In the second half of Chapter Four, devoted to “Poverty and Wealth,” The Meritocracy Trap argues that “poverty is by any measure both narrower and shallower than in the past, and abject poverty remains unrecognizably less broad or deep.”[1] Claims like these require measuring poverty, and this is (unsurprisingly) a difficult and also contested enterprise. Measuring poverty invites reasonable disagreements both about conceptual and moral questions (What makes a person poor?) and about matters of brute fact (What is the accurate measure of price inflation for the goods that poor households typically consume?). This brief note introduces—although it of course does not resolve—some of the most important issues.
Every study of poverty must begin by deciding whether to understand poverty in absolute or relative terms. Absolute poverty refers to material deprivation that leaves basic, universal human needs unmet—food insecurity and homelessness are the central instances of absolute poverty. Relative poverty, by contrast, identifies the distinct harms that arise when the material conditions of some members of a society fall too far behind the material conditions of others and in particular the material conditions that establish norms of social respectability. Relative poverty is a measure as much of social exclusion as of material deprivation.
Relative poverty has a long and distinguished lineage in social and economic thought, running back at least to Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations. Poverty, for Smith, consisted in the “want of necessities.”[2] Smith added that “[b]y necessaries I understand, not only the commodities which are indispensably necessary for the support of life, but whatever the custom of the country renders it indecent for creditable people, even of the lowest order, to be without.”[3] The reference to the requirements for staying alive invokes absolute poverty, but the turn to custom and public respect gives poverty a relative dimension. “A linen shirt, for example,” Smith wrote, “is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct.”[4]
Even merely relative poverty may be severe. A deprivation may cause social illness, and even social death, even though all of a person’s material and physical needs are met. For this reason, many commentators nowadays prefer relative over absolute measures of poverty. The Organization for Economic Cooperation and Development, for example, measures poverty in relative terms, fixing the poverty line for a country at one half of that country’s median income.[5]
The official measurement and study of poverty in the United States, by contrast, remains dominated by absolute poverty. There is a certain logic to this. Democratic values insist that people be counted as relatively poor by comparison not to the rich but rather the middle class. Even in Smith’s Europe, where political participation depended on property ownership, social exclusion required material deprivation relative to the middle or lower-middle orders—Smith’s “creditable day-labourer.” This became only more true in mid-century mass-democracies, where political power and social prestige converged in the center, so that nobody was excluded from society simply because she was not at the very top of the heap. At mid-century, therefore, those who suffered absolute deprivation were most likely also to face the social exclusion that gives relative poverty its sting, so that relative poverty invoked absolute poverty as a pre-condition. At the same time, merely relative deprivation, compared to the rich, carried no stigma. In these circumstances, the theory of relative poverty did not so much articulate a free-standing alternative account of poverty as identify an additional harm that absolute poverty can impose. The post-War middle-class boom added the insult of social exclusion (relative poverty) to the injury of material deprivation (absolute poverty) suffered by Harrington’s poor. The decision to make absolute poverty the focus of official statistics made sense under the conditions in which it was taken.
The foundational choice between relative and absolute accounts of poverty of course leaves many questions about how to measure poverty open. The U.S. government’s official poverty measure answers these questions in one way, and alternative poverty measures often answer them differently. Sometimes, the differences have a significant impact on conclusions about how much poverty exists, and technical disagreements therefore bleed into political controversies.
The United States Government’s official poverty statistics were developed by Mollie Orshansky, an economist who devoted over 40 years to public service before dying in 2006, aged 91.[6] Orshanksy had worked on poverty in obscurity, first in the Department of Agriculture and afterwards in the Social Security Administration. Then, she found her work thrust into prominence when President Johnson declared the War on Poverty.[7] Orshanky’s approach to measuring poverty had two components, both of which continue to structure the official poverty statistics to the present day. First, Orshansky asked about need—how much income does a household require in order no longer to be poor? Second, Orshanky asked about resources—how much income do households in fact command? The poverty rate equals the share of households whose resources fall below the threshold need. Implementing each component of this approach requires answering many questions, and the answers substantially influence both the levels of poverty that the statistics report for any particular year and trends in the poverty rate over time.
Begin with the question of need—of setting the poverty threshold. Orshansky placed food at the heart of her measure of need, beginning her calculations from the Department of Agriculture’s spartan “economy” food plan, designed to ensure adequate nutrition “for temporary or emergency use when funds are low.”[8] On the basis of a 1955 survey that showed families of three or more spending a third of their post-tax income on food, Orshansky then tripled the cost of the “economy” food plan to reach a poverty threshold.[9] For a typical American family of four (two adults and two children), this process generated a “poverty threshold” of roughly $3,100 (nominal dollars) in income, for 1963.[10] The official poverty threshold continues to be fixed in this basic way up through the present day. In 2015, a family of four with an annual income at or below $24,036 counted as poor.[11]
In 1969, an interagency Poverty Level Review Committee decided to adjust the poverty threshold for price changes.[12] (Unlike many government measures, the definition of the federal poverty rate is not fixed by its issuing agency. The method by which the Census Bureau issues and adjusts the official poverty measure is determined by the Office of Management and Budget, or by that office’s predecessor, the Bureau of the Budget.[13]) More specifically, the poverty threshold was yoked to the Consumer Price Index (or “CPI”).[14] Over the years, other adjustments—for example, for changing family size and structure—have also changed the formula for calculating the poverty threshold.[15] Making adjustments based on prices rather than for the general standard of living solidified the official statistics’ focus on absolute rather than relative poverty.
This approach to setting the poverty threshold raises any number of technical questions, concerning the initial decision to yoke the poverty line to food costs as a share of income and also concerning adjustments made over time in light of changing prices, consumption patterns, and family structures. The basic budget assumptions behind the official poverty threshold have become increasingly unrealistic and now variously understate and overstate the resources that an American needs in order to avoid poverty. The budget assumptions fail adequately to consider tax payments, health care costs and employment-related expenses.[16] They neglect that housing claims a growing share of expenditures among the poor .[17] They neglect that the share of income families spend on food has fallen considerably over time – food today constitutes only about a sixth rather than a third of the budget of the poor. .[18] (Richer Americans also make declining shares of the expenditures on food: In 1930, the average American spent just under 25 percent of his disposable income on food; in 1960, that figured had dropped to 17 percent; and by 2014, it had plummeted to under 10 percent.[19]) They do not adequately account for the fact that the composition of poor households has changed over time: average family size quite generally has declined by roughly 0.5 persons since 1940;[20] and the share of poor people aged 18 to 64 has grown from 39 percent in 1966 to 57 percent in 2015.[21] Finally, the CPI provides an overall measure of inflation for what the Bureau of Labor Statistics, which manages the index, calls “changes in the prices paid by urban consumers for a representative basket of goods and services,” rather than a measure tailored to the specific consumption habits of the poor.[22]
An ongoing and intense debate asks how these many errors balance out, and therefore whether the official poverty threshold is mistakenly high or mistakenly low. Economist Edgar K. Browning, for example, argues that the Census Bureau overstates poverty by failing to take into account welfare benefits and overcompensating for inflation (and also ignoring widespread underreporting of income).[23] On the other hand, poverty expert Mark H. Greenberg argues that the poverty rate is understated, including because the Census Bureau’s threshold is not adequately related to modern living standards.[24]
Next, consider the question of resources. The official poverty statistics, again following Orshansky’s lead, calculate the income of the poor using a resource measure that is limited to gross before tax cash income plus cash transfers.[25] They therefore do not adjust the balance sheets of the poor to reflect either non-cash income paid by private employers or taxes, including tax credits, and non-cash government transfers.[26] The Earned Income Tax Credit, SNAP,[27] housing assistance, and medical care (including both employer-provided health insurance and ObamaCare) are therefore all excluded from the incomes of the poor, for purposes of calculating the official poverty rate.[28]
The decision to exclude most government transfers from the resource measure for calculating poverty was perhaps natural given the limited data available to Orshansky.[29] Transfers made through the tax code were excluded because the only reliable income series available was based on pre-tax incomes. Noncash government benefits were excluded from the poverty measure because it was difficult to put exact cash values on such benefits.[30] Moreover, the federal transfer programs that most ameliorate poverty today were in the early 1960s small and in their infancy or did not exist at all. Anti-poverty campaigners also excluded transfers from the resource bundles of the poor for tactical reasons. As Orshanksy explained in testimony to Congress in 1984, including benefits like Medicaid in the measure would be tantamount to “counting people richer when they are ill,” which would allow the public to “be misled into thinking problems of the poor need no further consideration.”[31] By underreporting the incomes of the poor, a resource measure that excludes government transfers received increases the official poverty rate and galvanizes political support for social welfare programs.[32]
Nevertheless, the decision to exclude government benefits from the resource measure of the poor proved fateful. It has, ironically, impeded the progressive politics it was intended to promote. It undercuts the welfare state by making social welfare programs appear not to reduce poverty—or at least, to reduce poverty only through the indirect and demanding route of eliminating dependency and not, directly and simply, by answering need.[33] Eventually, the impediments to progressive politics came to swamp the advantages. The official statistics understate the accomplishments of the War on Poverty. The cooked books gave President Ronald Reagan the running room to proclaim that “[w]e waged a war on poverty, and poverty won.”[34] Reagan could belittle the welfare state because government blinded itself to the effects of its own weapons. In fact, however, one big reason why poverty today is not so extreme as it was in 1960 is precisely that government benefits have been effective at directly reducing deprivation.[35]
Indeed, because they neglect the upsurge of government benefits paid to the poor during hard times, the official statistics overstate increases in poverty during recessions.[36] A look at the fate of the poor during the Great Recession illustrates the importance of including government transfers in the resource measure of the poor. Pre-tax-and-transfer incomes fell for the bottom 20 percent, but social welfare programs made up a substantial portion of this fall. The Census Bureau calculates, for example, that in 2015, social security, refundable tax credits, SNAP, SSI, and housing subsidies lifted about 24% of Americans above the poverty line.[37] A more recently approved Supplemental Poverty Measure, which adjusts the resource measure of the poor to include transfer payments, captures these effects and cuts the increase in poverty associated with the Great Recession by half.[38] Indeed, according to the Census Bureau, poverty using this measure fell slightly between 2010 and 2013 and fell significantly between 2013 and 2015.[39]
A very different approach to measuring poverty, also mentioned in the book, focuses on consumption rather than income. The turn to consumption eliminates many of the most vexing difficulties of gauging poverty. Looking directly to consumption cuts through the tangle of price and purchasing adjustments; and consumption-based measures of poverty naturally and directly include non-cash receipts and also the net effects of government taxes and transfers. Moreover, because saving and borrowing allow people to smooth their consumption over time, consumption-based measures of poverty more accurately reflect the long-term well-being of the poor than income-based measures.[40] Finally, consumption-based measures do better than income-based measures at capturing the benefits that technological progress confers on the poor. One must be careful not to overstate these benefits, to be sure. Familiar claims that a person who has an XBox cannot be poor are misleading.[41] They show only that, at the current state of technological development, luxuries can be more affordable than necessities—as happens, for example, when residents of the developing world have smart phones but no clean drinking-water. Nevertheless, technological advances have improved the well-being of the poor—including by meeting basic needs—and therefore genuinely reduced poverty. In particular, prices for key consumer goods have fallen dramatically.[42] Although the poor are not thriving, as exaggerated paeans to innovation suggest, they are also not despairing as they used to do. Juliet Schor, for example, reports that in 1953, only 89 percent of households had refrigerators, only 24 percent had kitchen ranges, and only 1.3 percent had air conditioners. By 1987, those numbers had risen to 100 percent, 97 percent and 64 percent, respectively.[43]
The difference between the trends for income and consumption poverty becomes sharpest, especially for the years following the end of the War on Poverty, when cast in terms of the so-called poverty gap. This is the shortfall between actual material circumstances and the poverty line, averaged across all poor families. Between 1960 and 2010, the average poverty gap measured in terms of consumption fell by 13.47 percent.[44] The decline in the consumption poverty rate has been accompanied by a decrease in the severity of deprivation faced by those still in consumption poverty.[45]
Note that consumption poverty should not be confused with consumption inequality. Some have sought to leverage the fall in consumption poverty into an argument that economic inequality is not important, because it has not hit consumption. This is simply false. Rising income inequality necessarily produces increasingly unequal opportunities to consume. It would strain credulity to suppose that the rich systematically forego these opportunities. And in fact, they do not: To the contrary, the rich today consume extravagantly, and hence extravagantly more than the poor. Indeed, although some early work suggested that consumption inequality has risen less steeply than income inequality, a growing scholarly consensus now concludes that the initial results suffered from various measurement errors and that, at least between 1980 and 2007, consumption inequality has grown as much as income inequality.[46] Of course, rising consumption inequality (like rising income inequality) might coincide with falling inequality of well-being. This is because both income and consumption display diminishing marginal returns, and indeed steeply diminishing at high levels. Falling poverty concerning income and consumption might thus outweigh rising inequality concerning income and consumption, when it comes to producing well-being.
Finally, the question of well-being returns the discussion to the initial choice between absolute and relative poverty as the focus of concern. Because social exclusion is so harmful to those who are excluded, relative poverty can dramatically reduce the well-being even of people who, viewed absolutely, enjoy adequate income and consumption. In a way, this is precisely the point of The Meritocracy Trap’s argument that when meritocracy frames middle-class exclusion as an individual failure to measure up, it adds a powerful moral insult to the economic injury of stagnant middle-class wages. That insult produces a kind of relative poverty.
The book may therefore be interpreted to argue that meritocratic inequality undercuts the democratic logic that originally justified the American focus on absolute poverty. The new rich, including in virtue of their immense incomes (and the social and economic contexts in which the rich get their incomes) are increasingly superseding middle-class society and displacing the middle class from the charismatic center of economic and social life. At the same time, the meritocratic valorization of industry makes the enforced idleness that the middle class increasingly suffers into a form of degradation. Meritocratic inequality, one might even say, invents a new kind of relative poverty, whose burdens simply cannot be cured by eliminating absolute poverty.
[1] Daniel Markovits, The Meritocracy Trap (New York: Penguin, 2019), 102.
[2] Adam Smith, The Wealth of Nations (New York: Modern Library, 1994), 219.
[3] Adam Smith, The Wealth of Nations, 938-9.
[4] Adam Smith, The Wealth of Nations, 939.
[5] “OECD Data: Poverty Rate,” OECD.org, https://data.oecd.org/inequality/poverty-rate.htm; See generally, Kathryn Neckerman, Social Inequality (New York: Russell Sage, 2004).
[6]Gordon M. Fisher, “Remembering Mollie Orshansky – The Developer of the Poverty Thresholds,” Social Security Bulletin 68, no.3 (2008): https://www.ssa.gov/policy/docs/ssb/v68n3/v68n3p79.html.
[7] For Orshansky’s historical role in Johnson’s War on Poverty, see Fisher, “Remembering Mollie Orshansky.” See also generally, Alice O’Connor, Poverty Knowledge: Social Science, Social Policy, and the Poor in the Twentieth Century (Princeton: Princeton University Press, 2001), 183; Christine K. Ranney, “Determining Food Expenditures and Measuring Poverty: The Work of Mollie Orshansky: Discussion,” Applied Economic Perspectives and Policy 30, no. 3 (2008), 600, doi: https://doi.org/10.1111/j.1467-9353.2008.00434.x; Gordon M. Fisher, “The Development of the Orshansky Poverty Thresholds and Their Subsequent History as the Official U.S. Poverty Measure,” published for the Census Bureau, September 1997, https://www.census.gov/content/dam/Census/library/working-papers/1997/demo/orshansky.pdf; Gordon M. Fischer, “The Development and History of the Poverty Thresholds,” Social Security Bulletin 55, no.4 (1992): https://www.ssa.gov/policy/docs/ssb/v55n4/v55n4p3.pdf.
[8] Gordon M. Fisher, “The Development and History of the U.S. Poverty Thresholds: A Brief Overview,” Newsletter of the Government Statistics Section and the Social Statistics Section of the American Statistical Association (Winter 1997): pp. 6-7, https://aspe.hhs.gov/history-poverty-thresholds.
[9] Gordon M. Fisher, “The Development and History of the Poverty Thresholds,” Social Security Bulletin 68, no 4 (Winter 1992), 3-7, https://www.ssa.gov/policy/docs/ssb/v55n4/v55n4p3.pdf; See also Mollie Orshansky, “Counting the Poor: Another look at the Poverty Profile,” Social Security Bulletin 28, no.1 (January 1965), 3, 6, https://www.ssa.gov/policy/docs/ssb/v28n1/v28n1p3.pdf; Eloise Cofer, Evelyn Grossman, and Faith Clark, “Family Food Plans and Food Costs,” Home Economics Research Report no. 20, Consumer and Food Economics Research Division (November 1962), https://aspe.hhs.gov/system/files/pdf/106751/familyfoodplan.pdf; Faith Clark, “How Much of the Budget Goes to Food?,” Family Economics Review (October 1964), 5-6, http://libcdm1.uncg.edu/cdm/fullbrowser/collection/HENP/id/507/rv/singleitem.
[10] See Fisher, “The Development and History of the Poverty Thresholds,” 6 (table 1).
[11] For the 2015 poverty threshold, see “Poverty Thresholds,” United States Census Bureau (web), last revised January 29, 2019, http://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html.
For general background on poverty thresholds, including “depth” and “severity” measures, see James Foster et al., “A Class of Decomposable Poverty Measures,” Econometrica 52, no.3 (May 1984): pp. 761-766, https://www.jstor.org/stable/1913475.
[12] See generally Fisher, “The Development and History of the U.S. Poverty Thresholds: A Brief Overview.”
[13] Fisher, “The Development and History of the U.S. Poverty Thresholds: A Brief Overview.”
[14] Fisher, “The Development and History of the U.S. Poverty Thresholds: A Brief Overview.”.
[15] See generally Fisher, “The Development of the Orshansky Poverty Thresholds and Their Subsequent History as the Official U.S. Poverty Measure.” See also Rebecca M. Blank, “How to improve poverty measurement in the United States,” Journal of Policy Analysis and Management 27, no.2 (2007), 233-254, doi: 10.1002/pam.20323.
[16] See Blank, “How to improve poverty measurement in the United States.”
[17] See generally, “Consumer Expenditures in 2015,” report no. 1066 for United States Bureau of Labor Statistics, April 2017, https://www.bls.gov/opub/reports/consumer-expenditures/2015/pdf/home.pdf.
[18] See “Consumer Expenditures in 2015.”
[19] “Normalized food expenditures by final purchases and users, from previously-published estimates,” in the Food Expenditure Series prepared for U.S. Department of Agriculture Economic Research Service, September 20, 2018, https://www.ers.usda.gov/data-products/food-expenditure-series/food-expenditure-series/#Archived%20Food%20Expenditure%20Tables.
[20] “Figure HH-6: Changes in Household Size,” in Historical Household Tables prepared for the United States Census Bureau, November 2018, https://www.census.gov/data/tables/time-series/demo/families/households.html.
[21] “Table 15: Age Distribution of the Poor,” Historical Poverty Tables: People and Families – 1959- 2017, U.S. Census Bureau, last modified August 28, 2018, https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-people.html.
[22] “CPI Home,” Consumer Price Index, United States Bureau of Labor Statistics, accessed August 17, 2019, https://www.bls.gov/cpi/. See generally “Food Expenditure Series, Table 7,” United States Department of Agriculture Economic Research Service, last updated August 1, 2019, https://www.ers.usda.gov/data-products/food-expenditure-series/; “Table 15: Age Distribution of the Poor,” in Historical Poverty Tables: People and Families – 1959- 2017. See also Mark Greenberg, It’s Time for a Better Poverty Measure, memo for the Center for American Progress, August 25, 2009, https://www.americanprogress.org/issues/poverty/reports/2009/08/25/6582/its-time-for-a-better-poverty-measure/.
[23] Edward K. Browning, Stealing from Each Other: How the Welfare State Robs Americans of Money and Spirit (Santa Barbara: Praeger, 2008), 76-80.
[24] Mark Greenberg, “It’s Time for a Better Poverty Measure.”
[25] Nancy K. Cauthen and Sarah Fass, “Measuring Poverty in the United States, fact sheet for the National Center for Children in Poverty,” published June 2008, http://www.nccp.org/publications/pdf/text_825.pdf; Census Bureau, How the Census Measures Poverty, infographic for United States Census, published 2014, https://www.census.gov/content/dam/Census/library/visualizations/2014/demo/poverty_measure-how.pdf.
[26] Nancy K. Cauthen and Sarah Fass, “Measuring Poverty in the United States, fact sheet for the National Center for Children in Poverty,” published June 2008, http://www.nccp.org/publications/pdf/text_825.pdf; Census Bureau, How the Census Measures Poverty, infographic for United States Census, published 2014, https://www.census.gov/content/dam/Census/library/visualizations/2014/demo/poverty_measure-how.pdf.
[27] For more information about SNAP eligibility and history, see “Supplemental Nutrition Assistance Program,” Programs, U.S. Department of Agriculture Food and Nutrition Service (web), accessed August 17, 2019, https://www.fns.usda.gov/snap/supplemental-nutrition-assistance-program; “A Short History of SNAP,” U.S. Department of Agriculture (web), November 20, 2014, http://www.fns.usda.gov/snap/short-history-snap.
[28] See Cauthen and Fass, “Measuring Poverty in the United States,” p. 2; “How the Census Measures Poverty.” See also Council of Economic Advisers, The War on Poverty 50 Years Later: A Progress Report, report for the Executive Office of the President, January 2014, p. 8, https://obamawhitehouse.archives.gov/sites/default/files/docs/50th_anniversary_cea_report_-_final_post_embargo.pdf.
For a discussion of these omissions from the official poverty measure’s resource bundle, see Bruce D. Meyer and James X. Sullivan, “The Material Well-Being of the Poor and the Middle Class Since 1980,” report for American Enterprise Institute, October 25, 2011, 6, http://www.aei.org/wp-content/uploads/2011/10/Material-Well-Being-Poor-Middle-Class.pdf. (“Official income measures, including poverty statistics, do not include resources from important antipoverty programs such as the Earned Income Tax Credit (EITC), food stamps, housing or school-lunch subsidies, or public health insurance.”); Bruce D. Meyer & James X. Sullivan, “Five Decades of Consumption and Income Poverty,” Working Paper 14827, National Bureau of Economic Research (March 2009), 5, https://www.nber.org/papers/w14827.pdf. (“One of the most commonly criticized features of the official measure is that it defines resources as pre-tax money income . . . . Pre-tax money income does not subtract taxes or include the EITC or noncash benefits such as food stamps, housing or school lunch subsidies, or public health insurance”); National Research Council, “Defining Resources,” in Measuring Poverty: A New Approach, ed. Constance F. Citro and Robert T. Michael (Washington, D.C.: The National Academies Press, 1995), p. 204, available at http://www.nap.edu/openbook.php?record_id=4759&page=204. (“In-kind benefit programs that provide such commodities as food and housing were small in scope when the current measure was developed but have increased enormously since then, yet the resource definition does not include their value.”).
For a picture of some of the amounts at stake, see Marianne P. Bitler and Hilary W. Hoynes, “The State of the Social Safety Net in the Post-Welfare Reform Era,” Brookings Papers on Economic Activity (2010), 89, https://www.brookings.edu/wp-content/uploads/2010/09/2010b_bpea_bitler.pdf. (In 2009: TANF total benefit payments equaled $9.324 billion and the TANF average monthly benefit equaled $397; food stamps total benefit payments equaled $50.36 billion and the average monthly Food Stamp benefit equaled $276; EITC total benefit payments equaled $50.669 billion and the average monthly EITC benefit equaled $171).
Health insurance benefits and premium subsidies can reduce poverty substantially. According to one estimate, including the effects of such benefits reduced the “health-inclusive” poverty rate in Massachusetts in 2010 by roughly one third. Employer-provided health insurance can reduce poverty substantially. According to one estimate, including the effects of such insurance reduced the poverty rate in Massachusetts in 2010 by roughly 3%. See Sanders Korenman and Dahlia K. Remler, “Including Health Insurance In Poverty Measurement: The Impact Of Massachusetts Health Reform On Poverty,” Working Paper no. 21990, National Bureau of Economic Research (February 2016), 4-6, https://www.nber.org/papers/w21990.pdf.
[29] For data limitations and the decision to exclude transfers, see National Research Council, Measuring Poverty: A New Approach, ed. Constance F. Citro and Robert T. Michael (Washington, D.C.: The National Academies Press, 1995). See also Meyer and Sullivan, “The Material Well-Being of the Poor and the Middle Class since 1980,” supra note 8 at 6 (“In 1970, the EITC, on which we spend over $50 billion per year, did not exist. The Food Stamp Program had yet to become national, Medicaid had just begun, and housing assistance cost less than $1 billion per year”). See also Blank, “How to improve poverty measurement in the United States,” p. 235 (“The resource measure in these poverty calculations was straightforwardly defined as all cash income. In 1963, this was a reasonable definition. Few very low-income families were paying federal taxes, given the tax brackets at the time. In-kind (noncash) programs like Food Stamps or housing assistance or Medicaid were either nonexistent or very small. Thus, cash income and disposable income were largely the same among low-income households”).
[30] Today, the greatest understatement comes from not including benefits received through government transfer programs in income. See Meyer and Sullivan, “Five Decades of Consumption and Income Poverty,” 5.
[31] See Census and Designation of Poverty and Income: Hearing before the United States Congressional House Subcommittee on Census and Population of the Committee on Post Office and Civil Service and the Subcommittee on Oversight of the Committee on Ways and Means, 98th Cong. 9 (1984) (statement of Mollie Orshansky), https://congressional.proquest.com/congressional/docview/t29.d30.hrg-1984-poh-0016?accountid=15172.
[32] For the worry about understating poverty to the general public, see Ibid.
The Social Security Administration’s official account — written by an employee of the Department of Health and Human Services — paints the same picture, as when the poverty measure was developed there was concern that using before-tax money income would underestimate poverty. See Fisher, “The Development and History of the Poverty Thresholds.”
[33] For claims about disguising the effectiveness of social welfare programs, see generally Arloc Sherman, “Official Poverty Measure Masks Gains Made Over Last 50 Years,” report for The Center on Budget and Policy Priorities, September 13, 2013, https://www.cbpp.org/sites/default/files/atoms/files/9-13-13pov.pdf. This effect has long been known to poverty researchers both outside and inside the government. In the early 1970s, the Office of Management and Budget created an inter-agency committee in order more carefully to investigate poverty measurement. The Committee produced eighteen technical papers, collected into a report called “The Measure of Poverty” that was submitted to Congress. One of the papers expressly concluded that “[t]o exclude in-kind benefits clearly biases aggregate income in a downward direction. . . . [and] distorts comparisons over a period of time . . . [so that] improvement in economic well-being over a period of time is underestimated.” See Janice Peskin, “Technical Paper VII: In-kind Income and the Measure of Poverty,” in The Measure of Poverty, report for U.S. Department of Education, Health, and Welfare, October 6, 1976, p. 1, https://babel.hathitrust.org/cgi/pt?id=uiug.30112028979794&view=1up&seq=9.
[34] For the remarks by Ronald Reagan, see Ronald Reagan, “Address Before a Joint Congress on the State of the Union” (speech, Washington, D.C., January 25, 1988), The American Presidency Project, https://www.presidency.ucsb.edu/documents/address-before-joint-session-congress-the-state-the-union-0. See also 141 Cong. Rec. H3352 (daily ed. March 21 1995) (statement of Bill Archer), https://www.congress.gov/crec/1995/03/21/CREC-1995-03-21-house.pdf. (“Government has spent $5.3 trillion on welfare since the war on poverty began, the most expensive war in the history of this country, and the Census Bureau tells us we have lost the war.”) Some on the political right insist that social respectability requires economic independence. Reagan himself followed his concession in the war on poverty by arguing that “Federal welfare programs have created a massive social problem. With the best of intentions, government created a poverty trap that wreaks havoc on the very support system the poor need most to lift themselves out of poverty: the family. Dependency has become the one enduring heirloom, passed from one generation to the next, of too many fragmented families.” See Reagan, “Address Before a Joint Congress on the State of the Union.” This controversial, highly ideological view recasts the decision to exclude government transfers from the resources of the poor as a covert adoption of the relative over the absolute conception of poverty. It makes eliminating relative poverty (understood in a particular way, to make dependency sufficient for social exclusion) a condition of the success of social programs even as it continues to limit the entitlements created by such programs according to the much narrower criterion of absolute poverty.
[35] See Laura Tiehen, Dean Jolliffe, and Craig Gundersen, “Alleviating Poverty in the United States: The Critical Role of SNAP Benefits,” Economic Research Report no. 132, U.S. Department of Agriculture Economic Research Service (April 2012), https://www.ers.usda.gov/webdocs/publications/44963/17742_err132_1_.pdf?v=0. This study evaluates the effect of SNAP benefits on the prevalence, depth, and severity of poverty. The authors found an “average decline of 4.4 percent in the prevalence of poverty due to SNAP benefits, while the average decline in the depth and severity of poverty was 10.3 and 13.2 percent, respectively. SNAP benefits had a particularly strong effect on child poverty, reducing its depth by an average of 15.5 percent and its severity by an average of 21.3 percent from 2000 to 2009.”
See also Laura Tiehen and Michele Ver Ploeg, “SNAP Benefits Alleviate the Intensity and Incidence of Poverty,” report for U.S. Department of Agriculture Economic Research Service, June 5, 2012, https://www.ers.usda.gov/amber-waves/2012/june/snap-benefits/.
[36] For claims about overstating poverty during recessions, see generally Yiyoon Chung et al., “How the Safety Net Protected Families from Poverty in 2010,” report for the Wisconsin Poverty Project (April 2012) https://www.irp.wisc.edu/wp/wp-content/uploads/2018/05/WIPovSafteyNet_Apr2012.pdf. For a discussion on the upsurge in SNAP benefits, see Sheila Zedlewski et al., “SNAP’s Role in the Great Recession and Beyond,” report for the Urban Institute (July 2012), 1-2, https://www.urban.org/sites/default/files/publication/25626/412613-SNAP-s-Role-in-the-Great-Recession-and-Beyond.PDF.
[37] See Trudi Renwick and Liana Fox, “The Supplemental Poverty Measure: 2015,” U.S. Census Bureau, September 2016, p. 17, https://www.census.gov/content/dam/Census/library/publications/2016/demo/p60-258.pdf. See also Arloc Sherman, Danilio Trisi, and Sharon Parrott, “Various Supports for Low-Income Families Reduce Poverty and Have Long-Term Positive Effects On Families and Children,” report for the Center on Budget and Policy Priorities (July 2013), https://www.cbpp.org/sites/default/files/atoms/files/7-30-13pov.pdf.
[38] See Sherman, “Official Poverty Measure Masks Gains Made Over Last 50 Years,” 4. (noting that under the official measure, poverty increased 2.5% during the recession while under the supplemental measure, poverty increased by 1.2%).
[39] See Renwick and Fox, “The Supplemental Poverty Measure: 2015,” 17.
[40] For evidence of consumption smoothing in the face of income shocks, see Orazio P. Attanasio and Luigi Pistaferri, “Consumption Inequality,” Journal of Economic Perspectives 30, no. 2 (Spring 2016), 10, https://web.stanford.edu/~pista/JEP.pdf. Attanasio and Pistaferri find that short-term (one-year) wage fluctuations do not produce significant fluctuations in consumption, while long-term (five-year and eight-year) wage changes do.
[41] For an example of such claims, see Robert Rector and Rachel Sheffield, “Air Conditioning, Cable TV, and an Xbox: What is Poverty in the United States Today?,” Backgrounder no. 2575, American Heritage Foundation (July 19, 2011), 1, https://www.heritage.org/poverty-and-inequality/report/air-conditioning-cable-tv-and-xbox-what-poverty-the-united-states.
Other similar claims also have a ring of exaggeration. Donald Boudreaux and Mark Perry, for example, claim that household spending on life’s “basics—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.” See Donald J. Bordreaux and Mark J. Perry, “The Myth of a Stagnant Middle Class,” The Wall Street Journal, January 23, 2013, https://www.wsj.com/articles/SB10001424127887323468604578249723138161566.
As Paul Krugman and others have pointed out, this list of “basics” is oddly under-inclusive: it does not include, for example, even cheap meals out, on which many two parent families rely, or health care, or education. See Paul Krugman, “Consumer Spending and Inequality Denial,” New York Times, January 25, 2013, https://krugman.blogs.nytimes.com/2013/01/25/consumer-spending-and-inequality-denial/.
[42] In 1950, a color TV cost $2,227 (in 2000 dollars); by 2000, it cost just $175. In 1955, a microwave oven cost $1,300; by 2002 it cost $208. In 1962 a refrigerator cost $2,932; by 2000 it cost $1,000. And in 1960, the average cost of air travel was $35 per 100 passenger miles; by 2000 it was $15. See Robert Reich, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life (New York: Vintage, 2007), 92-95.
See also Hubert B. Herring, “Lower the Fares and They Will Fly (a Bit More Slowly),” New York Times, June 5, 2005, https://www.nytimes.com/2005/06/05/business/yourmoney/lower-the-fares-and-they-will-fly-a-bit-more-slowly.html; Robert W. Crandall and Clifford Winston, “Unfriendly Skies,” Opinions Section, Brooking Institution, December 18, 2006, https://www.brookings.edu/opinions/unfriendly-skies/.
[43] See Juliet B. Schor, The Overworked American (New York: BasicBooks, 1991), 111 (Table 5.1).
[44] See Bruce D. Meyer and James X. Sullivan, “Winning the War: Poverty from the Great Society to the Great Recession,” Brookings Papers on Economic Activity (Fall 2012), 156-157, https://harris.uchicago.edu/files/winning_the_war.pdf. For the percentage decrease in the poverty gap, see the article’s “Online Appendix Table 5: Average Poverty Gap, Various Income and Consumption Measures, Poor Families, 1960- 2010” available at https://harris.uchicago.edu/files/winning_the_war-appendix.pdf.
[45] See Bruce D. Meyer and James X. Sullivan, “Winning the War: Poverty from the Great Society to the Great Recession.”
[46] See Attanasio and Pistaferri, “Consumption Inequality,” 7-20. See also generally Mark A. Aguiar and Mark Bils, “Has Consumption Inequality Mirrored Income Inequality?,” Working Paper 16807, National Bureau of Economic Research (February 2011), https://www.nber.org/papers/w16807.pdf; Orazio Attanasio, Erik Hurst, and Luigi Pistaferri, “The Evolution of Income, Consumption, and Leisure Inequality in the U.S., 1980-2010,” Working Paper 17982, National Bureau of Economic Research (April 2012), https://www.nber.org/papers/w17982.
How America’s foundational myth feeds inequality, dismantles the middle class, and devours the elite.