Last year in the United States, poverty either increased or decreased. Take your pick. The poverty rate rose by the Census Bureau’s narrow, official measure, but it fell by the bureau’s supplementary measure, which takes into account a wider range of income and expenses, including pandemic assistance.
I think the decline in poverty by the supplementary measure is the true story of 2020, but what really interests me is the long-term pattern. Is poverty in America trending upward, downward or is it about flat over the last few decades? Looking around, you could convince yourself that it’s getting worse. You see homeless people on the streets, you hear about people broken by medical bills, you read about jobs going overseas or getting automated out of existence.
The good news is that the poverty rate is declining once you take into account the full set of resources that low-income people can draw on, including food stamps, housing and heating assistance, school lunches, and the earned-income and child tax credits. Those sources are captured in the Census Bureau’s supplementary measure but not the official poverty measure.
You don’t hear about that success story much. It doesn’t fit the narrative of either the left, which says more needs to be done to help the poor, or the right, which says that any government effort to eradicate poverty by giving people more money is doomed to failure.
The chart below, based on an analysis by Bruce Meyer of the University of Chicago’s Harris School of Public Policy and James Sullivan of the University of Notre Dame, shows no lasting progress in the official measure of poverty, but a rapid decline in two alternative measures.
Both of the alternative measures of poverty that Meyer and Sullivan constructed are based on household consumption of goods and services, which, similar to the Census Bureau’s supplementary measure, is designed to capture resources the official measure misses. It goes back further than the supplementary one, which started in 2009. In Alternative 1, Meyer and Sullivan also used an alternative index for prices. They say the Bureau of Labor Statistics overstates inflation, making it look like some people’s income is shrinking in real terms when it’s not. Alternative 2 uses their consumption measure but sticks with the government’s inflation rate. They calibrated their alternative poverty rates to match the official one as of 2015.
“We are winning the war on poverty,” Sullivan told me.
The War on Poverty Is Showing Success
Percentage of households in the U.S. below the poverty line, by the official measure and two alternatives. Alternative 1 uses a broad definition of consumption and a lower measure of inflation. Alternative 2 uses the broad definition of consumption and standard inflation.
Source: Bruce Meyer and James Sullivan
The next two charts, based on data from the World Bank, show global progress against poverty. The only continent where the number of people in extreme poverty is growing substantially is Africa.
Extreme Poverty Is Now Concentrated in Africa
Number of people in extreme poverty in 1990 and 2017 by region, in millions, according to the World Bank.
Source: World Bank
It’s good news that we are making progress, but it’s not the end of the story. All of these charts attempt to track poverty on an absolute basis — in other words, how much money you have. Another way is to measure poverty on a relative basis, namely how much money you have compared with those people around you. Some European nations set the poverty line at 60 percent of the median income, for example.
On one hand, a relative measure of poverty might seem silly. If the incomes of the poor double they’re obviously better off, but they would still be regarded as poor on a relative basis if median incomes also doubled. A relative measure of poverty is really a measure of inequality.
But the absolute measure of poverty has problems of its own, especially when applied over long periods. Living standards have risen over time, so things that were once luxuries are now considered near-necessities. The households of the most fabulous royals of ancient times might appear poor to a modern-day census-taker; they lacked running water, flush toilets, refrigerators, central heating, air-conditioning, automobiles and cellphones. Also, slight differences in the inflation rates that are used in poverty calculations create huge discrepancies when applied over decades, as the work by Meyer and Sullivan shows.
One solution is to build a hybrid definition of poverty that takes into account both absolute and relative poverty. “I would split the uprights on that one,” says Gregory Acs, vice president for income and benefits policy at the Urban Institute. “You can only understand poverty in the context of a point in time. He advocates using absolute measures of living standards from one year to the next, but “renorming” poverty once every generation to account for changing societal standards.
Americans are generous in aiding people hit by natural disasters and other calamities, but when the deepest recession on record hit last year, they did not seem to open their wallets. A survey conducted by Gallup in April 2020, when the Covid-19 downturn was at its worst, found that the share of Americans reporting they had donated money to charity over the previous year was 73 percent, the lowest since Gallup began asking the question in 2001. The previous low, 79 percent, was in another recession year, 2009. One possibility is that people pulled back because they were worried about their own finances: The biggest drop in giving was among people earning less than $40,000 a year, who were most endangered by the recession.
Quote of the Day
“I often say that when you can measure what you are speaking about and express it in numbers you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind: It may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stage of science, whatever the matter may be.”
— William Thomas Baron Kelvin, “Popular Lectures and Addresses: Constitution of Matter” (1891).
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