Sunday, July 19, 2009

Should The Official Poverty Guidelines Be Revised?


According to the U.S. Census Bureau:

Poverty thresholds were originally derived in 1963-1964, using: a) U.S. Department of Agriculture food budgets designed for families under economic stress, and b) Data about what portion of their income families spent on food. Poverty thresholds are updated annually for inflation using the Consumer Price Index for All Urban Consumers (CPI-U).

On the Adam Smith Institute blog, Tim Worstall writes:

There's a technical point that needs to be made about U.S. poverty figures. To remind you, the U.S. measures poverty entirely differently from every other nation: they took the necessary food budget in the early 1960s, tripled it and said that this was the poverty level (everyone else is using 60% of median household income) and they've simply updated it for inflation ever since.

What they haven't done is update it for the changes in portions of spending on different goods and services. We can thus say that the position of the U.S. poor, those on or below this poverty level (which, just to remind everyone again, is before the impact of poverty alleviation measures, everyone else counts after whatever we do to reduce poverty), is rather better than the simple stated figures suggest. For food has declined massively in price and thus that inflation adjusted standard goes further than it used to.

MP: The top chart above shows graphically that when the official U.S. poverty guidelines were established in 1963, total spending on food (at home and away from home) as a share of disposable income was 16%, almost double the 9.6% level in 2008 (data here). And for food consumed at home, the share of income spent on food in 1963 (12.5%) was more than double the share of income for food at home in 2008 (5.6%).


In that case, both the number of Americans officially below the poverty level and the percent of Americans living in poverty (see graph below) are overstated, since the official poverty thresholds apparently do not take into account the significant increases over time in food affordability.

Perhaps we have won the "War on Poverty," but not through massive government spending on welfare programs, but through technological improvements and increases in farm productivity leading to lower food prices?


10 Comments:

At 7/19/2009 11:26 AM, Anonymous Anonymous said...

I thought we were at war with Eastasia. Anywho, someone wake me when we win...I have some victory gin stashed away somewhere.

--JB

 
At 7/19/2009 12:30 PM, Blogger rufus said...

But, but, but, . . . Ethanol . . .

food to fuel, . . fud to fule, . . . .

Wah, sob, sob^

 
At 7/19/2009 12:48 PM, Anonymous Anonymous said...

I've always been amazed by the "Save the Family Farm" movement. Who the heck wants to work 16 hours a day farming like it's the early 1900's? If I owned acres and acres of farmland, I'd sell it off and work part time.

Thank goodness for agribusiness, the same agribusiness that is demonized by the left at every opportunity.

Greg

 
At 7/19/2009 2:00 PM, Anonymous Benny The Libertarian said...

I have not seen poverty in America that was not the "fault" of the impoverished. In other words, poor people are too undisciplined to make a living in a free, capitalist state.
That begs the question, though: What do you do? Let 'em starve?
Oddly enough, as I am a libertarian, I think the solution is a highly structured environment for such people, such as the Army. We could have such structured bureaucracies, but devoted to other efforts, such as clean-ups, or taking care of the elderly.
But it will never come to pass. We prefer to either let people live on the streets, or create gobs of social programs, or both.

 
At 7/19/2009 5:24 PM, Anonymous Dr. T said...

The government has known for decades that its metric for poverty is biased towards listing too many as poverty-stricken. However, government bureaucrats view that as a benefit, not a bug. The more people on the poverty roles, the greater the need for government programs to assist the poor. Thus we have Medicaid and Food Stamps and WIC and who knows how many other programs. Those federal empires would be smaller if we accurately assessed poverty. And, it appears to me that Obama's economic policies are designed to greatly increase the numbers of poor, thus "proving" that we need even more government.

 
At 7/19/2009 6:31 PM, Blogger misterjosh said...

In agreement with Dr. T.

It's a lot easier to pander to people and tell them you're the hero to their victim hood when you've got Gov't numbers to point to saying they're poor.

 
At 7/19/2009 7:14 PM, Blogger PeakTrader said...

I agree poverty in the U.S. is overstated. U.S. per capita income was over $45,000, in 2007, while E.U. per capita income was roughly $35,000. Also, prices, interest rates, and taxes were lower in the U.S. than in the E.U.

Government is too often a competitor rather than a complement of the private sector. Regarding equality, the question should be is it better to have absolute increases in living standards for the poor, although the rich benefit more, or have smaller absolute increases and larger relative increases for the poor to achieve greater equality.

Moreover, I may add, there seems to be a problem when Chinese wages at $0.25 an hour are taking jobs away from Mexican workers earning $1.00 an hour. A universal minimum wage may not be the answer. Nonetheless, all workers should earn subsistence wages, or not slave wages.

 
At 7/19/2009 7:27 PM, Anonymous Anonymous said...

The 'war on poverty' - from LBJ to John Edwards - has never been about raising people up. It has been about keeping them down. And it worked. And continues to work!

 
At 7/19/2009 8:15 PM, Anonymous Anonymous said...

"Nonetheless, all workers should earn subsistence wages, or not slave wages."

I think that all workers should make $1 million/hour, not merely subsistence wages.

-JB

 
At 7/20/2009 8:55 AM, Blogger 1 said...

"I think that all workers should make $1 million/hour, not merely subsistence wages"...

Yeah! Yeah, that's the ticket! We can call that the living wage...:-)

 

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