Poverty | Playing with the numbers to increase those defined as poor, Washington is set to wage a costly war on inequality in the name of fighting poverty | Marvin Olasky
As you pay your federal income taxes this year, the amount that goes for welfare benefits depends in part on Mollie Orshansky, perhaps the most influential person you've never heard of. But on Sept. 1 her influence will begin to diminish in a way likely to increase welfare costs without increasing compassion toward the poor—if Congress doesn't step up.
In 1963 and 1964 Mollie Orshansky, a staff economist at the Social Security Administration, asked the question: Below what income is a person "poor"? She called the meeting of basic needs a "poverty threshold" and calculated a number based on the U.S. Department of Agriculture's "economy food plan" and typical American spending patterns.
Economists have updated the threshold every year by using the Consumer Price Index to account for inflation, but the simple basis for calculation has remained the same. On Sept. 1, though, the Obama administration will unveil a Supplementary Poverty Measure (SPM) calculated on a different basis. Adoption of the SPM would increase accuracy in some ways but also affect state budgets and probably increase federal deficits.
It would also make a radical conceptual leap by defining the enemy not as poverty but inequality. American poverty-fighting for three centuries has rested on a principle that no citizen should go without a basic level of food, shelter, and clothing. The question was always, "What are the basics?" It was not, "How much income does a poor person have relative to an affluent person?"
Europeans have already made poverty relative. The European Union defines poverty as an income below 60 percent of the national median, whatever that median is. If rich and poor both double their income, the poverty rate does not change: Everything's relative. With almost no public attention or discussion, the United States is taking a large step toward Europeanization.
Why the change now? You can read online, if you dare, about a dozen academic papers presented at the Allied Social Science Association's annual meeting in Denver in January. Those, in turn, play off of 15 years of discussions sparked by a 1995 recommendation of the National Academy of Science. But the easier way to understand what's happening is to start with Mollie Orshansky's legacy.
Orshansky saw that a half-century ago families of three or more people typically spent about one-third of their after-tax income on food. Logically, she multiplied basic food costs—enough to eat, but not salmon and raspberries—by three to come up with poverty thresholds for various family sizes. She then defined as poor those with insufficient cash income to pay for basic needs. That seems intuitively right.
Over the years some problems with her formula have emerged: For one, people today normally spend closer to one-sixth of their income on food rather than one-third. We spend more money on wants, not needs, and those defined as poor can receive food stamps, housing, childcare, and other government benefits.
Statisticians have not counted those benefits as part of a family's gross income, so the resources available to some poor families are greater than officially measured. Factor in underground and illegal economies—people paid in cash and not reporting income for tax purposes—and it's not surprising that consumer expenditure surveys from the Bureau of Labor Statistics show the lowest fifth of U.S. households spending up to twice as much as their reported pretax income.
Some in America—particularly homeless persons and most immigrants—are still severely poor, but government data show most persons defined as poor having a home and car in good repair. Typical possessions also include air conditioning, two color televisions, cable or satellite service, a VCR or DVD player, and a cell phone, as well as a refrigerator, stove, microwave, and a washer and dryer.
So which hardships should be emphasized? The small numbers of persons who are homeless and hungry, or the large number—44 million in 2009—defined as poor but, by the standards of most of the world, materially rich? To ask this is not to diminish the real problems many Americans face—including fatherlessness, stupefying public schools, bad work habits, and crime—but to observe that the problems are often spiritual and cultural more than material.
News releases about poverty rarely show those non-dollar problems, and the stats are misleading. Poverty thresholds do not take into account where people live (city, suburb, town, farm) or how. Families with two parents working are less likely to be poor, so the typical poor household with two children has one parent. Many more young people are cohabiting, which leads to economies in some situations but many more transitory relationships and accompanying upheavals.
Statisticians and savvy politicians have been aware of these problems, but the measure of poverty stayed the same. And it's hard to get it right: A one-size-fits-all poverty line is hard to draw, and the definition of poverty is a political football. If it changes, some states now classified as poorer will be enriched by federal funds, and some that do better in fighting poverty will lose.
Last year with Democrats dominant at both ends of Pennsylvania Avenue, the Obama administration moved toward changing in four ways the definition of who is poor. Officials embedded radical ideas among some sensible proposals. Among the noncontroversial: When calculating the Supplemental Poverty Measure, take into account welfare payments that those classified as poor receive from about 80 programs. Doing that reduces hugely the number of people defined as going without the basics.
A second SPM change will reflect changing social relationships, with cohabiting couples treated as if married, and the default family pattern seen as one adult and two children rather than 2 + 2. That's realistic but troubling—and given how often cohabiting couples break up, this calculation may mask some poverty problems.
The third SPM change—take into account geography—has a political edge. Housing costs tend to be higher and unemployment greater in states that are more unionized and less oriented toward free enterprise. If the Supplemental Poverty Measure becomes the norm, blue states in general will get more money, red states less.
The fourth SPM change could be the most controversial: Instead of assessing basic needs, the poverty measure will be based on what Americans at the 33rd percentile pay for food, clothing, shelter, and utilities, plus an additional one-fifth of that for other purchases.
For determining whether a household is officially poor, the SPM will count as income money from all sources plus the value of food stamps, housing and utility subsidies, and government nutrition programs. The SPM will subtract from income taxes, work-related expenses, medical out-of-pocket expenses, and childcare costs.
Got it? One thing you may have skipped by in that complicated formula is the designation of the 33rd percentile as the poverty marker. Why 33 percent? The Census Bureau usually reports in quintiles, so why not 20 percent? Maybe because that would substantially lower the number of persons counted as poor.
Using the 33rd percentile, though, the typical "poverty threshold" will climb from the current $22,000, in round numbers, to $25,000 for a household with two adults and two children. (Remember, they spend more than that.) Suddenly millions more will be defined as poor, the poverty rate will jump from about 14 percent to about 16 percent, and a drumbeat for more federal spending can pick up intensity.
Another reason for the 33rd percentile might be that it has some history behind it. Franklin Roosevelt famously spoke in 1937 about one-third of the nation being ill-housed, ill-clad, and ill-nourished: Even if most of that one-third is now decently housed, clothed in ways that make children around the world imitate us, and over-fed (although sometimes still ill-nourished), it's still the bottom third. Liberals who see inequality as the enemy cannot stand this.
Conservatives, though, should criticize the concept that if everyone's income doubles over the course of a decade, the number of people considered poor does not change: That will move us from "A rising tide lifts all boats" to "Your boat is still bigger than mine." Furthermore, our real public-policy goal for those now classified as poor should be not to trap more in welfare but to create more economic opportunities for them to leave poverty.
It's fun, in a policy-wonk way, to play with numbers. For example, adding the cash value of food stamps reduces the number of officially defined poor people by 2 million. Other changes increase the numbers. But it's a bit like the joke about the old person delighted to learn that, due to border changes, her town in Russia was now part of Poland: "Wonderful—I couldn't stand any more of those Russian winters."
It's no joke, though, if we play with numbers instead of concentrating on helping those who are truly tired, aching, and without hope. It's no joke if the federal government increases the clout of officials whose power depends on defining more people as poor. It's no joke if we head down a relativizing road that makes envy rather than enterprise our national pastime.