Impoverished Studies

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This August the U.S. Census Bureau reported that poverty levels in the United States remained relatively stable between 2006 and 2007, with the number of people in poverty increasing by 800,000 to 37.3 million, or 12.5 percent of the population. But some believe that the census report, which did not obtain sufficient data from the now-official recession, fails to account for how the faltering economy might plunge more Americans into debilitating poverty.

“In 2007, over 37 million Americans, or 12.5 percent of the US population, lived below the federal poverty line…And now, as we head into this deepening recession, we’re looking at a jump in the number of people living in poverty,” writes Katrina Vanden Heuvel, the editor of The Nation.

She continues, “According to a new report by the Center on Budget and Policy Priorities (CBPP), based on Goldman Sachs’ projection of a 9 percent unemployment rate by the end of 2009, the number of Americans living in poverty will increase from 7.5 to 10.3 million people, of which 3.3 million total will be poor children, with 1.5 to 2 million more children living in families with incomes below half of the poverty line, or what is called ‘deep poverty.’”

“CBPP’s numbers are consistent with the rise in poverty relative to the increase in unemployment over the last three recessions.”

As can be seen in a Census Bureau graph of poverty rates over time, U.S. poverty levels rose during the last six recessions, or since the 1970’s.

But according to Nicholas Eberstadt, an American Enterprise Institute scholar, journalists and policy makers will likely find that next year’s census report poverty statistics are arbitrary to the true economic state of America’s poorest citizens.

The official poverty rate (OPR) designed by Mollie Orshansky in 1965 is “possessed of a strange but deeply structural capriciousness” and “incapable of representing what it was devised to portray,” Eberstadt argues in his new book The Poverty of “The Poverty Rate.”

Eberstadt’s research found that poverty levels were higher when

a) there were more high school graduates, or
b) unemployment decreased (e.g., more jobs).

(The U.S. Bureau of Labor Statistics (BLS) report, released today, places unemployment levels at 6.7% in November, with 10.3 million unemployed).

As for per-capita income and anti-poverty spending, Eberstadt determined that these factors exhibit no significant relationship to the OPR.

“Unless and until someone can propose a plausible storyline to explain why we might expect U.S. data series on per-capita incomes, unemployment rates, adult educational attainment, and antipoverty spending to be deeply biased for the post-1973 period, the simplest explanation…would be that the officially measured poverty rate offers a highly misleading, even dysfunctional, measure of material deprivation for American society,” he writes, continuing, “and has, moreover, been doing so for some considerable period time.”

The author, who has served on the Board of Scientific Counselors for the Department of Health and Human Services (HSS) since 2003, argues that expenditure levels among the lowest income households actually far exceed their reported incomes. Nearly 40% of American households reported expenditures higher than their incomes in 2001, he points out.

“In actuality, in any given year, the overwhelming majority of lower-income households in the United States report their spending to be higher than their income,” Eberstadt writes.

“For the years 1992-2002, according to the [Consumer Expenditure (CE)] survey, over 70 percent of the households in the lowest quartile reported annual expenditures in excess of annual incomes.”

Spending among the lowest quartile “has regularly exceeded reported income,” and the margin is moving “gradually upward over time” from 112% of reported income in 1965, to 198% of reported income in 2005.

He writes that “There are strong reasons…to believe that these numbers in fact understate both the true rise in consumption for the lower-income strata of the United States since 1973 and the actual levels of consumption for poorer Americans today,” largely because the CE survey produced by BLS diverges significantly from other measurements and because it does not account for non-cash benefits such as Medicaid and food stamps.

Among households reporting only $10,000 in annual income to the 2005 CE survey, “the average expenditure level for this same grouping of U.S. households was over $17,500” or 40 percent above the poverty threshold.

Eberstadt systematically rebuts common explanations for this divergence, including

• “underreporting” of income,
• the value of food stamps, Medicaid, and other government non-cash programs,
• “unsustainable ‘overspending’ by the poor” (net worth in this quartile doubled between 1989 and 2004, to $76,000 per family), and
• Earned Income Tax Credit (EITC) payments, which amount to about “one sixth of that gap.”

Instead, the ever-increasing material worth of America’s poorest comes from rising “year-to-year income variability.” He writes, “The ‘long-term poor’…accounted for barely one-tenth of those who passed through officially designated poverty at some point in 1999 and less than 6 percent of those who were counted as poor at any point between the start of 1996 and 1999.”

Much Better Off?

The author, however, stops short of declaring success in the War on Poverty. “Consequently, this particular study will not—it cannot—settle the question of whether or not America’s War on Poverty has ‘failed.’ What it does establish—I hope conclusively—is that the index we use for measuring results in that ‘war’ is a failure, and an unmitigated one at that,” he writes.

Orshansky’s measure was originally intended as a measure of “absolute poverty” or, as she put it, “a line below which deprivation is almost inevitable,” Eberstadt points out. Yet the living standards of those classified as poor have improved considerably over the last 40 years. He writes,

“To summarize the evidence from physical and biometric indicators, low-income and poverty-level households today are better-fed and less threatened by undernutrition than they were a generation ago. Their homes are larger, better-equipped with plumbing and kitchen facilities, and more capaciously furnished with modern conveniences. They are much more likely to own a car (or a light truck or other type of motor vehicle) now than thirty years earlier. By almost every indicator apart from obesity, their health-care status is considerably more favorable today than at the start of the War on Poverty.”

Improving conditions or not, endemic social crises prevent Eberstadt from concluding that the poor are better off today, despite improvements in purchasing power. “First and foremost,” he argues, “The preceding analysis does not hold that all is well for America’s poor—or even that their general plight is markedly better today than in 1965…To the contrary, I readily acknowledge that, in many tragic respects, the misery and degradation suffered by the country’s most disadvantaged elements may arguably be even more acute today than forty years ago.”

Those things still missing: family values and lower crime rates.

Bethany Stotts is a staff writer at Accuracy in Academia.