The Census Bureau touched off a round of punditry last week when it released the 2002 poverty statistics. Americans officially defined as poor increased by 1.7 million, to a total of 34.6 million.
As a proportion of households, the poor increased from 11.7 to 12.1 percent. The Census Bureau also announced that median incomes for all households declined by 1.1 percent to $42,409.
Reactions were predictable. Democrats blamed income declines among U.S. households on “failed policies of the Bush administration.” Republicans retorted that most of the 15 other poverty indicators tabulated by the Census showed no worsening.
Various social service agencies, nonprofits and policy think tanks produced sound bites showing how their particular interest group was affected by economic conditions and needed additional help.
All of the views expressed were essentially true. Yet all largely missed a broader, longer-term set of issues:
- The official poverty definition has serious limitations.
- These limitations always existed, but are getting worse over time.
- Constructing such a definition is not easy.
- Political forces on both sides of congressional aisles act against any redefinition.
As some news stories noted, the official U.S. definition of poverty is grounded in work done by Mollie Orshansky, an economist at the Social Security Administration in the early 1960s. This continued earlier efforts she made while working at the U.S. Department of Agriculture.
“The Development of the Orshansky Poverty Thresholds and Their Subsequent History as the Official U.S. Poverty Measure,” an interesting history of bureaucratic and political behavior, gives all the details. It is available at www.census.gov/hhes/povmeas/publications/orshansky.html.
Briefly, Orshansky examined alternative approaches to measuring poverty objectively. She noted, “There is no generally accepted standard of adequacy for essentials of living except food.”
So, she calculated the dollar cost of a “low-cost” food plan or an even more bare bones “economy” plan. The USDA developed both to detail menu plans that met a household’s minimal nutritional needs inexpensively.
She combined these food expenditure estimates with a longtime observation of economists that many low-income households spend about one-third of their income on food. Orshansky took the yearly costs of the food plans calculated for households in many situations — farm/nonfarm, with/without children, working/retired — then multiplied these costs by three and came up with a dollar definition of a poverty line.
She recognized from the outset that this poverty definition had severe limitations. It was a useful indicator but not a comprehensive or infallible one.
What began as a scholarly exercise, however, became a firm national benchmark in 1965 when the Johnson administration’s Office of Economic Opportunity adopted the Orshansky Index as the national standard to determine who was poor and who was not.
For a few years, the poverty line was modified as food costs changed. In 1969, it was indexed instead to the Consumer Price Index, and has been ever since.
Its defects are obvious. The assumption that any multiplier of food costs determines a reliable poverty standard was weak at the start and still is. There are tremendous differences in living costs in various areas that are not reflected in the national benchmark. These differentials vary over time.
Assuming that changes in the general CPI applied to an arbitrary index set 34 years ago is dangerous. Nonfood costs such as transportation, medicine and housing all have changed over the years, and such changes have produced varied impacts on households with differing incomes.
Orshansky and her successors know these problems in detail. The task of defining a better measure remains knotty, however. Her assertion that there is no “generally accepted standard of adequacy” for living remains as valid now as it was in 1963.
This doesn’t mean the task is impossible. Several federal agencies worked on alternative measures in the 1980s. In 1990, President Bush’s Council of Economic Advisors called for a poverty index redesign. In 1995, the National Academy of Science produced a report requested by Congress with useful proposals for reform. None of these initiatives has been implemented.
Both major political parties view revising the index as a can of snakes. Conservatives who dislike welfare and other income-transfer programs are scared that revisions will increase the number of people officially deemed poor, will focus public attention on poverty and increase pressure for programs they abhor.
Liberals fear the opposite — that any reduction would be skewed by political pressures toward lowering the cutoff and minimizing officially defined poverty. No change is likely in the foreseeable future.
Poverty statistics should be treated like other economic indicators. They provide useful information about what is happening in the world. They are not a comprehensive or fully accurate description of the world. They should be used with other objective and subjective information that is available. But don’t depend on them as a sole guide to policy or programs.
© 2003 Edward Lotterman
Chanarambie Consulting, Inc.