Is Poverty In the United States Getting Worse?

The U.S. Census Bureau released an updated poverty report yesterday, and the headlines were plastered across the news media. “U.S. Poverty Rose to 17-Year High,” said the Washington Post. “U.S. poverty totals hit 50-year high,” said the L.A. Times. Like all statistics, it depends on how you count it and adjust for history, but the broad point was that the number of people living in poverty in the United States rose last year to some of the worst levels we’ve seen in a very long time, and it was headline news everywhere. The anti-Obama peanut gallery in the USAToday article pretended it was evidence of Obama’s personal failure, while those on the left tend to view it as evidence that government needs to do more to help the poor.

I read several articles and commentaries yesterday, but I wasn’t ready to offer my own opinion. They do say that the income level that defines the poverty line is adjusted for inflation, but I wasn’t sure if that properly counted technological progress. I knew that The Heritage Foundation report on poverty from July claimed that 99.6% of the “poor” have refrigerators, and 97.7% have a television. In addition, those televisions are probably of higher quality than the televisions of a decade or two ago, and the higher quality of technology is almost certainly enjoyed by the almost 40% that have personal computers or 55% with cell phones. If 30% of the poor own video game consoles, how poor can that 30% really be? My gut reaction was that this reported increase in poverty was not taking into account some very important things, but I know that gut reactions can be wrong, so I waited.

This morning, Tyler Cowen linked to Tim Worstall at Forbes with a very important explanation about the inaccuracy of comparing changes in poverty levels over time. First, “the US poverty line is calculated as being three times the food bill of a family in the early 1960s, upgraded over time for inflation.” Second, to determine whether you are over or under that line, the government looks at the money you receive from jobs and the government, but not at the value of any assistance you receive in lieu of pure cash, such as medical care, housing assistance, food stamps, or the Earned Income Tax Credit. The reason this is incredibly important is that in the 1960’s the government gave pure cash to the poor, but that has since been replaced with ever-expanding direct-assistance programs such as those just listed. So if the government stops giving a family X hundred dollars a month but replaces that with X hundred dollars worth of food stamps, the family’s income goes down and they may appear to be below the poverty line instead of above it even though they’re still receiving the same amount of value from both jobs and the government. As Worstall puts it, “Today, we are no longer counting those who are in poverty after we’ve helped them. Today we are counting the number who are in poverty beforewe’ve helped them.” Thus more people can appear poor even if more of them are getting more free stuff from the government than ever before.

Additionally, I don’t think it makes since to start the definition of poverty in the 1960s as three times the average food bill, and then adjust that for inflation, instead of continuing to define poverty as three times the average food bill of the new time. The percent of disposable personal income that people spend on food has been consistently dropping for over half a century, due to agricultural and technological improvements and whatever else, and in 2008 it was almost half of what it was in the 1960s. So inflation aside, if people are essentially spending half as much money on food as their grandparents did, does it make much sense to say that they are getting poorer because their income isn’t in proportion with what their grandparents spent on food? What would the poverty level look like if we defined it as 3x the food bill of 2011 instead of 3x the food bill of 1960 adjusted for inflation?

To be sure, some say the news merely indicates an increase in the poverty level from 2009 to 2010. But many of the articles are reporting that this is the worst in 17 or 50 years. It’s not surprising if 2010 is worse than 2009 by any metric, given the recession, unemployment levels, etc. But if it’s a given that we are climbing a little hill, the question is whether or not that hill is higher than hills of the past, and I’m not convinced that it is.

So I draw two shaky conclusions from this discussion of the data. The first is that the state of the poor in the United States is not nearly as bad as it used to be, despite the recent rise to “record” levels. If we measured their standard of living after they get free stuff from the government, the levels would not be as high. Additionally, regardless of how you measure their income+gifts, the poor along with the rich are benefiting from technological progress that lets their income+gifts go farther than ever before. (Note: I believe some would argue that the “technological progress” argument is not the whole truth if you consider enough factors, and I am open to discussion.)

My second shaky conclusion is that government helps people endure poverty but not escape it. At first glance, it seems like Worstall’s argument is evidence that government helps: the poverty level is worse before government assistance but better when you count it. This is a partial truth. The primary goal of government may be to merely help those in poverty, but the ideal result would be if that help enabled them to grow and not need that help anymore at all. An increase in the number of people in poverty before counting government assistance may not reflect an increase in the number of people who live like they’re in poverty, but it does reflect an increase in the number of people who would still be living in poverty without the government’s help. This means that the government’s help thus far has not enabled them to rise above their state, despite decades of government expansion of assistance to the poor. But before we can argue whether we should be giving more or less government assistance to the poor, I think it’s important to try to understand whether or not the poor are really worse off than they used to be.

In summary, I’m positing that the government’s accounting methods are putting more people under the poverty line than they should, that the poverty line should be lower than it is, and that regardless of income the poor are enjoying more and better refrigerators, TVs, computers, and cell phones than they used to. I don’t believe that poverty is not still a problem, or that we don’t have challenges ahead with how to ensure social mobility for the poor and what kind of access they have to jobs (I’m gathering thoughts for a post about the future of labor). But in the long-term trend of the history of the United States, I don’t believe poverty is getting worse. I think it’s getting better, and I think we can make it better still.