 50% (sometimes 60%) of that country’s median income. In a country with a high median, such as the United States, the poverty line thus will be comparatively high, making a high poverty rate more likely...

Using a relative measure, the U.S. poverty rate is higher than Romania’s and only slightly lower than Mexico’s (see here). Similarly, Mississippi’s relative poverty rate is the same as Connecticut’s.

Tyler Cowen follows this up with:
It's also worth noting that poverty rate numbers do not take into account food stamps, housing subsidies, the Earned Income Tax Credit, and Medicaid, among other benefits. Not to mention black market income and underreported income (often for EITC reasons); yes it is worth referring back to consumption data which show that the poor do quite a bit better than income data alone would indicate.

Tyler follows up they NYT article pointing to the fact that we should be looking at consumption, not income data:
Consumption data, even if sometimes misused by zealous libertarians, are not a means of dismissing the poverty problem, but they do put that problem in another light.

First, they show that income and wealth data overstate poverty and inequality problems. Second, a focus on income data leads one to conclude that the elderly require most of the assistance. A focus on consumption data lead one to conclude that helping parents with children is, in many cases, more important. That sounds right to me.
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