Broken Yardstick for Poverty

Nicholas Eberstadt writes about the Yardstick the US government uses for poverty and why he thinks it is broken.

In the Labor Department's latest Consumer Expenditure Survey (2003), the average reported income for the bottom fifth of households was $8,201, while reported outlays came to $18,492 - well over twice that amount. Over the past generation, that discrepancy widened significantly: back in the early 1970's, the poorest fifth's reported spending exceeded income by 40 percent.

The poverty rate has always been derived from reported household income. (Exigency played a role here: at the start of the war on poverty 40 years ago, those income numbers were already available from the Census Bureau.) But a better gauge of a household's material deprivation is not what it earns, but what it spends. When we look at spending patterns, we immediately see a huge discrepancy between reported incomes and reported expenditures for low-income Americans.

Unfortunately, economists and statisticians have yet to come up with a clear explanation for this gap (which is not explained by in-kind payments like food stamps or other assistance). The divergence may be in part a measurement problem: partly a matter of income under-reporting, partly a consequence of increasing income variability in our more "globalized" economy.

The figures he is looking at come from this table which come from the Consumer Expenditure Survey.

I think trying to minimize poverty is very important. But, in order to do so effectively, we need good statistics to help us understand the extent of the problem, and to allow us to measure how we are doing. Understanding the discrepancy between the income and expenditures is crucial to understanding this problem. One thing he didn't mention that seems likely is debt, be it credit card or mortgage. I would think the expenditures rather than income is the better way of judging poverty, but without understanding the reason for the discrepancy, it is hard to say for sure.

One way to measure poverty is to do so relatively. If you are in the bottom 15% of income you are poor. But, ironically, doing so makes it impossible to reduce poverty, for whatever you do, you always have 15%. So it makes sense to base it on the material goods you need, such as food, shelter, clothing and medicine. If you have those goods, or if you have enough money to buy those goods, then you aren't poor. Maybe instead of trying to measure the money, we should measure the actual material things people need.

As the previous post talked about, the "poor" in the US would be materially "rich" in most 3rd world countries. Living in a trailer with cable TV, enough food to get fat, and having a beat up car that works would be living like a king in many 3rd world villages.

There is also the non-material side of poverty. The poverty of knowledge, poverty of respect, the poverty of self-esteem, the poverty of addiction, the poverty of health, and the poverty of security. These can't be solved with income redistribution or food stamps. I would argue that this is the more important of the two, as I would much rather be poor in material goods that poor in non-material ways.

I am not sure how you would measure this type of poverty. To fight it, instead of helping others, we need to help others to help themselves.

via The New York Times