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Jewish World Review May 31, 2010 / 18 Sivan 5770 Why Obama's poverty rate measure misleads By Robert J. Samuelson http://www.JewishWorldReview.com | Who is poor in America? This is not an easy 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 mind-set that fosters self-defeating behavior -- bad work habits, family breakdown, out-of-wedlock births and addictions. Finally, poverty results from lousy luck: accidents, job losses, disability. Despite poverty's messiness, we've tended to measure progress against it by a single statistic, the federal poverty line. It was originally designed in the early 1960s by Mollie Orshansky, an analyst at the Social Security Administration, and became part of Lyndon Johnson's War on Poverty. She took the Agriculture Department's estimated cost for a bare-bones -- but adequate -- diet and multiplied it by three. That figure is adjusted annually for inflation. 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 has 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, which has increased reported poverty. Many immigrants are poor and low-skilled. 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 pre-tax 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 and energy subsidies. Spending by poor households from all sources may be double their reported income, reports a study by Nicholas Eberstadt of the American Enterprise Institute. 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 cellphones. 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 these changes. 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, clothes and utilities. The actual threshold -- not yet calculated -- will almost certainly be higher than today's poverty line. Moreover, the new definition has strange consequences. Suppose that all Americans doubled their incomes 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 supplemental 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 idea is that they suffer psychological deprivation by being far outside the mainstream. The math of this relative definition makes it hard for people at the bottom ever to escape "poverty." 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 Sen. 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. Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here. Comment on Robert J. Samuelson's column by clicking here. 05/17/10: Wake up, America 03/22/10: The maestro's misconceptions 03/15/10: Obama's illusions of cost-control 01/14/10: In the aftermath of the Great Recession 12/29/09: Democracy's demolition derby 11/30/09: Bipartisan threats against the institution that saved America from depression 09/14/09: Give It to Us Straight 09/07/09: Bad Future for Jobs? 08/24/09: A Rail Boondoggle, Moving at High 08/10/09: Championing the Status Quo 08/03/09: We'll remain in denial, prisoners of wishful thinking, until the fateful reckoning arrives in the unimagined future 07/27/09: Obama's misleading medicine 07/13/09: Americans' self-indulgence hurts us 07/06/09: Economists out to lunch 06/29/09: Panics ‘R’ Us! 06/08/09: Flirting with deflation or inflation? Now the economy might be at risk of both 05/25/09: A ‘crisis’ America needs 05/18/09: Will somebody finally say that Obama is irresponsibly mortgaging our future? 05/04/09: The Bias Against Oil And Gas 04/27/09: Environmentalists maximize the dangers of global warming while pretending we can conquer it at virtually no cost 04/20/09: Our Depression Obsession 03/23/09: Geithner treads a line between financial paralysis and populist resentment 03/23/09: American Capitalism Besieged 01/06/09: The limits of pump priming 12/29/08: Humbled By Our Ignorance 07/31/08: The homeownership obsession 07/24/08: A Depression? Hardly 07/17/08: Why isn't globalization making the interconnected world more stable? © 2009, WPWG

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